Say you have $100,000. You could buy a house worth $500,000 with 20% down and a 30 year note. As long as you pay the mortgage, it doesn't matter how much the m

Say you have $100,000. You could buy a house worth $500,000 with 20% down and a 30 year note. As long as you pay the mortgage, it doesn't matter how much the market value of the property changes. A drop of 40% in real estate prices that lasts for five years is not necessarily a problem. On the other hand, imagine you put $100,000 into a brokerage account and were able to get 2:1 leverage. You could then borrow $100,000 and buy $200,000 of stock. However, if the market runs into a bad patch and that stock decreases in value to $120,000, your equity is now only ~16.7%. This is below the minimum margin requirement (25%) for your account. Your brokerage calls you up and says you need to put an additional $10,000 in your account - that's a margin call. If you don't have the $10,000 then your brokerage will sell enough of your position to bring your account back within requirements; possibly at the bottom of the market. Real estate: 5:1 leverage, no margin call Margin account: 2:1 leverage, plus margin calls