Real Estate vs. The Stock Market



Posted: Tuesday, December 23, 2008

by
Liberty Realty

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

$50,000 down for 250k purchase $50k in stocks, bonds, etc

10% annually over 10 yrs. $250k (total return 500%) $50k (total return 100%)

8% annually over 10 yrs $200k (total return 400%) $40k (total return 80%)

6% annually over 10 yrs $150k (total return 300%) $30k (total return 60%)

4% annually over 10 yrs $100k (total return 200%) $20k (total return 40%)

2% annually over 10 yrs $50k (total return 100% ) $10k (total return 20%)

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. New Jersey Real Estate Guys is an information based organization who offers non-bias details and opinions about real estate and the stock market

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Top-level comments on this article: (3 total)
» left by Cheryl Janecky
 3 years 18 days ago.
14 fans.
I've owned both real estate and stocks over many years - and leveraging is the key to real wealth. My only suggestion is formatting - break up the long paragraph - it was hard to read - and I'm familiar with the subject! Great info - good insight for everyone that is new to investing and home ownership.
 
Happy Holidays - Cheryl
» left by straight talk
 3 years 17 days ago.
111 fans. Follow straight talk on twitter!
Practical information presented in a non marketing format that many will accept when read. Good job.
» left by Scott Allan 3 years 17 days ago.
Thanks for the comments!  I am new on this article submission site and I forgot to format which I apologize for making difficult to read.  I had someone argue with me in a meeting in NYC the other day that it is unfair that I use positive growth because negative growth favors stock markets overall performance since you can pull out instead of losing all. 

This is true, but in my opinion we are nearing the bottom of the housing market despite an adjustment boom coming up in mortgages in the first quarter of the year.  I still think the wealthiest people in the world will continue to hedge their bets on real estate moreso than in the stock market.
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