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This article is for educational and illustrative purposes only. I am not a licensed investment advisor, and nothing here should be construed as personalized investment advice. Before making any investment decision, consult a qualified financial professional who knows your specific situation.

What counts as a good return in real estate investing?

The honest answer is: compared to what?

That question — compared to what — is the foundation of one of my core investing principles. I call it Compare Everything with Everything. Before you decide whether a return is good, acceptable, or worth passing on, you need to know what else you could do with that same money. Every investment decision is simultaneously a decision not to invest somewhere else. That somewhere else has a cost, and that cost is real whether you calculate it or not.

Before you put money into any real estate investment, check what you can earn with essentially no risk. Right now, high-yield savings accounts and short-term Treasury bills are paying in the neighborhood of 4-5%. That's your floor. Any investment carrying meaningful risk should clear that floor by a comfortable margin — otherwise you're taking on risk for a reward that doesn't justify it.

A passively managed index fund tracking the S&P 500 has returned roughly 10% annually on average over the long run, though with significant volatility along the way. That's your next comparison point. If your real estate investment is going to produce 6% with substantial effort and illiquidity, you should ask yourself honestly whether the tradeoff makes sense.

This number isn't going to sound big and sexy, but hear me out. If after all your expenses — debt service, taxes, insurance, maintenance, management — you're netting around 7-8% on your invested cash, you are doing fine. That's a legitimate return for a stabilized buy-and-hold investment.

Some sophisticated investors will accept considerably less — as low as 3% cash-on-cash — because they're factoring in appreciation, principal paydown, depreciation benefits, and tax advantages that don't show up in the cash flow number. When you stack all four of those alongside even modest cash returns, real estate can outperform higher-yielding alternatives on a total-return basis. That's a rational position for a patient, long-term investor.

One thing I've always appreciated about real estate that no spreadsheet fully captures: the value never goes to zero. A stock certificate represents a claim on a company that can fail entirely and leave you with nothing. Real estate — the land, the structure — retains intrinsic value even in the worst scenarios. That's worth something, even if it's hard to quantify.

Is it possible to do better than 8%? Absolutely. There are real estate strategies that produce dramatically higher returns. Flipping houses, for example — returns of 20%, 50%, even 100% on invested cash are achievable. I've seen them. I've produced them.

But those returns come with commensurate risk. Rehab surprises, market timing, contractor failures, carrying costs — the ways a flip can go wrong are numerous and expensive. Failure is considerably more common than the television shows would have you believe. Higher potential return always means higher potential loss. That's not a warning to avoid these strategies. It's a reminder to price the risk honestly before you commit.

When someone shows you an investment opportunity, don't just ask what the return is. Ask what the return is compared to. Compare your expected return against the risk-free rate. Compare it against the stock market. Compare it against other real estate strategies available to you. Compare it against what your money is doing right now while you're deciding.

A return doesn't exist in a vacuum. Neither does risk. Evaluate both — together, honestly, against everything else available to you.

That's the “Roger’s Rule” for today. Compare everything with everything.

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