KLE 97: The Classic Argument Against Real-Estate
In up markets, it’s easy to see how you can make money in real-estate, but in flat markets it’s much harder to see the wood for the trees.
Depending on your sources, the average home price in the U.S. at the beginning of the millennium was approximately $160,000. Today, that same home will sell for approximately $200,000. If we explore the change in home prices, the average home increased by $40,000, or 25% over the decade. If you do the math — considering present value, future value, and time — this equates to a 2.2% compound increase year over year. Congratulations, we’re now in the positive rates of return.
Just one moment. We haven’t considered the rate of inflation, which we know historically is greater than 2.2%. Not only that, we haven’t taken into account that it cost us approximately 5% to 6% a year to borrow the money to purchase the home.
Granted, we all have to have a roof over our head, and I’m not suggesting that real estate is a bad investment, but it is my personal opinion that if your home is your best and biggest investment, then you may be in trouble.
Is it true? Is real-estate trumped by inflation and/or other investments – such as stocks – as others would have you believe?
Of course not.
Real-estate has made more people wealthy than any form of investment!
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Not only do these differentiators make real-estate such a good deal for you, even taking into account that 2.2% is a really historically low ‘look ahead’ estimate for housing over the next 10 years, that you should not just do it once …
… you should do it (at least) twice, making the second one a true rental.
