Myth Busters: Stocks Outperforming Real Estate Since 2011?

Real estate and the stock market are often compared to each other, mostly because they are the two most common places for people to invest their money. However, simply comparing growth in home prices to that of the stock market is problematic when trying to determine which is the better investment, as it doesn’t paint a complete and accurate picture.

Take for example a recent Business Insider blog titled, “Is buying a house a better investment than the stock market? We did the math, and the answer is clear”. In it, they charted home prices against the S&P 500 at various points throughout the housing crisis until now in order to demonstrate that stocks have consistently outperformed real estate.

Since May ‘11, which roughly marks the beginning of the housing market recovery, home prices are up 48%, while the S&P 500 has shot up 99%. That means the house you bought for $1 million in 2011 is now worth $1,480,000, and the $1 million you invested in stocks around the same time has nearly doubled. These numbers alone would certainly seem to support the Business Insiders’ claim that stocks are the better investment, at least over that specific period of time. But they‘re forgetting one very important detail...

Buying a $1 million house doesn’t cost $1 million. Assuming you paid a 20% down payment, it only cost you $200,000 initially. So that $480,000 of equity you’ve built up over 7 years is actually a 240% increase on your initial down payment. Even after factoring in 7 years of an estimated $4,500/month in mortgage, property taxes and insurance, the $578,000 total that you have invested into your home has yielded an 83% return. Further, if you’ve been operating this home as a rental property, that extra $378,000 you’ve spent on monthly overhead was likely recouped (and then some) by the rental income you’ve collected, as well as the tax advantages you’ve benefited from.

Don’t get me wrong, investing in real estate isn’t necessarily for everyone. It requires more maintenance than stock investments, and it comes with a lot more headaches. But if you’re up for the challenge, it can prove to be a highly rewarding endeavor.

Then vs. Now - A Look at Recently Resold RS Fund Projects

Every now and then, a home we flipped years ago will pop back up on the market for sale, which always makes for an interesting trip down memory lane. Given market conditions over the past several years, these homes have usually appreciated considerably, without the new owners having to make any significant improvements. Below is a home we bought and flipped over 5 years ago, which just sold again this June - it’s a great snapshot of how drastically home values have grown in such a short period of time.

We purchased this 3BD/2BA Mt. Carmel home back in August 2012 for just $585,000. After rehabbing the kitchen, bathrooms, landscaping, and making other miscellaneous improvements, we sold for $813,000 - a healthy return for the times. Now, just over 5 years later, the home has resold at $1,440,000 - a 77% increase in value with no major improvements made. While this may seem like a gaudy number, it’s remarkably in lockstep with city-wide price growth over that same period of time. In 2013, the average sales price for a single-family home in Redwood City was $1,050,074. Year to date in 2018, the number increased to $1,844,518. That’s a nearly 76% price increase, virtually identical to the growth Ruby saw over that same period of time. It’s been a wild 5 years in RWC real estate to say the least...

Fannie & Freddie Want to Make it Easier for Gig Workers to Get Loans

Freddie Mac and Fannie Mae, the country’s two largest sources of mortgage money, are reportedly working on ways to make qualifying for a home purchase easier for people earning money in the “gig” economy.

The gig economy refers to activities such as driving for Uber, shopping with Instacart, renting your home out on Airbnb, or any other job that allows workers to set their own hours, work for as little or as long as they please, and get paid as an independent contractor. Last year, a report released by Intuit, which owns TurboTax, estimated that roughly 34% of the U.S. workforce earned money in the gig economy, and projected that number to grow to as high as 43% by 2020.

While these “gigs” have proven to be reliable sources of income for many Americans, using them for mortgage qualification purposes has been problematic. Lenders typically look for 2-years of documented income and reason to believe that those earnings will continue for several years. Earnings from gig economy jobs don’t always neatly fit into these boxes, making it difficult for lenders to use them for mortgage qualification. Fannie Mae and Freddie Mac are looking for ways around this, so that people earning thousands/month in the gig economy can use that money to gain access to credit in the mortgage market. Neither Freddie nor Fannie have disclosed what options they are pursuing, but Freddie has confirmed a partnership with Loan Beam, a software company which provides automated income verification for gig-economy workers. Depending on what Fannie and Freddie implement, this could help many U.S. workers who supplement their income in the gig economy get on the path to homeownership.

A Historic Decision: California to Require Solar Panels for New Homes

On Wednesday, the California Energy Commission unanimously approved a policy requiring virtually all new homes to incorporate solar panels.  The requirement will take effect in 2020, making California the first state with such a policy.

California is already the nation's leading solar market, with over 5 times more solar installed than any other state, and roughly 40% of the total solar installed in the U.S.  According to the Solar Energy Industries Association (SEIA), the solar industry has created $43 billion of investment in California's economy, and employs more than 86,000 people.  The SEIA hopes that this historic policy decision with set a precedent and pave the way for other states to follow suit.  New Jersey, Massachusetts and Washington, D.C., have already begun considering legislation that would require new nuildings to be solar-ready.

Of course, for current homeowners, or people buying homes built before 2020, this policy won't apply.  Still, this policy is a big step towards helping California meet it's goal of getting at least 50% of it's electricity from non-carbon producing sources by 2030.

If you've considered installing solar-roof panels on your home and would like to explore your options, feel free to give us a call.  We would be happy to connect you with one of our trusted green-roofing experts.

Going Green: Eco-Friendly Home Improvement Options

The last RealSmart Fund Fixer Mixer was a special “50 Shades of Green” event, to which we invited a few of our trusted vendors to provide information on eco-friendly home improvement options. From solar panels to fireplace inserts, there are many ways to upgrade your home’s energy efficiency, at various levels of affordability. Below is an overview of our vendors and some of the green home improvement options they offer.  If you’d like details on options not listed, feel free to give us a call and we will point you in the right direction.

Mr. Roofing - Green Roof Options
This family owned and operated business based in South San Francisco has fully embraced green roofing practices. They can install building-integrated and conventional photovalic solar systems (solar paneled roofs), solar tunnel skylights, green live roofs, and more. Mr. Roofing is a Diamond Certified company, and having used their services many times ourselves we can attest to the quality and relliability of their work.

If you’d like to explore green roofing options for your home, give Mr. Roofing a call, ask for Carlos, and tell him RealSmart sent you.

(650) 605-3927
Ask for: Carlos Rodriguez
info@mrroofing.net
www.mrroofing.net

SDI Insulation - Energy Efficient Insulation Upgrades
While most people overlook the quality of insulation when buying a home, it does play a key role in how much energy you use when running the heater or A/C. If your insulation is old or of poor quality, chances are you are spending more on your monthly energy bill than needed. The team at SDI Insulation will test your home’s energy efficiency, identify area’s of weakness, and upgrade them in order to decrease your monthly energy usage. If you’d like to test your home’s energy efficiency and explore your options for upgrading, we highly recommend you call the experts at SDI Insulation for a free estimate:

(650) 685-5500
Ask for: Joran Stromberg
info@sdi-insulation.com
www.sdi-insulation.com

Carpeteria - Green Flooring Options
Our friends at Carpeteria offer a number of fantastic envronmentally concious flooring options. Among them are Mohawk carpets, some of which are made with up to 100% recycled material. Mohawk recycles around 3 billion plastic bottles annually for use in over 500 of their products. They even recycle old carpet fibers for use in other industries.

Carpeteria also carries Shaw’s Epic engineered hardwood floors, which are made from 50% less newly harvested wood than conventional engineered wood flooring. Their Scuffresist Platinum coating also makes them remarkably durable.

For more information call:
(650) 965-9600
Ask for: Vick Balian
vick@carpeteria.com

Shelly's Top Green(ish) Paint Colors

We recently held a “50 Shades of Green” themes St. Patty’s Day party, to which we invited several of our trusted vendors to showcase eco-friendly home improvement options. In keeping with the theme of going green, we also had our resident interior designer, Shelly, select 6 of her favorite shades of green paint colors (all from Benjamin Moore’s selection). Admittedly, these colors are only vaguely green (the subtle green hues don’t show well online), but if you’re going to paint part of your home green, you’re better off going with an earthy understated tone rather than full on shamrock green. But hey! It’s your home, and if you feel like celebrating St. Patrick’s Day year-round then that’s your prerogative.

With Spring officially upon us, now is as good a time as any for a new look in your home. If you think any of these colors would look good in one of your bedrooms, as an accent wall in the living room, or anywhere else, stop by the RealSmart office (50 Edgewood Road, Redwood City) and pick up a sample!

We have plenty of each of the 6 colors shown. Please note – the images below are computer generated conceptual renderings pulled from Benjamin Moore’s website.

Cloud Nine: 2144-60 (walls)

Silken Pine: 2144-50 (Fireplace Wall) 

White Marigold: 2149-60 (walls) 

Mellowed Ivory: 2149-50 (walls) 

Old Prairie: 2143-50 (walls) 

Camouflage: 2143-40 (walls) 

What Does Legal Marijuana Mean for CA Real Estate?

Thanks to a yes vote on Prop 64 in 2016, recreational marijuana became legal on January 1 of this year. While local governments grapple with how to regulate the once illicit industry, and community leaders struggle to reconcile their disdain for the devil’s lettuce with its status as a revenue generating crop... some real estate investors are licking their chops at the opportunity they feel is headed their way.

Luckily for investors in California, the precedent for legalization has already been set. Colorado voted for legalization 4 years ahead of us, and since that time the real estate market has been thriving. The most obvious growth has been in industrial real estate, where growers look for warehouses to set up shop. According to DCT Industrial Trust, a company specializing in industrial real estate investment, marijuana legalization drove up the cost of warehouse space in the Denver Area by 60% in 2015, and lease renewal rates by 25%. Of course, here in the Bay Area where industrial space already comes at such a premium, growth will not likely be as dramatic. Less impacted markets just outside the Bay Area might offer more alluring opportunities.

The residential market stands to benefit as well, though in a less quantifiable way. The job growth created by legalization in warehouses and dispensaries, but also in auxiliary industries like HVAC and security, can increase the demand for housing. It’s much like how the tech boom in the Bay Area led to dramatic growth in trades like plumbing, electrical, and carpentry. This isn’t to say a weed boom could impact the market to the same degree the tech boom has, but it could have similar effects on a much smaller scale. However, investors need to be aware of local regulations around the industry, as they vary from city to city, and could limit or even prohibit the use of land for cultivation or sale of marijuana.