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. While stocks have the potential for unmatched growth, they also bring with them inherent risks that can result in profound losses. Rental properties are an alternative investment that gives investors a profitable option to stocks and bonds while keeping risks low. And unlike the common owner-landlord approach to rental properties, the rental property investors these days are working smarter. They are turning investments in single-family rental homes in Norwalk into effective and efficient businesses by having a team of property management professionals works with them.
The argument as to which is the better investment, stocks or rental properties, will not be settled soon. There will always be people giving different opinions on the matter. The truth is, there really is no easy answer to it. 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 appreciate the real 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 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.
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. Lastly, many investors go for stocks because it is truly passive income – there is no need to do anything beyond initializing stock transactions.
However, as recent events have shown, investing in stocks carries an inherent risk of disaster. An economic downturn can completely wipe out an entire stock portfolio, forcing an investor to lose everything. 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. Because of prior study on the topic, rental properties are a significantly 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 typically only increases in an economic downturn. Additionally, if you get the right rental property, you could start producing rental income almost immediately and keep producing income until the time comes when you decide to sell it 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.
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 Southern Connecticut is ready to assist you. 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 accomplish the day-to-day duties so that each rental property will operate for you, keeping you free to grow your wealth and realize true financial freedom. Don’t hesitate to contact us online or give us a ring at 203-821-7303 to know more about what we can do for you.
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