Real Estate slightly beats renting and investing the difference using average price and rents

Why do so many people think the S&P outperforms real estate?

Scenario Setup (U.S. Averages)
• Buy a $400,000 home:
• 20% down = $80,000
• 4% mortgage over 30 years
• 4.5% annual home appreciation
• Ongoing costs: 1.25% property tax, 1% maintenance, $1,200/year insurance
• Rent at $1,700/month:
• Rent increases 3.5% annually
• Invest initial $80,000 + any annual cost savings in the S&P 500 at 7%

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After 30 Years
• Homebuyer:
• Home appreciates to ~$1.5M
• Mortgage largely paid off
• After expenses and inflation, ends with ~$1.2M in equity
• Renter/Investor:
• Initial $80,000 grows to ~$610,000
• Plus invested cost savings (mostly early years when renting is cheaper) brings total to ~$900,000–$1.1M, depending on location and tax conditions

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Result
• Buying wins slightly over time due to leverage and forced savings, especially if the buyer holds for 30 years.
• Renting + investing is competitive in early years and offers liquidity and flexibility.
• Sensitivity to local costs (like rent vs. PITI) and personal discipline with investing heavily affects the outcome.