How Regular Investments Compare to Owning an Income Property
Renters Warehouse Blog
What stacks up better? Stocks and shares -or real estate?
The answer, of course -is that it depends. Choosing the best investment is largely a matter of personal preference -and depends on your financial situation, your propensity for risk, and of course -the investment itself; not all stocks -or real estate purchases are created equal!
But for many investors, real estate is an investment option that consistently comes out on top. There are a number of benefits that real estate offers that makes it the investment of choice for many. For one thing, real estate is tangible -and provides you with something that you can see and touch. It also gives you more control over where your money's going, allowing you to take steps to directly impact your return on investment. With real estate -and in particular, Rent Estate(tm) -owning an income property, and renting it out for steady income each month, you'll also be able to benefit from immediate rewards of monthly cash flow, while at the same time reaping many long-term benefits as well. Additionally, real estate allows investors to benefit from leverage, and can also provide a level of insulation against national and global markets as well.
While real estate certainly isn't the only investment option out there, it's an investment vehicle that many wealthy investors have used to grow their wealth, and could be an invaluable addition to your portfolio as well. If you've always liked the idea of investing in income property -here's a look at how owning a rental investment compares to investing in the stock market.
Monthly Cash Flow
One of the great things about Rent Estate(tm) is that it allows you to start generating cash flow right away in the form of rental income each month. Stocks pay out dividends too -but they're generally paid quarterly, not every month like rental income. Many companies pay dividends in March, June, September, and December, and if your payments are all concentrated in that timeframe, your income stream will be dry for long stretches of time.
Profit from Rent Estate(tm) and traditional investments alike are subject to tax. However, real estate offers a number of advantages that can help to offset your taxable income. Deductions include repairs and maintenance, taxes, insurance, mortgage interest, and professional services such as legal, accounting, and property management. Travel costs to and from the property as well as depreciation are also deductible. While stocks and shares can be kept in a tax-deferred retirement account, in most cases, the money will be subject to tax at the time of withdrawal.
Real estate provides a tremendous opportunity to benefit from leverage -allowing you to use other people's money to finance the majority of your investment. You can make a relatively low down payment, the bank will lend you the rest, and you'll be able to experience returns on the value of the entire property, not just the portion that you put in. This allows you to grow your wealth far more quickly than you could otherwise. It also allows you to diversify your investments, meaning that you can purchase multiple properties with less money down, helping you to further increase your net worth and income potential. Stocks and shares just don't offer this type of leverage -banks are usually unwilling to offer loans for stocks.
With Rent Estate(tm), you can take steps to impact the overall performance of your investment. This level of control is something that many hands-on investors appreciate. For instance, you can make upgrades to the property to increase its value or to raise the rental income potential. With stocks, you have no control over their performance as they increase or decrease in value, and are largely at the mercy of the markets.
Rent Estate(tm) investments are local -and offer a level of insulation against the changing markets. While global events often have a significant impact on the stock market, their effects usually have less of an effect on real estate. Instead, changes on a local level are more likely to influence your returns -for example, a fluctuating local job market or shifting rental demand. However, your risks can be mitigated with diversification by purchasing properties in different markets. Shares and stocks are unpredictable -their values fluctuate on a daily basis, and many people don't have the stomach to ride out the wild dips in the stock market.
Finally, real estate is a tangible asset. Even if the market goes through a downturn, you'll still have something to show for your money, a home that belongs to you. With stocks, you don't even get a piece of paper, just numbers on a screen. Having something to see, touch, and utilize is one aspect of rental property that appeals to many investors.
When it comes to investing, the best strategy often involves diversifying your assets. Experts are quick to advise against putting all of your eggs into one basket. Instead, carefully consider both high and low-risk investments to create a well-balanced portfolio that will allow you to put your money to work for you -and provide you with the returns that you're hoping for.
With rising inflation and stagnant real wage growth, investing isn't just a good idea -it's becoming an increasingly necessary part of planning for the future. Diversifying your portfolio with a healthy mix of traditional, as well as alternative investments like real estate is an ideal strategy -and something that many financial planners recommend.
What about you? Which investment is the most attractive to you? Are you diversifying your portfolio with alternative investments? Share your thoughts in the comments.
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