Why Buying Houses Often Underperforms Boring Index Funds
Sat Feb 07 2026
Most people think buying property is automatically a good investment.
As a business professor, I’m going to say something unpopular: most of the time, it probably isn’t.
When I think about investing, I always come back to one basic question:
What is the best return for the risk I’m actually bearing?
We know this pretty well by now. The best long-run returns usually come from owning the best companies in the world. Why? Because those companies combine the best people, the best knowledge, the best assets, and the best opportunities. Labor, capital, and knowledge all bundled together and managed by people who do this for a living.
That’s why broad index investing works. You’re not betting on one idea. You’re spreading your money across thousands of smart decisions you don’t have to personally make.
Property is different.
When you buy a house or rental property as an investment, you’re really only betting on location. You’re concentrating risk into one asset, one city, one market, often one street. You’re also taking on management, maintenance, stress, and a pile of behavioral biases that make you believe you’re smarter than you probably are. I know this because I feel those biases too.
Owning your own home makes sense. It locks in housing costs, gives stability, and has real personal value. We own our home. I’m not against that.
But buying multiple properties as an “investment strategy”? For most people, it’s a lot of hassle for returns that usually lag behind boring, invisible investments like index funds.
We just don’t see those returns, so we don’t talk about them.
Every once in a while, someone gets lucky in real estate. We hear those stories. We don’t hear about the quiet majority where it didn’t pan out.
That’s not failure. That’s statistics.
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Most people think buying property is automatically a good investment. As a business professor, I’m going to say something unpopular: most of the time, it probably isn’t. When I think about investing, I always come back to one basic question: What is the best return for the risk I’m actually bearing? We know this pretty well by now. The best long-run returns usually come from owning the best companies in the world. Why? Because those companies combine the best people, the best knowledge, the best assets, and the best opportunities. Labor, capital, and knowledge all bundled together and managed by people who do this for a living. That’s why broad index investing works. You’re not betting on one idea. You’re spreading your money across thousands of smart decisions you don’t have to personally make. Property is different. When you buy a house or rental property as an investment, you’re really only betting on location. You’re concentrating risk into one asset, one city, one market, often one street. You’re also taking on management, maintenance, stress, and a pile of behavioral biases that make you believe you’re smarter than you probably are. I know this because I feel those biases too. Owning your own home makes sense. It locks in housing costs, gives stability, and has real personal value. We own our home. I’m not against that. But buying multiple properties as an “investment strategy”? For most people, it’s a lot of hassle for returns that usually lag behind boring, invisible investments like index funds. We just don’t see those returns, so we don’t talk about them. Every once in a while, someone gets lucky in real estate. We hear those stories. We don’t hear about the quiet majority where it didn’t pan out. That’s not failure. That’s statistics.