Stocks vs Real Estate: The 20-Year Verdict, Explained

The short version

Leveraged real estate wins by $177,589.78 over 20 years at the defaults — but only by funding $131,254.89 of negative cash flow. Without a mortgage, stocks win by $356,705.42: $100,000 becomes $697,640.83 in stocks at 10.2% a year, against $340,935.41 in unleveraged property at 4.6% appreciation plus 3.0% net rent. The property is five times bigger than the cash, so its slower growth works on a bigger base — but the rent does not cover the mortgage. If you can fund the shortfall for twenty years, leverage wins. If you cannot, stocks do.

The verdict, line by line

Start with the $100,000 and the 20 years. Stocks at 10.2% a year: $100,000 times 1.102 to the power of 20 is $100,000 times 6.9764, which is $697,640.83 — 6.98 times your money, a gain of $597,640.83. Unleveraged property at 4.6% appreciation: $100,000 times 1.046 to the power of 20 is $100,000 times 2.4583, which is $245,829.33 — and the rent is 3.0% of a property that grows at 4.6% a year, which adds up to $95,106.08 over 20 years. Together that is $340,935.41, or 3.41 times your money. The gap is $697,640.83 minus $340,935.41, which is $356,705.42 in stocks’ favour. Add the mortgage. A 20% down payment turns $100,000 into a $500,000.00 property with a $400,000.00 mortgage at 6.5% fixed for 30 years, and the payment is $2,528.27 a month. The property grows to $1,229,146.63, and after the $222,661.13 balance still owed after 20 years, the equity is $1,006,485.50. The rent over 20 years is $475,530.41, the mortgage payments are $606,785.30, and the difference is -$131,254.89. Add the equity and the net rent and the leveraged total is $875,230.61, ahead of stocks by $177,589.78.

The model, explained

Three endings, one rule each. Stocks are simple compounding: the amount times one plus the yearly return, raised to the number of years. Property is the same compounding on the house price, plus the rent — and the rent grows with the property: over 20 years it adds up to $95,106.08 on a $100,000 property and $475,530.41 on a $500,000.00 one. The mortgage is the standard amortisation formula: $400,000.00 at 6.5% is $2,528.27 a month, and after 240 payments the balance is still $222,661.13. The equity is the property value minus that balance. The leveraged total is the equity plus the rent minus the mortgage payments. Nothing else is in the model: no buying or selling costs, no capital-gains tax, no management fees, no refinancing, and no change in the rates.

Leverage: the $131,254.89 catch

Leverage is the whole story. Your $100,000 controls a $500,000.00 property, so 4.6% growth works on five times the money: the property gains $729,146.63 over 20 years, while the same $100,000 in stocks gains $597,640.83. But the rent does not cover the mortgage. The property collects $475,530.41 of net rent and you pay $606,785.30 of mortgage payments, leaving -$131,254.89 — about $6,562.74 a year out of pocket, every year, before any repair bill. The leveraged win of $177,589.78 is real, but it is bought with that cash. At 10 years the same pattern holds: leveraged property reaches $326,633.11, ahead of stocks by $62,504.20, after funding $118,209.65 of negative cash flow. Only at 30 years does the rent finally cover the mortgage: the net rent is $20,586.58, and the leveraged total is $1,947,758.86 against $1,842,671.15 in stocks.

What changes the answer

The horizon first. Over 10 years, stocks reach $264,128.91 against $193,826.05 in unleveraged property — stocks ahead by $70,302.86, less than a fifth of the 20-year gap. Over 30 years, stocks reach $1,842,671.15 against $571,587.36 — stocks ahead by $1,271,083.79, more than three times the 20-year gap. The stocks’ return second: at 8% a year instead of 10.2%, stocks reach $466,095.71 — still ahead of unleveraged property by $125,160.30, but behind leveraged property by $409,134.90. Appreciation third: at 3.5% instead of 4.6%, the property value is $198,978.89 and the unleveraged total is $283,817.93 — stocks ahead by $413,822.90. The rent last, and it matters most: at a 4% net yield instead of 3%, the unleveraged total is $372,637.44 — each extra point of yield adds $31,702.03 over 20 years. A property that rents well beats one that merely appreciates.

Taxes, liquidity, and effort

The numbers above are before tax, and the tax is different on each side. Stocks pay capital-gains tax when you sell. Property pays tax on the rent every year, capital-gains tax when you sell, and depreciation recapture on the part you wrote off — though mortgage interest and depreciation deductions narrow the gap. Liquidity is the sharper difference: stocks sell in a day, in any amount, for a known price. Property takes months to sell, costs a percentage to sell, and cannot be sold in pieces. Effort is the third: property needs tenants, repairs, and a landlord’s time. That effort is the part the numbers never show: a tenant who stops paying, a roof that needs replacing in year seven, and a sale that takes six months instead of six weeks are all ordinary property events, and each one eats into the $177,589.78 lead. None of that changes the arithmetic, but all of it changes the decision.

Three mistakes

Mistake one: counting the leverage and forgetting the cash flow. The leveraged total of $875,230.61 is real, but it is funded by $131,254.89 out of pocket over 20 years. If you cannot fund it, the property is sold early, the mortgage is paid off from the sale, and the win never happens. Judge leverage by the monthly payment, not the headline. Mistake two: comparing gross rent to the mortgage. The 3.0% in this comparison is net rent — after maintenance, vacancy, tax, and insurance. Gross rent looks bigger, but the mortgage is paid from net rent. Mistake three: assuming the past repeats. The 10.2% stocks return and the 4.6% appreciation rate are long-run averages, and real 20-year stretches have come in well above and well below both. At 8% stocks, the ending is $466,095.71; at 3.5% appreciation, the unleveraged property is $283,817.93. Run your own numbers through the stocks vs real estate calculator — the verdict moves with the inputs.

The bottom line

At 20 years and the defaults, $100,000 becomes $697,640.83 in stocks and $340,935.41 in unleveraged property — stocks ahead by $356,705.42. With a 20% down mortgage, the property reaches $875,230.61, ahead of stocks by $177,589.78 — but only by funding $131,254.89 of negative cash flow. The question is whether you can fund the mortgage for twenty years, and whether the rent you actually collect covers it.