Rental Property vs Stocks: Comparing Returns and Risks

Start with gross yield, then subtract expenses

A €300,000 property rented for €1,200 a month has €14,400 of scheduled annual rent. Gross yield is €14,400 ÷ €300,000, or 4.8%. That figure assumes every month is paid and excludes all expenses.

Suppose vacancy is 5%, management is 8% of collected rent, annual maintenance is 1% of property value, property tax is 0.2%, and insurance is 0.1%. Buying fees are 6%. The modeled first month begins with:

The vacancy percentage spreads missed rent across time. It does not model the exact month a tenant leaves or a large repair happens. Keep reserves for gaps and bills rather than assuming cash arrives this smoothly.

A mortgage changes cash flow and capital at risk

With 20% down, the €240,000 mortgage costs €1,077.71 a month at a fixed 3.5% over 30 years. Upfront capital is €78,000: the €60,000 down payment and €18,000 buying fees.

For this illustration, a 20% rental income tax applies to modeled profit after operating costs and mortgage interest; principal is not deducted. The first month has €23.80 of that profit, giving €4.76 tax. Cash flow after the full mortgage payment and tax is −€358.67.

The shortfall is a required contribution from you. In a fair comparison, the stocks alternative invests that same contribution. The property still gains equity from its principal repayments, which is why negative cash flow and negative total return are different statements.

Tax deductibility, allowances, and loss rules vary by country. This calculation describes the model's simplified tax treatment, not a local tax determination.

Buying outright changes the comparison

A cash purchase needs €300,000 plus €18,000 buying fees: €318,000. The stock alternative must start with that same €318,000, rather than the smaller amount used in the financed comparison.

With no mortgage interest in this illustration, the €723.80 operating profit produces €144.76 rental income tax. Cash left to invest is €579.04 in the first month. The larger rental tax bill reflects the absence of an interest deduction under these model assumptions.

A cash rental therefore offers positive cash flow here, but ties up much more capital. Compare the property's value plus reinvested rent with what the same cash could become in stocks.

Compare leverage, liquidity, and concentration

Leverage magnifies changes in equity. Ignoring fees and repayments, a €300,000 home with €240,000 debt has €60,000 equity. A 10% fall in value removes €30,000, or half that equity; a 10% rise adds the same amount. The debt is still owed.

A single rental also concentrates exposure to one building, location, and tenancy. A broad stock fund can spread company exposure, although stock markets can fall together. The SEC's diversification guidance explains what spreading investments can and cannot do.

Property may take time and substantial fees to sell. Exchange-traded shares are often easier to sell in parts, but their price can be unfavorable when you need money. Neither asset's market value is the same as a cash reserve.

A rental also takes work. Advertising, tenant communication, compliance, and repairs can use your time even when an agent handles some tasks. The calculators include management fees but do not assign a price to your labor.

Use the right calculator and equal contributions

Rental compares a mortgaged property with stocks. Cash compares a property bought outright with stocks. Both reinvest modeled rental surpluses and give the stock alternative equal contributions when the property needs a top-up.

The example links use 2% annual growth for home value and rent, 5% stock return before 0.3% fees, 3% home selling costs, and no capital gains taxes. The savings alternative uses 2% interest and no interest tax. Extra contributions are zero. The headline comparison is at 30 years and initially keeps the assets.

Set realistic local operating expenses, then test higher vacancy, larger maintenance bills, slower price growth, and lower stock returns. Turn on Sell everything at the end to include sale costs and the capital gains tax rates you enter.

Your own housing costs are outside Rental and Cash. Use Home if the property would be the place you live.