Stocks or Real Estate? Let's Break Down the Real Numbers Behind Both Investments

Ever wondered if you should put your money into real estate or the stock market? You’re not alone—this is one of the oldest debates in investing circles. The answer isn’t as straightforward as picking one over the other, but the data tells a compelling story.

The Hard Data: 50 Years of Returns

Let’s start with what actually happened. Imagine you invested $33,500 back in 1973. If you’d thrown that money into the S&P 500, you’d be looking at roughly $5.1 million today—a solid 10.59% annual return. Pretty impressive, right?

Now, what if you’d bought a house instead? The U.S. median home price in 1973 was also around $33,500, and today it sits at $431,000. That’s a 5.24% annual return. On paper, stocks crush real estate. But here’s where things get interesting: this comparison isn’t quite apples-to-apples, and that matters more than you might think.

The Real Estate Advantage You Might Be Overlooking: Leverage

Here’s what most casual investors miss: real estate lets you play with borrowed money in a way stocks typically don’t. When you buy a house, you put down maybe 20%, take out a mortgage for the rest, and then rent it out. Your $10,000 down payment can control a $50,000 property. If that property goes up in value, your percentage gain is way bigger than it would be if you’d just bought $10,000 worth of stock.

This leverage amplifies everything—your wins and your losses. It’s powerful, but it comes with strings attached. Your debt burden as a property owner is usually much heavier than as a stock investor, which brings us to the next point.

What’s Actually Eating Your Profits? The True Cost of Property Ownership

Here’s the part that surprises people: owning rental property isn’t passive income like some make it sound. Expect to pay:

• Mortgage rates: Currently hovering around 8.5% on rental properties
• Property management: If you hire someone to handle tenants and maintenance, that’s 8-12% of your rental income gone
• Overall operating costs: Between management, maintenance, repairs, and insurance, nearly 20% of your rental income gets spent just keeping the property running

With stocks? You basically own a piece of a business. The company handles the day-to-day operations. Your only “cost” is usually the tiny management fee on an index fund—often less than 0.1%.

When you factor in all these expenses, the return gap between stocks and real estate narrows significantly.

The Tax Story Changes Everything

Here’s something that directly impacts your net returns: taxes treat these investments very differently.

• Rental income from real estate gets taxed at your ordinary income tax rate. For high earners, that can reach 50%
• Stock dividends and long-term capital gains are taxed at just 15% for most people, 20% for higher earners

That tax differential is massive over time. A dollar from stock gains keeps more of itself than a dollar from rental income.

So Which Should You Bet On?

It depends. Seriously.

If you prefer a hands-off approach and care about tax efficiency, stocks historically come out ahead. Over 50 years, the math favors equities: 10.59% beats 5.24%. But if you’re comfortable managing properties and leverage appeals to you—if you like the idea of controlling an asset with relatively little upfront capital—real estate still has merit.

The boring but honest answer? A mix of both might be your best bet.

Consider whether you fit one of these profiles:

• Pure stock investor: You like passive income, low maintenance, and favorable tax treatment. The S&P 500 history suggests this works.
• Real estate focused: You’re comfortable with debt, active management, and you value tangible assets you can control and improve.
• Balanced approach: You diversify across both—some retirement accounts in index funds, maybe a rental property or two. This spreads your risk and captures the benefits of each.

The decision ultimately hinges on your personal risk tolerance, how much time you want to dedicate to management, your tax situation, and your investment timeline. But now you’ve got the real numbers to back up whatever choice you make.

Whether you choose to invest in stocks or real estate—or both—the key is understanding exactly what you’re signing up for. The returns look great in historical charts, but the actual experience depends heavily on the costs you’ll pay and the work you’re willing to put in.