I had breakfast with a collegaue from Paragon Real Estate this morning, Oggi Kashi. I’ve known Oggi for about 8 years now and he is a Broker Associate these days. We talked about local trends, financing, momentum, etc. He just sent me this chart:
Here’s what it all means: The chart illustrates the difference between an investment made on January 1, 2000 in one of the major U.S. stock indices and one made in either a San Francisco house or condominium. This is simply a sample analysis to show how real estate usually appreciates over the longer term: numbers may change dramatically according to the period used in the calculation.
Since it is based upon an all-cash purchase, it does not adjust for the fact that a home bought all cash could be lived in or rented without any mortgage expense, which is certainly a major added value that does not pertain to stock ownership. If one made the calculation based upon a 20% or 25% down-payment, the return on investment on real estate purchased would soar into the hundreds of percent.
Even in periods when the stock markets generate a good return on investment, one should note that significant capital gains taxes apply to stocks, but primary residences occupied for a minimum period of time, are exempt from capital gains taxes for the first $250,000 – $500,000 of gain depending on whether the purchaser was one or two persons.
San Francisco real estate has usually proven to be an excellent investment over the longer term due to the advantages of leverage, the incredible tax benefits of home-ownership in the United States, and local demographic and appreciation trends.
Thanks for passing this along Oggi.