03-40 Why I, who achieved FIRE through index investing, do not engage in real estate investing

Introduction

During my time as a salaryman, I often saw advertisements on the subway for things like “FIRE through real estate investing” or “1 million yen/month in passive income through real estate investing.”
In fact, there are people who have achieved FIRE through real estate investing and share information about it.

On the other hand, while I went all-in on index investing, I never felt the urge to get involved in real estate investing.
I will explain the reasons why.

Real Estate G-Men Takishima

One of the major reasons I don’t feel like getting involved in real estate investing is the following YouTube channel.

A popular segment on this channel involves consultations about studio apartment investments, and the consultants are consistently in disastrous situations.
What you learn from watching the videos is that in the real estate market, those without knowledge or experience are taken for a ride.

There are also business customs unique to real estate, and the barrier to entry is quite high.
Since I have time now that I’ve achieved FIRE, I might be able to make a profit if I studied extremely hard, but considering the risks, I think I’m fine with index investing.

Concentration of assets in real estate

My assets are around 170 million yen, so it is possible to use a portion of them for real estate investing.
However, in that case, my assets would be concentrated in one or two properties.
If the properties were to go sour, I would be taking on a huge risk.

Having become completely accustomed to the diversification of index investing, I no longer have the courage to take on such risks.

Expected returns are lackluster

Generally, it is said that the gross yield of real estate investments is around 3-7%.
…If that’s the case, I think I’m fine with index investing.

If I were to borrow funds for real estate investing, there is a possibility of earning a margin without using my own capital, but I would also be taking on risk accordingly.
When considering the risk-return profile, I don’t think there is any need to be that fixated on real estate.

Cannot be sold immediately

If I were to need cash, I could liquidate index investments in about a week, but that is impossible with real estate.
You also can’t do things like sell just half of a property.

I don’t find it very attractive from the perspective of liquidity either.

Then why not buy REITs?

There are also ways to invest in real estate through REITs (Real Estate Investment Trusts).
However, REITs are also sensitive to economic trends and show price movements similar to indices.

In that case, I think it’s better to simply stick with index funds.

Afterword

Although I have been critical of real estate investing, there are many people in the world who have succeeded with it.
However, I suspect that many of those who have succeeded at an individual level were also fortunate with their timing.

In a society with a declining population, I feel it is more rational to bet on global economic growth scenarios than to invest in housing, so I personally do not find real estate investing very attractive.

I also post twice a week on YouTube about FIRE and my asset progression.
Please take a look if you like.
↓ Click here for the YouTube link