Ten years ago, we bought our very first home — a 3-bedroom, 2-bathroom condo in the inexpensive city of Gainesville, Florida. And after living there ourselves for a while, it became our very first rental property investment — providing us with extra income as we traveled the world from Canada to Australia to Iceland.
After what felt like a very successful decade of homeownership and landlording, we just sold that condo and ran the final numbers, comparing real estate vs. stocks (our primary investment vehicle)…and honestly, the results were pretty eye-opening.
Beating the Average Appreciation of Real Estate
When most people go shopping for their first home, they’re thinking about what features they want personally — a dream house. But our idea of a dream house was a little different. We just wanted the lowest possible price tag, giving us the most bang for our buck and the highest possible rental yield if we ever decided to move out and travel for a while.
I’d say we definitely achieved that goal when we scored a really nice 3-bedroom, 2-bathroom condo for $70,872. The price was so low, we paid cash for it — making us mortgage-free homeowners at age 25, which felt pretty great!
According to Zillow, our condo has been appreciating in value over time since then, but as homeowners who’d never actually sold a property before, we’d always wondered, “How accurate are Zillow Zestimates?” Because of this uncertainty, we actually lop 10% off of our Zillow Zestimate when calculating our net worth, just to be conservative.
We finally got an answer to that question though, and unfortunately, it was worse than we thought: At the time we listed our property for sale, Zillow estimated it to be worth around $160k. The actual sale price of $127,267 fell short of the Zillow Zestimate by 21%. 😱
Even still, going from $71k to $127k in 10 years represented an overall gain in value of $56,395 — or a home appreciation rate of 6% per year. Since the national average appreciation of real estate in the US is more like 3-4% per year, we actually did really well here!
Truthfully, we didn’t do anything special to secure above-average returns on our home value. It was pretty much just random chance. But there’s a lot more to rental property ROI than just appreciation.
Gross Rental Income Calculation
Since we started out by living in this condo ourselves, there was technically no “income” from it for the first several years. However, we estimate that we were able to save ourselves at least $40,050 in rent that we otherwise would have had to pay someone else over the lifetime of the property (an average of about $850/month in the early years).
We absolutely count that money as part of the ROI of the condo. In fact, this foregone expense was even better than rent collected from a tenant, because it wasn’t subject to income taxes. For this reason, a penny saved is actually more than a penny earned!
Since there were 3 bedrooms, we were also able to rent one out to personal friends for some of the time while we were still living there ourselves. This is sometimes called “house hacking,” and it’s a great way to use your own home to get ahead financially.
Later on, we decided on a crazy idea to take a 7-month road trip to every single National Park in the United States. That’s when we cleared all our stuff out of the condo and rented it to one person on a 7-month lease, pulling in another $8,650 in rental income. When we were done with that trip, we moved right back in.
Shortly afterward, we bought a beach condo for ourselves — which is where we live today — and turned our original home into a full-time rental property. We got incredibly lucky too, because we only had one more tenant for four and a half years. That ONE person paid $82,700 in rent to us — which is more than we even paid for the condo in the first place, meaning that a single tenant paid for our entire house!
Altogether over 10 years, our gross rental income came to $142,400.
Rental Property Operating Expenses
Unfortunately, we didn’t get to pocket all that rental income. Homeowners and landlords actually have a lot of expenses to account for.
Across all 10 years of homeownership, we paid $45,888 in condo association dues and assessments — pretty much unavoidable.
On the bright side, insuring a low-value condo is very inexpensive — it was just $65 a month on average, or $7,778 total. And our property taxes skewed pretty low too, especially since we got a homestead exemption when we were living there ourselves — totaling $17,358 over 10 years.
One of the best ways to win with real estate is just to buy a modest place and keep the purchase price as low as you can. It has a tendency to boost your rental yield as a percentage, while simultaneously keeping your insurance and property tax bills dirt cheap.
As for renovations, maintenance, and repairs, we only spent $12,646 across an entire decade — including superficial upgrades like new kitchen cabinets, new bathroom vanities, new carpets, and a screen porch. We never even had to replace any major appliances like the air conditioner (which we were warned was on its last leg when we bought the place 😬).
Altogether, our total rental property operating expenses were $83,670 over a decade of ownership.
In almost every respect, it felt like we experienced the absolute best-case scenario on a real estate deal, especially since we got it for such a low price and squeezed every penny we possibly could out of it for 10 straight years.
Our Rental Property ROI Over 10 Years
At this point, you’re probably convinced that our first home was a good buy. But just how great was it, in cold, hard, investment terms? The answer might surprise you.
If we add up all the money we got out of our condo across 10 years, including rents and the sale price, minus all the expenses, we see that our initial investment of $71k turned into $185,997 of net money back in our pockets — bringing our average real estate return on investment to 10.1% per year.
10.1% a year may sound like a solid total return, but just for fun, let’s compare that to something else we could have bought instead with a similar level of risk: A stock market index fund.
Comparing Stocks vs. Real Estate Fairly Using IRR
Investing the exact same $71k into the US stock market (via VTI) over the exact same 10-year time period we held our condo (Jan. 26, 2016 to Feb. 2, 2026), and automatically reinvesting dividends along the way, would have delivered an ending balance of $296,000 — a stock market total return of 15.3% a year!
However, we haven’t made a true comparison of investing in stocks vs. real estate just yet. Stocks have a bit of an unfair advantage because you can reinvest dividends to buy more shares along the way with the push of a button, creating a stronger compounding effect.
When a tenant pays rent, you can’t instantly deploy that cash into another identical property the way you can click “reinvest dividends” on an index fund. So, just to make the comparison more clear — what if you could reinvest rental income just as easily as with a stock?
By calculating something called the “internal rate of return,” or IRR, on a piece of real estate, you can simulate what would happen if you were able to magically buy fractional shares of another identical property with every rent check you received — each of which would produce its own additional, fractional rent checks, compounding like a stock. You can think of IRR like “rent reinvestment,” instead of dividend reinvestment.
For small investors like us, this is hypothetical*, but for big institutional investors who actually can buy more houses with their millions of dollars in rental income every month, this is pretty close to how it actually works, and Google Sheets has a nice built-in function for the calculation. You just need excellent bookkeeping records to do it properly.
After running the precise numbers, the IRR of our condo turned out to be 13.6% per year – hypothetically turning our initial real estate investment of $71k into $254,959, net of all expenses. That gives us a better apples-to-apples comparison of investing in stocks vs. real estate, and it’s certainly better than the 10.1% we originally calculated…but it still wasn’t enough to beat the stock market over the same time period!
We did really well on our real estate purchase, but the hard truth is that if we’d just dumped our original $71k into the stock market and continued renting instead of ever buying our first home, we’d actually be slightly richer today as a result. And it would have been a lot easier, too. 🙃
Investing in Stocks vs. Real Estate: Historical Returns
The fact that our one specific condo failed to beat the stock market over one specific 10-year period proves nothing, of course. To make a more general comparison, we would need to consider stocks vs. real estate over a longer time horizon, averaged over many properties.
Truthfully, our 10-year experiment probably yielded overly optimistic results for both real estate and stocks. The long-term average return of the US stock market has historically been closer to 10-11% per year (not 15%), and the average internal rate of return of a well-managed rental property is somewhere in that same ballpark.
You will invariably hear proponents of real estate citing returns much higher than this, but they are almost always using significant leverage — borrowing money to invest through the use of mortgage loans. Don’t fall for this mathematical trick.
Leveraged investing is only capable of producing higher returns because it introduces significantly higher risk. This can be achieved in the stock market just as well using margin loans, but it’s too dangerous for our taste.
When comparing investment returns, you should always compare unleveraged returns against other unleveraged returns, at a similar risk level — which is what we’ve done here.
Since stocks and rental real estate have historically had very similar pre-tax returns over the long run, it’s important to consider other factors when deciding between the two.
Beyond ROI: Downsides of Real Estate Investing
One downside of rental real estate is that it isn’t very tax-efficient in the United States. While almost all long-term stock market returns are taxed at low capital gains rates, the biggest chunk of real estate’s returns (rent) is taxed as ordinary income, which costs you more. That tips our earlier comparison even further in favor of stocks.
And while stocks let you build wealth without lifting a finger, real estate isn’t as passive. We got really lucky in our experience, keeping one easy tenant for over 4 years and not experiencing any major issues. But we still had to advertise the property, write a lease, replace a washer and dryer, replace carpets, replace toilets, replace ductwork in the attic, get a leak fixed and ceilings patched — and field quite a few phone calls in the process. Our index funds never call us with problems!
Lastly, the buying and selling process for real estate is a hassle, as we learned the hard way. Purchasing our condo required physically shopping around, getting a home inspection, going through a weeks-long closing process, and then watching a third-party real estate agent walk away with their cut of the transaction.
But then selling it was the real nightmare. When our last tenant moved out, our condo sat on the market for 9 months while we paid for electricity, insurance, and condo dues, all as our money sat tied up in an illiquid property that wasn’t producing any income. We had to slash the price again and again until someone would finally take it off our hands.
On the other hand, the time it takes to buy or sell any stock market index fund is about 60 seconds on a computer — and you know the exact price you’ll be getting before you do it.
For all these reasons and more, we’ve decided that landlording just isn’t a business we’re interested in, and at this point, we’re pretty much neutral on homeownership in general.
You might have different preferences, and real estate is still a perfectly solid investment to consider. But it’s worth at least acknowledging that, if you want to, you can build wealth just as quickly without owning a single door.
— Steven
* To achieve a reasonable form of “rent reinvestment” as a small property owner, you could invest net rental income into a stock market index fund like VT or VTI (or even a REIT index fund like VNQ, if you prefer real estate exposure specifically), and then sell those shares when you have enough to buy your next property.
