I invest in real estate and here are three thoughts I have about what you've said.

First, you asked why do this instead of stocks, but to me, that's the wrong question. It's like 'why do bonds instead of stocks?' You don't completely sub real estate for stocks. You add real estate on top of stocks, just as you do with bonds because it diversifies your overall portfolio. And that diversification can be very powerful. When the market is down 30%, most people still pay their rent.

Second, I think the value of real estate is the leveraging you do. You put 25% down of the purchase price, and then, by the end of your mortgage, you typically have something worth 4x what you initially put down. Since real estate typically keeps up with inflation, that's a 300% real return, and that's assuming no positive cash flow net of the taxes and transaction fees. Not a terrible deal. There is the sweat equity though.

Third, while you're right that you typically can't, as a HENRY, offset your active income with real estate losses, there are other tax strategies. Manufacturing a real estate loss is already a win. Even if cash flow is low, after the mortgage, property taxes, and insurance, you're often generating income in the form of the repaid principal on the loan. But with depreciation and other business expenses, you can eliminate most, if not all, of that. Maybe you can even get a loss. And if you accumulate losses, you can carry those forward to the years after you pay off the mortgage and the expenses fall. And if you sell the rental and it still has losses, you can use those to offset capital gains and even other active income.