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Fun With Math: Traditional Investing vs. Real Estate Investing

By
Real Estate Agent with Ad Astra Realty BR00222587

Real Estate Investing Returns vs. Traditional Investing: Fun With Math

 Investing is a fascinating topic for me. I like simple math. So here is a little something I figured out in a few minutes regarding traditional investing (stocks, bonds, whatever) versus real estate investing.


Traditional Investing

Let's start with a $10,000 liquid savings account. We'll buy some stocks, not counting any fees, and we'll add $200/mo. to that balance. Every month.

And we are going to say that we have an 8% return each and every year. (Yes, I know some years will be higher, some lower. I wasn't born yesterday.)

After 30 years you should have approximately $398,698. Hey, that's pretty good! I'd take it. Unless...

Real Estate Investing

Let's take the same $10,000 and leverage it into a $200,000 duplex. Now the cash flow on this will be negative so we'll contribute that same $200/mo. we used earlier to help it break even. Just to be fair I'd hate to throw in the other advantages of real estate investing like depreciation. But we will use principle reduction and appreciation.

So after 30 years the mortgage will be paid off (by the tenants!!!!) and we'll use an annual appreciation rate of 4%. That sound more than about right.

Where are we after 30 years? Right around $650,000. Doh!

Comments (2)

Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Hi Chris, So why aren't there any comments here? This is a good post and more of us should be taking note of it. The investment actually gets better because you could have (and should have) traded up a couple of times. Plus the negative cash flow goes away in time. And like you said the tax savings gives you even more to invest.

OK, go back and "fix" the numbers for Homer and the other mathematically challenged investors out there.

Bill Roberts

Jul 21, 2007 10:38 AM
Chris Lengquist
Ad Astra Realty - Olathe, KS
Kansas City Real Estate Investing
Bill - thanks for noticing.  Yes, I kept it simple.  And yes you could just explode those numbers with a sound strategy.  But I thought I would keep it simple. 
Jul 21, 2007 11:23 AM