There are many, many things that go into determining how much one makes on one's home over time. How you maintain it. What happens on your street and neighborhood. How the school system performs. How well the town is policed. When you buy it and sell it. Smart Voice readers can probably come up with half a dozen more variables. I was prompted to get my HP 12C out when I noticed three sales of B'game homes that were owned for the long term.
It's only a sample size of three, but they were held for 33, 39 and 44 years. They were built in 1925, 1949 and 1942 respectively. The Daily Post published their sales data last month. And the annual average return (not counting mortgage deductions, any rental income, or whatever else people do to garner returns) were......... 6.5%, 6.4% and 7.75% per year.
One comparison could be to the S&P 500.
One of the major problems for an investor looking at that 10% average return figure and mistakenly expecting to realize a nice yearly profit from investing in the S&P 500 is inflation. Adjusted for inflation, the historical average annual return is only around 7%.
For our purposes, we would not want to adjust for inflation since the home sales prices are not adjusted. But note
The stock market performed very well for an investor who bought stocks between 1950 and 1965, but the market was nothing but a continuous 15-year disappointment for an investor who entered in 1965. The market's best sustained performance was from 1983 to 2000.
And dividend reinvestment would increase the returns appreciably. So compared to stocks, our little sample under performed, but you can't live in a portfolio. Compared to most of the country, we are a long-term hold!
Don't forget about leverage though from mortgage. Homes are one of the few "investments" where the bank is willing to give you 5 to 1 on a big sum of money!
Posted by: Burlingamer | March 14, 2017 at 08:33 PM