Real Estate vs Stocks: Should You Buy a Rental or Invest?

For most people who ask this, it is the biggest financial decision they will ever make. Six figures, often thirty years of mortgage, and unlike almost every other investment choice, you make it once. An ETF you can change on a Tuesday afternoon. A rental takes months to unwind.

So it deserves a better answer than the two you usually hear.

Two camps, both quoting real numbers

Camp one says stocks always win: over any long stretch equities beat property, and nobody calls you at eleven at night about a boiler. Camp two says you cannot go wrong with bricks, because they are real, you can touch them, and a bank will lend you most of the price, which nobody offers you on those terms for a portfolio of shares.

I sat in camp one for a long time. Property felt illiquid and concentrated to me, and it took me longer than I would like to admit to actually run the numbers.

When I did, the uncomfortable part was that both camps are quoting real data. They are measuring two different things and calling them by the same name. One of them is a market. The other is a building.

What 145 years of data say

Until recently nobody could answer this well. House price indices existed, but prices are only half of what a rental earns — the rest is rent, and nobody had put the two together across enough countries and decades to mean anything.

In 2019 five economists did, in the Quarterly Journal of Economics, in a paper titled “The Rate of Return on Everything”. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick and Alan Taylor assembled total returns for housing, equities, bonds and bills in 16 advanced economies from 1870 to 2015, with rents included.

Their result surprises people on both sides. After inflation, housing returned 7.06% a year on average and equities 6.88%. Housing did it with a standard deviation of 9.93 percentage points; equities swung by 21.79. Less than half the swing for the same return, which is not how finance textbooks say risk and reward are supposed to line up, and the authors say as much: residential real estate, not equity, was the best long-run investment in their data.

So if you came in certain that stocks obviously win, that is not what the best long-run data says. If you own a rental and are nodding, hold that thought for a few sections.

The average, and the return you keep

Those 7.06% and 6.88% are simple averages. You add up every year’s return and divide by the number of years. It is the number everyone quotes, and it is not what anyone ends up with.

What you end up with is the compounded rate, the single yearly return that produces the same end result. Take a 50% loss followed by a 50% gain: the average is zero, and you have 75% of your money. The more a return swings, the further the compounded rate sinks below the average, and equities swing a lot.

Real returns a year · 16 countries · after inflation

Swings take more than two points a year from stocks, and under half a point from housing

The simple average of the yearly returns against the rate that, compounded, gives the same end result. The line between them is what the swings cost.

On the average the two are a fifth of a point apart. Compounded, housing is ahead by almost two. Since 1950 the order flips between the two dots: equities win the average, housing wins what you keep, because equities paid for their higher average with nearly three times the swings.

Compounded, housing returned 6.62% a year and equities 4.66%. On the average they are a fifth of a point apart. On what you keep, housing is almost two points ahead. Over thirty years, the length of a typical mortgage, 100 compounded at 6.62% grows to about 684, and at 4.66% to about 392. Try it in the compound calculator with the two rates if you want to feel the gap.

Since 1950 the picture is the one that trips up most summaries of this paper. Equities have the higher simple average, 8.30% against 7.42%. Compounded, housing is still ahead, 7.08% against 5.56%, because equities paid for their average with nearly three times the swings. Anyone who tells you the paper shows stocks pulling ahead after the war is reading the hollow dot.

What that 7% has already paid for

The housing figures are net of running costs and depreciation, and the paper defines running costs as maintenance, management and insurance. They are not net of tax, not net of mortgage interest, and not net of what it costs to buy and sell.

Those last costs are large. The paper quotes an OECD average of about 7.7% of the property’s value for a round trip across 13 of its 16 countries, which works out at roughly 0.77% a year if you sell after ten years. To be fair to property, the authors also estimate trading costs for equities and conclude the gap between the two asset classes is probably no more than half a point a year. Transaction costs alone do not decide this.

You cannot buy the housing market

Here is the part that does. The 7% is not the return on a flat. It is the return on housing — all of it, in 16 countries, every city, every decade, good tenants and bad ones, averaged into one figure. That averaging is what makes it look calm, because diversification is what removes volatility.

You can buy 500 of America’s largest companies with one click and own a slice of every one. There is no click for housing. One flat. One street. One city. One tenant.

The authors say it themselves, in one careful sentence: it is “much more difficult to invest in a diversified housing portfolio” than in a diversified equity portfolio. Their own US data show what narrowing the portfolio does. For US house prices from 1995 to 2015, using Zillow data, yearly price swings grow as the area shrinks:

Area	Standard deviation of yearly real price change
National	5.67
State	6.05
County	6.28
Zip code	7.46

And that is still an average over a whole zip code, not the one building you own. At the level of a single property, the Oxbridge study in the next section found that the chance of net income falling by 10% or more in any given year was more than one in five.

Make it concrete. You buy a rental for 300,000, with 60,000 of your own money. The tenant loses his job and stops paying for three months. Your rental income for those months does not fall by 2% — it goes to zero, on the whole position. Put the same 60,000 into a global equity fund, and when one company inside it goes bankrupt, you would have to search the holdings to notice. (These figures are an illustration, not market data.)

You are not buying the housing market. You are buying one line item from it and hoping it behaves like the average.

Which raises the obvious question: if a private buyer cannot own the average, can anyone?

The index is not the ledger

Institutions certainly try. Vonovia, the largest listed residential landlord in Europe, owned 528,370 apartments at the end of June 2026. In the January 2026 survey of property investors run by INREV, ANREV and PREA, residential came out as the most preferred sector, with 85% of respondents, and industrial and logistics second. If anyone owns something close to the average, it is owners like these.

I have sat in enough of those conversations to know the pattern. The headline yield on the first page of the pitch and the number that survives due diligence are never the same number. Nobody is lying. One of them has simply had the costs taken out.

So the useful question is not whether large owners exist, but what they actually earned. That requires something almost nobody has: the books. Not an index built from house prices and rent ratios, but property-by-property records of what an owner collected, what it spent and what the buildings sold for.

David Chambers, Christophe Spaenjers and Eva Steiner found such books. Four Oxford and Cambridge colleges, King’s and Trinity in Cambridge, Christ Church and New College in Oxford, have held large property portfolios for centuries and kept the accounts. The researchers hand-collected the property-level records from 1901 to 1983 and published the result in the Review of Financial Studies in 2021. Their summary is blunt: real estate, housing in particular, is “a less profitable investment in the long run than previously thought.”

For residential property the colleges earned about 2.3% a year after inflation and after costs.

Now, in the video for this episode I put that 2.3% directly next to the 7%. That makes the point vividly, and it is not the fair comparison, because the 7% is a simple average across 16 countries from 1870 onwards, and the 2.3% is a compounded figure for one country from 1901 to 1983. The fair comparison is the one the three researchers made themselves: Jordà and his co-authors’ own UK housing series over the same years, compounded the same way. That index says 4.7%. The ledgers say 2.3%. Same country, same period, both compounded, and the books show half.

Housing, real return a year · from the headline to the ledger

The closer you get to a real owner's books, the smaller the number

Each step is the same question asked more precisely. The last step is the only one that compares like with like: the same country, the same years, once as an index and once as what the owners actually booked.

Nobody measured a 7% landlord. The biggest single drop is from the index to the ledger, in the same country over the same years: the index says 4.7%, the books say 2.3%. A second team working from a different archive, in Paris and Amsterdam, also lands well below the index.

Where does the gap come from? The researchers take it apart, and the pieces are worth knowing, because they are exactly the things an index cannot see.

• Costs. On average, costs absorbed 32.0% of the colleges’ residential income: mainly repairs and improvements, and then property taxes and rates, agents’ fees and insurance. The index works from benchmark net yields and cannot see what an actual owner paid for a particular building.
• Rents that did not grow. Between 1941 and 1960 the colleges’ residential income fell by 0.7% a year in real terms, while the index series rose by 3.7%. Over the whole period, real residential income roughly halved. The researchers read this as a warning about long-run rent indices that do not control for changes in the houses they track.
• Yields. After 1945, 84% of the colleges’ individual residential yields sat below the index’s average yield. Not a few bad properties dragging down a good book — most of the book.

A reasonable objection is that four colleges in one country are a thin base, and the researchers are the first to say their data covers one country and one long stretch of time. So it matters that a second team, working independently and publishing in the same issue of the same journal, reached the same direction from a different archive. Piet Eichholtz, Matthijs Korevaar, Thies Lindenthal and Ronan Tallec rebuilt the returns of individual rental houses in Paris from 1809 to 1943 and in Amsterdam from 1900 to 1979. After costs and taxes: 4.0% a year for Paris, 4.8% for Amsterdam. All of it came from rent, and both are “substantially lower” than the returns implied by the Jordà series.

Three places, two teams, and the same answer: the owners who kept books earned clearly less than the index says the market earned. None of these studies shows that housing is a bad asset. They show that the attractive number describes the asset class and is not a number many owners actually received. These ledgers end in 1983, and I know of no comparable modern set of books in the public domain; the debate about how to measure housing returns is still running, and I would not pretend it is settled.

What is settled is the asymmetry. A cheap equity index fund gets you within a fraction of a percent of its index, the difference measured by its tracking difference, because there is no roof, no vacancy and no letting agent standing in between. A housing index has all three standing in between, and they are expensive.

A stock index hands you its return. A building makes you earn yours.

What a REIT or property fund fixes

Partly, the diversification. One purchase of a listed real estate trust or an open-ended property fund gets you a slice of many buildings instead of one. What it takes away is the leverage and the control, and for most people those two were the whole reason they wanted property in the first place. A listed REIT also trades like a share, so its price can drift far from the value of its buildings. That trade-off has its own article: REITs vs property.

Leverage cuts both ways

Nobody buys a rental with cash, and that borrowed money is why property can build wealth faster than its underlying return suggests. It is also why it goes wrong faster. On the 300,000 flat with 60,000 of your own money, a 10% fall in value is 30,000, which is half of your equity. Owned outright, the same fall is a 10% loss. Leverage does not care which way the price moves, and when the loan and the fall arrive together, owners become forced sellers. The bank’s-eye view of the same arithmetic is in rent or buy.

The verdict

For most people: stocks. Not because property is the worse asset, since the data says it is not, but because the good property return is a market return, you cannot buy that market, and even the owners with scale and patience have not booked anything like it.

Property can still win. It needs three things the index will not supply: knowing one specific place better than the average buyer, borrowing carefully rather than maximally, and real work. An index fund pays you for owning it. A rental pays you for running it well.

This last part is my own view and not a finding. The people I have seen do well out of property did not treat it as an investment. They treated it as something they were good at, a business in its own right; they know how to deal with a leaking roof and exactly whom to call, and they put far more hours into those buildings than I could ever account for. The ones who struggled wanted the return without the job.

Where it goes wrong is in the middle — one flat, bought without a plan and run without the time it needs. That takes on all the concentration risk of property and none of the advantages that are supposed to pay for it.

Three checks before you sign

One: work out the return on your own money, after every cost. Not the price rise and not the asking rent. Rent actually collected, minus maintenance, management, insurance, the months between tenants, tax, interest, and what it costs to buy and sell. Most private buyers budget for a fraction of that list.

Before you buy · one page, your numbers

The book the index never shows you

Green lines are already inside the study’s 7%. Red lines are still standing between that 7% and you. The right-hand column stays empty until you write in your own figure.

Rental: return on my own money

per year

+ Rent you actually collect in a year

Start here, not with the asking rent

income your figure

− Maintenance and repairs

Already deducted in the study

in the 7% your figure

− Management or letting agent

Already deducted in the study

in the 7% your figure

− Insurance

Already deducted in the study

in the 7% your figure

− Months between tenants

Not itemised in the study’s definition

not itemised your figure

− Tax on the rent and on the gain

Excluded by the study; depends on where you live

not in the 7% your figure

− Buying and selling costs, per year held

Excluded; about 7.7% of the value per round trip

not in the 7% your figure

− Interest on the mortgage

Excluded; the study measures the property, not the loan

not in the 7% your figure

=What is left, divided by the money you put in

your result

Two anchors from real books. In the Oxford and Cambridge ledgers, costs took 32.0% of residential income on average between 1901 and 1983. And buying plus selling costs about 7.7% of the value per round trip in the countries the big study covers, roughly 0.77% a year if you sell after ten years. If your page still shows a number you like after every line, you have something real.

If the number still works at the bottom of the page, you have something real. The fee calculator will show you what a cost of one or two points a year does over twenty years, if you want to see why those lines matter.

Two: decide whether you want to be a landlord. Not whether you want to own property. Whether you want the phone call about the boiler. It is a job, and it can be a well-paid one. If the honest answer is no, you are buying a business you do not want to run.

Three: set a limit before you buy. Decide in advance what share of your total wealth one building is allowed to be, and write it down. The day you sign, that decision has been made for you by the purchase price. The risk assessment and the three-bucket structure are good places to put a number on it first.

Property is not the worse asset. It is the less accessible one. Stocks hand you the average for almost nothing, and that is not glamorous. It is just very hard to beat.