The stock market is declining, and the Dow Jones is currently at 42,500, effectively the same as at the beginning of the year. The high was in November, and stocks have been unreliable since. The real estate market is currently building inventory, which usually indicates that the values will slip. So, the question I was asked recently was;
“I have $150,000 to invest; where should I place it?’
The client asking the question didn’t have that cash sitting around; he was renewing a mortgage on his home, and the lender suggested he refinance and take out $150,000 to use as an investment. Just last week I wrote about an elderly seller who sold her place in 2023 and has invested it averaging an 8% return over the past few years. Currently, is the stock market the best place to invest? Let’s consider buying a rental property to see if that might be a better option.
If an investor is looking at a rental property, one of the best options is to consider a single-level detached home with a rental suite, but first, let’s compare Real Estate to the stock market. As mentioned above, the stock market has been flat since November of 2024, and if we look at homes in Oshawa, since November 2024, the values have remained the same. However, for a property owner, this is what their monthly investment return would look like.
2 bedroom Bungalow with a basement apartment
Purchase Price: $685,000
Downpayment: $137,000 (20%)
Mortgage: $548,000
Payment: $3,400/mth (mortgage, property taxes and insurance)
Rents: $4,200/mth ($2,500/mth upstairs and $1,700/mth downstairs)
Net return: $800/mth
From first glance $800/month might look like a small return on investment, with a total return of $3,200 since November 2024 however the appeal of owning Real Estate is not only the monthly income, it is also appreciation of value. If the values increase by 5% for 2025, the property will increase by $34,000, along with a rental income of $9,600 for a total return of just under $44,000. On top of the value increase and the rental income, the investor would also have reduced their mortgage principal by $13,000. The total investment would see a return of $57,000.
When considering an investment in the stock market, an investor hopes the stocks will increase in value. If the stock has a dividend, they anticipate two ways of seeing an investment return. With a real estate investment, you can look forward to reducing your mortgage monthly and monthly rent and fingers crossed that the values increase.
In both Real Estate investing and placing an investment in the stock market, an investor can “margin” their investment. In Real Estate, a Buyer typically places a down payment on a property and finances the rest. The “collateral” or security for the lender is the property. A similar method can be used to purchase stocks. This is where an investor places a small amount of money down on a stock purchase and finances the balance. Given that Real Estate is considered a safe investment, the borrowing costs are lower.
There are times to invest in either market; however, when the markets are unstable, Real Estate is seen as the best alternative. That $685,000 home mentioned above – if the market goes up yearly, what financial pundits believe is an average increase. (5%) in 5 years, it would have a value of $875,000! In the long term, real estate is always a great investment.
If you have some money to invest (or if you own a home, you may be able to draw from your home’s worth to use as a downpayment), I can be reached at lindsay@buyselllove.ca or 905-743-5555.
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