From a Channelnewsasia Market Forum posting:
You have $250,000 in shares now in 2010. Giving you the benefit of doubt, in 2006 your capital was probably $200,000. So assume you were very successful in stock picking and from 2006 till 2010, you have made $50,000. Congrats! Alternatively you could have bought a 1,200 sq ft 3 bedroom Newton apartment in 2006 at $833psf for the grand quantum of $1,000,000. A 20% downpayment is $200,000 in cash, plus buyer's stamp duty of 3%-$5,400 (which is the standard formula) which equates to $24,600 and you take an 80% loan from bank. Assuming you only have $200,000 in capital, you borrow the $24,600 in personal loan from your bank, owing them for 4 years at 10.88% p.a. thus incurring an interest of $10,705.90 in total. Assuming the mortgage rates then, your monthly home loan + interest repayment to bank would have been about $2,800 a month in 2006. After that interest rates dropped a lot but let's be conservative and ignore that. Assuming the Newton apartment was reasonably new and ready for occupation. The rental would have been a very very conservative $5,000 a month for a 2 year contract in 2006. In real world situation, your rental would have been around $6,000 to $8,000 in 2007/2008 but let's be very conservative here. From 2006 - 2010 is approx 48 months. Your total rental income for 4 years at $5,000 a month, assuming your tenant renewed for the same very very conservative amount 2 years down the line, would have been $240,000. Rental income less loan + interest repayment = $240,000 - $134,400 = $105,600. Say maintenance is $250 a month. And property tax for investment property is 10% of annual value = $6000 a year. $105,600 - $12,000 - $24,000 = $69,600. $69,600 will be your rental profit after taxes and maintenance after 4 years. As compared to your $50,000 you made from stocks since 2006, and that is assuming you made that much from a capital of $200,000. In April 2010, you decide that you have made enough from your property investment and decide to sell your place in Newton. A 4 year old apartment in Newton in April 2010 will be valued very very conservatively at $1,800 psf in the current market, based on new launches in the area selling out at above $2,100 psf. But you want an instant sale so you make the buyer an offer he cannot refuse, your 1,200 sq ft apartment is sold to the lowest bidder at $2,040,000 at a very very conservative $1,700 psf. That is a capital gain profit of: $2,040,000 - $800,000 (mortgage) - $24,600 (stamp duty) - $10,705.90 (interest on personal loan) = $1,204,694.10 Your total profit: $69,600 + $1,204,694.10 = $1,274,294.10 This is a very very conservative figure, taking into account conservative valuation of your property, your low selling price, your low rental income and your high mortgage rate. Go figure which would have been the better investment.