Selling on Amazon or Owning Real Estate: Which One Is a Better Investment?

I once sat down with an e-commerce owner who told me they were constantly out of stock. Customers were waiting, listings were going inactive, and they felt like they could never order enough.

Then we looked at the numbers. Their cost of goods sold was about $20,000 a month. Their inventory was about $200,000.

In other words, they had 10 months of inventory on the shelf, and they were still running out.

That story is a good way to answer a question I hear a lot: is selling on Amazon a better investment than owning real estate? The honest answer is that it depends on one number most sellers never check.

The one number: months on hand

Months on hand = Total inventory ÷ Monthly cost of goods sold

Cost of goods sold (COGS) is what you paid for the products you actually sold. So this tells you how many months your current stock would last if you stopped buying today.

For my client: $200,000 ÷ $20,000 = 10 months. Their inventory sold through roughly once a year.

Run this on your own numbers. It takes five minutes.

Inventory vs. a rental property

Think of your inventory like a building you own. A rental pays you rent every month. Inventory only pays you when it sells. Every time your inventory sells through, that's one rent check.

Let's put $100,000 into each and keep the math simple.

Rental property. Rent plus appreciation, let's say about 10% a year. That's $10,000.

Inventory that sells once a year. Let's say each time $100,000 of inventory sells, you keep about $10,000 in profit after all your costs. One turn a year means $10,000. Same as the rental, with a lot more work and risk.

Inventory that sells four times a year. Same $100,000, same $10,000 per turn, but it sells through four times. That's $40,000. Four times the rental.

Same money. Same products. The only difference is how fast it sells.

So which is the better investment?

Here's the rule I give clients: inventory only beats real estate if it turns.

When it turns, inventory wins easily. Your cash comes back in weeks, you can reinvest it right away, and you collect that "rent check" over and over.

When it sits, real estate wins. A building tends to go up in value over time. Inventory goes the other way: it gets old, goes out of style, gets damaged, and costs you storage the whole time it sits.

I call this the Landlord Test. Before your next big purchase order, ask: if this inventory were a building, how often is it paying me rent?

How can you have too much inventory and still be out of stock?

This is what was really going on with my client. Total inventory is one number, but stockouts happen product by product.

When we broke their inventory down by SKU (each individual product), a small group of slow sellers was holding most of the money. The best sellers kept running out because there was no cash left to reorder them.

They didn't need more inventory. They needed their cash out of the products that weren't selling and into the ones that were.

From the bookkeeper's chair, I also check one more thing: is the inventory number on the balance sheet even real? It's common to find damaged units, returns that were never processed, and items that should have been written off long ago. Sometimes "10 months" is really 7 months of sellable product and 3 months of write-offs waiting to happen.

What I'd do about it

1. Run the months-on-hand check every month, not once a year.
2. Break inventory down by product. The slow sellers jump out right away.
3. Clear the slow sellers: bundle, discount, return to the supplier, or write off what's dead. Put that cash into what sells.
4. Reorder based on what's actually selling, not gut feel.
5. Match the books to a physical count, so the number you're making decisions on is real.

The goal is simple: every dollar of inventory should be on its way to becoming a sale.

Frequently asked questions

Is inventory a better investment than real estate?
Only if it sells quickly. Inventory that turns several times a year can earn several times what a rental earns. Inventory that sits for a year earns about the same as a rental, with more risk and more work.

What is a healthy number of months on hand?
It depends on your lead times and how seasonal your products are, but for many e-commerce businesses, a few months is healthy. If you're at 6 months or more, it's worth a closer look.

My accounting software shows an inventory value. Can I trust it?
Only if it's been matched to a real count and adjusted for damaged, returned, and dead stock. In our experience, that number drifts more often than owners expect.

Want a second set of eyes on your numbers?

If you ran the months-on-hand check and the number surprised you, we're happy to take a look. Our Free Books Review is a no-pressure way to see where your books stand and what your numbers are really telling you.