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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