5 ms·

Bought for $5.5 million in 1999, and going for $21.8 million now. So about 7.5% per year in appreciation over 19 years. Really good rate of return but not the

Bought for $5.5 million in 1999, and going for $21.8 million now. So about 7.5% per year in appreciation over 19 years. Really good rate of return but not the eye popping numbers you expect to hear from the heart of Silicon Valley.

gargarplex 8y ago
Well, remember that 1999 was dotcom bubble as well. So timing is a factor. I wonder if the mid range or the bottom of the market (ca. 1999) benefited from similar price appreciation - would check but code is done compiling, back to work!:).
synaesthesisx 8y ago
Would have been better off buying the S&P
- tristanj 8y ago
  No, the SP&500 has a lower rate of return from 1999 to today. With dividend reinvestment it was 6.1%.
  - vxNsr 8y ago
    Also you can't live in the S&P500.
    - dev_dull 8y ago
      It’s hard grow tomatoes in the backyard of the S&P500.
  - jiveturkey 8y ago
    The S&P doesn't have expenses. A house does, on the order of 1% annually.
- gargarplex 8y ago
  No, assuming 9/99 - 9/18. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/ Annualized S&P 500 Return (Dividends Reinvested) 6.141% But I don't know what improvements were made to the house or what they cost... also didn't calculate the ongoing maintenance costs..
  - planteen 8y ago
    Not sure on the property tax situation in SV, but a common assumption is 1% of the houses's value annually. So with that considered, it is probably close to a wash with the S&P 500. And whatever upkeep as well, as you said.
    - d1zzy 8y ago
      Because of Prop 13 tax increase year to year is limited to inflation or 2% increase (whichever is lower). So yes, you start with ~1% of the house value but with 7% average increase in property value and limited to 2% increase in tax value you end up banking most of that property value increase.
  - scabarott 8y ago
    But also don't forget to subtract rent (the value of actually living in and enjoying the house or one of equivalent value). It'll probably work out to the same or a slightly higher ROI
- classybull 8y ago
  Except with property you have the utility value of having a place that keeps rain off of your head and with the S&P you have the utility value of.. getting to be obsessive about numbers on a screen every moment of every day. Whether that difference is worth the extra points is an individual call.
pascalxus 8y ago
With housing we've been a huge macro bull run for the last 50 years here in CA. But, it's not going to go on forever. I'm not saying it's gonna crash, but In the long long run, the rate of return on housing will always be equal to inflation. In addition, You probably want to take into account taxes and depreciation/repairs/costs.
- aliston 8y ago
  There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is driven by things like wealth generation, local incomes, outside investment, immigration, supply restrictions and so on. Ive read some estimates that put the long-term real return at ~2%, which could be competitive with stock returns with the typical modern 5:1 leverage.
  - Retric 8y ago
    Depends on how you measure inflation, but economic growth over the long term tends to be overstated. Consider 2000 years ago people where producing beef. At 2% economic growth we would be producing 1.5 * 10^ 17 cows or something of equivalent value. Further, many areas like Detroit have seen a reduction in land values over significant time periods.
    - aliston 8y ago
      I don’t really understand your point. You’re basically saying that any exponential return blows up in the limit, which means that any investment rule like a 6% return from the stock market is unsustainable. That may be, but it’s not particularly actionable or useful. The bottom line is that for most of modern history, real estate as a whole has been a better investment than some theoretical instrument that tracks inflation. Your point about Detroit is like arguing that stocks are a bad investment because Enron collapsed.
      - Retric 8y ago
dkrich 8y ago
The house is being listed at $21.8 million. That doesn't mean it's going to sell for that. There have been a number of stories recently about very expensive homes sitting on the market for years and having to be reduced in price substantially. I'm not sure I understand all the comments comparing this RoR to the S&P or some other benchmark. S&P stocks are highly liquid, so the price you see is the actual price you can get at any given moment. Not so with housing. The actual selling price could be higher or much lower depending on who is ready, willing and able to make this purchase in the next few months.
gopi 8y ago
Some time ago i did this math by choosing random bay area properties in Zillow, find the oldest last sold price and arrive at CAGR to the current zestimate. Mostly it was in the band of 6-8%. This is less than S&P 500 and considering the mortgage rate was >6% before 2006 its not much. One exception to this is properties bought in the 2008 recession which had 12-18% CAGR.
Soundest 8y ago
That's not taking into account that a $5m property from 1999 will have required significant refurbishment, property taxes and maintenance to even retain it's value let alone increase.

gargarplex 8y ago

Well, remember that 1999 was dotcom bubble as well. So timing is a factor. I wonder if the mid range or the bottom of the market (ca. 1999) benefited from similar price appreciation - would check but code is done compiling, back to work!:).

synaesthesisx 8y ago

Would have been better off buying the S&P

tristanj 8y ago
No, the SP&500 has a lower rate of return from 1999 to today. With dividend reinvestment it was 6.1%.
- vxNsr 8y ago
  Also you can't live in the S&P500.
  - dev_dull 8y ago
    It’s hard grow tomatoes in the backyard of the S&P500.
- jiveturkey 8y ago
  The S&P doesn't have expenses. A house does, on the order of 1% annually.
gargarplex 8y ago
No, assuming 9/99 - 9/18. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/ Annualized S&P 500 Return (Dividends Reinvested) 6.141% But I don't know what improvements were made to the house or what they cost... also didn't calculate the ongoing maintenance costs..
- planteen 8y ago
  Not sure on the property tax situation in SV, but a common assumption is 1% of the houses's value annually. So with that considered, it is probably close to a wash with the S&P 500. And whatever upkeep as well, as you said.
  - d1zzy 8y ago
    Because of Prop 13 tax increase year to year is limited to inflation or 2% increase (whichever is lower). So yes, you start with ~1% of the house value but with 7% average increase in property value and limited to 2% increase in tax value you end up banking most of that property value increase.
- scabarott 8y ago
  But also don't forget to subtract rent (the value of actually living in and enjoying the house or one of equivalent value). It'll probably work out to the same or a slightly higher ROI
classybull 8y ago
Except with property you have the utility value of having a place that keeps rain off of your head and with the S&P you have the utility value of.. getting to be obsessive about numbers on a screen every moment of every day. Whether that difference is worth the extra points is an individual call.

pascalxus 8y ago

With housing we've been a huge macro bull run for the last 50 years here in CA. But, it's not going to go on forever. I'm not saying it's gonna crash, but In the long long run, the rate of return on housing will always be equal to inflation. In addition, You probably want to take into account taxes and depreciation/repairs/costs.

aliston 8y ago
There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is driven by things like wealth generation, local incomes, outside investment, immigration, supply restrictions and so on. Ive read some estimates that put the long-term real return at ~2%, which could be competitive with stock returns with the typical modern 5:1 leverage.
- Retric 8y ago
  Depends on how you measure inflation, but economic growth over the long term tends to be overstated. Consider 2000 years ago people where producing beef. At 2% economic growth we would be producing 1.5 * 10^ 17 cows or something of equivalent value. Further, many areas like Detroit have seen a reduction in land values over significant time periods.
  - aliston 8y ago
    I don’t really understand your point. You’re basically saying that any exponential return blows up in the limit, which means that any investment rule like a 6% return from the stock market is unsustainable. That may be, but it’s not particularly actionable or useful. The bottom line is that for most of modern history, real estate as a whole has been a better investment than some theoretical instrument that tracks inflation. Your point about Detroit is like arguing that stocks are a bad investment because Enron collapsed.
    - Retric 8y ago

dkrich 8y ago

The house is being listed at $21.8 million. That doesn't mean it's going to sell for that. There have been a number of stories recently about very expensive homes sitting on the market for years and having to be reduced in price substantially. I'm not sure I understand all the comments comparing this RoR to the S&P or some other benchmark. S&P stocks are highly liquid, so the price you see is the actual price you can get at any given moment. Not so with housing. The actual selling price could be higher or much lower depending on who is ready, willing and able to make this purchase in the next few months.

gopi 8y ago

Some time ago i did this math by choosing random bay area properties in Zillow, find the oldest last sold price and arrive at CAGR to the current zestimate. Mostly it was in the band of 6-8%. This is less than S&P 500 and considering the mortgage rate was >6% before 2006 its not much. One exception to this is properties bought in the 2008 recession which had 12-18% CAGR.

Soundest 8y ago

That's not taking into account that a $5m property from 1999 will have required significant refurbishment, property taxes and maintenance to even retain it's value let alone increase.