Rental Homes Crush Stock Returns
New Book Uses 50 Years of Data to Make Profit Predictions
By Dr. David Demers
A typical rental home in the United States generates three
to six times more profits than an investment in the S&P 500 Index fund,
according to a long-term statistical analysis conducted by a social
scientist-turned-real-estate consultant.
“One of the biggest myths in the investing community is that stocks
outperform rental properties and homes,” said Dr. David Demers,
a retired Washington State University professor who began
investing in rental properties at age 65 after he ghostwrote a
best-selling real estate investing book for a wealthy entrepreneur
in Scottsdale, Arizona.
Over a 10-year period, he said, a short-term rental home valued
at $300,000 will generate profits of $531,074, compared to only
$79,576 for a similar investment in the stock market, which
has only produced annualized returns of 7.5 percent since 1970.
A long-term rental will produce $254,729, three times more than
stocks. In all three scenarios, the initial investment was $75,000
(25% down payment on the home).
These findings and the statistical data to back them up are
contained in his forthcoming book, TAP YOUR A$$ETS:
How to Buy and Convert a House into a $50,000 Tax-Free
Rental that Crushes Stocks. The data can be found at his
website, DrDavidDemers.com
The estimates assume that the real estate investors take
on a 30-year 7-percent fixed mortgage. Inflationary cost
estimates are built into the model for expenses and annual
rental income. Estimated appreciation and stock market
annualized rates of return were calculated using a 52-year
period, from 1970 to 2022. Demers also found that home
ownership produces twice the returns as a stock investment.
“Before you invest in anything, buy a home,” he said. “Your
stock investments will not come close to matching what
you will make in appreciation on your home over time.”
Leverage is the main reason real estate beats stocks. Over
the last 52 years, homes have appreciated an average of
5.9% per year. This is less than the stock market, but
when investors borrow money to buy a home, they earn
appreciation not just on the down payment but on the
borrowed money.
In the first year alone, the home generates at least
$15,000 in appreciation, compared to $5,625 for the
stock investment. Home values have only declined
more than 20 percent in value once since 1950
(in 2008), whereas the stock market has had more than
a dozen plunges. “Homes are much safer and a more
profitable investment,” Demers said.
The myth that stocks are more profitable is perpetuated
by a bias in business news reporting that favors the stock
market and large corporations and investment firms that
benefit from the sale of securities. This bias is not surprising,
said Demers, who is a mass media scholar, because
power drives the information environment.
See DrDavidDemers.com and the tab “Real Estate” for
exact statistics and how the data were compiled. You may
reach him at DrDavidDemers @ gmail. com
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