Ben Stein Not Hot On Real Estate
Here’s an excerpt from Ben Stein’s column about why he thinks real estate isn’t such a great investment.
That means the house has kept up with inflation — barely.In fact, when I do the math, I realize that it hasn’t fully kept up with inflation. Plus, the owner would have had to pay rental fees (it’s on land leased from a Native American tribe), condo fees, taxes, and insurance. Granted, he would also have gotten the great pleasure of living there, but it wouldn’t have been a great investment at all.
On the other hand, if the same person had bought the Dow in 1982, he would’ve made roughly 10 times the money by now, not counting dividends, which would have meant he would’ve made close to 20 times the money.
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Still, my wife and I bought our house in Malibu for $600,000 in 1990. It might have gone up by 150 percent since then, but in that span, the stock market has more than tripled on the Dow, counting dividends. Other indexes such as foreign stock indexes have gone up vastly more than that.
So while at the end he admits that
yes, real estate rules. It’s a good, even great, investment — just not the perfect investment.
I still don’t think he did a proper comparison.
1. Your home is not an investment.
2. If you pay cash for investment real estate, you get rental income. He didn’t consider this.
3. If you got a mortgage your leveraged returns are significantly more than the appreciation you got. For example if you put 10% down, and the property appreciation 10%, you just made 100% return (excluding selling commissions, which is justified since no one considers those when talking about stock performance)
Anway, you can form your own opinions and read the whole article here
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January 23rd, 2007 at 9:53 am
Ben Stein leaves out the fact that a real estate property can have up to $500,000 of tax free gains while the stocks will have cap gains tax on them.
He also neglects to mention the tax write off on mortgage interest too.
Factor these things in and it’s a more level playing field.
January 23rd, 2007 at 3:35 pm
In the comments most people who love real estate are unaware of the possibilities of leverage in the stock market. Leveraging real estate dramatically is scary to me…. the bottom line is that people should invest in things that they understand…
January 24th, 2007 at 8:26 am
In an earlier editorial, Ben Stein states that now is the time to buy real estate. And in this article, he kind of slams on it. I don’t care much for conflicting opinions from the same person.
But I agree with Moom. “People shoudl invest in things that they understand.”
January 28th, 2007 at 7:09 pm
“(excluding selling commissions, which is justified since no one considers those when talking about stock performance)” – Typically selling commissions for stock is relatively a small percentage, not really worth consideration in my opinion. And one can invest in indexes greatly limiting the expenses. I still like real estate, but I can see the case for stocks.
February 18th, 2008 at 3:46 pm
I agree with one of the points that your main house (residence) is not an actual asset. An asset is something that provides you with an income- all your house does is cost money. Some people say that the house appreicates in capital value but to actually see the cash you would have to sell and you will end buying something else because you have to live somewhere.