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.
Lets be honest. You are totally not telling the whole story here. You really need to use a different comparison. Like one that applies. If you are going to discuss Real Estate Vs the Stock Market make sure that at least you compare apples to apples and not apples to oranges. OF COURSE leverage is going to give you better returns if you are on the winning side. It’ll ALSO exasperate your NEGATIVE returns TOO.
Do you know that you can purchase LEVERAGED positions in the stock market as well? Why do you not use that as your comparison? I see people claiming 50% annual returns for different strategies. They are no worse then someone that presents information in the manner that you have.
Jeff-
You are right. There are a ton of things, far too many to discuss on why stocks could be better as well in certain times. For instance when the housing market crashed, let’s say you own a home for $250k cash and $250k worth B of A stock. At least you can pull out of B of A, whereas you could not get rid of your house unless someone bought it from you. Real Estate loss is somewhat uncontrollable where stock losses can be.
What do you think about it right now during these times? I just had a client buy a 2 family home, generating 10,500 NOI from a $75k purchase price. Take out speculation. Include a 20% additional loss in value, while generating the same income. Hold the real estate for 5-7 years. Nobody was generating that type of NOI in the past or Capitalization Rate. Or you can invest with a small cap equity broker and make 10% +/-. If the cash flow is even, I’ll take the real estate right now with the tax advantages.
I do own stock though
Thanks for your comment. You make a really good point.