multi has hit the nail on the head with this comparison. Your leverage with shares is greatly reduced compared to property. You might be able to borrow 70% LVR on shares compared to 90-95% LVR on property.
So if you have $20K you might be able to get $67K worth of shares at 70% LVR, but you could buy a $200K house at 90% LVR.
So you have $200K earning money for you instead of $67K.
But your true returns are measured against how much money you put into the deal ($20K). Even if each has the same percentage gain the increased leverage of property gives you a bigger cash-on-cash return. For example, 20% growth on shares gives you $13.4K on shares, or $40K on property.
But even then it's not that simple because you have a loan to service (in both cases) in order to get this gain, and in the case of property you had substantial buying costs to take into account to compute your cash-on-cash return. For comparative purposes you might assume that both investments are cashflow neutral. In the case of shares the dividends match the interest, and in the case of property the rental income matches the interest/expenses.
So you get something like a 67% cash-on-cash return with the shares, but a staggering 200% return with property.
But, for what it's worth, let's *never* forget that leverage works against you if the market drops. A 20% drop in your shares represents a cash-on-cash loss of 67% (ie. you've lost 2/3rd of the money you put in). A 20% drop in your property represents a 200% cash-on-cash loss (ie. you've lost double the money you put in).
So if you have $20K you might be able to get $67K worth of shares at 70% LVR, but you could buy a $200K house at 90% LVR.
So you have $200K earning money for you instead of $67K.
But your true returns are measured against how much money you put into the deal ($20K). Even if each has the same percentage gain the increased leverage of property gives you a bigger cash-on-cash return. For example, 20% growth on shares gives you $13.4K on shares, or $40K on property.
But even then it's not that simple because you have a loan to service (in both cases) in order to get this gain, and in the case of property you had substantial buying costs to take into account to compute your cash-on-cash return. For comparative purposes you might assume that both investments are cashflow neutral. In the case of shares the dividends match the interest, and in the case of property the rental income matches the interest/expenses.
So you get something like a 67% cash-on-cash return with the shares, but a staggering 200% return with property.
But, for what it's worth, let's *never* forget that leverage works against you if the market drops. A 20% drop in your shares represents a cash-on-cash loss of 67% (ie. you've lost 2/3rd of the money you put in). A 20% drop in your property represents a 200% cash-on-cash loss (ie. you've lost double the money you put in).