When I was a stock broker in California – one of the hottest housing markets in the US – real-estate was my competition. “Everyone” was making money in real-estate so why would they invest in the stock market?
I needed an angle
I went to the Board of Realtors and got prices for two-, three- and four-bedroom homes in the area, both at the current price and for 10 years prior. I did the math to calculate what annual return these houses were creating for that ten-year span, and then compared that to the S&P 500 Index for the same time period.
The index clearly beat all three home styles without the hassles of ownership, like painting, plumbing problems, yard work, or replacing a roof. Now I had my argument to help people invest in the market.
Ok, that was then and this is now
Using Zillow I looked up what the home we used to own was now worth. It was listed at $862K. Again I did the math and found that over the last 31 years since we bought it, that house has appreciated 6.4% annually. Sounds OK, except that there were property taxes, maintenance and repairs that would need to be deducted lowering that annual return.
Then I wondered, what if we had put the money to buy our home into the S&P 500? So I calculated that figure also.
Are you ready?
It would be worth 3 million dollars today! Over three times the current value of the home as the Index produced a 10.46% annual return during those 31 years.
Even the down payment alone, had we invested it, would have grown to $765K, about the cost of the home today. Amazing.