Real Estate is a lousy investment

The NY Times had an article yesterday about the true investment returns on real estate. In the long run you are much better off buying a house you can afford to live in, and investing in the stock market. In spite of the run up in house prices in recent years, the actual rates of return over time when you factor in inflation are actually pretty poor:

When Marti and Ray Jacobs sold the five-bedroom colonial house in Harrington Park, N.J., where they had lived since 1970, they made what looked like a typically impressive profit. They had paid $110,000 to have the house built and sold it in July for $900,000.

But the truth is that much of the gain came from simple price inflation, the same force that has made a gallon of milk more expensive today than it was three decades ago. The Jacobses also invested tens of thousands of dollars in a new master bathroom, with marble floors, a Jacuzzi bathtub and vanity cabinets.

Add it all up, and they ended up making an inflation-adjusted profit of less than 10 percent over the 35 years.

That return does not come close to the gains of the stock market over the same period. The Standard & Poor’s 500-stock index has increased almost 200 percent since 1970, even after accounting for inflation.

Definitely read this article before you go out make a speculative real estate buy.

BTW if you are using Firefox (you are using firefox aren’t you?) go grab the bugmenot extension so that you don’t have to register at sites like the ny times and other papers.

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