I'm new here and analyzing the economics of buy and hold real estate here in the bay area. In most of my calculations, the best return I can achieve is about 6-9% annualized return for a 10-30 year period which is quite similiar to the S&P 500 return. Please let me know if I missed anything in my analysis.

Real Estate Assumptions:

1) 25% down - most banks seem like they will not loan more than 75% on investment properties I am finding - since appreciation, not cash flow is key in the bay area, the more leverage you can get, the better your return. Unfortunately, 25% down will limit the return then

2) 1.04% annual appreciation

3) 1.02% rental rate increase

4) 1.02% expense increase (property tax, maintenance, insurance, vacancy)

In one bay area city I am looking at, these are the numbers I am seeing:

Property cost: $1.1M

Down: 25% = $275K + $16K closing = $292K investment

30 year fixed rate @ 4.5%

per month costs : $3K interest, $1K principle, $1.8K other (insurance ($500/yr), HOA($250/month), maintenance ($1000/yr), vacancy ($2400/yr) = $6k per month in costs

rent: ~$4.8K

Based on the above numbers and expected appreciation/rental increase/cost increase, after 10 years, this is the return if you sell the place, pay off the loan:

Total Return	584840.5236
% Return	2.008036133
Annualized Return	7.2203332%

After 15 year:

Total Return	1041521.509
% Return	3.576039515
Annualized Return	8.8663061%

After 30 years:

Yearly Appreciation	1.04138
Total Return	3326151.581
% Return	11.42026294
Annualized Return	8.4565711%

As you can see, unless you can get more than $4800 rent today, or leverage up, or get a better price, real estate is not returning any more than the historical average of the S&P 500. Just wondering whether it is better to invest in real estate in the bay area or the S&P 500. Please let me know what you think of the analysis.

Real Estate vs. Stocks

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