Is It Better to Invest in a Rental Property or the Stock Market?
When you’re looking at investment options, you might ask yourself – is it better to invest in a rental property or the stock market?
While each option has its pros and cons, we at Renovo Financial firmly believe that investing in rental property is better of the two – and here’s why.
Control Over the Investment
From the moment you purchase the rental property, you already have full control over your investment. Investors are able to decide how they want to finance the renovations, how much they’d like to spend on maintenance, what to charge monthly for rent and who the tenants are, and when they’d like to sell the rental property.
When you buy shares in the stock market, your share is likely trivial compared to the overall company value, and investors in the stock market have little to no say in what the company does.
Return on Investment / Cash Flow
It’s a sometimes overused phrase, but it’s true – cash is king. Regardless of whether you choose to invest in the stock market or in a rental property, you want to be sure that the investment pays you profits that you can either reinvest or save for a rainy day. With a rental property, you have a steady source of cash flow with monthly rent. But with the stock market, the returns look good on paper, but you don’t have the actual cash until you sell your shares.
With rental property investment, you know that rental rates will rise with the cost of living increases. Rental property investors are able to raise the amount of rent when the cost of living goes up and the value of the property itself will go up as well. All while mortgage and loan payments stay the same. In the stock market, traditional equity investments won’t inflate directly, like real estate investments will.
High risk can mean high reward, but purchasing a rental property generally has fewer risks involved, with a higher reward the longer you hold the investment property. The more rental properties a real estate investor buys, the fewer risks are taken on – completely opposite of the stock market where the risks typically stay the same.
Leverage to Build Wealth
Real estate investors use leverage to build their investment property portfolio. Getting a mortgage for a rental property ensures that you’ll have the leverage to invest in another rental property, but with less money down. With the stock market, you purchase the shares at the best rate possible and any shares you buy outside of that purchase are at whatever the market dictates.
Ability to “Buy Low and Sell High”
In both the stock market and real estate investing, buying low and selling high is the way to make money. For many stock investors, this can be difficult because they don’t know much about the company or its projections. For real estate investing, flipping houses is the number one way to make a profit off of a house, because you’re buying a property that is in dire need of repairs, renovations, and rehabbing, fixing it up, and selling for a price higher than the purchase price, plus the cost of repairs.
Buying a rental property comes with property taxes, but the tax benefits provided from the IRS far outweigh the costs you can incur. When you sell stock shares, you’re required to pay a capital gains tax in addition to dividends received.