Real Estate versus Stock Market
Comparing a real estate investment to investing in the stock market requires certain assumptions and averages to be accepted. There are many important variables that may or may not come into play and should be considered on a case by case basis. Statistics, data, and other elements can be skewed to favor either investments. Ultimately, the concept of Timing, Chosen Market, and Availability of Funds will determine success or failure. Some risks can be anticipated and others cannot. This brief study is simply a guide for the investor and should be used in conjunction with a real estate professional or financial professional.
For the purpose of this study, a “normal” 10 year period of time will be
analyzed. Based on historical data for the past 30 years, the stock market will normall return 10% annually and real estate will normally increase 7% annually, over a given 10 year period. The comparisons below will analyze a $50,000 stock market investment and a $250,000 investment condo purchase, assuming $50,000 down payment. We will analyze a cash on cash Return On Investment (ROI). Complex investing scenarios such as short selling, margins, 1031 exchanges, and other advanced investment techniques will not be analyzed. Annual compounding of interest and appreciation will not be used:
| Annual Gain | Real Estate | Stocks, Bonds, Etc. |
| 10% | $250k Return = 250% ROI | $50k Return = 100% ROI |
| 8% | $200k Return = 400% ROI | $40k Return = 80% ROI |
| 6% | $150k Return = 300% ROI | $30k Return = 60% ROI |
| 4% | $100k Return = 200% ROI | $20k Return = 40% ROI |
| 2% | $50k Return = 100% ROI | $10k Return = 20% ROI |
It is interesting to note that all things being equal, leveraging allows a 2%
annual appreciation in real estate to equal a 10% annual rate of return in the
stock market. In my opinions nothing in these 2 industry giants are equal.
There are far too many intangibles involved and tax benefits through real
estate. For the life of me, I will continue to hedge 80% of my investment
money into real estate.
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You are correct in saying there is nothing equal about the equity markets and real estate markets. By and large, I believe more money has been made in the real estate markets over the last 80 years an there is no comparison. I think it just boils down to personality and individual risk tolerance.
I trade primarily the index futures markets but I know people that wouldn’t even consider trading these volatile markets. Long term investing in the stock markets is their approach and would only consider using a swing trading methodology for short term profits, if even this. It all depends on what the individuals time horizons are for return on investment. Short term = the equity markets long term = the real estate markets. Just my view and thanks for letting me share.