Articles
Stock Market vs. Real Estate
Aug 28, 2006 - 4:55:00 PM

If you are not sure about why Real Estate provides superior returns than the stock market, take a look at the example below. 

	Stock / Mutual Funds	Real Estate
Initial Investment	$10,000	$10,000
Asset Value	$10,000	$100,000
Appreciation Rate	5%	5%
Appreciation Value	$2,500	$25,000
Principal Reduction	$0	$10,000
Total ROI	25%	350%

* Assuming 6% interest & 25-year amortization on mortgage. Compounding returns used to calculate returns.

With your initial investment of $10,000 for an interest of 5%, your $10,000 turns into $12,500 in 5 years. That’s a collective return of 25% (5% times 5 years). Not bad for the stock market.

Now, let’s look at the same $10,000 invested in Real Estate as a downpayment towards the purchase of a rental property. Assume zero cash flow during this period. Over the same 5-year period and the same 5% appreciation rate, your $10,000 turns into $45,000.

In both scenarios, the returns are not exaggerated returns in either market (there are realistic and achievable), however, the leverage factor allows real estate investors to achieve a much higher return on their investment than the stock market investor.

About the Author: Ravinder Tulsiani, CIM, FCSI. After graduating as a law major, Ravinder spent nearly a decade in the financial industry as a banker, securities broker and Chief Compliance Officer. Ravinder left the securities industry in 2005. He is now exclusively focused on real estate investing and holds properties throughout Canada and overseas.