Real estate investing is marketed as a path to passive wealth. The reality is more nuanced.

Rental property returns depend on: cap rate (Net Operating Income / Property Price), cash-on-cash return (annual pre-tax cash flow / cash invested), and total return (cash flow + appreciation + mortgage paydown + tax benefits). A property with a 7% cap rate, leveraged at 75% LTV, might generate 12-15% total return in a good market — but this requires: active management (finding tenants, handling maintenance, dealing with vacancies), significant capital at risk (down payment + reserves), illiquid investment (can't sell quickly), and concentration risk (one property in one market).

REITs (Real Estate Investment Trusts): publicly traded funds that own real estate portfolios. Returns historically similar to stocks (8-10% annualized). Benefits: liquidity, diversification, professional management, no toilets to fix. Tradeoff: no leverage advantage, taxed as ordinary income.

The honest comparison: leveraged rental property CAN outperform stocks — but requires active work, concentrated risk, and illiquidity. REITs roughly match stock returns with real estate characteristics. For most people, REITs in a portfolio provide real estate exposure without the operational burden.