Quote:
Originally Posted by Vegas69
My point is the chart is inaccurate. The median home price in America is $212,000.
Now, if you calculate $100 over 80 years with compound interest at 9%. It's right at $100,000.
Where I think they meant to go with the chart is that same $100 invested in real estate wouldn't have grown at the same rate. Not even close.
In my opinion the median home price in 1928 vs. today would be a better example. Then you have to factor in costs over the years and it gets tricky. Is it an investment covering it's own cost for the most part or primary residence. etc...
The average home price in 1930 was $7800.
With the $7,800 and $212,000 in mind, there is no doubt the $100 in the stock market is superior.
Just for fun let's factor a free and clear property after say 30 years that generates income for 50 years. At only $500 a month for rent over 50 years, that's $300,000. Then you add the appreciation of $204,200 for a total of $504,200.
To put the nail in the coffin, if you would've invested the same $7,800 in the stock market in 1928, you would have over $7,000,000 today.
Case closed....  |
You have over-looked the primary benefit of investing in real estate: Leverage. If I use your numbers of $7,800 in 1930 and assume a 20% down payment, the initial investment is $1,560. If the current value is $212,000, your return would be 6.3% annualized. The dow index in 1930 was 198 and as of today is 15,484. That equates to a return of 5.6% per year. The return on the real estate assumes that on average you break even on your rental income less expenses over 80 years. I would argue that on average over an 80 year holding period you would have a substantial positive cash flow, especially after the mortgage was paid off in 30 years. I also realize there would be dividends from the stock investment as well. It is really tough to make like comparisons with all of the variables that come into play, but my point is that the returns from both investments are pretty close.