Is Real Estate Really The 'best' Investment?: 7 Undervalued REITs

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James Dennin, Kapitall: Buying real estate can secure fat returns, but it also poses greater risks. Are diversified REITs the answer? 

An interesting article in Vox this morning about the virtues of investing in real estate poses the controversial question "Is buying a house a better investment than buying stocks?"

Their answer, quite simply, is "only if you're rich."

That's because a lot of real estate in the world really does offer higher returns than you can get pretty much anywhere else. London real estate for instance, has grown in value 5.3% in the last three months alone.

Read more from Kapitall: What are some of the virtues of dividend-free value stocks?

Compounded that's a more than respectable 20% for the year, almost double what the S&P usually returns over that same period. Buying real estate also requires less expertise than picking stocks (assuming you have enough capital to buy valuable real estate in the first place).

On the flip side, of course, investors are hard pressed to diversify risk in real estate. An S&P index fund can track dozens of companies – if not more – with a lot less capital. For instance, the largest SPDR S&P 500 ETF (SPYtracks 501 companies in all the major industries. You get can a piece of all 501 for about $180 bucks a share. 

Your house, on the other hand, can become worthless overnight in the event of a natural disastor, or if the neighborhood takes a turn for the worse. In fact, not counting tax incentives, real estate can be a pretty risky proposition. 

Real estate investment trusts (REITs) offer one way to capture the returns of real estate investing while also adding a degree of diversification. They buy and maintain real estate assets and distribute profits to shareholders through dividends, which are often quite high.