Investment Guy

A good friend of mine recently bought a house that was built in 1909.  There have only been 3 owners of the house in the 100 years of its existence, and in the interest of [very] long term investing, I began wondering what sort of returns this house would have yielded over a century.

I don’t know exactly what the initial cost of building the house was, and there doesn’t seem to be any information on the internet about the prices of real estate that long ago- at least none that I could find.

If the house was appraised today, it would be in the ballpark of $350,000.  Just to paint a complete picture: it’s a single family home, with 3 beds 2.5 baths, an unfinished basement and a crawl space for an attic.  It’s about 1750 square feet, with a 2 car driveway and a decent size yard.

To satisfy my curiosity, I decided to estimate its original value in 1909, starting by working the numbers backwards from today.  I made two separate assumptions, and used a bond calculator to come up with the following 3 scenarios:

Scenario 1) The value of the property doubles every decade

In this scenario the original 1909 investment would be $334.64.  (using the rule of 72, investments double in 10 years at 7.2% compounded)

Scenario 2) The value of the property increases by 50% every decade

In this scenario, the original 1909 investment would have been $6,116.19 (the equivalent of 4.13% per year, compounded)

 Scenario 3) The value of the property increases by 10% every decade

In this scenario, the original 1909 investment would have been $37,580.96 (the equivalent of 2.25% per year, compounded)

Would you be happy with all 3 as an investment?  I didn’t account for inflation, which would certainly effect the total return.  In conjunction with other investments such as stocks/bonds, I think it makes a great argument for investing in different asset classes.

I wonder…what will the next 100 years will have in store?