Hey, it’s Graham here! Today, I’m diving into a topic that has everyone talking: real estate versus stocks. After watching Shelby Church’s video comparing 5 years of stock market returns to 5 years in real estate, I was inspired to crunch my own numbers. Spoiler alert: the results may surprise you!
Whether you’re debating whether to invest in property or stick with index funds, my goal is to break this down, show you my returns, and explain what this means for the average person. Hopefully, this post will save you from making some big financial mistakes. Let’s get started.
My Real Estate Journey: What I’ve Made So Far
Let’s start with my real estate portfolio. I’ve been investing in real estate since 2012, and over the years, I’ve acquired several properties. Here’s a breakdown of my returns:
- First Property – 2012:
I bought a bank-owned foreclosure in San Bernardino County for $59,500—paid in cash using money I saved from working as a real estate agent. After investing $112,000 in renovations, the property is now worth $400,000 and generates $1,500/month in net rental income. - West Los Angeles Property – 2016:
I purchased this property for $780,000 with a $150,000 down payment and a 30-year fixed mortgage at 3.375%. After putting $60,000 into renovations, it delivered a 280% return on my investment while generating $150,000 in rental income over 5 years. - Mid-City Duplex – 2017:
Bought for $585,000, I invested $220,000 in renovations. It’s now worth $1.2 million, and I pulled out all my initial investment in 2018 via a cash-out refinance at 3.75%. With no money left in the deal, this property has generated pure profit and $120,000 in rental income so far. - Another Mid-City Duplex – 2020:
Purchased for $815,000 with 15% down, this property is now worth $1.15 million.
Total Real Estate Returns:
In total, I’ve invested $643,000 of my own money into these properties, resulting in a total value increase of $1.843 million—a 281% return (excluding rental income).
How Real Estate Performed Over the Last 5 Years
Now, let’s focus specifically on the last 5 years. While my overall returns look great, recent performance hasn’t been as impressive, especially in Los Angeles County.
- Property #1: Increased from $300,000 to $400,000 (33% increase).
- Property #2: Increased from $1.2 million to $1.4 million (16% increase).
- Property #3: Increased from $1 million to $1.2 million (20% increase).
- Property #4: Increased from $950,000 to $1.15 million (20% increase).
While these are solid gains, they’re not as dramatic as you might expect—especially when compared to the stock market’s explosive growth since 2020.
The Real Cost of Real Estate Today
Here’s the thing: real estate investments made before 2020 worked because of low prices, cheap debt, and favorable market conditions. But today’s numbers? Not so great.
Take my first property as an example. If you bought it today for $380,000 with 15% down and a 30-year fixed mortgage at 7%, your monthly payment would be:
- Mortgage Payment: $2,148
- Property Taxes: $375
- Home Insurance: $125
- Repairs/Maintenance: $150
- Total Cost: $2,900/month
But here’s the kicker: you could only rent it for $1,950/month. That’s a $950 monthly loss! Rising insurance rates, property taxes, and repair costs have made it difficult for today’s investors to turn a profit.
Stocks vs. Real Estate: The Numbers
Let’s compare this to stocks. Historically, the S&P 500 has averaged a 10.6% annual return over the last 100 years, including dividends. For most people, investing in an index fund is as simple as clicking a button—and it requires far less work than managing real estate.
Here’s a quick example:
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- If you invested $100,000 in an index fund, it would grow to $750,000 in 20 years (assuming a 10.6% annual return).
- If you used the same $100,000 as a down payment on a $500,000 property with a 6.5% mortgage, your net return would be $820,000 after accounting for mortgage payments, property taxes, insurance, and repairs.
On paper, real estate and stocks deliver similar long-term returns. But real estate requires significantly more work: finding tenants, handling repairs, and managing vacancies. With stocks, you just invest and let compound interest do the rest.
When Does Real Estate Make Sense?
So, is real estate a bad investment? Not necessarily—it depends on your goals and circumstances. Here’s what I’ve learned:
- Leverage Matters: If you bought a home before 2020 with a low-interest mortgage, you’re probably seeing great returns thanks to leveraged appreciation. But today’s higher interest rates have made leverage less effective.
- Real Estate Isn’t Always an Investment: For most people, a home is a place to live, not an investment. If you’re buying a property to live in, focus on finding a place you love and plan to stay in for at least 10 years.
- Diversify Your Portfolio: Don’t put all your money into real estate. Index funds are an easy way to balance your portfolio and hedge against downturns in the housing market.
- The Emotional Factor: There’s an intangible value to owning your own home. It’s yours—you don’t have to deal with landlords or rent increases. That peace of mind is worth something, even if it’s hard to put a price on.
My Current Strategy
Personally, I’ve shifted my focus away from real estate in recent years. Most of my properties were purchased a decade ago at low prices with cheap, long-term debt. At today’s prices, I don’t see the same opportunities.
Instead, I’m putting more money into index funds. They’re simple, effective, and require zero effort on my part. While real estate can still be a good investment in the right market, it’s no longer my go-to strategy.
Final Thoughts
At the end of the day, comparing real estate and stocks isn’t an apples-to-apples comparison. Real estate comes with emotional and practical benefits that stocks can’t provide, but it’s also more work and risk. Stocks, on the other hand, offer consistent returns with minimal effort.
If you’re debating between the two, ask yourself: What are your goals? How much time and effort are you willing to put in? And most importantly, what’s the opportunity cost?
For me, the best approach is diversification. Owning real estate and investing in stocks allows you to balance risk and reward while taking advantage of different market conditions.
If you found this post helpful, feel free to share it, and don’t forget to check out Shelby Church’s video (linked in the description). Thanks for reading, and as always, happy investing!
