It´s very difficult to get an accurate figure for the historical yields on real estate. So, first, let´s start with some previous papers:
- Jack Francis and others wrote a paper called “Empirical Risk-Return Analysis of Real Estate Investments in the U.S., 1972-1999” adapted in 2004. The advisers thought the yield averaged 8.6% annually during this period.
- Fidelity Research Institute began from 1963 to 2006, and found the absolute yield was 5.9% per year with abundant country variances.
- The Case-Shiller Home Price Index showed that the value of residential real estate grew by 9.31% in the U.S. from the period of 1998-2007.
- The University of British Columbia found a real return of around 2% in Canadian cities from 1985-2003.
Second, as a rule of thumb, nominal real-estate returns vary between 6-10%. As a big part of the real-estate bubble has already exploded, we could assume 8% as the average return for real estate. If we check out our estimate for real inflation (link here), we can get even with inflation.
So, to sum up, as we were saying in a previous article, if we invest the money for our retirement in good stocks, good bonds, and real estate, we could average 7% yield, which is the number we use in our simple retirement calculator. For inflation, we fill in a safe 8% (remember: real inflation, not official inflation), so, in fact, we don´t even beat inflation.
Play a little bit with the calculator, and you will see it´s really difficult to get a safe retirement with no extra income.
- Jack Francis and others wrote a paper called “Empirical Risk-Return Analysis of Real Estate Investments in the U.S., 1972-1999” adapted in 2004. The advisers thought the yield averaged 8.6% annually during this period.
- Fidelity Research Institute began from 1963 to 2006, and found the absolute yield was 5.9% per year with abundant country variances.
- The Case-Shiller Home Price Index showed that the value of residential real estate grew by 9.31% in the U.S. from the period of 1998-2007.
- The University of British Columbia found a real return of around 2% in Canadian cities from 1985-2003.
Second, as a rule of thumb, nominal real-estate returns vary between 6-10%. As a big part of the real-estate bubble has already exploded, we could assume 8% as the average return for real estate. If we check out our estimate for real inflation (link here), we can get even with inflation.
So, to sum up, as we were saying in a previous article, if we invest the money for our retirement in good stocks, good bonds, and real estate, we could average 7% yield, which is the number we use in our simple retirement calculator. For inflation, we fill in a safe 8% (remember: real inflation, not official inflation), so, in fact, we don´t even beat inflation.
Play a little bit with the calculator, and you will see it´s really difficult to get a safe retirement with no extra income.
