When considering investing, most people traditionally turn to the stock market to grow their hard-earned money. A recent Gallup poll shows that 58% of Americans own stocks in some way, shape, or form. While the stock market may be a comfortable go-to option for investors, real estate is quickly becoming a portfolio darling for investors seeking to reduce risk, pull away from the market's volatility, and find better returns.

"It's estimated that billions of dollars are moving out of the stock market and into small syndications like real estate," explains Steve Davis, CEO and Founder of Total Wealth Academy "Many real estate investors enjoy rates of return three times higher than the stock market's 75-year average of about 7%. The internal rate of return on these syndications can be around 20%."

With the higher average returns, real estate investors are having an easier time passively growing income and planning for life in retirement.

Real estate vs. stocks

While what one chooses to invest in is a personal choice, wise investors will want to research their options before going all in on a particular investment option. Investments depend on one's financial situation, tolerance for risk, and retirement goals. Stocks can appeal to a broader audience because investing in the market doesn't take much money upfront. For instance, people can sign up for their company's 401K program and forget about it. Although real estate investment can take far more upfront capital, it can pay one back exponentially following that initial investment.

Since real estate can be well diversified and there will always be people seeking places to live, work, or store their items, investing in real estate can be a less risky approach to investing. Hard assets are also hedges against inflation.

"Real estate benefits on a net asset value from inflation and that is one of the reasons why people are pulling out of the stock market," says Ari Rastegar, CEO of Rastegar Property Company. Most financial experts agree we are likely headed for a recession. As a result, hard assets may become more popular for investors. "The stock market is having a big correction right now, and we'd argue we're in a recession. This is a protective way to invest in real estate to protect your assets, focus on capital preservation and also benefit from inflation when other markets are not benefiting from it," explains Rastegar.
Returns on investment

Many traditional stock investments, such as employer-based 401Ks, give investors a sense of security because they know they will get a match or can count on a minimum return. However, not all stocks offer match benefits, and investing on one's own can be unpredictable, meaning that investors can be left disappointed with their returns.

A wide array of factors go into the returns expected through real estate investing. One place investors can look is history in order to predict where the real estate market may go.

"The last time interest rates and inflation were this high, contrary to popular belief, real estate actually outperformed for the next decade," says Josh Answers, host of the Trading Fraternity. History can inform how investors spread their investment funds around, and many hedge their bets on history repeating itself. "Obviously, you don't want to overpay, but looking at the nature of real assets, I am very comfortable with my real estate investments over the next few years," says Answers.

Risk and reward

Investors acclimated to traditional stocks may feel that real estate investing is too risky. "The stock market has been steadily declining and the financial future of the economy looks bleak. Historically, in these environments, the investment community tends to invest more heavily into less volatile investments such as real estate," says Lazer Sternhell, CEO of Cignature Realty.

Stocks and real estate hold different risks for investors. The downturns in the real estate market in 2008 and following the pandemic may have struck some fear into the hearts of investors.

Some of the risks with real estate lie in the difficulty of liquidating if you need quick cash, but managing rentals and tenants can be another risk that investors may be wary of. However, those who choose to invest in real estate can take advantage of tax benefits and a long-term cash flow that cannot be found in traditional stock investments.

For over 200 years, 90% of millionaires in the United States have used real estate investing to amass their fortunes. Though there may be a learning curve to contend with, the diversification of one's portfolio and the returns could be worth the investment in the long run.