My 100k house vs 100k in the S&P 500 (16 years later)

[K S.]

A turnkey home for 100k renting for 1k (1% rule) would net you worse than the stock market 16 years later. I went back through my 1099s and calculated my return and estimated closing costs, federal taxes, capital gains tax, depreciation recapture etc for my coming sale. Also, most people won't mention that many homes need to be renovated before the sale which cost me around $25,000.

SFH: 160k cash + 115k appreciation after sales fees and taxes over 16 years = $275,000 total earned after sale.

S&P: 580k -80,000 capital gains tax = $500,000

If you had a mortage, you'd be worse off and scraping by for the next 30 years, Ouch!, that's no fun to realize 30 years later.

S&P 500 almost doubled the returns of the SFH over the last 16 years yet I still argue with people that financing a turnkey property for investment is a terrible idea but since half the advice on here comes from salesmen or book experts, their best interests aren't being made or tailored to each persons individual needs and goals. Hopefully, new investors read this and help them with their decisions.

If you're still not convinced what you would rather do, remember that the S&P 500 took no skills and a few minutes to set up but the SFH was a lot of work over the years, buying, selling, cashing out, fixing, landlording, not to mention RISK like being sued or insurance not paying out for damages/fire/hail.

Being that the S&P 500 is nearly twice as good, you may need to purchase 4 of these properties at 25% down just to match the S&P (subtracted cashflow. 

Unless I'm mistaken and missed something on the leverage part, one can conclude that multi unit land developers or perhaps section 8 hustlers leveraging themselves to the gills is the only way to beat the stock market without just dumb luck and buying houses in the 2012s.

[Bill B.]

You are very mistaken or cherry picked bad examples. I did prettty close to your scenario. 

I bought almost a dozen $100-$110k homes in 2009 Vegas. I put an average of $20k down payments so we’ll pretend I only bought 5. 

The rates were in the high 5’s but let’s pretend it was 5% and each mortgage was $80k. So the payment is $479 plus $30 for insurance and maybe $90 for taxes. And they rented for $1,000-$1,200, we’ll use $1,100. So they were producing $6k each per year in cash flow plus $1k in loan pay down the first year, the worst year. So they produce $35k per year in profit, TAX FREE because of depreciation. 

Last year they were worth an average of $420k with a rent of $2,2200 brining in almost $20k in cash flow PlUS since I didn’t need the cash flow (since the stock market example wouldn’t have any cash flow either, much less tax free cash flow.) I used that money to pay them off. 

So I turned $100k in $2.1million in the form of 5 paid off properties that provides $100k a year in cash flow. So I am getting a 100% coc  return AFTER a 300% gain in 14 years.  Plus I could take $1.5million out tax free as a cash out refi if I wanted. 

In reality I have a dozen of these properties, and in regards to the time and talent. I had no talent and I don’t spend an hour a month on them as these numbers are after paying a PM. 

I have no problem with people putting spare money they don’t need, that provides zero cash flow and they have zero control over, if they can’t be bothered to learn. But the returns will be far inferior even if you don’t count the benefits of cash out refis, step up cost basis, the deduction of every day expenses as business expenses, and infinitely better disposition options. 

If your post was just a troll for proof it was wrong, well done. But as someone who did it pretty easily, with no special skills, a useless 2 year college degree, and never made more than $50k working a job. I find it truly shameful that anyone works past 40 unless they truly love their job and have no kids/family to spend their time with. Most of us will be dead in 50 years, all us 80? Don’t spend it at work. But don’t tell the average worker they’re going to reture off a stock portfolio. After all your example was $100k in stocks. I wonder what age person has an average of $100k in stocks? 40? 50? So you tack on 16 years and you have a 60 year old person with $500k, wow, great. The 4% rule says they can spend $20k/yr. That should cover housing and insurance, maybe.