Real Estate or Stocks & Bonds?

Yes, the whole 2022 tax thing is keeping me “entertained”. Thanks to all for the comments and feedback on my last three posts (including this one). Both the impact on (our) FIRE target(s) and on having Real Estate has given me new interesting insights. But there is one thing I have not reviewed. What’s better with the newly proposed tax system in 2022, Real Estate or stocks & bonds?

Disclaimer: we are not tax professionals and this is only our interpretation of the tax code. Consult a specialist if you want to make sure the tax approach is best your situation!

The difference between Real Estate or stocks & bonds?

In the previous post about real estate because I misinterpreted the proposed tax rules, I’ve updated this error and it affects primarily the heavy leveraged part of the graphs. Why? In the current system you are taxed on net wealth (“vermogen”). Which is defined as all your assets (“bezittingen”) minus all your debts (“schulden”). For real estate the value of your assets is based on the government assessed value (WOZ) times the leegwaarde ratio (85% for a property making more than 7% in gross rent). IF your have a negative wealth due to leveraging, you won’t pay any taxes. This changes in the proposed new system. If you have more assets than €30.846, you will start to pay taxes. So pretty much from your first property, even if you wealth is negative.

Side note, you can also replace “stocks & bonds” with indexfunds, ETF’s, crowdfunding, personal loans, P2P lending, etc. (or any combination thereof). They are seen in the same way from a tax perspective: as assets that are assumed to have had 5.33% return on investment.

The comparison

I’ve made an comparison for “real world wealth” figures from €0 to €1.000.000. This gives me the following table (you might need to zoom in):

Note that I don’t assume you have any savings! Just to keep things simple. Also, I’ve used the same or similar numbers and assumptions as in the last two posts (here and here).

As you can see in the table above (last row), the corrections for real estate (using the WOZ value and “Leegwaarde Ratio”) and high LTV ratio’s gives you a negative wealth for tax purposes. As noted earlier, this doesn’t means that you don’t pay any taxes anymore!. This is also shown in the graph below.

Comparison between Real Estate and Stocks/Bonds regarding Box 3 taxes in 2022 – No general tax credits applied!

It seems that real estate is actually taxed more heavily then stocks & bonds when you have greater leverage (in the case of this example, about 55% LTV or more)!

However, once your wealth increases (i.e. you have a lower LTV for your real estate portfolio of €1M), the benefits of having less “taxable wealth” compared to a similar value in real world wealth in stocks and bonds becomes bigger once again. Interesting, ain’t it?

Box 3 Income Only

Assuming you have income in Box 3 only, you will be able to apply your general tax credits (“algemene heffingskorting”). In this case the above graph will look as follows:

Comparison between Real Estate and Stocks/Bonds regarding Box 3 taxes in 2022 – WITH general tax credits applied

In the above graph it is blatantly obvious that being a couple is much better financially then being a single. The double general tax credits and income tax credits really help you pay lower taxes at the end of the day.

Taking into consideration the various assumptions and numbers (not considering what this means in cash-flow terms for your real estate), from a tax perspective you can state:

  • Both as a single or a couple, you are better of having real estate if your real world wealth is above about €450.000
  • As a single, despite having heavy leverage on your real estate, you will still be required to pay taxes.


Now, this comparison is just one of many available investment portfolio distribution. So you will have to calculate how this works for your personal situation! That being said, it does seem that for higher value FIRE portfolios, it’s better to have real estate from a tax perspective in 2022. Yes, it won’t be as great as it is now (2019), but you are still better off.

But there is a warning here too. WOZ values are going up rapidly. This will increase your taxable assets and might bring it closer to what your real world wealth is, limiting the benefits of real estate. Also, it’s to be seen what happens with the “leegwaarde ratio”, the correction of your assets when they are in rented state. I need to keep a close eye on what is happening here.

Another interesting concept is having a big stock market correction. If stocks drop in value by 50% (as they did in 2009), your tax burden will drop significantly too. When you are a buy and hold type of investor, you might be better off in those “bad” years from a tax perspective compared to having real estate ;-). However, I’ll take the cash-flow route, thank you very much.


P.s. the blog also celebrates it’s 4th blogiversary today! This was the first post…..


  1. Another great post. Thanks for all the information you put here.
    I have a question though, I still need some help picking a broker. I keep hearing about Meesman, DeGiro and Trading212. Any recommendation?

    Thank you and have an awesome day!

    1. Thanks Catalin!
      We have Meesman ourselves, they are primarily an indexfund supplier. You can have fixed amounts withdrawn from your account and have everything pretty much automated. Handy for the lazy folks around. With DeGiro, Binck, Lynx, etc. you have to do your own orders to buy the various ETF’s and indexfunds. DeGiro seems to be the cheapest one around. But check if you want the regular or custody account (in the latter they don’t loan out your funds to make money for the company and keep your fees low). The latter has more restrictions, but is safer in case DeGiro defaults. I don’t know Trading212, need to look that up.

      Best of luck!

  2. Hoi team CF, bedankt voor de leuke en inspirerende posts! Vraagje: wat is jullie FI-aanpak voor “mini me” (jullie kindje)? Over dit onderwerp heb ik niet zoveel blog kunnen vinden. Momenteel heb ik een pakketje VWRL via DeGiro’s custody-account. Zou dit ook geschikt zijn voor kinderen? Ben benieuwd naar jullie mening. Mvg, C

    1. Hey C, Miss Kaasje heeft een Meesman rekening lopen op dit moment. Waren al begonnen voordat we met DeGiro aan de slag durfde te gaan en zijn uiteindelijk niet meer geswitched (bedrag is ook te klein voor de moeite, zeker nu ook dividendbelating wordt teruggehaald door Meesman, wat de management kosten weer wat beperkt). Maar nu beginnen met index beleggen voor de kleine leek ons een heel goed plan. Al is het de bedoeling om haar ook wereldwijs te maken in overige beleggingsmogelijkheden (inclusief vastgoed natuurlijk). Denk dat educatie en opvoeding belangrijker zijn dan wel of niet nu al beginnen met investeren (al is dat wel handig als je het ze mee kan geven voor studie of huisvesting). Succes!

  3. Thinking about the (proposed) changes a bit more it strikes me that it is looking to treat leveraged and in leveraged investments the same. Give or take a few anomalies like the WOZ issue. The fictional rates for the various asset classes look like reasonable averages.

    So you make an unleveraged investment and get an average 5.33% return you pay your 33%. The same if you use leverage chasing higher returns, you get average returns and pay average financing costs you get a higher return but still pay the 33% on those higher returns. Overperform? Well done. Underperform? Better luck next time.
    The potential returns from leverage are no longer a function of the tax code but solely the higher risk that you take.

    The big change, from my perspective, is the removal of the bands which increases the tax burden of the ‘moderately’ wealthy, significantly.

  4. Thanks for the update.
    I think you went a bit wrong when you suggest that higher value portfolios should favour real estate from a tax perspective. It isn’t actually the size of the portfolio which is important rather the size of the leverage.
    I’ve tried modelling the numbers myself (discarding other factors such as cash holdings and the various exemptions (heffingsvrij vermogen). Using your 76.5% for taxable real estate wealth I’ve looked at the total tax rate as a percentage for each additional euro invested at various levels of LTV.

    For Stocks/Bonds it’s quite simple because I assume no leverage (in practice leveraging against an ETF portfolio isn’t something that most of us do/or is available to most investors). The tax rate as a percentage of ‘real wealth’ is 1.76% (5.33% fictional interest * 33% Tax). For unleveraged real estate it’s 1.35% (This is basically the 76.5% (Woz adjusted) * 5.33% fictional interest * 33%). You’ll notice that this rate of 1.35% is indeed 76.5% of the rate on unleveraged stocks/bonds. This represents quite a good tax break for real estate versus stocks/bonds.
    I’ve gone on and attempted to model the tax rate as a percentage of real wealth at various levels of real estate leverage (this is the 76.5% (Woz adjusted) * 5.33% minus Mortgage Debt * 3.03% = fictional income* 33%). Owing to the difference between 5.33% and 3.03% the rate exponentially at higher levels of leverage LTV for every additional EUR invested.
    It looks like this:
    LTV: Tax as percentage of Net Wealth
    0% (unleveraged) 1.35%
    10% 1.38%
    20% 1.43%
    30% 1.49%
    40% 1.58%
    50% 1.69%
    60% 1.86%
    70% 2.15%
    80% 2.73%
    90% 4.46%
    As you correctly identified the level of leverage at which real estate becomes less attractive compared to stocks/bonds (from a tax perspective only) is about 55%. At very high levels of leverage the tax rate increases quite dramatically. Supposing, you had to report the entire market value of real estate the tax advantage (at any level of leverage) would disappear completely.
    Of course none of this takes into account the increased returns you might hope to achieve through leverage but it does show that the proposed changes appear to be discouraging more aggressively high LTVs.

    1. Very interesting calculation Hague.

      If the WOZ value is actual commercial value (empty without renters) the breakeven point would be around 35% LTV if I calculate correctly.

    2. There are limits to leveraging real estate, as it get progressively more expensive. The institutions or private lenders will want some backing on their loans. If you go for say leverage of beyond 70% of the value in rented state, interest rates go up really fast (over 7-9% is not uncommon!) as most of those loans are no longer seen as having sufficient safe collateral. Most banks won’t even touch it. So your cash-flow and overall profit might diminish if you overdo it (not even talking about the risks here).

  5. Why would you use in your calculations a 10% discount for the WOZ waarde compared to the commercial value? This is not always the case, and for sure not something you can count on.

    You wrote: “It seems that real estate is actually taxed more heavily then stocks & bonds when you have greater leverage (in the case of this example, about 55% LTV or more)!”.
    This is only true if you compare a highly leveraged real estate portfolio to a non-leveraged stock portfolio (both with same net wealth). If you were to compare a same level leveraged stock portfolio with a same level leveraged real estate portfolio, you would pay consistently pay less box 3 for real estate whatever the LTV, because of the leegwaarde deduction.

    You wrote: “That being said, it does seem that for higher value FIRE portfolios, it’s better to have real estate from a tax perspective in 2022. Yes, it won’t be as great as it is now (2019), but you are still better off.”
    Yes, if you assume a) that the leegwaarde deduction remains, b) you expect that a stock portfolio will not have a higher Return on Investment than real estate, and c) you are (mostly) unlevered (this point is only true if you would not leverage a stock portfolio the same as a real estate portfolio).

    Stocks can also provide you a cash flow via dividends. They also have an advantage because you can easier sell fractionally if you for whatever reason need cash.

    Keep up the good work, interesting article.

    1. Hey Michiel,
      regarding paragraph 1: the numbers were selected to reflect what we see in our real estate portfolio 🙂 But agree, and as also noted in the text, the WOZ value will change over time and can become more then the commercial value during a housing crisis for example. The 10% is a current observation.
      regarding paragraph 2: I did this on purpose again, most people seem to have an indexfund/ETF portfolio, which is rarely leveraged (albeit I’m curious to see how the new tax system will deal with options strategies), hence the comparison. But you are correct in your statement!
      re paragraph 3: albeit interesting in real life, the return on investment does not affect your taxes (for now) as the government will decide what the calculation rates will be applied. If they would start to incorporate your real return on investment, now that would be something!
      Re paragraph 4: sure, but real estate generally fluctuates less (albeit forced selling during a housing crisis would be very ugly indeed). A good cash buffer is hardly recommended for having real estate, just to be able to cover unforeseen maintenance and mishaps (e.g. required cash before the insurance reimbursement comes in). Yes, we have experience with this too 😉

      1. Thank you Cheesy for your replies.

        This got me thinking what a couple who is FIRE and has an example portfolio net worth of around 1 million should do now.

        If you have invested now around 70% (or less) and 30% (or more) cash, the consequences of the 2022 plans seems neutral to positive. So no problem there.

        If you have invested more than 70% and/or used leverage than you can decide to:
        a) change nothing and pay the extra Box 3 tax, or
        b) reduce your investments to around 70% (and increase the cash part), and accept a lower investment income but pay the same amount of Box 3 tax.
        Obviously you can decide to switch to anything between a) and b).

        Both alternatives cost money, but the second option has a few advantages. Because of the higher amount of cash you lower the overall portfolio volatility and the Sequence of Return risk (the sequence risk increases if the outgoing box 3 cashflow increases). Cost of keeping cash is lowered so this is a small positive compared to the box 3 situation now .

        The decision between stocks and real estate is not really changed if you use no leverage. If you want to use leverage than you must decide whether the leveraging earns enough to offset the extra tax and increased Sequence of Return risk.

        Any low risk/low yield investment which yields less than 1,75% (like bonds) should immediately be converted to cash unless you are very sure it acts contrarian to movements of stocks and real estate. But probably it has no place any more in the portfolio.

      2. We are actually considering bringing down the leverage and increasing the cash-flow. This as we need to be able to pay the bills anyways and it does seem to be interesting from a tax perspective!

      3. Interesting post Michiel.

        I tend to agree that you probably have to dump any bonds. Suppose a 60% Stock 30% Bonds 10% Cash portfolio should become 70% Stock 30% Cash portfolio. You might even look at uprisking the 70% section (e.g. introducing some/more leverage and/or growth stocks versus dividend payers to compensate for the reduced risk/return of carrying a large amount of cash.

        I tend to think that in the accumulation phase (where bonds/cash should be minimal anyway) nothing much changes and you just accept the tax.

      4. Hague, I agree with both your points.

        In the accumulation phase volatility is not a real issue. The Sequence of Return risk works the other way around in that phase, you want the stock prices lower in the build up phase. So remain fully invested and pay the additional tax. The road becomes unfortunately longer though.

        In the FIRE phase you are also affected but you can alleviate some of the pain.

  6. Thanks again!
    Interesting post. The chart shows that the tax advantages of real estate increase at lower level of leverage. We know that leverage introduces more risk. Therefore returns on a risk adjusted basis are lower. This tax change does look like it’s explicitly designed to discourage leveraged investing but I’ll leave that for others familiar with the political landscape to assess.

    Second, the reading that I’ve done on this doesn’t make it clear that there would be no tax to pay in the event of negative ‘taxable’ wealth. Note I’m not fluent in Dutch so I’m happy for anyone to tell me I’m talking nonsense

    In the old system if debt is greater than assets net wealth is negative therefore no tax to pay. In this system (and I may be wrong) net wealth isn’t referenced at all. In box 3 you have three groups: assets, cash and debt. Each class is calculated at the relevant rate to produce a tax liability or a tax credit (in the case of debt). The total net wealth is no longer relevant. Therefore, owing to the spread on the rate applied between the fictional income and the fictional costs (mortgage interest) there could be a scenario at higher levels of leverage where ‘negative’ wealth still attracts a positive tax liability.

    Perhaps I’ve missed some important qualifier here. I know it seems strange to have tax on negative wealth but this is the Dutch Tax System we’re discussing

    1. I love that you keep asking the various critical questions, I really do! Keeps me second guessing myself and reviewing what I’ve done and assumed.
      That being said, based on the flow chart at the bottom in this note from the government:
      The first step is to determine the amount of wealth (“vermogen”) you have, if this is below the threshold of €30.846, you do not have to pay any Box 3 taxes. It’s only when you cross that threshold, that you are taxed from the first Euro you own. There is currently nothing in any of the communications by the government indicating the calculation of wealth for real estate will change. In short, for now, if you have a negative wealth due to using leverage in real estate, you may not cross the threshold and thus will not be required to pay any Box 3 taxes. So yes, the total wealth you have seems still to be very important in terms of you being required to pay taxes.

      As to your first note, that’s a tricky one. Yes, the tax advantage may grown with lower leverage in case of Real Estate, but your return on capital most likely is not. What’s also not included is the real rate of return on capital and the real cost of leverage (the 5,33% and 3,03% are “average” rates as determined by the tax department; our return is higher and borrow costs are lower). It’s going to become one very complicated set of calculations to find out how all these variables will affect which strategy is most effective.

      Thanks again for the comment Hague!

      1. Hague is right. See the detailed letter of the government on the proposal (table on page 5).

        Wealth = Vermogen
        Assets = Bezittingen
        Liabilities = Schulden

        So a 110.000 liability and a 100.000 in real estate or stocks asset will result in a box 3 tax even if your vermogen/wealth is negative. In this case appr 527 euro.

      2. Thanks.
        Sorry! I read the flow chart differently. It looks like under both old and new systems that bezittingen is gross (before any allowance/deduction for debt). On the first flow chart for the current situation the debt is deducted after the calculation of bezittingen (alongside the heffingsvrij vermogen deduction). In the proposed flow chart the debt isn’t deducted.
        To reiterate. I’m as far from being an expert as it’s possible to get.
        There’s a briefing note linked from your link which says more but it’s still not clear to me.

        Perhaps we should ask the MinFin to clarify!

        Thanks for the articles and the comments.

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