One of my blog readers asked me if he should be investing in real estate or equity/stocks.
Suppose you ask a predominantly an equity investor. In that case, the answer can be biased, but today I will do some number crunching to help you understand which is more beneficial and when one should consider what.
So without much ado, let’s begin. You can watch the video or read the answer as text.
The key to investing is always the returns. So the data I have seen in my area, it takes a decade for the property prices to double.
Further, residential property rent is between 3% to 4% annually. So on a property of 1 Crore, you get a rental income of 3Lacs to 4Lacs per year.
However, commercial property rent is close to 5% to 6% annually. So for the same 1 Crore, you get a rental income of 5Lacs to 6Lacs per year.
So if you add the rental income for a decade, the amount becomes close to 70 Lacs.
However, some expenses come along with property. So first, let’s look at those.
So when you want to invest in property, you have to consider the following expenses that come along with it.
Considering the above expenses, Let’s deduct ₹20 Lac from the rental income of close to 70 Lacs that we had for the property of 1Crore.
So if the property value doubles after a decade, we make 2.5x returns on the initial investment.
Using the online CAGR Calculator, we see the return is close to 10% or 9.6%.
For equity investments, let’s use Nifty for the sake of calculations.
Nifty has given an average return of 12% to 15% for a decade. Here is a beautiful chart of Nifty’s rolling return since 2008 from Kunal Desai’s Blog
Nifty in the 17-year timeframe, the ten-year rolling return of 10% or less has been five times. Similarly, there were five occasions when the returns were 15% or more.
On average, Nifty becomes 3.5o 4x in 10 years, clearly beating real estate returns by a significant margin.
Absolute return from real estate is significantly lower than Nifty. Further, one also has mutual funds that even outperform the Nifty.
So if you only consider returns, equity wins all out. However, in some cases, real estate becomes beneficial as well.
Let me share 3 cases when real estate investment makes sense.
The best part about real estate returns is that you can start earning rental income right away.
So finally, I have to ask, What is your preferred investment choice? Are you focusing on return or like rental income to use as SIP?
Share your thoughts in the comments below.
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