Real estate offers more leverage than stocks; 2020 is the proof.
If you’ve done business with me or have been a follower of my blog, you know that I’ve always said real estate gives you leverage. In 2020, the real estate market has outperformed the stock market—one slice of “normal” we can be thankful for. If you don’t think that’s normal, consider this: As I’ve pointed out in past videos, the stock market didn’t effectively change in the period between 2000 and 2009; if you had put $10,000 into the stock market in 2000, you would have ended up with $10,000 in 2009. Meanwhile, during that same period, real estate would have given you a massive double-digit return.
This year alone, the Los Angeles County real estate market has increased by 17%; the San Bernardino market increased by 19%; the Riverside market increased by 16%; and the Orange County market increased by 12.5%. What does that mean for you? Well, if at the start of the year you had financed your purchase of a $600,000 house with an FHA loan, then you would have been required to put down 3.5%, or $20,000 in this case. By year’s end, the value of that $600,000 home could have easily increased by 15%, which would be $90,000. If you put in $20,000 but gained $90,000 in equity in just a year, you’ve seen a return on your investment and then some! That’s leverage.
At 3:18 in the video above, I’ve included some graphs comparing data from the S&P 500 and the Dow Jones Industrial Average to our surrounding area real estate markets so you can see why real estate is better than stocks when it comes to building wealth. A home is an asset you can enjoy in real time while it appreciates significantly; stocks are intangible, and they can’t offer you peace of mind on a day-to-day basis (not to mention all the tax advantages that accompany homeownership). Even though 2020 has been a stressful year for many Americans, it’s been a phenomenal one for homeowners or those who are looking to purchase a home soon.
If you have questions about building wealth through real estate or have any buying or selling needs for the year ahead, don’t hesitate to reach out to me. I’d love to hear from you, and I’m always happy to help!