Yep, that’s not a typo or misplaced comma. That is how much we would have as of 1/1/2017 if we would have invested the $200,000 gain from the sale of our house when we sold in December 2005. I definitely did not know what I know now about investing and you can’t change the past. The purpose of looking back and documenting our mistake is to help my kids and others think differently on homeownership. I was reading a couple posts over at Millenial Revolution and it really got me thinking. So I decided to run our scenario.
| Invest in Stock Market | |
|---|---|
| Proceeds from house sale | $200,000 |
| Time | 10 Years |
| Rate of Return | 19.21% |
| Value after 10 years | $1,382,742.41 |
| Dividend Yield | 3.6% |
| Cash from Dividends (Yield x Value after 10 years) | $49,758.20 |
| Monthly income from Dividends | $4,146.51 |
Are you kidding me? We would have $1,382,742.41 in capital generating $49,758.20 annually or $4,146.51 monthly. We could buy 3 of our houses outright according to the latest $404,000 estimate from Zillow. Or that $4,146.51 every month could easily pay our $1,478 mortgage payment and all our utilities….. including a fat cable and internet package.
Hold the phone. I see a problem with your math. You have 19.21% as your Rate of Return. You can’t 19.21% for 10 years, that’s impossible! Oh, you went back and did a search for the best stock return over that time period and used to stack the deck for stocks vs. real estate.
Nope.
We sure did get 19.21% for that 10 year period, just not with that $200,000. We have been buying MO (Altria) since 2005 when I read The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New
We still have the $200,000, it’s just locked up in the house. We can’t get to it until we sell the house. We can’t use it to pay bills. To sell the house we would have to pay roughly $24,000 (6%) in real estate commissions. It also takes a long time to sell a house. We could sell the $1,382,742.41 of MO instantly for $8.95 at Schwab.
Why are you telling me this? Well, I’ve got kids and I don’t want them to make the same mistake we did. There’s got to be a better way. After looking at the math, it may be better to rent to until you have built up the from investments to pay cash.
I had no idea that Altria returned 19.21% over the last 10 years. I thought Tobacco stocks would do much worse since consumption is dropping and cigarettes are getting taxed at a higher rate each year but clearly Altria is doing something right.
Thanks for sharing!!!
You’re welcome! Thanks for stopping by and the comment. You can thank Jeremy Siegel for Altria. His book is a fascinating read and has changed the way we invest since 2005 when I read the book. In addition to tobacco, Altria just picked up $5 billion in cash and a 10% stake with 2 board seats in BUD.
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