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‘Before You Invest in Anything, Buy a Home’
Forecasting Model Also Shows That Rental Real Estate Crushes Stocks
A typical family home generates more than twice the equity of an S&P 500 index fund and a rental home is three to six times more profitable, according to a social scientist who created a forecasting model using five decades of data on housing and stocks.
“One of the biggest myths in the investing community is that stocks outperform residential real estate,” said Dr. David Demers, a retired Washington State University professor of mass communication and media sociology who owns a short-term rental home. “Before you invest in anything, buy a home. Your stock investments will never come close to matching what you will make in appreciation on your home over time.”
The 10-year forecasting model (see chart under book cover) shows that a home valued at $300,000 with a 30-year, 7-percent-fixed-interest mortgage and a 25 percent ($75,000) down payment will generate $220,592 in equity, compared to only $79,576 for the same investment in an S&P 500 index fund. A short-term rental home will generate profits of $531,074 with an average annualized return of 21.6 percent, compared to only 7.5 percent for stocks. A long-term rental produces $254,729, three times more than stocks.
Inflationary cost estimates for expenses and rental income are built into the rental models. Estimated appreciation and stock market annualized rates of return are based on a 52-year period, from 1970 to 2022.
Demers said leverage is the main reason residential real estate beats stocks. Over the last 52 years, homes have appreciated an average of 5.9 percent per year. That’s less than the stock market, but when investors or families borrow money to buy a home, they earn appreciation not just on the down payment but on the borrowed money.
“That’s why residential real estate crushes stocks,” Demers said.
These findings are presented in Demers’s new book, TAP YOUR A$$ETS: How to Achieve Financial Freedom in Two Years with Just One Rental Home (available March 2024; Distributed by Ingram). His first book on real estate, ABCs of Buying Rental Property, was ghostwritten for a real estate entrepreneur in Scottsdale, Arizona, and is a best-seller at Amazon.com.
For more Information, phone, text or email Dr. Demers at
623-363-4668 • DrDavidDemers@gmail.com • DrDavidDemers.com
Ever wonder how people get so rich in real estate? Mortgage interest and depreciation are deductible from their income, and tax rates on the sale of real estate are much lower than taxes on earned income. But taxes on the sale of property can even be avoided altogether when investors refinance their property every five years or so and draw their pay from the loan, which is based on the equity on the property and, thus, not taxable. Even small investors can take advantage of this benefit. TAP YOUR A$$ETS shows you how.