Why real estate is a far better investment than stocks? One word - leverage.

Wanted to share a mathematical insight that almost every single fin-influencer seems to ignore.

Anyone who compares the growth of real estate vs stock market growth is simply bad at maths. Your real estate investments are 3-4X, and in some cases even 5X leveraged. Meaning when the price of your flat grows by 10% in an year, your investment did not grow by 10%, your investment grew by 10% x Leverage, where Leverage = Cost of the flat / (DownPayment + EMI paid till date).

Vs when the stock market grows by 25% in an year, then your original investment only grew by 25%.

Let's put down some hard numbers. Assume that stock market grew 25% in an year (totally unrealistic) and real estate grew only 10% in an year (again unrealistic). Let's assume you had 50 lac rupees at the start of 2024.

Invested in stocks, 50 lac returns 50*1.25 = 62.5 lacs

Invested in real estate. Assume you buy a flat worth 2 cr. Paid 30 lacs down payment, bank gives you 85% financing (6.6X leverage), and you spent 20 lacs in EMI that year. If your flat value increases by just 10%, your networth has gone from 50 lacs to 70 lacs. Just like that. Why? Because you are leveraged.

This is while assuming that stock market is growing 2.5 times the real estate. Which is not true, but I just wanted to show the ridiculousness of the fin-influencer maths, and I haven't even begun modeling the rental yield yet.