After experiencing the Real Estate Boom of 21th century you would think real estate is a pretty cool investment tool. Well after looking a study conducted by Fidelity, you may think otherwise.
Over the span of about 40 years, stocks outpaced residential real estate at 5.95% average annual return on stocks compared to 1.35% in realty. That means that a dollar investd in stocks in 1963 would have compounded to $12.36 by 2006, or only a measly $1.79 had it been in real estate.
Owning real estate is better than renting, but it should not be used as a savings vehicle for retirement.
Just my tip for the day.
Found via [Yahoo Biz]
February 20th, 2007 at 3:37 am
It’s true, real estate is crap right now, but I still believe it is a good long term investment
February 20th, 2007 at 9:37 am
Yeah short term its going down still — which isn’t bad if you have rental property and rent is going up but house value is going down– it’ll come up eventually
February 20th, 2007 at 11:20 am
I think this is an important quote: “The median price of new homes in the United States has risen since the early 1970s, with an average annual appreciation rate of 5.9% since 1963.”
Let’s pretend you put a $40,000 down-payment in a $200,000 home. It goes up the average 5.9%. In a year the home is worth 211,800 and you’ve made $11,800 in equity. Let’s say you take that same $40,000 and put it in the stock market earning a great 12% a year. At the end of the year you have $44,800 - a gain of $4,800. Which one really performed better? It was the one with leverage.
Of course it’s not that simple as you have pay interest on the mortgage. It gets to be quite complex, but this simple example shows why real estate can be a better vehicle than stocks. I think it’s a very fine vehicle for retirement and I know quite a few people living off the income from their real estate investments.
February 20th, 2007 at 8:09 pm
Well, it not really an investment for retirement if you calculate your potential earnings after only one year. But yah… I see your point.
The only way to truly make money would be to RENT the extra property you own. But that is more complicated than it seems. Have you read some of Robert Kiyosaki’s real estate investment horror stories?
February 20th, 2007 at 8:52 pm
Ok thats likes talking about nintendo and asking Hey have you played that Mario game??
February 27th, 2007 at 3:55 am
Great post! I must have missed this one. I have you on my blog reader to read your updates, just need to go through your archives more thoroughly. Your blog is one of my favorites!
January 14th, 2008 at 12:33 pm
Lazy man,
You can also buy stocks with leverage. People do it all of the time. So your arguement does not float (although it certainly is easier to borrow with a house as collateral than to use leverage with stocks).
On the other side, people only look at the appreciation that a house accumulates. People need to also consider that properly priced homes can also generate a positive cash flow whe renting.