Originally Posted by Almighty Colin

History says differently. Adjusted for inflation the averahe US property sold in 1940 was worth less than when it was if purchased in 1915. Adjusted for inflation real-estate purchased in 1950 was worth about the same in 1985. Those are 25-35 year periods where real estate investments were a poor allocation of capital. (SOURCE: Shiller). Buying into a bubble can make long-term investments become long-term losses. They can also make people rich if they get out at the top.

If you lived in Japan in 1989 making real estate investments you are probably broke today. Now I'm not saying that anything like that will happen. I don't think it will. But if you had purchased a million dollar property in Japan in 1989 with $200k down it would be worth only $200,000 total today. Japanese RE is down 80%. You would have a loss of $600k.

Say a small investor purchases a home with the purpose of flipping it. He purchases the home and accepts a monthly loss (mortgage-rent-expenses-taxes) because he is going to sell it for a large gain later. Now what happens if rents only rise slowly and prices depreciate and don't come back to even for ten years. Now, he is paying out money every year hoping for the market to come back so he can sell at break-even.

Returns are related to risk. High returns, high risk. That is the option all of us have. If "everyone knows" a market is hot the risk keeps going up as there is more and more speculation.