Everyone Says Real Estate Is a Terrible Investment… Let’s Actually Do the Math

At the start of the year, I keep hearing the same thing from buyers, investors, and even agents:

“Real estate has been a terrible investment lately.”

On the surface, I get why people feel that way. According to the National Association of Realtors, home prices nationally rose about 1.7% last year. And if you stop there, that doesn’t exactly sound exciting.

But here’s the problem: that’s not how real estate returns actually work.

Real estate is a leveraged investment, which means you don’t measure returns based on the full purchase price — you measure them based on the cash you actually invested.

Let’s look at a simple example:

• $800,000 home
• 10% down = $80,000 invested
• 1.7% appreciation = ~$13,600 increase in value

That $13,600 gain isn’t a 1.7% return on your money — it’s closer to a 17% return on the cash you put in.

Now suddenly, that “boring” appreciation number looks very different.

For perspective, the S&P 500 returned roughly 18% last year. That’s considered an excellent year in the stock market — and it’s comparable to what leveraged real estate delivered in this example.

But here’s where real estate really separates itself:

 Tax Advantages Matter

• Primary residences:
  • Married couples can exclude up to $500,000 in capital gains
  • Single homeowners can exclude $250,000
• Investment properties:
  • Gains can often be deferred using planning tools like 1031 exchanges

Sell a stock? You owe taxes that year.
Sell real estate? You often have options.

 Is Real Estate Perfect? No.

It’s not liquid. There are up years and down years. It’s not a short-term play.

But over the long run, leveraged appreciation + tax advantages + forced equity is why real estate has built more long-term wealth than almost any other asset class.

Before writing real estate off as a “bad investment,” it’s worth slowing down and looking at the full picture. And if you want help running the numbers for your specific situation — that’s exactly what I do.

Serving buyers and homeowners across Southern California and Washington.