Investors are considering investing in rental property to grow their portfolios. They see it as a possibility for investment, as an alternative to the volatile stock market. Although stocks have the potential for unmatched growth, they also have inherent risks that can result in profound losses. Rental properties are an alternative investment that give investors a profitable option to stocks and bonds while keeping risks low. And unlike the traditional approach of owner-landlord, rental property investors these days are going with a more modern setup. They are making single-family rental homes in Batesville work smarter by engaging the services of a team of property management professionals.
The subject of choosing between stocks or rental properties will bring out so many different opinions. Which of these is the better investment? There really is no clear-cut answer. The reason for this is different people mean different things when they say the word “better”. What does “better” mean? Different investment options have different advantages as well as drawbacks. That means finding out the best course of action for anyone investor depends on things such as how much risk they are willing to take and how long they can wait for the payoff.
To get a true understanding of the difference between investing in rental properties and investing in stocks, equities, bonds, and so on, a team of economists analyzed over a century of global economic data. The study, The Rate of Return on Everything, 1870-2015, compares the returns on equities, residential real estate, short-term treasury bills, and longer-term Treasury bonds over this entire 145-year span across 16 advanced economies.
What they observed is that, on average, residential real estate had the best returns of all investments, at just over 7 percent per year. Equities, or stocks, came in a close second. This contrasts with the number of investors who focus in one investment area (i.e. stocks) over another, with vastly more stock investors than those who invest in rental properties.
The preference for stocks are there for a reason; even though stocks are high risk, high return investments, noted for their high degree of volatility, there are relatively low barriers to entry in the stock market. Equities are also highly liquid, allowing an investor to sell quickly. Finally, many people prefer to invest in stocks because it is truly passive income – you don’t have to do anything beyond initializing stock transactions.
However, as recent events show us, investing in stocks carries an inherent risk of disaster. An economic downturn can completely wipe out an entire stock portfolio, dragging an investor down and leaving him or her with nothing. In order to mitigate this risk, a lot of investors are rethinking rental properties as an alternative investment.
There are plenty of rewards when investing in residential rental properties as opposed to the stock market. Rental properties are an exceedingly safer option for investors based on experience. But unlike treasury bills (another relatively safe option), real estate offers long-term returns that are comparable to or above the rate of return on equities.
Rental properties are not tied to the stock market, or even in some ways to the economy. The demand for rental homes, for the most part, only increases in an economic downturn. Plus, if you have the right rental property you can start producing rental income almost immediately; and the revenue you get from that will continue for years until you choose to sell the property for a sum much higher than the original purchase price. While the greatest barrier to new investors in the rental real estate market is the down payment, you can easily get that money back plus a significant sum on top.
If you’re contemplating an alternative investment so that you can even out a stock portfolio or you’re ready to become your own boss as a rental property owner, Real Property Management Delta is ready to assist you. We give full-service property management support to residential property owners, with the intention of making real estate ownership into a truly passive income opportunity. We tackle the tedious tasks so that each rental property will be operating for you, saving you time so you can be free to grow your wealth and realize true financial freedom. If you are interested in learning more or have additional questions, please contact us online or by phone at 501-404-0674 today.
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