15 years ago the average house cost $34k and rented for $750/month (remember cheap foreclosed houses and the 2% rule!).

Approaching this as a totally passive investment (where everything is hired out), I would get about 12% return on equity. This does not include appreciation. This was a good investment with these numbers!

In the past 15 years, properties have increased 500% in value while rents have only increased 180%.

Today, the average house is worth $170k and is rented for $1350/month.

Approaching this as a totally passive investment (where everything is hired out), I would get a 4.0% return on equity with today’s prices and rents. Historical appreciation is 3.8% in this area. Total return on equity would be 7.8%.

Historical return on the stock market (S&P 500 index fund) has a historical annual return of 10%.

So, is the buy and hold approach to real estate still a good idea with today’s prices?

Averages in the stock market: we aren't averaging 10% that's for sure. We don't know what we are doing or what to buy etc. We've lost a fortune in several downturns over the years. We could not live on what we earn on our investments there.

We can live very well on our RE investments. So is it a good deal now? I can't answer that. But WAS it a good deal THEN? Very much so, and remains that way for us.

Real estate has treated me Well. I bought one house for $42,500 and if I sold it today, it would go for somewhere around $950,000. The best part about it is the tenants made 95% of my payments for me. The starting rent was $410 a month and today’s rent is $3000 a month.

If you have $100 today, it has the same buying power as $68 in 2009.

That's one of the reasons so many investment firms started snapping up sfh's in that 2008-2009 period, even though they're clunky to manage. It was an easy way to protect their investors' money. So they weren't interested in getting rent, even though it was a nice side benefit. They weren't interested in keeping the houses in good shape, because a $250k house with a bad roof is still a $240k house, and that's easier than maintenance and upkeep.

So-- if you have a $100k house in 2009, and it's now a $300k house in 2024, and $100k in 2009 dollars has the buying power of $150k in 2024--- you're ahead.

Real estate is also about control. I remember DH getting his retirement account information in the mail in that 2004, 2005 period-- and it would be shedding money like crazy. It wasn't real money, it was just imaginary numbers, and there was nothing we could do to protect those imaginary numbers until the day came when we needed to turn imaginary numbers into real money that would pay our bills.

But with a physical house that someone will pay me to use, and that I can touch, and that I can manage--- that's real money, not imaginary money. It's not someone in an office telling me my account is worth $x this month and $y next month; it's me actively managing it, and things going well if I do it well, and things going poorly if I lose control.

I agree with many of the previous comments. One of the reasons why everyone is now piling into real estate is due to what everyone has said and that has had the effect of making it not as good of a deal ---at least for them. Notwithstanding that, it's possible to find good deals and I think we're maybe entering a period where they might become more plentiful as folks who've overpaid over the recent few years are forced to exit. We'll see.

Each and every NICHE in real estate has a cycle. You have Ided that the niche you have selected is in a cycle. I would not be surprised if you will soon fine that niche in transition. So now you have some work to do. You can diversify the types of real estate you hold or you can change the way you buy.

RE as a good investment all depends on the timing. Granted buying right helps out. But try to sell at a good price after the 2008 crash. Or sell when your neighborhood went downhill (any longtimers remember Nancy in Detroit?) Or sell when the local plant closes, or a condo in Florida facing a large assessment.

Anyway, Diversity is key. Don't have all you eggs in one basket cliche.

As compared to what other options?

That's the question we must always ask. If not real estate, then what else is BETTER?

I'm of the view that, except for some very unusual times in our country's history, real estate is the best long-term investment.

For short-term, you're a flipper. That's more business than investment per se, though they share many similarities, the goals, the pros, and the cons are different.

So what we must do first is establish the goal(s):

1) Current income? (i.e. free cash flow)?

2) Long-term appreciation?

3) Tax sheltered wealth increase?

And so forth.

Is real estate a good investment for the $10,000 I'm saving up to go on a trip next year? Probably not.

Is real estate a good investment compared to the stock market for long-term wealth building so I can retire with a diversified portfolio 20 years from now? Probably yes. But even here I would say to do both!

I like stocks for liquidity and ease of transactions. I can place a sell order today and have my profit in my bank in 3-4 business days from my brokerage account. I also like that I don't have to hear sob stories from my portfolio. I can evict (i.e. sell) a poorly performing stock and replace it with a new one in a couple of minutes.

I like real estate for long-term investments, cash flow, and wealth protection. Overall, the performance also is better, as it should be given the greater hassle involved.

But if a person just wants to sit on their duff and collect checks... corporate blue chip bonds are probably the best bet. Easy, boring, and predictable. Low, consistent returns match low effort and risk.

6x6, I always said the stock market, for us, was like the Emperor's New Clothes...everyone was always telling me that over the long haul, the market was making X...but as it turns out unless you were in the market on very specific days over the long haul, you DID NOT make X, they were lying to us. AND if you need the money on a bad day, you are screwed.

We lost a lot of money several times, enough to scare me out.

Never got into trading paper. Didn't understand it enough and never took the time to learn.

I know housing. I have learned it. I think there are good deals and bad deals to be had at any time in the cycle.

Some are tougher to find or structure.

Banker buddy of mine once said that I shouldn't worry as much about the interest rate as I should about the cashflow and appreciation.

I think a better question might be - how do I change my niche to match my local market conditions.

What am I personally finding? There is someone who died daily around here. Another thing I found - Dead people don't negotiate well. Where you are at- Relos might be what you need to target.

6x6, stock market gains often depend on when you invested. For example, if you went "all in" right about February 2020 (stocks near records highs), you'll have a much different result than if you want all in in April 2020 (stock near record lows).

It also depends on when you sell. If you owned $1,000,000 stock and sold in February 2020, you did far better than if you sold near the end of March 2020.

But what we do know is, since 1977, the S&P 500 has consistently returned around 10-11% annualized returns. What that means is if you take the % gain or loss in each individual year, added them up, then divided by the number of yours, the average was 10-11%.

That is FAR different from the compounding returns a lot of investment literature touts, which looks much better.

Stocks can make you decent money. The best way to do it is set up something simple and forget about it for 40 years. I started in 1999 and have weathered three major downturns - dot com crash, global financial crisis, and the covid world wide shut down. I'm still far, FAR ahead of where I started. I haven't kept track of my contributions, but just looking at what my maximum potential contribution to my IRA over the 25 year is, I can easily tell that my returns have far exceeded my contributions. And that's IF I put in the max I could each year. For a while, I didn't.

This year, we're not contributing anything to our IRAs. Wife and I decided to redirect our monthly contributions to a cause near and dear to our hearts. I'm earning far more from returns than I am making in contribution at this point, so really, I probably could never contribute another dime and we won't notice much. The power of long-term investing is amazing, even if compounding isn't the right way to describe it. Some months do go down, and 2023 was kind of brutal for awhile. That said, we've recovered the entire paper loss and are hitting record high balances this year.

You need to have liquid reserves to avoid having to fire sale assets when they are down. Real Estate and Stocks compliment each other in this way. If I need $5,000 for a trip, I can cash in a few stocks instead of selling a house and taking a huge tax hit. If stocks are down, I can supplement my cash flow with rents rather than sell my stocks at a loss.

It's been interesting learning to use different investments at different times to maximize potential growth and returns.

I think it's a bad investment if you're paying full MLS price and buying with cash. The returns just aren't there.

That said, if you can fish in a different pond you may still be able to abide by the 2% rule. I bought 3 houses last year. One was leveraged (first ever!) which is boosting my returns. The other two were well under market. One bought at sheriff's sale, one from a wholesaler.

This is why I've shifted to rooming houses. Adapt or die! My first rooming house: I added a studio apt to in the basement and rented out the other six rooms individually. My current project is creating a studio apt in the attic (studios are rare in my market and HIGHLY desirable) and five other rooms that will be rented out individually. I may let someone rent the basement storeroom if they're desperate. The returns are awesome.

I personally know a guy who put a Million Bucks

in a CD at 5.25%

After its maturity, now sits a new car in his driveway,

for his (female) Wife.

Real estate is cyclical, we are in a portion of the cycle where it will be difficult to get good returns for the first few years on an average buy. The key is not to make an average buy, money is made in buying low and selling high. It's also a get rich slowly endeavor. Even a bad investment in the first year will likely turn a profit in a few years if you can hold out until inflation eats away at the loan.

The stock market is a fair investment also. I personally am one that has made a little over 9% year over year in both my 401K and my personal investments for almost 30 years. Yes, I lost a percent or two to management fees or it would have been even higher. The people I've heard clamoring that they have lost money are day traders, those that try and pick their individual stocks, or those that try and time putting money in and pulling it out. This is especially prevalent during a downturn when people get scared and pull their money out at the low point and hold it until times are better and reinvest at a higher point. That's a recipe for disaster.

For years I had set up with a large cap mutual fund to pull a few hundred dollars a month out of my checking account and invest. In down times that bought lots of shares, in up times it bought less. Don't watch it or you get nervous. I checked the value and Morning Star analysis once or maybe twice a year to make sure that Mutual Fund was still being managed well. Other than that I just let it grow.

So which is better? It depends on how you look at it.

I have made way more than 9% returns on RE in the last 30 years. I don't know what the average return has been but I do know that several years it was over 25%. You can make a lot when you take a small down payment, and borrow the rest using Other Peoples Money. You can't do that with stocks. BUT on the inverse, I also had much time invested in tracking down deals, remodeling them, and managing them. You don't have that in stocks. I have made just over 9% in the stock market but I am not risk averse so I have a more aggressive investment mix than most people my age. If you are risk averse, or want to play with your investments, your results will be different.

Thanks for the responses.

Interesting discussion!

Someone posted they have a $950k house that is renting for $3k/month. That gives them a 3.8% return before expenses. After taxes, insurance, maintenance, repairs, vacancy, and property management, they are probably netting 2% after expenses. Adding a 4% annual appreciation gives them a 6% return on their equity.

Sid can get a 10% annualized return from a S&P500 index fund. So, does it make sense to move money out of highly appreciated properties that are under performing and put it into the stock market?

BTW, congratulations on the $950k property. Great investment at that time.

MMIT, going to the S&P 500 may not make sense because of the tax man. You would likely lose 30% of the value in capital gains taxes, depreciation recapture, and other costs when you sell, that will drive down what you have left to invest and the spread likely won't cover it.

Simple logic would tell you to take that property that is returning 3.8% and redeploy using 1031 into a more lucrative property. Shoot, even a syndication deal or REIT will probably yield better returns without having to face the tax man and get you out of daily management.

However, there are things to consider that make this not as simple. First off, as you get older and have more assets, most people want to reduce risk. The current property is a known producer with little risk that provides the income that the owner needs. A REIT, Syndication deal, or the like introduces a lot of unknowns. The mental process follows along the lines of the lyrics to to the song "Rock the Boat".

Second, RE is cyclical much like the stock market. I posted some stats recently that indicate apartment complexes are being beat down right now (nationally) because of overbuilding and SFH's rents haven't kept up with price increases. Both these situations are temporary and will change in the coming few years. Likely, this will cause the 3.8% return to spike back up. I mentioned above that it is not smart to jump out of the stock market when prices are down or to try and day trade. Same way when you are on the down side of RE. Buy and hold is a good strategy for both as long as the fundamentals remain good.

Real estate bin gud to me!

I lost 6 figures in the stock market when someone in England tried a hostile take over, was unsuccessful and walked away leaving us investors broke.

My investment was subject to outside events like the president falling off his bike, a hurricane, or some Middle Eastern dictator...my stock plummeted.

It was not spendable - had to sell it to get any cash, pay taxes on it, and pay a broker fee.

Brokers like to play games with the numbers. He tried to convince me I had a good return on a certain account because it went up X% in the past 2 years. But his numbers did not account for the XXX% drops in previous years. Over a 10 year span the account was worth what I put in it 10 years ago. No increase.

RE gives me cash every Friday without eating the investment. (Don't eat your seed corn)

With some sweat on my part I could greatly increase the value and cash flow.

Cash flow replaced my job income - FREEDOM!!!

BRAD

Real estate bin gud to me!

I lost 6 figures in the stock market when someone in England tried a hostile take over, was unsuccessful and walked away leaving us investors broke.

My investment was subject to outside events like the president falling off his bike, a hurricane, or some Middle Eastern dictator...my stock plummeted.

It was not spendable - had to sell it to get any cash, pay taxes on it, and pay a broker fee.

Brokers like to play games with the numbers. He tried to convince me I had a good return on a certain account because it went up X% in the past 2 years. But his numbers did not account for the XXX% drops in previous years. Over a 10 year span the account was worth what I put in it 10 years ago. No increase.

RE gives me cash every Friday without eating the investment. (Don't eat your seed corn)

With some sweat on my part I could greatly increase the value and cash flow.

Cash flow replaced my job income - FREEDOM!!!

BRAD

PS

Renting or flipping is not good in every community.

Brad, just think that this time next year when you go look at the Rollz you might bring it back instead of the shirt.