Is real estate appreciation a myth? Adjusting for inflation
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
Is real estate appreciation a myth? Adjusting for inflation
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y37% of the inflation index is a housing component, and the largest component of the index. So essentially rising real eatate prices are the definition of inflation.
Real estate isn't purchased at a steady position however. It is typically purchased at a leveraged position. So of you are at a 4-1 leveraged position (20% down, 80% LTV), then you out perform inflation by a factor of 4, before even counting in rent or debt pay down. If you bought in at 3% down, you are at a 33.33-1 leveraged position and you beat inflation by a factor of 33.33 times...or a return of 3,333% per year versus inflation.
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- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes4y
Quote from @Eric James:
Quote from @Russell Brazil:
37% of the inflation index is a housing component, and the largest component of the index. So essentially rising real eatate prices are the definition of inflation.
Real estate isn't purchased at a steady position however. It is typically purchased at a leveraged position. So of you are at a 4-1 leveraged position (20% down, 80% LTV), then you out perform inflation by a factor of 4, before even counting in rent or debt pay down. If you bought in at 3% down, you are at a 33.33-1 leveraged position and you beat inflation by a factor of 33.33 times...or a return of 3,333% per year versus inflation.
That's correct. Except you're not including the cost of the financing. For example, if you're paying 5% interest on the financing. You're gain from leverage is only the difference between financing costs and the increased real estate value.
That may be true but on the other side of the equation you've left out the opportunity cost of the cash that wasn't used because of leverage. If you use that cash to continue investing and receiving returns at/near the same rate your wealth will be increasing exponentially. Because you can use someone else's money, unlike most investments, RE is one of the few vehicles available that can turn someone from a pauper to a millionaire in a relatively short period of time. It really works similarly to that of compound interest. If you were required to share the profits of RE on leveraged money, it would be a much tougher, longer slog with less risk but far less reward. But because you have virtually unlimited freedom on leveraged funds - your only responsibility is paying back the principal + whatever interest you agreed to - the upside of RE is really difficult to beat compared to all alternatives.
In fact, the dirty little secret of fractional banking is that, at least when it comes to lending for RE, most RE loans are net losers for the banks. They loan you money at today's rates and are paid back in devalued dollars. If there was no Fannie Mae/Freddy Mac to buy the loans - most banks just do the servicing - interest rates would have to be vastly higher and more likely to be adjustable to compensate for inflation. Instead the government eats the loss because we have decided as a society that there is a lot of value in ordinary people owning real estate, and given the example of the French and Russian Revolutions that's probably pretty accurate.
Skyline Properties - Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
The FED has said they plan on reversing Quantitative Easing and will start Quantitative Tightening. Meaning the FED will stop being net purchaser of mortgaged backed securities and be a net seller of mortgage backed securities.
I personally think they are bluffing and the FED is in buying mortgage business for the duration. We have a system that is completely dependent on the FED inflating its balance sheet. Hopefully the financial system will tolerate the FED exponentially expanding the balance sheet in perpetuity.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes4y
Quote from @Eric Bilderback:
The FED has said they plan on reversing Quantitative Easing and will start Quantitative Tightening. Meaning the FED will stop being net purchaser of mortgaged backed securities and be a net seller of mortgage backed securities.
I personally think they are bluffing and the FED is in buying mortgage business for the duration. We have a system that is completely dependent on the FED inflating its balance sheet. Hopefully the financial system will tolerate the FED exponentially expanding the balance sheet in perpetuity.
I also think they are bluffing - who do they intend to sell to? The only logical buyers are foreign sovereignties who prefer the security of (ostensibly) US-backstopped mortgages to their own national investments. The reason the fed owns them in the first place was because there weren't any other buyers of significance.
Low, low interest rates for a long time has painted the fed into a corner. They are going to ostensibly test what effect higher rates has on the RE industry and ancillaries, which is pretty dangerous considering how big RE has become as part of GDP relative to the rest of the economy.
Skyline Properties - Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes4y
@Eric Bilderback was absolutely correct in pointing out that the Debt is really the bet you are making.
You are betting that the Value of the Debt will decline in the future.
If you think about it, Real Estate is probably the only Asset Class that has this unique feature where you can borrow up to 30 years at a fixed interest rate.
Now, imagine the scenario where you borrowed $1 Million to purchase your Real Estate at 5% fixed for 30 years.
When a Wage-Inflation Spiral happens, there is a huge upside to the borrower of this debt because the Asset class pays a fixed amount for the debt but the Renters are bidding up the Rents as their wages increase in the Wage-inflation spiral.
If one borrows $1 Million at 5% for 30 years paying $5,368 per month for this debt AND wage-inflation doubles the rent revenues then you effectively received a huge benefit as the Debt per month does not go up with inflation.
No other Asset Class seems to be able to do this.
As a real world example, last year one of my Apartments was renting for $3,000 per month. I re-rented that same apartment today for $4,100 with just 1 day of Advertising. My Debt payment per month remained the same but my monthly revenue increased by $1,100.
Eventually, Wage inducted inflation will negate the monthly debt payment, which should be seen as eliminating the Debt itself.
That puts a $ Million into my Equity as the Debt essentially disappears.
What other Asset Class does this?
Also, if you think about it, because you are generally using 4 to 5 times Leverage, the Debt is your BIGGEST Bet. Not the Cash Flow or the Appreciation. It is really the DEBT that is your biggest best.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Quote from @Jay Hinrichs:
Quote from @Kenneth Rolfe:
As long as you’re cash flow positive, the financing component should be offset. This could be applicable to your primary residence though, but then you could argue the need to compare those expenses to what your expenses would be if you didn’t own the property… which again would likely offset the financing cost.Quote from @Eric James:
Quote from @Russell Brazil:
37% of the inflation index is a housing component, and the largest component of the index. So essentially rising real eatate prices are the definition of inflation.
Real estate isn't purchased at a steady position however. It is typically purchased at a leveraged position. So of you are at a 4-1 leveraged position (20% down, 80% LTV), then you out perform inflation by a factor of 4, before even counting in rent or debt pay down. If you bought in at 3% down, you are at a 33.33-1 leveraged position and you beat inflation by a factor of 33.33 times...or a return of 3,333% per year versus inflation.
That's correct. Except you're not including the cost of the financing. For example, if you're paying 5% interest on the financing. You're gain from leverage is only the difference between financing costs and inflation.
and on your personal resi have to include NO income tax at all up to 250k for single person or 500k for married.. this is huge and largely not talked about.. tax free equity in high appreciating markets has changed many lives. when your on the rental hamster wheel you have to either keep going or pay back your deprection etc etc.. but still all in all RE has many financial benefitsSay a CA homeowner has their home value increase from $300k to $2M. That benefits them if they are willing to sell and move to a lower cost of living area. Their problem is purchasing another home where they live would cost them $2M, and the cost of living in general where they live is much higher.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Quote from @Llewelyn A.:
@Eric Bilderback was absolutely correct in pointing out that the Debt is really the bet you are making.
You are betting that the Value of the Debt will decline in the future.
If you think about it, Real Estate is probably the only Asset Class that has this unique feature where you can borrow up to 30 years at a fixed interest rate.
Now, imagine the scenario where you borrowed $1 Million to purchase your Real Estate at 5% fixed for 30 years.
When a Wage-Inflation Spiral happens, there is a huge upside to the borrower of this debt because the Asset class pays a fixed amount for the debt but the Renters are bidding up the Rents as their wages increase in the Wage-inflation spiral.
If one borrows $1 Million at 5% for 30 years paying $5,368 per month for this debt AND wage-inflation doubles the rent revenues then you effectively received a huge benefit as the Debt per month does not go up with inflation.
No other Asset Class seems to be able to do this.
As a real world example, last year one of my Apartments was renting for $3,000 per month. I re-rented that same apartment today for $4,100 with just 1 day of Advertising. My Debt payment per month remained the same but my monthly revenue increased by $1,100.
Eventually, Wage inducted inflation will negate the monthly debt payment, which should be seen as eliminating the Debt itself.
That puts a $ Million into my Equity as the Debt essentially disappears.
What other Asset Class does this?
Also, if you think about it, because you are generally using 4 to 5 times Leverage, the Debt is your BIGGEST Bet. Not the Cash Flow or the Appreciation. It is really the DEBT that is your biggest best.
As you say, you're talking about a benefit of investing with debt. That is distinct from whether real estate itself increases more than inflation.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
A lot of posts have essentially stated "Real estate is a good investment because.... " I agree. But that isn't my question. My question is specifically: "Does real estate appreciate faster than inflation?" That's it.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes4y
If you use fixed rate debt 30 year mortgage and leverage of 4x or 5x you make a ton of money off just tracking inflation appreciation.
- Rental Property Investor · San Luis Obispo, CA · Member since 2021 · 5 posts · 0 votes4y
@Eric James
But we have to also consider what would she have been posting in rent? She also could have been house hacking. If she had enough equity she could use a HELOC to do a BRRRR or a flip. The opportunities are there. Real estate opens the door to those opportunities, and appreciation is just the icing on top.
I think you bring up some good points. If we just look at market appreciation and inflation, the gains are not always way ahead of inflation. However those numbers of inflation and appreciation are averages. It’s looking at the growth of the worst areas and the best areas. As investors, part of our job is to buy in the right areas. It does not seem worth while to look at one factor of real estate (appreciation vs inflation) and not consider the other areas. While appreciation is an amazing hedge against inflation (better than any others I know of), owning real estate opens so many doors. Many of which have been mentioned:
- appreciation
- leverage
- loan pay down
- cash flow
- tax advantages
- opportunity for forced appreciation
There are so many other doors that open with real estate. For example, I don’t think you can 1031 exchange a business
I got into real estate for all those reasons if it was just appreciation, I don’t think as many people would be in it. But, this “appreciation” comes with all these other advantages.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes4y
In many markets (including those most popular for "cash flow" these days), appreciation is in fact a myth. A house in Toledo Ohio (a market I know a bit about) that sold for about $12,000 in 1960 would likely sell for about $100,000-$120,000 today. $12,000 in 2022 dollars is $117,206. You essentially broke even if you bought that house 62 years ago. The same is not true in growth markets. A house that sold in Marin County California for $18,000 in 1960 (an exorbitant sum compared to what you would get in Ohio at the time) amounted to $175,809 in 2022 dollars. That house is likely worth $1,800,000 - $2,500,000 today.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Quote from @Jonathan Grisanti:
@Eric James
But we have to also consider what would she have been posting in rent? She also could have been house hacking. If she had enough equity she could use a HELOC to do a BRRRR or a flip. The opportunities are there. Real estate opens the door to those opportunities, and appreciation is just the icing on top.
I think you bring up some good points. If we just look at market appreciation and inflation, the gains are not always way ahead of inflation. However those numbers of inflation and appreciation are averages. It’s looking at the growth of the worst areas and the best areas. As investors, part of our job is to buy in the right areas. It does not seem worth while to look at one factor of real estate (appreciation vs inflation) and not consider the other areas. While appreciation is an amazing hedge against inflation (better than any others I know of), owning real estate opens so many doors. Many of which have been mentioned:
- appreciation
- leverage
- loan pay down
- cash flow
- tax advantages
- opportunity for forced appreciation
There are so many other doors that open with real estate. For example, I don’t think you can 1031 exchange a business
I got into real estate for all those reasons if it was just appreciation, I don’t think as many people would be in it. But, this “appreciation” comes with all these other advantages.
Yes, those are advantages related to real estate and investing in it. But I'm not asking about those.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Quote from @Darius Ogloza:
In many markets (including those most popular for "cash flow" these days), appreciation is in fact a myth. A house in Toledo Ohio (a market I know a bit about) that sold for about $12,000 in 1960 would likely sell for about $100,000-$120,000 today. $12,000 in 2022 dollars is $117,206. You essentially broke even if you bought that house 62 years ago. The same is not true in growth markets. A house that sold in Marin County California for $18,000 in 1960 (an exorbitant sum compared to what you would get in Ohio at the time) amounted to $175,809 in 2022 dollars. That house is likely worth $1,800,000 - $2,500,000 today.
Appreciation from $18k to $2m seems huge, doesn't it. But over 62 years that's less than 8% per year. That may have been higher than official inflation in the US overall. Was that higher than inflation in Marin County?
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Quote from @Darius Ogloza:
In many markets (including those most popular for "cash flow" these days), appreciation is in fact a myth. A house in Toledo Ohio (a market I know a bit about) that sold for about $12,000 in 1960 would likely sell for about $100,000-$120,000 today. $12,000 in 2022 dollars is $117,206. You essentially broke even if you bought that house 62 years ago. The same is not true in growth markets. A house that sold in Marin County California for $18,000 in 1960 (an exorbitant sum compared to what you would get in Ohio at the time) amounted to $175,809 in 2022 dollars. That house is likely worth $1,800,000 - $2,500,000 today.
This is where I have to laugh...and why I always say that the most important books every REI should be more than just familiar with, are Algebra...and especially Geometry.
Your opening statement said "...appreciation is in fact a myth"...followed by two examples of appreciation, to prove it was a myth. HUH!??!
The two sets of numbers you proceeded to pull out of (pick your source), mean absolutely nothing, and just confuse the issue.
In any case, unless you have a crystal ball, or your name is Nostradamus, I highly doubt anyone could have predicted either of the "appreciated" values you gave your two examples, 62 years into the future. However, in both cases, if you held either property for those 62 years, whether it was in Ohio or California, you would have lost more money than you think that fictitious "appreciation" would have gained through the loss of potential exponential gains, as the "appreciation" increased the equity the same dollars as it did the PV. This reduces the buying power of the equity because it decreases the relationship between the equity (what the property is actually costing you), and the PV (which is what you are actually buying). Remember, you originally paid only 20% of the purchase price. As the equity/PV increases, it does so on a 1 to 1 ratio,...not 1 to 5, so it's actually diluting the value of your equity.
Equity most certainly does exist, and like CF (not instead of), is crucial what makes a good deal. The true value of that appreciation is how fast it can duplicate the DP (the original equity you paid for). This, along with the accumulated CF equally your DP (this means you no longer have skin in the game...or risk), tells you it's time to sell and take full advantage of the maximum this property will be worth to you.
See, the value of the property is what that equity buys you. Leaving that equity in the same property until it is paid off loses you money...not makes it.The answer to your original question: It doesn't matter, as long as you keep your cash (equity) moving. This means your returns are exponential, which is something even the highest inflation can't keep up with.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes4yInflation is essentially by definition housing prices.
Quote from @Eric James:
A lot of posts have essentially stated "Real estate is a good investment because.... " I agree. But that isn't my question. My question is specifically: "Does real estate appreciate faster than inflation?" That's it.
Does "real estate" appreciate faster than "real estate"?District Invest Group545 Reviews - Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes4y
I think a lot of us get spoiled when plotting returns. Yeah, the S&P returns an average of 11% but looking at the market today from the bottom of the bottle - 20% down year to date - I can appreciate (no pun intended) a return over 62 years of 7+%.
FYI I am not aware of any county level inflation data base or even State level. The numbers above are from DOL CPI data calculated May 11, 2022.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes4y
@Joe Villeneuve I truly do not understand your comments regarding measuring value/equity. All I know is it feels nice to hold real estate worth millions. In any event, I agree you cannot know in advance how a particular market is going to move but sufficient demographic data exists to allow you to make educated guesses about where growth is going to happen. We are invested in Northern California, Gulf Coast Florida and sunbelt (largely Las Vegas). So far, these bets have played out quite well. We sold our midwestern bets in 2014 once we fully digested the above principle and realized that capital costs were certain to outpace gains over the long run in those places.
- Lender · Nationwide · Member since 2018 · 571 posts · 310 votes4y
@Eric James This is a great discussion.
I think @Russell Brazil makes a good point that real estate prices are a big component of inflation, so the key question is how does real estate appreciate compared to other goods?
It might be useful to look at the Case-Schiller Index, the S&P 500 of real estate, and adjust for inflation. This graph goes a step further and adjusts for M2 inflation, as well as median income. It's at least a start at tackling the question.
Source: https://adjusted-for-inflation...
The other part of this discussion is whether leverage changes thing. I think it's fairly obvious that the answer depends on how much inflation there is and how much interest is charged. If you assume RE matches other goods in appreciation, and an interest only loan (amortizing gives the same results but is just more complicated to write) this equation calculates the increase in buying power as a result of leverage:
*I wrote this here earlier but realized it was hard to read, will simplify and replace soon.
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesIt's really not that complex. I will use an example that is smaller than the ones you gave, but the application is the same, regardless of the PV we're using:
Quote from @Darius Ogloza:
@Joe Villeneuve I truly do not understand your comments regarding measuring value/equity. All I know is it feels nice to hold real estate worth millions. In any event, I agree you cannot know in advance how a particular market is going to move but sufficient demographic data exists to allow you to make educated guesses about where growth is going to happen. We are invested in Northern California, Gulf Coast Florida and sunbelt (largely Las Vegas). So far, these bets have played out quite well. We sold our midwestern bets in 2014 once we fully digested the above principle and realized that capital costs were certain to outpace gains over the long run in those places.
Example: PV = $100k; DP (20%) = $20k; Appreciation = 5%/year (pick any appreciation you want); CF = $4k/yr
1 - Original cost of property (to the REI) = $20k; Original equity = DP = $20k
5 years later:
2 - Accumulated CF ($4k/yr) = $20k = DP = All cost has been recovered and all CF is now pure profit (unless you have to come up with cash for something else)
3 - New PV = $124k; New Equity = $44k; CF = $4k/yr
After 6 years: Keeping Property
4 - Accumulated CF ($4k/yr) = $24k = $4k pure profit (see above)
5 - New PV = $130k; New Equity = $50k; CF = $4k/yr
After 6 years: Selling Property after year 5
4 - Accumulated CF ($4k/yr x 2) = $28k
5 - New PV = $200k (5 x equity/cash out after subtracting for C.C.); New Equity = $60k; CF = $8k/yr
Now do the rest of the math following these rules:
1 - After the accumulated CF equals the DP AND the appreciated equity equals the original equity (bought from the DP), sell...
..I guess there's just one rule.
Now tell me how long it would take to reach the same equity you would have if you kept the property for 30 years (mortgage payoff), and what the total CF would be?
Take it one step further. What if instead of using the CF to paydown the debt, use it to invest in another property when you get $20k in cash for the DP's. Now how long will it take to reach the same equity and CF? - Keene, NH · Member since 2015 · 22 posts · 22 votes4y
Yes, so called "appreciation" in most homes is almost entirely a function of inflation... with a few small caveats.
Houses are depreciating assets. Relative to when they were new construction, they become worth less over time.
This is why you can depreciate your properties on your taxes. It's because they are indeed depreciating assets! :-)
The caveats here are:
1. The real rate of currency inflation (which is NOT measured by the CPI) in many periods is likely to be higher than the interest rate on your loan.
This means that your deal gets better over time because you are paying back your loan in currency that has lost value at a rate faster than your interest rate.
This is an artifact of pure fiat currency systems that advantages debtors/borrowers over savers/lenders.
So, while not technically "appreciation" of the house itself, it is depreciation of of the loan, making you richer than you would otherwise be. Unfortunately, this occurs at the expense of savers/lenders, which is a major flaw in the current monetary system.
2. The area that the property is located in could become more desirable, increasing the property value.
But this is NOT the house itself appreciating in value. It is the property on which it is located increasing in value due to increased demand for land in that area.
All else being equal, the house on that same land would be worth more if were just built than if it were 60 years old with 60 years of wear and tear.
3. At a certain point, perhaps there is SOME genuine appreciation in value if a home is of historic significance ore desirable BECAUSE of its age... but that's arguable.
This is potentially a bit misleading, and is arguably not all "appreciation" at all, because a tremendous amount of work and costs in maintenance and repair must have gone in to making the house a more desirable asset in spite or because of its age.
If a house sells at a premium because it's a rarity, in amazing shape for its hundreds of years of age, this was only made possible by tremendous additional costs laid out over the years. So did it really "appreciate"?
Despite popular belief at the moment, housing prices have not "appreciated" that much in real terms, despite recent price increases.
But don't take my word for it! You can easily confirm for yourself that housing has not gone up that dramatically in real terms in recent years.
For a better view of the picture, compare the cost of the median US home to other assets: For example, the price of gold, the price of stock indexes, the price of commodities and so on, and you will find that despite the recent nominal increases, US real estate is actually closer to its historic lows than its historic highs.
(I can help you find charts showing this if you need any help. Just let me know!)
What makes real estate seem relatively expensive is that wages and rents are down even more than home prices in real terms.
All this becomes a lot more clear when you stop measuring home prices only in dollars, which fluctuate in value, and instead cross reference them against other assets, especially against other real assets, preferably those with relatively stable values over time.
Hope that makes sense!
-Justin - 4yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
My parents bought their first house around 1970, located at 5016 Cuming St in Omaha, for $16,000. My mom and I looked up the value on Zillow over the last couple of years.
In October of 2018 it was worth $260,860. In Oct 2021 it was worth $358,600. In June of 2022 it was worth $408,600. If they'd stayed there over the years, it would have been paid off in the year 2000.
The interest rate at that time was 8.5% and their payment was $250, which was difficult for them.
- Member since 2020 · 437 posts · 675 votes4y
Real estate is hyper local. Parts of the country have done exceedingly well in terms of appreciation and many more have stayed stagnant to shown muted appreciation. To say RE appreciation is a myth somehow will be a term that gets used by folks who have invested in stagnant markets and seen little to no inflation adjusted returns and that is most of the country. Similarly, to generalize and say RE appreciates 20% / year annually might be a mindset held by investors in high density coastal markets especially levered to tech and the new economy. Again, that is a local isolated case and not a nationwide or global phenomenon.
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesYou can't compare homes we live in the homes we rent to others. They are not the same because the use, and the cost factors are not the same.
Quote from @Kerry Baird:
My parents bought their first house around 1970, located at 5016 Cuming St in Omaha, for $16,000. My mom and I looked up the value on Zillow over the last couple of years.
In October of 2018 it was worth $260,860. In Oct 2021 it was worth $358,600. In June of 2022 it was worth $408,600. If they'd stayed there over the years, it would have been paid off in the year 2000.
The interest rate at that time was 8.5% and their payment was $250, which was difficult for them.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes4y
Quote from @Shital Thakkar:
As @Russell Brazil said...Leverage is the key here
Example...
Purchase price = 100K
Your Down Payment = 25K
Appreciation = 5%
New price of property = 105K
Your gain 5K on 25K = 20%...
on top of this if you are getting.... Tax depreciation + Cash Flow + Amortization etc... Overall RE is great passive investment.
Maybe in the HGTV world where loans and transactions cost nothing.
End of year 1 you break even because the loan costed you $5k to obtain plus pain and indigestion.
If you try to sell and realize your 'gain', there will be another $8k in closing costs and commissions. Your '$5k gain' is now an $8k loss.
Not to be a fly in the rat rah ointment, but 5% per year appreciation has a true net break-even of 2.5 yrs min not including taxes.
I get it and am a long-term holder, just account for acquisition costs👍
Quote from @Eric James:
One stated benefit of investing in real estate is price appreciation. However, if you look at inflation adjusted real estate prices for the most part there isn't much appreciation. There are specific points in time like 2006 (we know what followed that) and right now when real estate exceeds inflation adjusted prices. However, over the long term it doesn't really appear that real estate appreciates much beyond inflation. Is real estate appreciation a myth?
Look at long term studies 100yr+ you will see
Inflation is 3% range. Bonds are in same 3% range
Real estate is 6-7% range.
Stocks are in 10% range.
There are periods of divergence from this and there will be catchup. Here is bigger pockets article on this:
Bonds vs. Stocks vs. Real Estate: Which One Wins? | Blog (biggerpockets.com)This is offcourse favoring real estate, however you can look up other indpendent sources and find that stocks normally get 10% total returns considering dividends are reinvested.
In my opinion stocks are best for passive strategies that are long term.
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesWhen you buy a stock worth $100k, how much does it cost the investor?
Quote from @Harish V.:
Quote from @Eric James:
One stated benefit of investing in real estate is price appreciation. However, if you look at inflation adjusted real estate prices for the most part there isn't much appreciation. There are specific points in time like 2006 (we know what followed that) and right now when real estate exceeds inflation adjusted prices. However, over the long term it doesn't really appear that real estate appreciates much beyond inflation. Is real estate appreciation a myth?
Look at long term studies 100yr+ you will see
Inflation is 3% range. Bonds are in same 3% range
Real estate is 6-7% range.
Stocks are in 10% range.
There are periods of divergence from this and there will be catchup. Here is bigger pockets article on this:
Bonds vs. Stocks vs. Real Estate: Which One Wins? | Blog (biggerpockets.com)This is offcourse favoring real estate, however you can look up other indpendent sources and find that stocks normally get 10% total returns considering dividends are reinvested.
In my opinion stocks are best for passive strategies that are long term.
When you buy REI with a PV of $100k, how much does it cost the REI?
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