Why Invest in Real Estate?
House Value over the last centuries:
(source: http://3.bp.blogspot.com/_wFWqWIH-WFU/SPnTDZ-G-pI/AAAAAAAAGLw/EmInfXSfe00/s1600-h/housing_projection.jpg)
S&P 500 return since 1950:
(source: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=20800&t=01004553487438585767)
I saw the first chart today, and immediately want to find a comparison chart. I always been told by many people that investing in real estate is good, safe, low risk, and good returns. I had my doubts, but I am unable to convince my friends that equity is a better choice. Now I can convincingly say so.
The first chart is the house value over the last century adjusted for inflation. Clearly, over the last 100 years or so, the house price barely grow, even at the height of the last housing bubble, you would made 200% return. However, if you invest the same amount of money in S&P 500 in 1950, your capital would grow by 10 times + dividend. (shown in blue line on the second chart.) The reason I excluded dividends is that we can compare it to the housing price, since it did not include rent income. Had we invested the dividend, we would gain 100x, shown in the red line. I doubt that re-invested dividend income would gain as much return.
George Liu
george.j.liu@gmail.com
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