This is the condensed version of our analysis of the comparative returns from a multi-family investment property versus an S&P 500 index fund. Scroll to the bottom of this page to download the full length version. If you're interested in discussing the study, please contact us.


You may have heard about Warren Buffet’s million-dollar bet with Wall Street’s brightest, where he pitted a nondescript S&P 500 index fund against a collection of top hedge funds. The index fund dominated, returning 7.1% compounded annually over a ten-year span, versus only 2.2% per year for the hedge funds. Buffet touted the S&P index as “the best investment for most people,” and many other experts have agreed.

Buffet’s experiment inspired us to do one of our own. Specifically, how does a multi-family investment property fare against the S&P 500 index? For both investments, we modeled their performance over time with pricing data covering the thirty-year period from 1991 through 2020. For the real estate rental income and expenses, we applied conservative presumptions based on market data and our own experience as landlords.

The results of our test are, dare we say, just as stunning as Buffet’s. The investment property delivered an approximate total return two to four times greater than the S&P 500 across every time period studied. To be clear, we don’t dispute that index funds are a sound investment. Nor do we believe that an investment property is superior in every set of circumstances. Real estate typically requires a larger initial investment and needs active management to thrive. However, we do believe that the data make a compelling case for investors to include multi-family real estate in their portfolio. Yorkshire Realty does the rest: we craft investment structures suited to each client’s needs, and we oversee all aspects of property ownership, so that our clients can be as hands-off as they wish. The table below summarizes the results of our analysis, along with some of the practical pros and cons of investing in real estate versus index funds.

The S&P 500

Let’s start with the index fund. Buffet’s bet ran from 2008 through 2017. We didn’t limit our analysis to that period because it was skewed by the financial crisis. Instead, we used data from a broader 30-year span, which softens the impact of price volatility and allows for a greater range of comparisons. From 1991 through 2020, the S&P 500 increased in value from $326 to $3,756. That’s a total return on investment of 1051% over thirty years, which averages out to a compound annual growth rate of 8.5%. The chart below applies that growth rate to a hypothetical thirty year period and shows the approximate cumulative return on investment each year. The full results of these, and the other analyses in this report, are listed in Appendix A.

The Investment Property

On to the investment property. We focused on two-to-four unit apartment buildings, because those are the most accessible to most investors, but our findings may also apply to other property types. Unlike the index fund, which derives value solely from its price, an investment property generates a return in multiple ways. We analyzed each of these sources in turn: appreciation, equity from mortgage payments, and rental income.


This is the amount that the property’s value increases over its purchase price. We modeled property values over time by using the Multi-Family Real Estate Apartment Price Index from the U.S. Federal Reserve. From 1991 through 2020, the national average multi-family property price increased from $60,660 to $317,554. That amounts to a 424% return on investment over thirty years, which averages out to a compound annual growth rate of 5.7%. However, that rate of return is based on investing the full purchase price up front (i.e., an all-cash purchase). Most investors will prefer to use financing, and many options are available. For purposes of this analysis, we have presumed a thirty-year fixed rate loan with 4% interest and a 25% down payment. Using financial “leverage” like this significantly increases the investor’s buying power. The approximate return from appreciation is 22% for the first year, and continually increases. By year thirty, the cumulative return from appreciation is 1694%, which averages out to a compound annual growth rate of 11.2%.

Equity from mortgage payments

For financed properties, this is the equity created by making regular mortgage payments. The principal portion of each payment decreases the investor’s debt and increases their equity in the property, which can be cashed out when the property is sold or refinanced. We treat mortgage equity as a return on investment, rather than as an expense, because the rental income covers the loan and other operating expenses, which the investor never has to go out-of-pocket for. The approximate return from appreciation is 5% for the first year, and continually increases. By year thirty, the entire purchase price will have been paid off, which is equivalent to a 300% return on investment through mortgage payments alone.

Net rental income

This is the amount of rental income generated by the property, minus all operating expenses, including the mortgage, taxes, insurance, utilities, maintenance, and management. We estimated the gross rents and expenses by using a combination of market-wide data and our direct experience as landlords (for more details, see the full-length version of this study). The result for the first year of ownership is an approximate return on investment of 6% for a financed property and 5.8% for a cash purchase. Presuming active management with regular rent increases, the rate of return will increase every year (and to a larger degree with financing) because the rents will grow more than the expenses. By year thirty, the approximate annual return from rental income is 24.9% and the cumulative return from rental income is 455%.

Reinvested rental income

A key feature of rental income is that it is paid out on a regular basis. The investor can do whatever he or she likes with this cash-flow, including spending it on living expenses, or reinvesting it to generate additional returns. We modeled a “best of both worlds” approach, where the rental income is reinvested every year in an S&P 500 index. For a financed property, the approximate returns from reinvestment begin modestly—6% by year five, 36% by year ten, and 109% by year fifteen—but accelerate rapidly in the later years, as the index fund balance grows. By year thirty, the approximate return from reinvesting alone is 975%.

Total return

Now let’s put it all together. The charts below show the approximate total returns on a multi-family investment property, with and without financing, over a hypothetical thirty-year span. The year-by-year results are also listed in Appendix A. The strongest results are achieved by using financing and regularly reinvesting the rental income. That strategy delivers approximate total returns of 197% by year five, 480% by year ten, 883% by year fifteen, and 3424% by year thirty. The next-highest returns are from using financing without reinvesting the rental income (2449% return by year thirty), followed by purchasing all-cash with reinvesting rental income (1315% return by year thirty) and without (665% return by year thirty).


Finally, we plotted out the returns for the index fund alongside the returns for the various investment property options. The chart and table below show the approximate total returns, over a hypothetical thirty-year span, for (1) the index fund, (2) a non-financed property with reinvestment of rental income, (3) a non-financed property without reinvestment, (4) a financed property with reinvestment of rental income, and (5) a financed property without reinvestment.

While all of these investments generate solid returns, the financed rental property is the clear winner across all time periods studied. The forces at work—the solidity of real estate, the power of financial leverage, and the benefits of passive income—combine to create an investment that provides both immediate benefits and huge long-term upside. The investor can use the rental income to help fund an early retirement, or simply enjoy spending it. If he or she opts to reinvest it instead, those additional returns alone may eventually match those from investing only in the index fund. Tapping into the appreciation by a sale or refinance opens yet more possibilities for additional investment in real estate, equities, or other asset types.

For all these reasons, we strongly encourage investors to consider including multi-family property as part of their balanced portfolio. At Yorkshire Realty, our mission is to break down the barriers to real estate investing and enable investors to maximize their returns while having as much or as little involvement as they prefer. We create investment structures tailored to each investor’s needs and access to capital. And we take on the challenges and stresses associated with real estate ownership so that our clients don’t have to. If you have questions about this study, or are interested in learning more about our services, we welcome the opportunity to speak with you.

Appendix A

Full Version

Head-to-Head - Multi-Family Investment Property Versus the S&P 500 - Full Version.pdf