“Why is owning a rental property smarter than investing in the stock market?”
This a common question we hear from would-be property investors. Some people object to real estate investing because they think it will take up too much of their time and produce lower net returns than investing in stocks. Still, so many savvy investors are investing in real estate – why is that? There is, of course, the obvious perk of diversifying the way they make their income but there are also four benefits to investing in real estate that stocks lack.
- Income – Income is a big advantage that real estate investments have over stock investments. Income is defined as the profit that is left over after debts and expenses have been paid. In this case that would be any remodels, updates, or general fixes before the house is able to be rented. Rental properties offer monthly income or “cash flow” that most stocks do not offer.
- Leveraging – Real estate investing uses leverage (a loan) against the initial purchase of the property to put a portion of the monthly mortgage payment toward two things: the interest and the equity. For anyone who owns a home, this should seem like familiar territory. The twist is that the mortgage payment isn’t coming out of your pocket, but rather the resident is buying the building for you. If you think about it in those terms, it seems great because when was the last time someone offered to buy stock for you?
- Appreciation – A fairly common term, appreciation is when you sell an asset and receive more money than the amount you paid. It is the chief reason people buy into the stock market. However, many people think this doesn’t happen with real estate which just isn’t true. Real estate will appreciate as the real estate market continues to inflate. Of course, you do have to watch economic indicators but savvy investors stand to make a good buck from this type of buying and selling.
- Tax Benefits – The greatest benefit relates to taxes. Owning a rental property is one of the most powerful tax benefits you can get. Even if you’re making money, depreciation on the property allows you to claim a loss. In other words, you are making money but still get to claim a loss…legally. Over time this benefit will slowly decrease in its effect which is when you will then use a 1031 exchange when wanting to sell the property. After this, you can buy a different property without paying any tax on capital gains and begin the process anew. To be clear, we do not recommend you do this on your own but rather search for proper guidance through a well-respected accountant.
But isn’t real estate a lot more work than stocks?
It doesn’t have to be. If you are paying for the property and taking care of it, then yes, it is more work. You will have to do the maintenance and answer every call your resident has. But it doesn’t have to be that way. You can hire a professional property manager who can do everything for you and increase your rate of return. Think of a property manager as your stockbroker. Even after paying fees, with a good management company you’ll be seeing tremendous income returns. This is because a property management company will make your residents happier so they stay longer, cutting down vacancy duration and resolving problems quickly. They’ll even work to get you the best maintenance costs available.
In the end, rental properties and stocks both have a lot of advantages. It ultimately depends on how you play your cards and who you have advising you to determine whether or not it’s worth it. At Real Property Management Investment Solutions we have your best interest in mind and are ready to be your professional property manager.
If you are interested in having your property managed by Real Property Management Investment Solutions, have more questions, or just want to speak to one of our team members, then contact us online or call us directly at 616-419-8880 today!
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