When comparing real estate and equity markets, it’s important to understand the historical growth associated with these different asset classes and have the right information to make an “apples-to-apples” comparison. A common misconception among many investors is that, historically, real estate has been a better long-term investment than equities. Looking back, however, the data suggests otherwise.
Key factors to consider when making the comparison:
§ Real estate purchases are typically highly mortgaged (or leveraged), which can magnify gains. In Canada, it’s not uncommon to see loan-to-value ratios of 80% or more. By contrast, equity market investments are typically not purchased with borrowed funds.
§ Costs such as real estate commissions, land transfer taxes, and maintenance and repairs are not included in the data and would also negatively impact investment returns in the real estate markets.