Stocks vs Real  Estate

During the last 4 years the stock market has yielded gains of 20%
annually.  Quite spectacular.  But real estate has stacked up fairly well  also, and may be a good place to put some of those gains.  The tax
deductible real estate mortgage allows you to leverage your investment (down payment) without going on margin. 

Lets assume an "investment"  10%  or $10,000 for down payment and closing costs.  at a simple rate of appreciation of 5% the  investment is worth approximately $171,000 in ten years
A gain of $71,000, 
generated by  $10,000 initially, it is a 600% gain.  A 20% annual return in the stock market would be worth $62,000, a return of 500%.

Disposing of the assets after 10 years would be significantly different.  It may cost up to 10% of the sales price to divest oneself of the real estate ($17,000 or approximately 25% of the gains) while the stocks would be less expensive to sell.  However the stock sale would be subject to a
capital gains tax of approximately 18% while the sale of a personal
residence is tax free.

which is better for you?  Only you and your tax advisor can say.

 

                              Real Estate          Stocks

      Investment                    $10,000                  $10,000
      Assets                          $100,000                  $10,000
      Rate of Gain                      5.0%                      20.0%
      Ending Value                  $171,000                $62,000
      Total Gain                        600%                    500%
      Cost of Sale                        10%                  Minimal
      Tax Rate                              0%                        18%

 

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