While real estate has its ups and downs, over time it has proven to be one of the most consistent and reliable investments. On average, real estate values have appreciated at an average rate of 6% a year since 1968, when the National Association of Realtors started keeping track. Comparing this to stock market returns, which have averaged approximately twice that over the last 50 years, seems not so attractive.
However, what some people do not take into account, is a 6% annual return on an investment that is often 80% leveraged is actually worth five times more than the same return from an unleveraged investment such as a stock or bond. As an example, let’s say you own a $100,000 home that increase in value by 6% over the course of a year. That is an increase of $6,000. The actual downpayment was 20%, or $20,000. A $6,000 profit on a $20,000 investment is a return of 30%. There aren’t many stocks or bonds out there today that can produce results like that on a regular basis.