Investors are looking into investing in rental property to grow their portfolios. It’s an option they can choose instead of, or on top of, the volatile stock market. Stocks have the potential for unmatched growth, that is true, but they also have inherent risks that can result in profound losses. As an alternative investment, rental properties give investors a profitable option to stocks and bonds while keeping risks low. And unlike the usual owner-landlord method to rental properties, today’s rental property investors are working smarter. They are turning single-family rental homes in Allen into smarter investments by using the services of a team of property management professionals.
The issue of selecting between investing in stocks or rental properties will always be up for discussion and will never be resolved. Which of the two is the better investment? There really is no simple answer. The reason for this is what each person means when they say “better”. What does “better” mean? Different investment options have different advantages as well as drawbacks, and so making the best decision 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 understand the differences 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 discovered 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. There are a lot more stock investors than those buying rental properties.
This preference is there for good 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 go for investing in stocks because it is truly passive income – there is no other action required beyond initializing stock transactions.
However, as recent history shows us, investing in stocks carries an inherent risk of disaster. An economic downturn can completely wipe out an entire stock portfolio, leaving an investor high and dry. So that they might be able to mitigate this risk, various investors are re-evaluating rental properties as an alternative investment.
There are innumerable merits when investing in residential rental properties as opposed to the stock market. Based on the analysis of the subject, rental properties are a decidedly safer option for investors. 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, as a rule, only increases in an economic downturn. On top of that, the correct rental property can start producing rental income almost immediately and keep being profitable until it’s finally sold for a sum much higher than the original purchase price. It’s true that the biggest barrier to new investors in the rental real estate market is the down payment. However, that investment can be recovered easily. You’ll get your money back plus a significant sum on top.
Real Property Management Focus is ready to give you a helping hand in case you’re looking for an alternative investment to counterbalance a stock portfolio or ready to go all out as a rental property owner. We offer full-service property management support to residential property owners, with the purpose of making real estate ownership into a truly passive income opportunity. We handle the daily tasks so that each rental property will work for you, giving you free time to grow your wealth and realize true financial freedom. Don’t hesitate to contact us online or give us a ring at 469-820-0088 to know more about what we can do for you.
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