How One San Francisco Home Outperformed the Stock Market (and What It Means for Your Wealth)

Introduction: The Big Wealth-Building Question

If you had $150,000 in 2009, would you have been better off putting it into the stock market or into a San Francisco home? Most people reflexively say "stocks" because of the S&P 500's historic returns. But when you look at the whole picture — leverage, tax benefits, rent avoided, and the ability to borrow against your home — real estate starts looking like a serious wealth engine.

And what if, after a decade of appreciation, you sold the San Francisco home and moved somewhere less expensive — say Tahoe, Idaho, or the Midwest — and invested the rest? Let's walk through it.

Scenario 1: Buying a San Francisco Home in 2009 vs. Investing $150k in Stocks

The setup:

• Buy a $2.0M home in San Francisco in 2009 with $150k down (≈7.5% down).
• Take a 30-year mortgage at ~5%.
• Compare that to putting $150k into the S&P 500 or Nasdaq.

What happened 16 years later:

• Home price: $2.0M → $5.09M (index-tracking)
• Remaining loan: ≈$1.2M
• Net equity after selling costs: ≈$3.6M
• Rent avoided: about $864k (averaging $4,500/month)
• Tax savings (interest + property tax deductions): ≈$450k

Stocks instead:

• S&P 500 total return: $150k → ≈$1.3M
• Nasdaq total return: $150k → ≈$2.0M
• But you're still paying rent on top of that.

Takeaway: Even after costs, owning leveraged real estate and living in it gave you a multi-million-dollar net worth, while the stock investor ended with under $2M plus ongoing rent bills.

Scenario 2: The 10-Year Price-Only Snapshot — Why It Looks Like Stocks Win

Why We're Including This Scenario

It's important to first look at raw price appreciation because that's the baseline measure most people use when comparing investments. Without this step, it's easy to assume homeownership always beats stocks. By isolating just the asset price changes — no leverage, no rent savings, no tax breaks — we can see how the underlying home value performed relative to the stock market. Then we can layer back in all the things that make real estate unique.

The Price-Only Numbers (2015–2025):

• San Francisco Home Prices: Case-Shiller Index up from ~210 to ~349 (+65%, about 5.2%/yr).
• S&P 500 Total Return: ≈14.9%/yr.
• Nasdaq Total Return: ≈17.6%/yr.

If you look only at these numbers, it appears you'd have been far better off in stocks than in a San Francisco home.

But Here's the Catch — Homes Work Differently Than Stocks

1. Leverage: Even modest price gains on the home translate into very large percentage gains on the down payment.
2. Housing Benefit (Imputed Rent): You're also living in the home, avoiding thousands of dollars per month in rent.
3. Tax Breaks: Mortgage interest and property taxes (within limits) reduce your taxable income. Capital gains on a primary residence can be partially tax-free when you sell.
4. Optionality: Once you have equity, you can refinance or open a HELOC to tap capital for other investments — something you can't do as easily with stocks.

Why This Matters: Scenario 2 shows that if you look only at the price chart, it seems like real estate "underperformed" stocks. But that's an apples-to-oranges comparison because homeowners don't just own an asset — they also consume housing, use leverage, get tax breaks, and have the option to tap equity.

Once you account for those factors, the "true" return to homeownership can match or exceed the stock market, especially in high-appreciation, high-rent cities like San Francisco.

Scenario 3: Cash-Out Refinance in 2021 at 2.5% and Holding 15 More Years

This is where real estate shines: using cheap debt to unlock equity.

The setup:

• By 2021, your home is worth ≈$4.5M.
• You refi at 2.5% fixed, 70% LTV.
• Pull out ≈$800k cash.
• Invest that in the stock market at 9%/yr.
• Stay in the home another 15 years at 5% annual appreciation.

The result by 2036:

Takeaway: Even after borrowing against your home, you're ahead by ≈$2M compared to selling the house and going all in on stocks. That's because your home continued appreciating while you enjoyed cheap 2.5% debt and let your stock investments compound.

Scenario 4: Selling the SF Home in 2021, Moving Somewhere Cheaper, and Investing the Rest

Let's say instead of staying in San Francisco you did this in 2021:

• Sell SF home for $4.5M.
• Pay off the $1.2M mortgage, leaving ≈$3.3M net before selling costs.
• Buy a home in Tahoe, Idaho, or the Midwest for $800k cash.
• Invest the remaining ≈$2.5M in the stock market at 9%/yr for 15 years.

Projected by 2036:

• Lower-cost home appreciates at 3%/yr: $800k → ≈$1.25M.
• Stocks grow at 9%/yr: $2.5M → ≈$8.8M.
• Total net worth: ≈$10.1M by 2036.

That's still solid — but under our assumptions, it's a few million less than the "stay in SF, cash-out-refi and invest" strategy, and also less than the "keep SF home + invest" scenario.

Takeaway: Moving to a lower-cost area and investing the proceeds can still make you wealthy, but the combination of leveraged SF appreciation and cheap 2.5% debt gave the edge to staying put in this example.

Quality of Life and Optionality

Owning a home in San Francisco isn't just about numbers. You also:

• Lock in your housing cost instead of chasing rising rents.
• Gain stability and quality of life in your chosen neighborhood.
• Access low-cost capital via HELOCs or refinances to fund other investments or life events.
• Retain an appreciating asset that you can pass on, rent out, or continue to borrow against in retirement.

If you move somewhere else, you may gain other quality-of-life perks — more space, slower pace, or lifestyle upgrades — but you might lose some of the long-term leverage and appreciation unique to SF.

Why This Works: Leverage, Taxes, and Shelter Value

1. Leverage: A 30-year fixed mortgage gives you long-term, non-callable leverage at a fixed rate.
2. Tax benefits: Mortgage interest and property taxes (subject to limits) reduce taxable income. Capital gains on a primary residence up to $500k for married couples can be tax-free.
3. Shelter value: The imputed rent you "pay to yourself" is a hidden return.
4. Optionality: The ability to refinance or take a HELOC in good markets adds flexibility.

The Case for Diversification

While these examples show how real estate can outshine the stock market under certain conditions, the reverse can also happen. Stocks offer:

• Instant diversification across industries.
• Daily liquidity.
• Historically higher nominal returns with no maintenance costs.

That's why a diversified portfolio — real estate + equities + cash flow from other assets — often produces the most resilient long-term outcome.

Conclusion: Owning Real Estate Can Be a Wealth Engine

In San Francisco's high-rent, high-growth environment, owning leveraged real estate and living in it can produce a stronger long-term wealth outcome than renting and investing in stocks. When you add tax breaks, rent savings, and the ability to tap cheap capital, the math tilts even further.

Even moving to a lower-cost area and investing the proceeds can still produce strong wealth — but under our assumptions, it trails the power of staying in SF with cheap leverage.

At the same time, diversification matters. Even if your home becomes a powerful wealth engine, keeping investments in equities or other real estate adds resilience and growth potential.

In my next post, I'll break down how you can increase your gains and diversification through investing in more homes, considering rental cash flow, and using creative financing to build a portfolio.