who has a better ROI, real estate investors or market investors?

[FuckRx]

I realize this is a very generalized question and somewhat loaded because I'm making some very basic assumptions. However, I have to assume there are some people on here who do both. By real estate investing I'm referring more to purchasing a house/multihome complex and renting it out. And by market investing I mean stocks/bonds etc. Market investing obviously is a bit more passive and managing real estate rentals certainly requires quite a bit more oversight.
So is there huge difference between person A who invests in real estate with most of their money or person B who chooses to invest solely in the market?

[skunkfunk]

If I'm not mistaken, you'll typically do better in the market. Disclaimer: No personal experience with owning a rental home. Relatives claim they get a 6% ROI over the last ~20 years, though, on ~20 properties at any given time.

[FireDAD]

I have been thinking about this a lot lately.
The return is a little higher in the market when you factor in real estate taxes, at least in my area. The benefit of real estate is that it is a good hedge against inflation, market downturns and provides regular payouts, assuming you can keep it rented.

To me the MAJOR advantage of real estate over the market is that it is a lot easier to leverage your money and have a, say 100k property for only 20k invested.

TL:DR - I believe in having both.

[arebelspy]

The average person with no knowledge will do better investing in equities (index funds).

The person who takes time to learn real estate will do much better in real estate, IMO.

The stock market is such an efficient market, combined with the speed (electronic transactions) that it's hard even for someone knowledgeable to take advantage and gain an "edge."  Whereas in real estate, you can find deals - undervalued properties.  Hard to find a "deal" on a stock, and purchase it under market.

But buying without knowledge can kill you, especially if using leverage.  This is true of both investment types, but look at what happened to many who bought extra rental properties in the mid-2000s: foreclosures galore.

I plan on having a lot of real estate and a decent amount of equities, and I expect the former to do much better overall, but the latter to provide a nice secondary source of income, much more diversity, and much less work.

tl;dr: A home, purchased randomly, in a random market, likely will vastly underperform the S&P. A carefully selected home (or ten) in a strategically chosen market will beat the S&P, IMO.

[Khan]

arebelspy said it perfectly. If you have knowledge(built up expert knowledge) in the subject of real estate, then you can parlay that into making a killing, buying properties, selling them, renovating them, renting them out, what have you.

If you're just a layman, then make all your real estate transactions be the least-damaging possible(how much house do you need? a house is an -expense-), and invest your money elsewhere(hell, in REIT's if you want).

As always, http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Oh and, most of the financial industry works off of vampirism(as does large amounts of the real estate market). There are very few value creating "market investors". There are a hell of a lot of financial "products" from Goldman-Sachs, Morgan-Stanley, etc. that just siphon money from "clients"(re: victims) to them.