Most stock market investors will pay 100 percent of the share price for a stock (investors who don't mind the risk of margin calls can buy many stocks for 50 percent down), while real estate investors typically need to put down only five to 10 percent with no risk of margin calls.
To illustrate, Investor "A" buys $100,000 worth of stock that appreciates an average of 10 percent annually. At the end of five years, Investor "A" would have stock valued in excess of $160,000 - a gain in excess of 60 percent.
Likewise, Investor "B" invests $100,000 in real estate. With 20 percent down, Investor "B" now controls real estate worth $500,000. Investor "B" maximizes leverage by obtaining an interest-only loan and with the property appreciating at six percent per year, after five years the $500,000 property is now worth $670,000.
That $170,000 gain is a result of investing only $100,000 and is therefore a 170 percent return-on-investment (ROI) compared with the stock investor's 60 percent ROI.
In addition to tax benefits, the real estate investor can also rent the property, resulting in monthly cash flow - something even dividend-paying stocks and interest-paying bonds usually can't match.
The practical investor recognizes the benefit of investing $100,000 and potentially earning $170,000 over five years in real estate, versus earning only $60,000 in the same time with the same investment in stocks.
In reality, the stock market does not go up every single year while real estate often does, so that the above comparisons are even more skewed in favor of real estate. And if real estate does decline for a year or two, is that the end of the world?
When investing in real estate in London Ontario, work with all the numbers and if you really want to know the correct numbers to use, work with a quality REALTOR®
A blog about real estate houses and condos in London & South West Ontario , money saving tips, ideas, helpful links . Not All Realtors Are The Same!
