Property Market vs Stock Market

What is the difference between investing in the property market and investing in the stock market?

 

The main difference is Leverage

 

Financial Leverage

The concept of leverage is more easily understood by using the term – Other People’s Money (OPM)

You only need to fund the initial down payment deposit and you borrow the rest. The rest you borrow from the banks to fund your property purchase. And in turn you rent out your property to tenants who pay for your mortgage. Its all other people’s money.

Assuming you invest in a property that cost $1,000,000 with a 20% down payment. $200,000 is your own money and $800,000 is the bank’s money loan to you.

If your property investment were to appreciate by just 10% it would be worth $1,100,000. That is a capital gain of $100,000 which translates to a 50% return on your initial investment of $200,000.

Now if you were to invest the same $200,000 capital investment (your own money) into the stock market, it would be worth at most $220,000 assuming the shares appreciates 10% similarly. Capital gain only $20,000.

$100k vs $20k, see the difference? That is the Power of financial leverage.

Stock Market