Initial InvestmentiTotal cash deployed in each track. Both tracks start with exactly this amount. RE purchase closing costs and any negative cash flow years are added to the stocks track as additional investments to keep the comparison fair.
$100,000
HorizoniYears to hold both investments before selling. Typical: 15–30 yrs for a mortgage-based RE comparison. Shorter horizons favor stocks — RE has high upfront costs that take years to overcome.
30 years
📈 S&P 500
Annual Total ReturniAll-in annual return including dividends reinvested. 30yr avg (1994–2024): ~10.5%. Conservative estimate: 7–8%. Bear case: 5–6%. Bull case: 12–13%. Dividends are not taxed annually in this model — all gains taxed as LTCG at end.
10.5%
LTCG Tax RateiLong-term capital gains rate applied when selling. 0% (income <$47K/yr), 15% ($47K–$518K), 20% (above $518K). Most investors fall in the 15% bracket. Applied only at final sale.
15%
🏠 Property
Purchase PriceiFull property purchase price. Down payment % × this determines the loan amount. Starting rent = monthly rent % × this value. Closing costs (2.5%) are calculated on this figure.
$500,000
Annual AppreciationiCase-Shiller national HPI 20yr avg: ~3.8%. Coastal metros (NYC, LA, SF): 5–7%. Midwest: 2–3%. Conservative baseline: 3%. Real appreciation (inflation-adjusted) is ~1–1.5%.
3.8%
Starting Rent (% of value/mo)iMonthly rent as a % of property value. The "1% rule" (B/C class cashflow properties): 0.67–1.0%. Luxury/coastal markets (A class): 0.3–0.5%. Example: 0.3% on $500K = $1,500/mo.
0.30%
Annual Rent GrowthiHistorical avg rent growth tracks inflation: ~3%/yr. Hot markets (2020–2022): 8–15%. Conservative: 2%. At 3% for 30yr, rent more than doubles — a key RE advantage over time.
3.0%
🏠 Mortgage & Financing
Down Payment %i% of purchase price paid upfront (cash). 20% is conventional — avoids PMI. Less down = more leverage but higher monthly payments. Note: initial investment is assumed fixed at the "General" amount regardless of down %.
20%
Mortgage Ratei30yr fixed rate at purchase. Current (2024–2025): ~7.0–7.5%. Investor loans run ~0.5–0.75% above primary-home rates. Historical avg since 1990: ~6.5%. 2010–2021 era: 3–4%.
7.25%
Refi RateiRate you expect when refinancing. If current 7%+ rates fall back toward the historical avg (~5–5.5%), a 4–5% refi is plausible within 5–15 yrs. Set Refi Year to 0 to skip refi entirely.
4.5%
Refi YeariYear to refinance. Set to 0 to skip refi. Refi keeps the same payoff date (does not restart the 30yr clock). Mid-term refi (yr 7–15) is most common. Refi cost is added to that year's cash outflow.
Year 10
Refi Cost %iClosing costs as % of remaining loan balance. Typical: 1.5–3%. "No-cost" refis roll fees into a slightly higher rate. Set to 0 for a no-cost refi scenario.
2.0%
🏠 Expenses (% of property value/yr)
MaintenanceiRoutine repairs: paint, fixtures, plumbing, landscaping. Rule of thumb: 1%/yr of value. Older properties (20+ yrs): 1.5–2%. New construction: 0.5%. Applied to current (appreciated) value each year.
1.0%
CapExiCapital expenditures: roof, HVAC, water heater, appliances, flooring. Budget separately from maintenance. Rule of thumb: 1%/yr. For older properties: 1.5–2%. Applied to current value.
1.0%
Property TaxiAnnual property tax as % of current assessed value. National avg: 0.8–1.1%. High: NJ 2.5%, TX ~2.1%, IL ~2.3%. Low: HI 0.3%, CA ~0.75% (Prop 13). Varies significantly by state and county.
0.80%
InsuranceiLandlord/rental property insurance (not standard homeowner's). Avg: 0.5–1%/yr of value. Includes liability coverage. Add extra for flood/hurricane zones: +0.5–1.5%. Applied to current property value.
0.75%
Vacancy Ratei% of potential rent lost to vacancies (tenant turnover, time between leases). Rule of thumb: 5% ≈ 18 days/yr. Tight markets: 2–3%. Soft markets or rural areas: 8–12%. Applied to gross rent.
5%
Prop. ManagementiProperty manager fee as % of collected rent (after vacancy). Standard rate: 8–12%. Full-service (leasing + maintenance coordination): 10–15%. Self-manage = 0% but factor in your time. Set to 0 for self-management.
10%
🏠 Tax
Marginal Tax RateiYour ordinary income marginal rate. Used to value Schedule E deductions (depreciation, interest, etc.). 22% ($89–$190K MFJ), 24% ($190–$364K), 32% ($364–$462K), 35% ($462–$693K), 37% above.
35%
Deprec. Recapture RateiIRS Section 1250 rate on accumulated depreciation at sale. Fixed at 25% by law. Applied to the lesser of total accumulated depreciation or actual gain. Rarely changes without new tax legislation.
25%
RE LTCG RateiLong-term capital gains rate on RE appreciation above the depreciation recapture portion. Same brackets as stocks LTCG. Most investors: 15%. Applied only to the gain remaining after depreciation recapture.
15%
Stocks vs Real Estate — Investment Calculator
S&P 500 After Tax
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Real Estate After Tax
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Winner
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Portfolio Value Over Time (Pre-Tax)
Year-by-Year Breakdown
Model Assumptions & Notes
Stocks Track
Annual Total Return includes price appreciation + dividends reinvested. Dividends are not taxed annually in this model — simplified to all gains taxed as LTCG at final sale.
Position is never sold until the end of the horizon. LTCG tax applied only at that point.
To maintain an apples-to-apples comparison, any out-of-pocket RE costs (purchase closing costs + annual negative cash flow years) are invested into the stocks track as additional capital in that year.
Real Estate — Property & Depreciation
Building value = 80% of purchase price (IRS land/improvement split for depreciation basis).
Depreciation: straight-line over 27.5 years (residential rental property, IRS Section 168).
Purchase closing costs: 2.5% of purchase price (one-time, year 0 negative cash flow).
Selling costs: 6% of gross sale price (agent commissions, transfer taxes, etc.).
Expenses (maintenance, CapEx, property tax, insurance) applied to current appreciated property value each year.
Real Estate — Mortgage & Refinance
Standard fixed-rate 30yr amortization schedule.
Refinance keeps the same payoff date (does not restart a new 30yr term — remaining months are re-amortized at the new rate).
Refinance cost (% of remaining balance) is treated as additional cash outflow in the refi year.
Real Estate — Tax Treatment
Schedule E deductions each year: mortgage interest, property tax, insurance, maintenance, CapEx, property management fee, depreciation.
Annual tax effect = − (Schedule E net income) × marginal rate. A paper loss generates a tax savings; positive income generates a tax bill.
Passive activity losses are applied in full in the year incurred (no PAL carryforward limitation — simplified).
At sale — depreciation recapture: IRS Section 1250, 25% rate on accumulated depreciation, capped at the actual total gain.
At sale — remaining capital gain (above recaptured amount) taxed at RE LTCG rate.
Cash Flow Recycling
Net cash flow = operating cash flow + annual tax effect (savings or bill).
Positive net cash flow → invested in an S&P 500 bucket credited to the RE track (same return rate, taxed as LTCG at sale).
Negative net cash flow → out-of-pocket; same dollar amount added to the stocks track as an additional investment that year.
What Is Not Modeled
No inflation adjustment — all figures are in nominal dollars.
No state income tax or AMT.
No 1031 exchange (assumed straight sale with full tax recognition).
No HOA fees.
No mortgage PMI (assumes ≥20% down or waived).
No home improvements added to cost basis (capital improvements would reduce gain at sale).