Real Estate vs Stock Market Returns – Investment/ROI Calculator

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Guide to Comparing Your Real Estate vs Stocks ROI (Return on Investment)

1. Transaction and Start-up / Closing Costs:

• Purchase Purchase Price: The total cost of acquiring the property.
• % Down Payment: The percentage of the purchase price you pay upfront.
• Down Payment: The actual amount you pay upfront.
• Legal and Regulatory Fees: The costs associated with the legal transfer of the property, including your attorney fees, mortgage discharge, setup or transfer, utility and property tax ownership transfer, government fees and taxes, liens, title insurance, and more.
• Renovation and Repairs: The cost of any necessary renovations or repairs to make the property rentable or increase its value.
• Other Fees and Expenses: Any additional costs related to the purchase, such as appraisal or home inspection fees.
• Land Transfer Tax: A tax the government imposes on the transfer of property ownership.
• Annual Property Growth Rate: The expected annual property value increase.

2. Mortgage Details:

• Mortgage Insurance: Generally, if your down payment is less than 20% of the property’s value, you may need to pay for mortgage insurance. This gets added to your mortgage amount.
• Mortgage Amount: The total amount borrowed from a lender once you deduct your down payment and add your mortgage insurance.
• Interest Rate: The annual interest rate on your mortgage. Conventional mortgages will have the option of a fixed or variable rate that adjusts if the government moves their rate up or down.
• Term (Amortization in Years): The number of years you will amortize the mortgage. The longer the amortization period, the lower the monthly payment. However, extended amortization periods will also result in more interest paid.
• Monthly Mortgage Payment: This is auto-calculated. You’ll pay monthly to service the mortgage, including principal and interest.

3. Estimated Rental Price and Expenses:

• Rental Estimate: The expected monthly rental income from the property.
• Property Taxes: The property taxes you pay each year to the government. They tend to be split up over monthly payments.
• Maintenance Costs or Fees: Monthly or annual fees for maintaining the property or common areas. This usually applies to condos, townhomes, or HOA properties.
• General Repairs: An estimate of ongoing maintenance and repair costs.
• Property Management Fees: Fess when you hire a property management company. This includes services such as finding and vetting tenants, managing issues, collecting rent, and performing minor repairs.
• Occupancy Rate: The percentage of time the property is expected to be rented out. If your area has high tenant turnover, you may need to plan for tenant gaps. This is the inverse of the vacancy rate.
• Fee to Find a Tenant: The costs of using a real estate agent to find a tenant, and if not, Any expenses you incur with advertising, background checks, and tenant placement.
• Alternative Investment/Discount Rate: The rate of return you could earn from alternative investments if you didn’t invest in real estate. This helps assess the opportunity cost of your investment.

4. Monthly Utilities:

• Water, Electricity, Heat: Specify which utilities you, as the landlord, will be responsible for paying. Some landlords include utilities in the rent, while others pass them on to the tenants. Have the tenants set up direct agreements with the utility providers when possible. This allows them to only pay for what they use, and if there are any payment issues, they don’t fall on you (the landlord).
• Internet: Similar to utilities, specify whether you’ll include internet in the rent or have tenants set up their accounts.
• Content/Tenant Insurance: Determine if you’ll require tenants to have renters’ insurance and whether you’ll factor this cost into your calculations.

Invest in a Group of Stocks / S&P 500 Index

• Investment Amount: This is the comparable amount you would have invested upfront if you purchased an investment property.  The total amount will be higher than the down payment only because all upfront real-estate fees and transaction costs are captured.
• Purchase Fee: The upfront fees you spend to acquire your group of stocks or S&P 500 ETF.
• Annualized Return: The estimated return you expect over the next 10 years. This default figure is based on the 50-year annualized return for the S&P 500 index.
• Management Expense Ratio: Any monthly or annual fees for the selected ETF. For the S&P 500 ETF, the management expense ratios are extremely low. Minimal management is required because the fund will match the make-up of the stock weighting in the S&P 500.

Consider the potential tax implications of your real estate investment, as taxes can vary based on your situation, location, and government rules. Your tax arrangement can significantly impact your ROI. Remember to consult your financial advisor, accountant, or real estate help to inform your decision.