Which Is the Better Investment, Real Estate or the Stock Market? The Debate Continues

As a financial analyst and registered investment adviser, I think “Strategy Switch for Profiting in Home Market” attempts to prove and persuade that residential real estate has and continues to supersede investments in the stock market. Unfortunately, the mathematics behind this assumption was poorly done and the conclusions reached incorrect.

Except for maybe a dozen houses on the waterfront in Orange County, both the Dow Jones and the S&P; 500 outperformed residential homes during the 1980s by a wide margin (both indexes showed about 18% annual returns) and will likely do so in the ‘90s.

The reason your article comes to a different conclusion is because substantial pieces of data were entirely left out of the analysis. The article apparently assumes that there are no carrying costs to owning real estate. If you leave these very substantial costs out of the analysis, real estate looks good. But in real life, these are real costs.

These overlooked costs include the non-deductible portion of each month’s interest payment (about 67%); the non-deductible portion of property taxes (again 67%) and all non-deductible maintenance costs.

Residential real estate is not and has not been a great investment. It’s sometimes better than renting, but it’s main value is to provide shelter, not accumulate wealth.

I notice that the hypothetical examples (in the story) were provided by real estate salespeople who not coincidentally have a strong interest in presenting a favorable case for home purchase.

R. LANCE HICKS

Tustin