Let’s start with an honest admission: we’re a private family office that specializes in absolute NNN real estate. We are not completely unbiased, but this article is not here to tell anyone what their portfolio should look like. That is a conversation for an investor and a financial advisor.
Still, the question of whether to choose commercial real estate over stocks comes up in nearly every conversation we have with accredited investors, and it deserves a fair answer.
The stock market has been on a remarkable run. As of June 2026, the S&P 500 has reached more than two dozen record highs this year and sits up roughly 11% for 2026 (although it varies by the day), continuing a climb that has rewarded patient investors for years. When an investor looks at a strong cash on cash commercial deal, the natural question is: “Why take on illiquidity for a return that an index fund seems to match?”
In this article, we’ll weigh both sides as honestly as possible: where index funds outperform, where their structure creates understated drawbacks, what the returns comparison actually looks like, and the tax advantages that direct, 100% commercial real estate ownership makes possible while a stock portfolio cannot.
Key Takeaways
- ▸Index funds offer liquidity and strong recent returns, but that same liquidity invites panic selling.
- ▸A handful of technology names now drive much of the market.
- ▸Direct commercial real estate trades that convenience for durable income, a long history as a store of wealth, and tax advantages that only 100% ownership makes possible.
- ▸Both carry genuine risk, and the right choice depends on the investor.
Is the Stock Market a Good Investment Right Now?
For most people building wealth, broad stock index funds are a sensible default, and it would be dishonest to suggest otherwise. They are inexpensive to own, instantly diversified across hundreds of companies, and liquid enough to sell on any trading day. The recent track record has been hard to argue with as well, with the index setting records throughout 2026.
That performance is the backdrop for a fair question we hear often: when an investor can earn a solid return in an index fund and sell whenever they like, why take on the illiquidity of commercial real estate over stocks? It’s a reasonable starting point. The case for index investing is strong, which is exactly why the rest of this discussion focuses on some drawbacks that many investors oversee or refuse to acknowledge.
What Are the Risks of Index Fund Investing?
Index funds carry two understated risks: concentration and behavior. A small group of technology companies now accounts for a large share of the S&P 500, so the index is less diversified than it looks, and the liquidity invites panic selling. That behavior, not the market itself, is where many investors lose the most ground.
Consider concentration first. Currently, the seven largest technology stocks now make up roughly a third of the S&P 500’s value, which means a buyer of a standard index fund is far more exposed to a single sector than the word “diversified” suggests. When those names stumble, the whole index feels it.
The second risk is harder to see because it’s behavioral. Most people agree in principle that selling during a downturn is a mistake, yet a great many do it anyway. According to Vanguard, the average return over a 30-year period for the S&P 500 is 10.28% after adjusting for inflation.
However, the average investor earns significantly below the market average. This seems counterintuitive. If the average investor mostly invests in index funds, how could he or she underperform the stock market? Data gathered by J.P. Morgan Asset Management revealed that between 1998 and 2017, the S&P 500 delivered an average annual return of 7.1%, while the average investor earned just 2.6% per year.
The answer is simple: Liquidity, while logically superior to illiquidity, can be a performance killer for some investors.
Because index funds can be sold instantly, the market can fall sharply in a single session: the S&P 500 dropped 20.47% on Black Monday in October 1987 and 11.98% in a single day in March 2020 as the pandemic took hold.
Both of those declines recovered (the March 2020 drop was erased in about 19 days), which is precisely the point. Investors who sold at the bottom locked in the loss and missed the rebound.
Why Consider Commercial Real Estate Over Stocks?
One reason to consider commercial real estate over stocks right now is timing. While equities sit at repeated record highs, investment into commercial property is only beginning to recover toward levels last seen before the pandemic, which means investors are looking at an asset class earlier in its cycle rather than late in a long run.
Capital is returning to commercial real estate, but it has further to climb. CBRE projects investment activity will rise 16% in 2026 to roughly $562 billion, which would only bring the market back in line with its average from before the pandemic. Full year 2025 volume reached $560.2 billion, up 14.4%, the second straight annual increase, yet transaction activity still sits below the pace of the late 2010s. Equities, by contrast, keep setting fresh records. There is a case that the more interesting entry point is the asset class that has been overlooked, not the one everyone is already crowded into.
On top of the timing, there is the longer history. Owning the building a business needs in order to operate is one of the oldest ways to store and build wealth, and it has outlasted every financial fashion that came and went around it. That durability is part of the appeal for the investors we work with, and it is reflected in the more than $450 million in commercial the direct owners we work with have acquired with our acquisition support, several of which are walked through in our real estate investment case studies.
How Do Commercial Real Estate Returns Compare to Stocks?
Frankly, there’s no way to compare the two, and it is worth being candid about why. Reliable return data on commercial real estate tends to come from properties that sell, because a sale is what creates a recorded price. The trouble is that the best performing commercial properties are often the ones that never sell.
When an owner holds a well located building leased to a strong tenant, the usual outcome is not a sale. The owner holds it for decades and lives off the income it produces, passing it down rather than listing it. Those assets rarely appear in transaction data, which means published figures are weighted toward properties that changed hands, not toward the long term holds that often perform best.
The honest conclusion is that any headline number for commercial real estate returns most likely understates the top end of the range. It captures what is for sale, not what investors who already own the best assets are content to keep.
That’s a fundamentally different relationship to an asset than a stock, which is publicly traded and is priced every second of every day.
What Tax Advantages Does Direct CRE Ownership Offer That Stocks Can’t?
Direct, 100% ownership of commercial real estate provides tax advantages that a stock portfolio structurally cannot.
Depreciation lets an owner deduct a portion of the building’s value against income each year, and with 100% bonus depreciation restored, a large share of those deductions can be taken up front. Shares of stock offer no equivalent.
This is the part of the comparison that often gets left out. When investors line up stock market returns against commercial real estate returns, they tend to compare the headline numbers and stop there. What that misses is that direct ownership changes the after tax result, sometimes substantially.
Depreciation is the mechanism. The tax code treats a building as an asset that wears out over time, so an owner can deduct part of its value each year even when the property is rising in market value and producing income. With 100% bonus depreciation back in effect, a significant portion of those deductions can be claimed in the first year of ownership, which can shelter a meaningful amount of the income the property generates. None of this is available to someone who simply owns shares of a company.
The catch worth stating plainly is that these benefits generally require direct ownership rather than a pooled or indirect structure, and the specifics depend on the property and the investor’s situation. This is a conversation for a qualified tax professional. The broader point holds: comparing a stock return to a commercial real estate return without accounting for tax treatment leaves out one of the largest advantages on the real estate side.
What Are the Downsides of Commercial Real Estate?
Commercial real estate has genuine drawbacks, and the case for it is weaker without acknowledging them.
It is illiquid, so capital can be tied up for years. Property values can fall, as struggling office buildings have shown. And traditional ownership asks more of the investor than buying an index fund ever will.
The illiquidity is the mirror image of the behavior advantage discussed earlier. The same feature that keeps an owner from panic selling also means the capital is not available on a moment’s notice, so commercial real estate suits money an investor will not need in a hurry.
Values can also decline. The struggles of older office buildings since 2020 are a reminder that property is not immune to loss, and that asset selection matters a great deal (which is why the building, the tenant, and the lease deserve careful scrutiny before any purchase).
Lastly, owning commercial property has traditionally been more involved than owning stocks. Direct ownership can mean dealing with tenants, taxes, insurance, and maintenance, which is a meaningful commitment of time and attention. For many investors, that workload is the single biggest reason they default to the stock market instead, and it is a fair concern.
Can You Invest in Commercial Real Estate Without the Work?
This last concern is the one our model is built to address. The workload that pushes investors toward stocks is largely a function of how commercial real estate is traditionally owned, and it can be reduced substantially with the right structure.
The first piece is the lease. An absolute triple net (NNN) lease shifts the property taxes, insurance, and maintenance to the tenant, which makes ownership genuinely low effort. It is worth being precise here: the responsibilities are low or minimal, not zero, because the investor still owns the asset and holds the ultimate interest in it. Even so, with a strong tenant on a long lease, an owner may go a full year without a single property issue to handle.
The second piece is doing the rest for the investor. At Custom Capital, the acquisition process is designed so that an investor owns 100% of the property while our team handles the sourcing, the due diligence, and the financing. The investor selects a deal and owns the asset outright, which is a different arrangement from a real estate syndication, where investors buy a fractional stake in a pooled vehicle and hand control to a sponsor. Direct ownership keeps the tax benefits, the full upside, and the asset itself in the investor’s name.
The Bottom Line: Stocks and Commercial Real Estate Both Have a Place
Choosing commercial real estate over stocks is not really a verdict on the stock market, which remains a strong and sensible way to build wealth. It is a recognition that the two assets behave differently. Index funds offer liquidity and proven returns, but invite the behavior that erodes them and lean heavily on a few large companies. Commercial real estate trades liquidity for durable income, a long history as a store of value, and tax advantages that only direct ownership makes possible, while asking more in patience and involvement.
For investors weighing where new capital should go, the clearest next step is to schedule a call and talk through which off market opportunities fit the situation. We are glad to walk through the tradeoffs honestly, with no pressure either way.
See What 100% Ownership Looks Like
If you are weighing commercial real estate against the stock market, we are happy to walk through the tradeoffs and which off market opportunities fit your situation.
For accredited investors. This is not investment, legal, or tax advice.
Frequently Asked Questions
Is commercial real estate safer than stocks?
Neither is categorically safer; they carry different risks. Stocks are liquid and easy to sell but can swing sharply in a single session and lean heavily on a few large companies. Commercial real estate is illiquid and can decline in value, but its income tends to be steadier and it is less exposed to daily market sentiment. The right balance depends on the investor’s goals and time horizon.
Can you lose money in commercial real estate?
Yes. Property values can fall, tenants can default, and a poorly chosen building can underperform for years. The struggles of many older office buildings since 2020 are a clear example. Asset selection, tenant credit, and lease terms matter a great deal, which is why careful due diligence before purchase is essential.
How is commercial real estate taxed differently from stocks?
Direct ownership allows depreciation, which lets an owner deduct part of a building’s value against income each year, and with 100% bonus depreciation restored as of 2025, much of that can be claimed up front. Stock ownership offers no equivalent deduction. These benefits generally require direct ownership and depend on the investor’s situation, so a tax professional should confirm the specifics.
Is now a good time to invest in commercial real estate?
Investment activity is recovering but still climbing back toward levels last seen before the pandemic, with CBRE projecting a 16% increase in 2026. That puts the asset class earlier in its cycle than equities, which are setting repeated record highs. Timing is only one factor, and any decision should weigh the specific property and the investor’s plans.
Do you have to manage the property yourself?
Not necessarily. An absolute triple net lease shifts taxes, insurance, and maintenance to the tenant, keeping landlord responsibilities low rather than zero. With a done for you model like Custom Capital’s, the investor owns 100% of the property while the team handles sourcing, due diligence, and financing, which removes most of the day to day workload.
