Is Real Estate a good investment? Lets look at the numbers...

In talking with another real estate expert, he gave me the following figures:

• Real Estate has beat inflation by 33% over the last 30 years.

• Real Estate appreciates about 6% a year (avg over the last 30 years), and the
  CPI (Consumer Price Index) goes up about 4.7% (avg over the last 30 years).

The one thing that real estate brings to the table is LEVERAGE. To make sure you understand the power of leverage lets do a couple of examples.

For example, if you have a home that you purchase for a price of $150,000 and you put $30,000 down. Taking the average appreciation amount (6.1%) for real estate, after a year your property would be worth $159,150 which is a gain of $9,150.  Now if you purchase another investment, say stock, for $150,000, and for keeping things the same and state you have an appreciate of 6.1%. So your investment would now be worth $159,150, just the same as the real estate example. So, lets evaluate the resultss you made $9,150 on a $30,000 investment in real estate. You made $9,150 on a $150,000 investment in stock. So your rate of returns are the following:

• 30.5% rate of return on the real estate investment

• 6.1% rate of return on the stock investment

So...which is the better deal?

Second example, lets play with the numbers a little bit. Lets take the same home priced at $150,000 and putting $30,000 down. Taking the average appreciation amount for real estate 6.1%, and after a year your property will be worth $159,150 which is a gain of $9,150, which is the same as above. Now if you purchase an investment, say stock, for $150,000, and for discussion sake, lets say you have an appreciation of 12%, double what we are figuring on the real estate investment. So your stock investment would now be worth $168,000.  Now, you have made $9,150 on a $30,000 investment in real estate, or you would have made $18,000 on a $150,000 investment in stock. So your rate of returns are the following:

• 30.5% rate of return on the real estate investment

• 12% rate of return on the stock investment

So eventhough we doubled the appreciation on the stock investment, the real estate investment delivers a better rate of return. Why is this? Because the real estate investment allows you to LEVERAGE your money.