What’s A Better Investment, Real Estate or Stocks?

by Andrew Hallam , Personal finance best-selling author

“This is the best investment you’ll ever make,” grumbled the guy who sold me his oceanfront property.? He was recently divorced.? He and his wife had planned to build their dream home. When their marriage failed, he begrudgingly put the property up for sale.

I paid $147,000 for it back in 2002.?

Five years later, I was in a similar place. This time, I was the one getting divorced (perhaps the land was cursed). I sold the property in 2007 for $484,000.?

So, can you make more money with property than you can make with the stock market? It’s easy to look at personal examples, such as mine, and make quick assumptions. But our minds are easily tricked. For example, assume your parents paid ￡60,000 for a home in the UK, back in 1984. Assume they sold it in 2024 for ￡500,000. That’s a whopping 936 percent increase.

I didn’t pull that example out of a dark crevice. The typical UK property soared 936 percent from 1984-2024, according to Halifax Bank of Scotland. Few countries matched that meteoric property pace. Based on that, you might say, “Surely, UK property thumped UK stocks.” If you think that, you have plenty of company. After all, from 1984-2024, British property prices increased faster than property values in most other countries. And British stocks weren’t among the world’s top performing stock markets.

But hold on to your fish and chips. We typically measure property prices in absolute terms, such as “936 percent” over 41 years. In contrast, we measure the stock market with compound annual returns. That always looks less impressive.?

Measured the same way, UK stocks were like Ferraris compared to property’s Lada. According to Bloomberg, an investment in the FTSE 100 gained a total of 1,770 percent from 1984-2024. That almost doubled the increase of UK property prices. And UK stocks didn’t perform as well as American stocks or the global stock market average.

That doesn’t mean stocks are the best investment. The answer (which we’ll get into) is much more nuanced. But when comparing long-term price appreciation, stocks whip property.

In the United States, if property were Mt. Rushmore, stocks would be Everest.? From 1984-2024, the average American property gained 446 percent. Meanwhile, US stocks gained 8,689 percent.?

Luxembourg is a hot property market. And while I couldn’t find data back to 1984, Eurostat says property prices soared 120 percent from 2007-2024. That, however, didn’t hold a candle to global stocks. They gained 234 percent, including reinvested dividends.

In the UAE, property has been a Slingshot (or Bungee Rocket) ride. Prices shot skyward from 2003 to 2008. From 2008-2010 investors’ stomachs were in their mouths. Property plunged 25 percent. It recovered to hit a new high in 2014.? Then it crashed again, hitting a low in 2020.? Since then, prices have gone back up. Overall, residential property in the UAE gained 199 percent between 2003 and 2024. But global stocks were a rocket compared to the bungee ride. They gained 606 percent over the same time period.

You might own a home in one of these countries and say, “My property value increased more than that!” But hundreds, if not thousands, of individual stocks ran circles around your home. That’s why I’ve used aggregate data, comparing the average home price with stock market indexes (which represent the average stock).?

Property’s advantage, however, is leverage. Long term, real estate’s appreciation is pedestrian compared to stocks. But you can borrow money to buy property. That’s a fabulous perk.

However, commissions to sell properties are like arterial bleeds. I paid a real estate agent about $20,000 to sell my $484,000 oceanfront property in 2007. I paid an additional $30,000 when I sold a condominium for $814,00 in 2022. Selling two properties cost me $50,000 in real estate fees. I could have sold that amount from my investment portfolio for less than the price of a decent meal.?

What’s more, if you’re selling a property, you can’t sell it in parts. You typically have to sell it all.?

Property also incurs maintenance costs, property taxes, and interest on borrowed money. For example, assume you owned a home in Luxembourg from 2007-2024. Its value increased by 120 percent. That’s a compound annual return of 4.75 percent. If you paid mortgage interest of 3 percent per year, you would have earned roughly 1.75 percent per year, before taxes and maintenance costs. While it’s tough to forecast future maintenance costs, a long-term rule of thumb can be roughly 1 percent of the property value each year. That would have brought the annual return to 0.75 percent, not including property taxes.

However, you can live in your home or rent it to someone else. That provides utility and, potentially, cashflow.?

Some people mistakenly think renting a home, instead of buying one, is a waste of money. For example, assume Julie pays 3000 euros in monthly rent and Maria pays 3000 euros for her monthly mortgage. You might think Julie is flushing money down the toilet while Maria builds equity.?

But that might not be true. After all, Julie wouldn’t pay maintenance costs on the home she rents. She wouldn’t pay property taxes either. Nor does she shell out money to purchase and/or maintain a lawn mower, dishwasher, clothes washer and a dryer. Nor does she have to buy hedge clippers, lawn fertilizer, water hoses, light fixtures. She could make a lot of money by investing those savings.

Even if you buy two homes (one that you live in and another you rent to a tenant) nobody can say whether stocks or leveraged real estate will be the best investment. That’s because nobody can see the future.

However, plenty of people overvalue the benefits of real estate, and they undervalue the power of a diversified portfolio of stocks and bonds.?

If you have the resources, it might pay to buy both.?

Sources:?

Median Sales Price of Homes Sold in U.S.?

FRED St. Louis.org

Luxembourg home price appreciation: Eurostat via Trading Economics

FTSE 100 returns: Bloomberg

UK Home Price Appreciation: Halifac and Bak of Scotland, Trading Economics

Residential Property Prices in Dubai: FRED St. Louis.org

US and Global stock market appreciation, including reinvested dividends: portfoliovisualizer.com

Andrew Hallam is a Digital Nomad. He’s the bestselling author Balance: How to Invest and Spend for Happiness, Health and Wealth. He also wrote Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas

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Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.