Although the stock markets have historically demonstrated higher percentage gains than real estate, they do not provide the leverage you get from a real estate investment. In fact, stock market gains would have to be several times higher than real estate to match the returns of a leveraged real estate investment. For example, let’s say an investor has $40,000 to invest and decides split it evenly between a mutual fund and a rental home priced at $180,000. Assume the rental home provides break-even monthly cash flow. A 5% rate of return on a leveraged real estate asset will produce a 3 times the return of a mutual fund with a 15% rate of return in year 1. (See exhibit 1).

Real Estate Investment Verses Stock Market Investment

*10% down plus closing costs

Historically the real estate market has been much more stable and consistent than the stock markets. According to the data provided by the National Association of Realtors, the nation’s home values have increased each year since 1968, the year it was first tracked. (Click here to see graph US Median Home Prices). Although we do not believe that a national real estate market exists, statistics like this are too compelling to ignore.