ETFs vs Property: Which Investment Delivers Better Returns?

ETFs vs Property: why the investment rate matters more than you think

When you compare ETFs vs property, the real question is not just “stock vs property” or “which yield is higher?”. In a genuine buy or rent decision, the key variable is the investment rate: the return you can reasonably earn on your savings (for example via a global ETF) if you decide to keep renting instead of buying.

In the buy-or-rent.net / acheter-ou-louer.com simulator, this parameter is called taux_placement. It lets you compare, over 15, 20 or 25 years, the net wealth of a household that buys a home vs one that rents and invests the savings in financial markets.

The goal is not to claim that ETFs are “better” than real estate or the opposite. It depends on your situation, your risk tolerance and your time horizon. But we can put numbers on the ETFs vs property match using realistic assumptions.

How does each option actually generate returns?

Return profile of a diversified ETF

A global equity ETF (MSCI World, ACWI, etc.) has historically delivered, before fees and inflation, roughly 6–8% per year over long periods, with large year-to-year swings.

• Expected long-term gross return: 6–7% per year is a reasonable planning assumption.
• Real return after inflation: with inflation at 2–3% per year, that’s about 3–5% per year in real terms.
• Volatility: markets can drop 30–50% in a crisis, which implies a time horizon of at least 10–15 years.

In the buy-or-rent simulator, this is captured by taux_placement: for example 3, 4 or 5% per year net of inflation and fees, depending on your portfolio.

Return profile of buying a home

For a primary residence, the “return” is not rental income but:

• Rent you no longer pay: you stop paying a landlord.
• Capital appreciation: your property may rise (or fall) in value.
• Mortgage leverage: you borrow at a given loan rate (around 3.6% currently in many euro countries), which amplifies gains or losses.

And you must subtract:

• Notary / closing costs: typically 7–8% on existing stock, 2–3% on new builds.
• Agency / realtor fees: often 3–5% of the price.
• Property tax: from ~€450 to over €5,000 per year depending on the city, with annual reassessment.
• Mortgage insurance: around 0.25–0.45% of the initial loan per year.
• Maintenance and renovations: recurring upkeep plus major works (energy performance, insulation, roof, etc.).

The simulator includes all these elements to benchmark buy or rent against an ETF-based investing strategy in a consistent way.

Scenario 1: buy vs rent + ETFs with a 3% investment rate

Let’s take a simplified 20-year example to show the impact of the investment rate (taux_placement).

Common assumptions

• Time horizon: 20 years.
• Average inflation: 2.5% per year.
• Annual rent increase: 2.5% per year (linked to an index similar to France’s IRL).
• Property price growth: 1.5% per year on average.
• Loan rate: 3.6% excluding insurance.
• Borrower insurance: 0.30% per year of initial loan.

Profile A: buyer of an apartment

• Purchase price: €300,000 (existing property).
• Notary / closing costs: 8% = €24,000.
• Agency / realtor fees: 4% = €12,000 (assume they are built into the price for simplicity).
• Down payment: €60,000 (20% of price before fees).
• Loan amount: €264,000 (simplified assumption including part of the fees).
• Mortgage term: 20 years.
• Monthly mortgage payment (principal + interest, no insurance): about €1,560.
• Mortgage insurance: ~€66/month (0.30% of €264,000 = €792/year).
• Property tax: €1,500/year, increasing 2.5% per year.
• Maintenance + minor works: ~1% of price per year = €3,000/year on average.

Initial monthly housing cost for the owner:

• Mortgage + insurance: 1,560 + 66 ≈ €1,626/month.
• Property tax + maintenance, smoothed monthly: (1,500 + 3,000) / 12 ≈ €375/month.
• Total housing-equivalent monthly cost: ≈ €2,000/month.

Estimated property value after 20 years:

• Price growth 1.5% per year → 300,000 × (1.015^20) ≈ 300,000 × 1.35 ≈ €405,000.
• Loan fully repaid → net housing wealth ≈ €405,000 (before selling costs).

Profile B: renter + ETFs (taux_placement = 3% net)

• Initial monthly rent for an equivalent property: €1,200.
• Annual rent increase: 2.5% per year.
• Initial savings (same as the buyer’s down payment): €60,000, invested in ETFs.
• Investment rate (taux_placement): 3% per year net (after inflation and fees).

Initial cash-flow difference:

• Owner’s cost: €2,000/month.
• Renter’s cost: €1,200/month.
• Monthly saving for the renter: €800/month.

Investment strategy:

• The €60,000 lump sum is invested at 3% net per year.
• The €800/month savings are invested monthly at the same rate.

After 20 years:

• Lump sum: 60,000 × (1.03^20) ≈ 60,000 × 1.81 ≈ €108,600.
• Monthly contributions: 800 × ((1 + 0.03/12)^240 – 1) / (0.03/12) ≈ 800 × 324 ≈ €259,000 (order of magnitude).
• Total financial wealth ≈ 108,600 + 259,000 ≈ €367,600.

Raw comparison:

• Buyer: ≈ €405,000 in housing wealth.
• Renter-investor: ≈ €368,000 in financial wealth.

With a 3% net investment rate and modest property growth (1.5%/year), the buyer ends slightly ahead in this simplified example. But we haven’t accounted yet for selling costs (4–5% agency fees, potential refurbishment) or the higher liquidity of ETFs.

Scenario 2: what if the investment rate is 5%?

Now keep all assumptions identical, but increase taux_placement to 5% net for the ETF portfolio.

Impact on the renter-investor’s capital

After 20 years:

• Lump sum: 60,000 × (1.05^20) ≈ 60,000 × 2.65 ≈ €159,000.
• Monthly contributions: 800 × ((1 + 0.05/12)^240 – 1) / (0.05/12) ≈ 800 × 406 ≈ €324,800.
• Total financial wealth ≈ 159,000 + 324,800 ≈ €483,800.

The renter-investor now clearly overtakes the homeowner’s ~€405,000. This is a concrete illustration of how sensitive the buy or rent decision is to the investment rate you can realistically achieve with ETFs or other assets.

Other parameters beyond the investment rate

Risk and volatility

Assuming a 5% net investment rate implies a portfolio largely invested in equity ETFs, which comes with:

• temporary drawdowns of 30–50% in severe bear markets;
• uncertainty on future returns (5% real is not guaranteed);
• the need to avoid panic selling at the bottom.

Property looks less volatile on paper, but:

• prices can stagnate or fall (high rates, weak local demand);
• fixed costs (property tax, maintenance, condo fees) tend to rise with inflation;
• selling can be slow and expensive (agency fees, negotiation, mandatory works).

Property tax, inflation and hidden drags on returns

Property tax is often underestimated in ETFs vs property comparisons. Over 20 years, with an initial tax of €1,500/year and 2.5% yearly reassessment:

• Cumulative cost ≈ 1,500 × ((1.025^20 – 1) / 0.025) ≈ 1,500 × 26.9 ≈ €40,350.

If you rent, most of this money can instead be invested at your taux_placement, which significantly boosts the renter-investor scenario.

Loan cost, insurance and prepayment penalties

• Loan rate (~3.6%): the higher it is compared with expected property appreciation, the weaker the leverage effect.
• Borrower insurance (0.25–0.45%): increases the effective cost of debt.
• Prepayment penalties: typically capped at 3% of the remaining principal or 6 months of interest; they hurt if you need to sell and repay early.

In contrast, ETFs can usually be sold with modest transaction costs, without contractual penalties.

How changing the investment rate can flip the buy or rent answer

In the buy-or-rent.net / acheter-ou-louer.com simulator, simply moving the taux_placement from 2% to 5% can completely reverse the outcome over 20–25 years:

• With a low investment rate (2–3%), buying often wins, especially where rents are high relative to prices.
• With a higher investment rate (4–5%), staying a renter and investing heavily in ETFs can generate more net wealth than buying, even without property leverage.

This is why there is no universal answer to “ETFs vs property” or “should I buy or rent?”. Without quantifying your realistic investment rate and local property data, the comparison is just theory.

Practical guidelines for setting taux_placement in the simulator

• Conservative profile: mostly cash, savings accounts, bonds → a 1.5–2.5% net investment rate (after inflation) is more realistic.
• Balanced profile (ETFs + bonds): a 3–4% net rate may fit a 50/50 or 60/40 portfolio over the long run.
• Dynamic profile (equity ETFs heavy): 4–5% net can be a reasonable planning assumption over 15–20 years, if you accept strong volatility and stick to the plan.

The best approach is to run several buy or rent simulations, changing taux_placement (2%, 3%, 4%, 5%), mortgage conditions and rent growth. This shows at which investment rate the ETF strategy starts to beat property, or vice versa, for your own numbers.

ETFs vs property: there is no one-size-fits-all winner

ETFs and real estate play different roles in a long-term plan:

• Property provides housing, potential emotional security (“I own my home”), but also rigid costs (debt, property tax, maintenance, major works).
• ETFs offer global diversification, high liquidity, higher expected returns in some cases, but also high volatility and no guaranteed outcome.

The right balance between ETFs vs property, and the decision to buy or rent, depends on your personal situation, goals, risk tolerance, job stability and family plans. This article is for information only and is not personalised financial advice.

To move from theory to numbers, you need to simulate concrete scenarios, adjusting taux_placement, loan rate, rent inflation, property appreciation and taxes to your case.

Simulate your situation on buy-or-rent.net (or acheter-ou-louer.com) and test for yourself how different investment rates and housing choices impact your long-term wealth in the ETFs vs property match.