As 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 invest in the stock market?
I needed an angle
I went to the Board of Realtors and got prices for 2, 3 and 4-bedroom homes in the area, both at the current price and10 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 roofs. Now, I had my argument to help people invest in the market.
Ok, that was then and this is now
Using Zillow.com, I recently 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, the house had appreciated 6.4% annually. Sounds OK, except that there were property taxes, maintenance, and repairs that would need to be deducted – lowering the annual return.
Then I wondered, what if we had put the money used 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! The return is over three times the current value of the house; 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.
What about you?