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.
