Let me play a bit of devil's advocate and say I think property isn't always best way to earn a good nest egg.
There have been numerous studies about how home prices have appreciated and they're simply not impressive (save for a short stretch that ended with the recent housing collapse... so again, it's being averaged out right now). I don't want to just say that without numbers, so here's an article I just picked off a Google
that summarizes many of the major indexes, the bottom line is: once you take out the factors such as new houses averaging larger and larger, take out inflation, etc, you end up with an appreciation rate that's not much over 1% nationally. Now have people beat that? Of course, you have to be wise about where to buy and predict development --hell, if you can find out what the giant developers are planning, that would help know where to invest. But it's still a risky overall strategy if big long-term gains are what you want and you don't necessarily give it your all. Rental properties can be good if you can price it out --but you need to build a large number of rental units before you start really raking in any major profit.
Don't get me wrong, if you're willing to wait you can make a decent sized chunk of money on property, and there are psychological benefits to owning property (this is mine!); it's just that there are other, fairly conservative investments that can often give a better rate of return --and that's what this is all about in the end, rate of return. I'm not going to claim I'm some investment genius, I'm a pretty passive investor, but what I do want to see are some more consistent (realistic, not Madoff-territory) gains. Most of my money are in index funds (a mix of safer and riskier), because they're no-load --studies tend to show that actively managed mutual funds tend to do as well as passive index funds once you take into account the cost (or load, paying the person managing it) of owning them (index funds aren't free, but they frequently charge very lower percentages). These are long term investments so I'm hoping to do well in the long run.
Here's a study of 20 yr rate of returns on some of the popular ones--the big caveat is this is from 2007 so the rate of the previous 5-yrs is inflated by the economy. Still, quite a few continued to gain at reasonable rates during the down economy. If you want to know more just read the popular book Bogleheads or visit their forum.
Someone I respect when it comes to investing said these are the three easy lessons to become a millionaire in the long run:
- Start investing early
- Index funds are a safe bet
- Own things that appreciate, lease things that depreciate
Sorry if this is a disjointed post, I just felt like throwing ideas into the hat. On a side note: if you're ever convinced the US economy is going to totally collapse, jump into gold, precious metals, etc. I'm staying away because I think the prices on those are peaking.
