Rental Homes Crush Stock Returns
New Book Uses 50 Years of Data to Make Profit Predictions
By Dr. David Demers
A typical rental home in the United States generates three to six times more profits than an investment in the S&P 500 Index fund, according to a long-term statistical analysis conducted by a social scientist-turned-real-estate consultant.
“One of the biggest myths in the investing community is that stocks outperform rental properties and homes,” said Dr. David Demers, a retired Washington State University professor who began investing in rental properties at age 65 after he ghostwrote a best-selling real estate investing book for a wealthy entrepreneur in Scottsdale, Arizona.
Over a 10-year period, he said, a short-term rental home valued at $300,000 will generate profits of $531,074, compared to only $79,576 for a similar investment in the stock market, which has only produced annualized returns of 7.5 percent since 1970. A long-term rental will produce $254,729, three times more than stocks. In all three scenarios, the initial investment was $75,000 (25% down payment on the home).
These findings and the statistical data to back them up are contained in his forthcoming book,
TAP YOUR A$$ETS: How to Buy and Convert a House into a $50,000 Tax-Free Rental that Crushes Stocks. The data can be found at his website,
https://DrDavidDemers.com
The estimates assume that the real estate investors take on a 30-year 7-percent fixed mortgage. Inflationary cost estimates are built into the model for expenses and annual rental income. Estimated appreciation and stock market annualized rates of return were calculated using a 52-year period, from 1970 to 2022. Demers also found that home ownership produces twice the returns as a stock investment.
“Before you invest in anything, buy a home,” he said. “Your stock investments will not come close to matching what you will make in appreciation on your home over time.”
Leverage is the main reason real estate beats stocks. Over the last 52 years, homes have appreciated an average of 5.9% per year. This is less than the stock market, but when investors borrow money to buy a home, they earn appreciation not just on the down payment but on the borrowed money.
In the first year alone, the home generates at least $15,000 in appreciation, compared to $5,625 for the stock investment. Home values have only declined more than 20 percent in value once since 1950 (in 2008), whereas the stock market has had more than a dozen plunges.
“Homes are much safer and a more profitable investment,” Demers said.
The myth that stocks are more profitable is perpetuated by a bias in business news reporting that favors the stock market and arge corporations and investment firms that benefit from the sale of securities.
This bias is not surprising, said Demers, who is a mass media scholar, because power drives the information environment.
See DrDavidDemers.com and the tab “Real Estate” for exact statistics and how the data were compiled. You may reach him at
DrDavidDemers@gmail.com
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