People knock real estate for being slow and tedious. I get it. It’s not nearly as exciting as chasing big tech or the latest AI winner. But slow and steady might be exactly what the doctor ordered for building tremendous long-term wealth.
With stocks doing well for decades, you’d think most people would be far better off investing in stocks than in real estate, right? Just look at the chart below comparing the returns of the S&P 500 to the U.S. median home price. It certainly appears that stocks are the far more lucrative choice since 1995.
However, after doing my free financial review for my 401(k) turned rollover IRA, and then crunching the numbers on some of my real estate holdings, I realized stocks don’t necessarily generate more wealth. In fact, it turns out I made more from one house than I have for my entire 26 years of 401(k) investing.
It was a surprising conclusion that I realized only after brainstorming with another financial professional. The narrative that stocks are always a superior investment to real estate might not be right. Let's take a look at the numbers with my case study.
House Returns versus 401(k) Returns
It took me 13 years of maxing out my 401(k) from 1999–2012 to get to about $300,000. Granted, my returns weren’t great due to the 2000 dot-com bubble and the 2008–2009 global financial crisis.
Then, from 2012 until 2025, the now rollover IRA grew by another ~$1,280,000, to ~$1,580,000 without any additional contributions. That’s a top tier return, with a roughly 14.2% compound annual growth rate.
However, the total 26-year growth of my 401(k)/rollover IRA to $1,580,000 still doesn’t match what I walked away with from selling my old home in 2017.
In February 2005, I bought a San Francisco house for $1,525,000 after putting down 20% ($305,000). When I sold it for $2,742,500 in 2017, I walked away with about $1,780,000 after taxes, fees, and paying off the mortgage.
What’s neat is that I had roughly the same amount of capital invested in both stocks and real estate — about $300,000 in my rollover IRA in 2012 and a $305,000 down payment on my house in 2005. This lets me compare returns over a similar 12.5 to 13 year duration: the IRA from 2012 through 2025, and the real estate from 2005 until mid-2017.
Yes, the investment periods were different. But here’s the kicker: the 13 year stretch I’m using for my IRA covers one of the strongest stock market runs in history (2012-2025). Meanwhile, my real estate period includes the global financial crisis (2005-2017). That makes the fact that I ended up making more from my house than from stocks an even bigger surprise.
Why I Made More On My Home Than On Stocks
I ultimately made more from my home because of three factors: forced savings, leverage, and putting more dollars to work. Coming up with a $305,000 down payment in early 2005 took everything I had plus a one-month bridge loan because my 2004 year-end bonus wasn’t going to get paid until after closing in March 2005.
So, I invested $305,000 in one shot, whereas I invested (plus company match) about $240,000 in my 401(k) over 13 years. Then, I bought an asset five times greater than my down payment—$1,525,000. For the next 12.5 years, I simply paid the mortgage, sweated bullets during the global financial crisis, and enjoyed living in the home.
Even if I had the option to buy five times more stocks using leverage, like I did with my home, I wouldn’t have. Stocks are simply too volatile. Unlike a home, they provide zero utility.
Of course, I had to pay property taxes, maintenance, and mortgage interest expense. However, these costs were offset by not paying rent. In fact, in 2014-2017, we rented out the house for $7,500 – $8,200 a month because we weren’t willing to pay that much ourselves if we had rented it.
After about two years of owning the home, renting the home was more expensive than owning. And after nine years, renting the home was far more expensive. Getting neutral real estate to fix most of your living expenses is vital for housing security.
Downgraded Our Living Expenses To Boost Passive Income
In 2014, we bought a smaller fixer-upper on the west side of San Francisco for about 40% less than the market value of our old home. A CD had come due, so I had liquidity to deploy. That move boosted our semi-passive income stream for three years before we sold the property in 2017.
We then reinvested 100% of the proceeds into stocks, municipal bonds, and private real estate. It felt wonderful no longer having to deal with tenant and maintenance issues. It was also nice to live in a more appropriately-sized home with less unused rooms since we didn't have children yet.
This example shows how much flexibility you have to adjust your finances in retirement if needed. Just as you might tweak your safe withdrawal rate depending on the economy and your portfolio’s performance, you can also make strategic moves along the way to help ensure your wealth lasts.
As a rational person, you will do everything possible to take care of your family or remain FIRE if you despise traditional work.
Returns Matter, But The Dollar Amount Matters More
We often focus on returns, and for good reason. We’d never invest in a risky asset if we didn’t expect it to outperform the risk-free rate. But when it comes to buying a home, most people don’t think about annualized returns for their primary residence. They buy the best home they can afford and enjoy it.
Unlike stocks, buying and selling pieces of real estate is too costly and cumbersome. Instead, we just pay the bills, make memories, and one day, hope to sell for a profit. In my 22-year history of owning real estate, I've never considered selling because I thought it was the ideal time to profit take. We buy real estate for lifestyle first, cash flow second, and capital appreciation third.
The sad reality is that it takes investing big money to make life-changing money. Sure, earning a 10X return on a stock is fantastic. But if you only put in $1,000, the profit is unlikely to move the needle.
In contrast, with the median home price in America now over $420,000 — and over $1 million in some cities — most people naturally end up investing far more in real estate than in any single stock. That larger upfront investment is a big reason why primary residences often create more wealth over time than investing in stocks.
Returns On 401(k) / IRA versus Home Down Payment
Based on my records, my 401(k) generated roughly a 4% IRR from 1999–2012, and my rollover IRA generated about a 14.2% CAGR from 2012–2025. I use Compound Annual Growth Rate from 2012-2025 because I didn't invest any additional money in my IRA after 2012.
For my home investment, my $305,000 down payment turned into about $1,780,000 over 12.5 years, for an internal rate of return of about 8.7%. That’s not spectacular by stock market standards, but the absolute gain of roughly $1,480,000 after taxes and fees was significant.
I also paid down about $2,000 in principal each month on average for 12.5 years, which added up to roughly $300,000 of additional equity. That’s money that could have been spent on cars, watches, or other lifestyle upgrades. But instead it quietly built wealth in the background through forced savings.
If we include these principal payments as part of the total amount invested, my true IRR actually rises to about 11.1%. This surprises many people at first. The reason the IRR increases is because principal paydown isn’t considered an expense in IRR calculations. It’s an additional investment that you later get back when you sell. Since the property appreciated and I recovered all the principal I paid in, those steady contributions boosted the return instead of reducing it.
Even if you focus only on the gain after subtracting the ~$300,000 of principal paydown over 12.5 years, turning a $305,000 down payment into $1,480,000 still equals a 4.85X return. And that’s the beauty of leverage when things go right. Of course, you could lose a lot if your asset depreciates.
The Power Of Discipline
What this experience shows is that you don’t need to hit home runs to build meaningful wealth. You just need to get on base and stay in the game long enough. And yes, buying a home where there are local economic catalysts matters for housing price appreciation. Some neighborhoods will perform better than others.
Buying a primary residence forces you to save, helps you benefit from leverage, and provides utility in the form of shelter. Your home's IRR might not be spectacular, but the absolute dollar gain can be meaningful.
Meanwhile, investing in the stock market requires continuous discipline and faith through thick and thin. It’s easy to say you’ll “invest the difference” while renting, but much harder to do over decades when life keeps throwing you new expenses and temptations.
It's also easy to believe you'll buy the dip and never sell at the wrong time. However, with how cheap and easy it is to make stock transactions, we retail investors often make unforced errors.
With real estate, all you're doing is living your life. And with the average homeownership tenure at around 12 years, you will likely get through most bear markets without panic selling.
Establish Housing Security And Profit At The Same Time
I’m not a fan of renting forever, mainly because it introduces too much housing uncertainty in retirement. Yes, stocks have historically outperformed real estate. But in practice, the average person can end up building more wealth through their primary residence simply because they invest more into it and stick with it longer.
In the end, both real estate and stocks can take you to financial independence. They just get you there differently. Real estate provides stability, forced savings, shelter, and slower gains. Stocks provide liquidity, ease, and the potential for explosive growth. What matters most is choosing the path you can stay committed to through the cycles.
Get neutral real estate by owning your primary residence and aggressively invest in stocks. That's when the magic really happens.
Reader Questions
What’s your ideal balance between stocks and real estate for achieving financial freedom? Have you made more money from real estate or from the stock market so far? Do you think the forced savings aspect of homeownership is underrated? If you could go back, would you have bought earlier, later, or rented longer?
Invest In Real Estate Passively
Not everyone can come up with a big down payment to buy a home, but that doesn’t mean you should miss out on real estate’s long-term appreciation and income potential.
That’s why I’ve also invested with Fundrise, a platform that gives everyday investors access to diversified residential and commercial properties nationwide. With over $3 billion in assets and 350,000+ investors, it’s one of the simplest ways to get exposure to an asset class that has steadily built wealth for generations.
Real estate has historically been a reliable inflation hedge and a consistent compounder, even when stocks get volatile. And with a $10 minimum, almost anyone can start building a real estate portfolio today.
Fundrise has supported Financial Samurai for years because we share the same philosophy: disciplined investing in tangible assets that help people achieve financial independence over time. Join 60,000+ others and sign up for my free weekly newsletter.
Curious if you can calculate maintenance and repairs and any renovations you could compare those costs to DRIP investing on a dividend stock.
Yes, all costs included.
Looks like your RE return is post-tax but the 401k money is pre-tax. the RE return will look even better comparatively if you look at both from post-tax basis.
Good point! Love the $250,000/$500,000 tax free gains in real estate too.
What a compelling story and strong case for real estate investing over traditional 401k savings. I appreciate how you lay out the numbers clearly and show the long term power of property value growth plus leveraged investment. It makes a convincing argument that real estate can deliver returns that compound beyond conventional retirement accounts in the right circumstances. Thank you for sharing this detailed breakdown and for highlighting the trade offs and risks honestly.
Thanks for sharing. It’s awesome you did so well in the SF real estate market.
An interesting analysis might be comparing the home purchase with the $300k down payment invested in VOO for the same period. To make it apples-to-apples would need to deduct rent (because you gotta live somewhere) from the “invest $300k in VOO” scenario, and to deduct interest, taxes and maintenance/remodeling costs from the home ownership scenario. Which case yields the higher IRR and/or overall dollar return?
Of course, the function of a house is more than an investment — it’s your home. So there is intangible nonfinancial value to a home you enjoy.
Even though I own a home I don’t think of it as an “investment” at all. “Investments” produce cash or at least appreciate without eating cash. Homes eat buckets of cash in taxes and maintenance.
A $1.5 million home in SF will cost ~$18k per year in taxes alone, plus another ~2% per year in maintenance costs (your mileage may vary) or $30k totaling ~$48k/year. It might still work out great, but any analysis of returns should include all costs of owning the asset. The more expensive the home, the higher the tax and maintenance drag.
We bought our first home in the northeast in 2022 during the crazy times. Although it’s appreciated about 6% since then, we’ve sunk probably double that appreciation amount into the house with a new roof, new hardwood floors, new HVAC and would lose money if sold today. That’s not even including 3 years of property taxes. Terrible investment. Meanwhile our stock portfolio is up >100% since 2022. Fickle is Lady Luck.
Thanks.
VOO underperformed my performance from 2012-2025 by about 2% a year, so the amount would be lower.
I just cross out the cost to rent and the cost to own, even though the cost to own was cheaper from year 3 to year 12.5.
I would give your house another decade to compound and value. It might surprise you! And yes, it’s good not to view a house as an investment. Just enjoy it and when the time comes to sell, hopefully you will be surprised on the upside. I just keep all my homes at purchase cost in my Empower dashboard.
Great post that highlights one of the core principles when it comes to humans and money decisions: there’s more to it than just the numbers on a spreadsheet. Money is emotional.
As FS said, owning a home forces us to make good money choices. It’s a safety net that prevents us from wasting our money on useless things. No matter how much we tell ourselves that we’ll rent and invest with our excess money, many of us struggle with that because of all the things life throws at us.
I’m currently thinking about whether to buy another rental property in Chicago or focus on the stock market. Each day, I wake up leaning in a different direction. This is a great post to help think through the options.
Thanks Sam!
Matt
You got lucky in RE. It all depends on area and timing. I held a house for 16 years in a great area that I thought would boom. It went up when after 2 years I bought like 30%, then 2008 crash came and it crashed and then it stagnated for the next 14 years. I sold it, pretty much at a lost. Well of course, after I sold a year later it went up 40%. Haha. SF area had a great boom, and you got in right time. There a lot of areas like that, there are areas that didn’t do as well. Look what has been happening over the country in RE past few years – staggnated. The Fundrise Flagship RE fund – is at a lost over past 3 years. So we will see what happens in future. The difficult thing is nobody can afford house prices, in most places. Maybe the 50 year mortgage will come and change that for a while until it overflates again. I am holding RE for long term now to diversify but I am not bullish on it and won’t be for a quite a while.
Yes, most of my wealth is mostly due to luck.
But regarding my house in this example, I bought it two years before the start of the global financial crisis (bought in 2005, 2017 sold). So I would say that I was kind of unlucky wouldn’t you think?
And yes, if you started investing in commercial real estate at the beginning of 2022, that was the top of the market. And I would say that is unlucky.
Why did you sell the house before it went up 40% a year later? Were there no signs that they were local economic catalysts for the area? Or are you talking about selling right before the pandemic? How do you think luck plays a part in you selling before the 40% ramp?
Thanks for sharing. You’ll enjoy this post about Wealth and Luck: https://www.financialsamurai.com/your-wealth-is-mostly-due-to-luck-be-thankful/
We’ve been heavily/only invested in real estate for 40+years. Even our 401(k)-solo’s hold property & notes.
We did it all ourselves, but still have a couple of amazing maintenance guys that we trust to take care of everything.
Over the years we have had family/friends etc tell us we are doing it all wrong & probably go bankrupt. We are now down from the 50+ multi units we owned, but now hold many of them as seller financed @ 10-12%. That 10-12% is on the sale price not what we had invested & many went for 2x what we paid.
After the 1st 15 yrs everything we owned was free & clear & we have no debt, yet live between 2 seasonal homes (+5 pianos) & a Lakehouse that we gutted to the studs ourselves @ 67 yrs old.
Now as passive income accumulates & we sell off properties the cash sits invested in AMZN/NVDA etc & selling covered calls is is my latest just for fun gig.
My ‘you will go bankrupt’ BIL, an avid equities investor is 72 in very bad health & says he still HAS to travel for work??? He even had to take out a HELOC last year to pay for his daughter wedding. Sadly the majority of our aged friends are working menial side jobs to subsidize their retirement/soc sec/pensions etc.
Meanwhile my ‘let’s sell everything’ wife just picked up yet another property that we have our guys gutting & she has us spend 3 hrs there 2 days a week after a 1 hr gym workout.
Thanks for sharing. You must have done very well as 50+ units is a lot! I’m with you in slowly selling down my rentals as I age and reinvesting in 100% passive investments. Having that option is nice.
‘My ‘you will go bankrupt’ BIL, an avid equities investor is 72 in very bad health & says he still HAS to travel for work??? He even had to take out a HELOC last year to pay for his daughter wedding. Sadly the majority of our aged friends are working menial side jobs to subsidize their retirement/soc sec/pensions etc.”
Sad to hear. I wonder why is that if he’s been investing in stocks for decades. Maybe he hasn’t been a consistent investor all those years and sold to buy things too many times? Seems like he should be living it up.
I really wish I could get some help. This article really makes me think I did OK. I’m scared of stocks and I just turned 65 and I own one rental that I bought for 180 in 2004 and it’s worth about 800,000 and another rental I bought for 240 that’s worth one .3 million and my personal home I bought in 2007 for 250,000 and it’s now worth about 950,000 anyhow i’m pet. I’m frozen. I don’t know what to do. I hate how much real estate agents take I live in the great neighborhood the north end of Boise, Idaho, but I honestly never sell because I just hate how much the government and realtors are gonna take. What do I do? I’m starting to just spin my wheels.
Hi Lisa, 0.3 million or $3 million?
Either way, it sounds like you are doing well. Perhaps hire a property manager to alleviate the burden and keep holding on to collect the cash flow?
Due to the step up in cost basis, it feels like property owners should hold on as long as possible and give the properties to their next of kin upon passing. That’s my plan anyway, but I hear you on taxes and management.
My wife and I have been investing in Seattle area real estate since 2012. We buy 1-2 homes every year, similar to dollar cost averaging into the stock market. We avoid timing the market since I have always been wrong guessing future interest rates or home values. I always wondered what my returns would be had we invested our down payments into the SP500 instead. So one night I sat down and crunched the numbers. Turns out the RE investments returned roughly 2X what stocks would have gained during the same time period. This assumes we bought into stocks at similar times we closed on the homes. Yes tenant issues suck but we have been through so much it almost feels easy now. Also we invest in top notch neighborhoods with most tenants working high tech jobs. I still invest in stocks but favor RE for all the reasons already mentioned here. I wrote an article on Quora that goes into more detail about our RE journey and making the comparison with stock investing. Check it out if you want to learn more:
https://www.quora.com/Is-it-better-to-invest-in-rental-properties-or-dividend-stocks/answer/Ryan-Thurston
Fascinating analysis. I’ve also done very well owning my home by just living in it and paying my mortgage.
It almost feels like cheating or unreal to be able to live in an asset and make money from it.
It’s always fascinating to see the anti-homeownership people rail against homeownership Well never having owned a home and missing the past 10 to 20 year appreciation and home prices.
Depends on when and how long they were like this. I was someone who waited for about a decade during the huge RE bubble of the 2000s. Worked out fine, but I never tried to justify my position on political or emotional grounds.
I have found that investing in real estate early in life and then switching to the stock market after kids has been a great ride. Starting with just a small condo, the forced savings and the $250K tax free gain (not married) can make moving every two years a lucrative side hustle. Once I got married and had kids, the moving every two years stopped and I kept several of my older units as rentals until I could no longer deal with the tenant issues. Now I am much more focused on the stock market, reading Financial Samurai and growing our nest egg for retirement. Thanks Sam!
Bill, your post made me chuckle. I’m in the same situation now as you were once in. I have several rental properties and also “can no longer deal with the tenant issues”. Just sick of it! But what keeps me from selling them is the massive capital gains taxes and depreciation recapture taxes. So I feel stuck with them. But just recently have started to look into Delaware Statutory Trusts as an option which can be used to shelter all capital gains from the sale of a rental property. So maybe there is a way out (tax free). I’m also more focused on the stock market, option selling, etc. Much more enjoyable for me.
Always great articles Sam, feeling like a journal in some regards. Anyhow similar situation in terms of age 47 two young kids under 7 and living in Westchester. I bought a 2 family foreclosure in Staten Island 2010 for $215k put in another 85k at the time. Recently one tenant moved out and destroyed the place, put in $110k both interior and exterior. I’ll have to pay capital gains and recapture but I’m done. NYS the owner is powerless in terms of eviction and non payment. Plus the new mayor seems to favor the renter. I have considered the DST but seemed very constraining in terms
of locking into one vehicle. I could be wrong though. I feel like very different renting in a state where you can’t evict for non payment easily vs a state where you can. Just too much stress.
As for me…
bought 2K worth of Dell stock in 1992sold it in 1998 for around 100Ktook that money and bought a house in tony Marin County, no PMI!after 20 years, sold that house for about triple the original pricebought a house in another area with pure cash, no more mortgage.
Pure dumb luck, if I’m being honest. We’ve been in a housing (price) boom and as they say in finance, “past performance is not indicative of future results”.
great article sam. do your percentages also take into account tax advantages for home
sale versus 401k gains at point of sale. i would think that boosts real return for home sales also.
Wow fascinating insights. And what a solid return you made. Congrats! I haven’t sold any real estate yet but I hope to have a great return if I do sell in the future. Investing can be tricky sometimes but I’m glad I do it. And thanks for all of your insights and advice over the years.
thank you Sam for explaining how psychology is oftentimes more important than math when it comes to investing.
Interesting article.
I believe you may have an error in one of your IRR calculations. You say your 401(k) has an IRR of 4% from 1999-2012. I’m guessing you calculated this assuming all of the principal investment was made in 1999 (=RATE(13,0,-193000,305000)). Using the various contribution maximums for each year, I estimate that the IRR would closer to 8%. It doesn’t change the takeaway from your article, but the statement about the 4% IRR on your 401(k) was a little distracting for me.
I’d love to believe my IRR was 8% from 1999 – 2012 through the 2000 dot com bomb and the 2008-2009 Global Financial Crisis. But after including my 401(k) contributions AND company match / profit sharing, sadly, the IRR is far less than 8%.
It was the reason why I wrote this post, You Might Not Be As Good An Investor As You Think. Check it out and let me know if you still think my IRR is 8%.
My math could be wrong! And I hope you’re right! And if you’re right, and I do have an 8% IRR from 1999-2012, all the more support for my thesis that investing in a home might not be that bad after all.
I completely missed the tie-in to the prior article and the employer contributions. Thank you for straightening me out. 4% IRR on over a decade of investing is a depressing reality.
Bummer you agree with my numbers!
How did you do from 1999 to mid-2012?
Hi Sam, I sent the article. Are you gonna post it or just leave it in the comments?
Donno. I’m in Hawaii for the month and doing a digital detox.
I hope so. I think the detox is a good idea.
Probably a great business for the future.
Along with hearing aids/glasses due to devices. Can change and adjust. It’s important information to get to your audience/ you.
Thank you Sam for your leadership and work over the years. You are a force for good.
JJ