I did a general comparison between real estate and stock investments in the previous post but many of you guys are still unsure if there is a stark difference between both yields. After all, many people see real estate investment as prestigious, stable, and to a large extent high yield investment option. On the other hand, stock investment has been viewed in general as a risky investment. Therefore, in this post, we will compare both types of investments over 10 years, and hopefully, we can gain additional clarity.
To make this a fair comparison we will state the following assumptions
- $400,000 SGD capital vested
- Real Estate Loan ($600,000)
- 10 years time horizon (STI ETF from $2.8 to $3.32)
Real Estate Yield over 10 years
There are plenty of estimations made, for example, we assumed that the unit will be rent consistently and the rent would increase by $50 every 2 years. I am making those allowances to compensate for possible changes in conservative charges and interest payments for the loan. As a whole, I do feel that the returns from the rental collection are decent returns in addition to the return of assets from the loan amount.
Stock Yield over 10 Years
The above yields are actual yields from STI ETF over 10 years. I am also downplaying potential returns by taking the endpoint in 2020. The returns tabulated above also assume no profit-taking for the entire decade.
Estimate total yields from both investments
Over 10 years, the real estate investment is estimated to have a higher return over time in both annual returns as well as capital gains. To say the least, there are so many variables that are ignored in this comparison and after doing both estimates, I realize that it is almost impossible to project returns like this. However, we can agree that both investment methods return decent returns of around 5.4 to 7.8% per annum.
Closing thoughts
Both investment methods have shown that they are viable investment options for individuals who have large amounts of capital. I must say that no doubt the stock returns seems to be a lot less than real estate investments, there are plenty of ways to increase yields of both investments with the same amount of capital. That said, I hope that this post has shown potential yields of both types of investments and have also aroused savers to amass capital earlier to start investing as early as possible.
