As you can see, Southern California real estate prices were up 9.8% over the past five years. Meanwhile, the DOW stocks were up 14.8%. At first blush, you would assume that the stocks would have prevailed and you would have made more money. But, this is not close to being accurate.
Why? Because real estate has five economic benefits, meaning you make money five different ways. On top of that, real estate has the utility value advantage. This means you can use the property by either living there or selling the utility value to a renter. By doing so, your cumulative return on investment in real estate is 43% compounded versus an annual return of 13% on stocks.
What is even more compelling is the difference in return on investment in dollars. The ROI in dollars on a $60,000 investment in real estate is $404,953, while the same $60,000 investment in stocks results in an ROI of $57,558, which is a huge $347,395 difference.
So where do we go from here?
I think most of us recognize that this financial party cannot, and will not, last forever. Whether it be the prices of stocks or real estate, they cannot continue rising in perpetuity. The question is: “What is the smartest/ safe move for me now?”
In our next newsletter, we will discuss inflation and show you the history of how inflation has affected both stocks and real estate in the past.