Should I invest in stocks or real estate? What’s the best ROI?
Bear with me while I walk through an example of what I love more, stocks vs real estate.
Transcript**
Stocks versus real estate. I'm gonna tell you why real estate's a way better investment. Okay. Let's assume you start with a $200,000 initial com investment. And every year you contribute to your portfolio by 25,000, you keep adding to it. That's how you should be investing into the stock market anyway.
So assuming you have a 7% annual compounding rate and, uh, so that's 200,000 at the end of the year, $14,000 increase at seven. You contribute 25,000. Again, you compound by 7%. So contribute compound contribute compound. You be left with 713,000 at the end of the 10 years. Oh, you damn awesome. Right. But of the 713,000, you're gonna walk away with after 10 years, you don't get to keep all that because you gotta deduct your initial $200,000 investment.
Plus the 205,000 you've increased over the past 10 years. So another 250,000 you'd be left with 288,000. But if you divide 288,000, by the 200,000 in your initial investment, you're looking at an ROI of 144% over 10 years or 14 per 14% Euro vis still pretty damn good, but here is where it starts getting interesting.
If you put that same 200,000 as a down payment on a million dollar property in Toronto, as to say, and, uh, you have an $800,000. You know, the interest rate's pretty high right now, 5%, but you know, we're gonna pay it off in 25 years. So that'd be okay. Your payments will be pretty high, $4,700 a month. So don't forget, you gotta deduct your property taxes and your monthly maintenance fees.
And then, you know, if you're in a condo, that is, um, but if you're in a house, then you might have some property management. You might have vacancies, you might have repairs and maintenance. And then of course, you're only gonna get $3,800 a month in rental income. And I can show you plenty of examples of that for a million dollar property.
So you might think that your monthly cash flow is negative two, $2,300 a month, $2,300 a month or annually 28,000. What's funny enough is the same as a $25,000 increase. And you might think it's a bad investment because you don't want to contribute more money into a negative cash flow and you don't wanna buy into it.
Well, again, this is why I think you're silly because at the end of that 10 years, your mortgage balance will be paid down from 800,000 to about $589,000. And if you assume an annual appreciation rate of 5% year of year, then you're basically looking at compounding. To from a million dollar property to about 1.6 million at the end of the 10 years.
And of course you don't get to keep it all. Cuz you have negative cash flow and you have your initial investment. So you subtract all that. And you're left with $558,000, which if you divide the 2 558 by 200,000 invested, you're looking at an ROI of 290 something percent, 297%. So you're looking at almost 30% ROI year over year.
So you tell me, which is the better investment. If you wanna learn more, follow more.