Real Estate vs. 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. Knowledge is power.

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. 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:

                                 Real Estate                                                                                   Stock Market

10% Annually Over 10 Years            $250k (500% Total Return)                              $50k (100% Total Return)

8% Annually Over 10 Years              $200k (400% Total Return)                              $40k (80% Total Return)

6% Annually Over 10 Years             $150k  (300% Total Return)                               $30k   (60% Total Return)

4% Annually Over 10 Years             $100k  (200% Total Return)                               $20k   (40% Total Return)

2% Annually Over 10 Years             $50k    (100% Total Return)                                $10k   (20% Total Return)                                                                                                                                                          

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.  Some will argue that albeit, an investor can get out of the stock market quicker than you can pull out of real estate that is dropping in value.  This is why we showed a 10 year plan.  Real Estate is not only local in nature but is also cyclical.  In times very eerily similar to today’s crisis, real estate value have shown positive gains over a 10 year curve. 

Article written by: Mike Berney (Liberty Real Estate)

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