Quote:
Originally Posted by Alex from Montreal
Over the long term, smart money would pick stock over real estate.
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That's not necessarily true. It all depends on your aversion to risk and how actively involved you want to be in your investments.
While stocks will bring a higher % return year after year that doesn't mean you make more money with stocks.
If I put $100,000 into stocks and earn 10% per year, that's $10,000 per year in investment income.
If I use $100,000 as a 20% down payment on 500K worth of real estate, and we assume real estate will appreciate over the long term at only 5% (half the rate of stocks) I earn a 5% return on $500,000 which is $25,000 per year.
This doesn't include rental income over and above your expenses or the fact that your tenants are paying down your mortgage for you, so that you're building equity in addition to the property appreciating.
However there are greater risks involved because you have to borrow the other 400K to buy the property, and you're liable for the mortgage whether the propery is rented or not, plus the multitude of headaches involved with being a landlord.
So while you have to willing to take greater risks and bigger headaches, you can earn substantially more in the long term with real estate than in the stock market, even though the rate of return on stocks is double that of real estate.
Counter-intuitive but true.
