The debate over real estate vs. stocks has been going on for decades. A May 2025 Gallup survey found that 37% of Americans believe real estate is the best long-term investment — more than double the percentage who chose stocks.¹ Given that most Americans’ direct experience with real estate is residential — through homeownership or small rental properties — it is likely that most respondents were thinking primarily about residential real estate.
But popularity and performance are not the same thing. The case for residential rental property investing as a superior long-term investment is far less compelling than many investors believe.
Key Takeaways
- Real estate remains America’s favorite long-term investment, but the historical case for residential real estate as a superior investment is weaker than many investors assume.
- Much of residential real estate’s investment success has been driven by leverage, which can magnify both gains and losses.
- Real estate often feels safer than stocks because prices are not updated daily, but the underlying risks still exist.
- Many investors underestimate the costs, labor, and time commitment involved in owning rental properties.
- Broad stock ownership has historically provided strong long-term returns while offering liquidity, diversification, and minimal ongoing management.
What the Data Shows – Real Estate vs. Stocks: A Long-Term Comparison
Since 1976, U.S. home prices — as measured by the Case-Shiller Home Price Index — have appreciated roughly 800%. Over that same period, the S&P 500 has risen more than 6,000%.²
Note that both figures reflect price appreciation only — they do not reflect dividends, the effects of leverage, taxes, transaction costs or other factors that can influence investor outcomes. But 6,000% versus 800% is a big gap, and closing that gap is an uphill climb after accounting for the insurance, taxes, maintenance, vacancies, financing costs, and time that come with owning rental properties.
Why Does Real Estate Feel So Compelling?
When it comes to investment returns, real estate does have one significant advantage over stocks: leverage. But many of real estate’s other perceived advantages may stem more from psychological biases than from evidence — one that draws people to real estate in the first place, one that makes it feel safer than it actually is, and one that leads investors to overestimate their returns.
The Real Advantage: Leverage
The core advantage real estate has over stocks is access to cheap, long-term leverage. Leverage lets you control a large asset with a relatively small amount of your own money. Consider a simple example: an investor purchases a $400,000 property with an $80,000 down payment. The property appreciates 50% to $600,000. The gross return on the investor’s $80,000 is 150%. That is the power of leverage, and for many investors over the past several decades, it has worked out very well.
But leverage is not a free lunch. In capital markets, higher returns generally come with higher risk — that is not a coincidence, it is how markets work. When property values rise, leverage magnifies your gains. When they fall, it magnifies your losses just as quickly.
The Three Biases
Familiarity bias. People gravitate toward investments they understand and can see. Most people have never read a balance sheet, but everyone understands houses because everyone lives somewhere. Real estate is tangible — you can drive by it, renovate it, improve it — and some people genuinely enjoy that. There is nothing wrong with that. Comfort and familiarity are likely part of the reason many people are drawn to real estate. While some investors have sound economic reasons for owning real estate, familiarity alone is not an investment thesis.
The illusion of low volatility. Real estate feels stable because it isn’t priced every day. There is no ticker, no daily quote, nothing to watch move up and down. But the underlying value is still fluctuating — you just aren’t seeing it. The housing collapse of the late 2000s demonstrated this clearly, causing significant losses for many leveraged real estate investors who believed their investments were relatively safe. The volatility was always there. It just wasn’t visible until it was too late. Stocks feel riskier largely because their prices are transparent and updated continuously — but that transparency is actually a feature, not a flaw.
Ignoring costs. Many residential rental property investors believe they are earning strong returns. In many cases, they may not be — they just aren’t measuring their returns correctly. The most common mistake is failing to put a value on their own time. Managing repairs, dealing with contractors, handling vacancies, resolving tenant issues, overseeing renovations — that is real work. Most people don’t factor in the cost of their labor when evaluating their returns in real estate, but if they did, a lot of those returns would look a lot more ordinary. In many cases, what looks like investment income is really just the owner paying themselves for work they did.
This is especially true with short-term rentals. Many Airbnb and VRBO investors aren’t passive real estate owners — they are running a hospitality business. And it doesn’t scale easily. More income usually means more properties, more tenants, and more problems.
The Bottom Line
Historically, residential real estate has not been as clearly superior an investment as most Americans seem to think. Where it has worked, leverage deserves much of the credit. And leverage is risk.
That does not mean real estate cannot play a role in a diversified portfolio, but investors should understand what is driving the returns and the tradeoffs involved.
Stocks offer something quite different: instant liquidity, easy diversification across thousands of companies around the world, and ownership of intangible assets — brands, intellectual property, customer relationships — that have historically generated returns difficult to replicate in residential real estate. And as a stockholder, you are generally not expected to do any work. You are being paid for providing capital, period.
Owning a broad portfolio of stocks means owning a small piece of hundreds of productive businesses — and a share of their profits. Some of those businesses are among the best companies in the world. History suggests that broad stock ownership has been an effective long-term wealth-building tool for many investors, although future results are uncertain and investing involves risk.
FAQ
Have stocks historically outperformed residential real estate?
Historically, broad U.S. stock market indexes have generated higher appreciation than U.S. home prices, although investors should consider dividends, rental income, costs, taxes, and risk when making comparisons.
Why do some investors believe real estate is safer than stocks?
Real estate prices are not quoted continuously like stocks, which can make them feel less volatile. However, property values can still fluctuate significantly over time.
Why do many people prefer real estate investing?
Many investors value real estate because it is tangible, familiar, and can be purchased using leverage.
Is real estate a bad investment?
Not necessarily. Real estate can play an important role in a diversified portfolio, but investors should understand the costs, risks, and time commitments involved.
This material is for informational and educational purposes only and should not be construed as investment, tax, or legal advice. All investments involve risk, including possible loss of principal. Past performance does not guarantee future results.
Sources
¹ Gallup, “Stocks Fall, Gold Rises; Real Estate Still Best Investment,” May 5, 2025. https://news.gallup.com/poll/660161/stocks-fall-gold-rises-real-estate-best-investment.aspx
² S&P 500 price appreciation and U.S. home price appreciation (1976–2026): LongTermTrends.com, based on data from the Federal Reserve Bank of St. Louis (FRED). S&P 500 index data via FRED series SP500. Home price data via the S&P/Case-Shiller U.S. National Home Price Index (FRED series CSUSHPINSA), originally developed by economists Karl E. Case and Robert J. Shiller. The S&P 500 is an unmanaged index and is not directly investable. Performance figures are for illustrative purposes only.