Multifamily Real Estate vs. Stocks: Which Is the Better Investment?
Investors often debate whether to invest in multifamily real estate or the stock market as the superior path to wealth. Both have created fortunes – from real estate moguls to stock market billionaires – but they offer very different investment experiences. In this comprehensive comparison, we’ll examine historical returns, risks, income, and other factors for multifamily properties versus stocks. The goal is to build a strong case for multifamily investing while acknowledging the merits of stock investing. Ultimately, both asset classes can play roles in a balanced portfolio, but multifamily real estate offers unique advantages that often make it a better investment for those seeking stable, long-term growth.
Overview: Two Proven Paths to Wealth
Real estate and stocks have long been two primary avenues for building wealth. Surveys show many Americans consider real estate a more reliable way to build a nest egg than stocks (Investopedia). Historically, stocks have delivered higher average annual returns than housing prices, but raw returns aren’t the whole story. Real estate offers benefits like tangible assets, rental income, leverage, and tax advantages that can tilt the scales in its favor.
Multifamily real estate – investing in apartment buildings or multi-unit residential properties – is particularly compelling because it fulfills an essential need (housing) and can generate steady cash flow. On the other hand, stocks represent ownership in businesses, providing growth through corporate earnings and relatively easy liquidity for investors.
Before diving deeper, it’s worth noting that many financial experts recommend holding both real estate and stocks for diversification. Each has distinct strengths: stocks provide liquidity and low maintenance, while real estate provides a physical asset and income potential. However, when we pit them head-to-head, multifamily real estate often shines for its stability and risk-adjusted returns.
Understanding Multifamily Real Estate Investing
Multifamily investing means buying properties with multiple rental units and generating returns through rent and property appreciation. Investors often use leverage—purchasing properties with mortgages—amplifying their returns with borrowed money.
Multifamily properties are remarkably resilient. During the 2008 recession, while the S&P 500 fell by over 37%, multifamily real estate still managed to return 5.2% (Roers Companies). Because people always need housing, rental income remains relatively stable in downturns. From 2000 to 2021, multifamily rents in the U.S. outpaced inflation by more than 26% (DLP Capital), making it a strong hedge and reliable source of income.
Further, multifamily properties spread tenant risk—one vacancy in a 10-unit property only cuts income by 10%, unlike a single-family rental where a vacancy wipes out 100%. And with professional management common in multifamily, the model can be hands-off for passive investors.
Understanding Stock Market Investing
Stocks represent ownership in companies. Investors benefit from price appreciation and dividends. Over the past century, the U.S. stock market—measured by the S&P 500—has returned about 10–11% per year on average (Morningstar).
Stocks are highly liquid and easy to access, and they allow diversification across industries and geographies. However, they’re also volatile. Between 2000 and 2013, investors saw virtually no gains due to back-to-back crashes. In contrast, multifamily real estate held its value more consistently and even grew its income stream.
Historical Performance: Total Return and Risk
A landmark study by economists Jordà, Knoll, Kuvshinov, Schularick, and Taylor covering 145 years across 16 countries found that residential real estate slightly outperformed stocks when total return and volatility were considered. Housing produced ~7.0% real return, while stocks returned ~6.9% (Jordà et al., 2019).
NCREIF data also shows that U.S. private commercial real estate (including multifamily) returned about 9.0% annually from 1978 to 2022, while the S&P 500 returned about 11.5% over the same period. However, multifamily did so with significantly less volatility (BiggerPockets).
One analysis showed that a $10,000 investment in multifamily in 2000 grew to about $34,600 by 2022—outperforming the same investment in the S&P 500, which reached roughly $25,500 (Roers Companies).
Volatility and Downside Risk
The stock market is inherently volatile. During downturns like the Great Recession or the early pandemic crash, stocks dropped by over 30–50%. In contrast, private multifamily real estate returns remained positive in 2008 and experienced only mild declines in the 2020 recession.
Ares Management found that private real estate had near-zero correlation (0.04) with the S&P 500 over 20 years, making it a strong diversifier in times of market stress (Ares Real Estate Group).
The Sharpe ratio, a measure of risk-adjusted returns, has often been higher for multifamily than for stocks. According to Origin Investments, multifamily achieved a Sharpe ratio of 1.4 compared to 1.2 for a 60/40 stock-bond portfolio (Origin Investments).
Passive Income and Cash Flow
Multifamily real estate generates monthly rental income, often yielding 5–8% annually. These distributions grow over time as rents rise, acting as a natural inflation hedge.
In contrast, the S&P 500’s dividend yield has hovered around 1.5–2% in recent years. Stocks can provide growth, but unless you're in high-dividend equities, they don't deliver much cash flow.
Apogee Capital compared how different returns (10%, 12%, 15%) compound over time. Their analysis highlights that a higher, consistent income return—like that of multifamily—can lead to dramatically higher long-term wealth (Apogee Capital).
Tax Efficiency and Leverage
Real estate enjoys massive tax benefits. Depreciation lets investors shelter rental income from taxes. A property may produce $10,000 in income but show zero taxable income due to depreciation deductions.
Real estate investors can also use 1031 exchanges to defer capital gains taxes, or refinance properties tax-free to extract equity. Stocks don’t offer these benefits unless held in retirement accounts.
Investopedia calls these real estate-specific tax advantages—depreciation, 1031s, interest deductions—a “key differentiator” from traditional equity investing (Investopedia).
Diversification and Portfolio Stability
Adding private multifamily real estate to a traditional portfolio reduces volatility and increases consistency. A portfolio with 20% real estate and 80% traditional assets often achieves better risk-adjusted returns than the classic 60/40 model.
Cornell’s Baker Program recommends real estate make up 9–20% of an optimized investor portfolio, citing real estate’s low correlation with public markets (Cornell Baker Program).
Yale’s endowment famously allocated heavily to real estate and alternatives, earning returns well above traditional equity-heavy portfolios.
Practical Considerations: Liquidity, Access, and Effort
Stocks win on liquidity. You can sell shares instantly, while real estate transactions are slow and come with closing costs. However, private multifamily funds and syndications make real estate investing more accessible and passive, though less liquid.
REITs offer a hybrid but tend to correlate more with stocks than private assets.
The key is that multifamily rewards long-term commitment. Investors with a 5–10 year horizon often see higher returns, lower taxes, and more peace of mind than those in volatile equity markets.
Final Thoughts
Multifamily real estate and stocks both build wealth. Stocks offer convenience and liquidity. But multifamily delivers:
Reliable, growing cash flow
Inflation protection
Powerful leverage
Remarkable tax advantages
More stability and lower downside risk
That’s why institutions, high-net-worth individuals, and increasingly everyday investors are turning to multifamily as a foundational asset in their portfolios.
Whether you’re looking to build wealth passively or balance volatility in your broader financial plan, multifamily real estate remains one of the most durable, profitable, and tax-efficient strategies available today.
