Rental Profits Vs. Stocks
Deciding whether to invest in real estate or stocks can be difficult. Investors seeking a steady income, and willing to put in the extra management time, might be better served investing in rental properties, while investors who want the chance for quicker capital appreciation and don't want the hassle of dealing with tenants and property managers should stick to stocks.
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Similarities
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Investing in rental properties is somewhat similar to investing in dividend-paying stocks. Both types of investments seek to profit more from a steady income, whether by rental inflows or dividend distributions, than by capital gains appreciation, which is more characteristic of speculative stock investing.
Differences
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There aren't always that many high-dividend stocks. As a result, investing in a stock only makes sense if you think it has a good opportunity for near-term capital appreciation. Investing in rental properties, conversely, is more concerned with income and positive cash flow before capital gains.
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Risk Analysis
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Stocks tend to be more volatile than real estate, and so carry a somewhat larger risk, but even prime rental properties are not immune from downturns, vacancies or maintenance nightmares.
Leverage
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Depending upon your credit score and the kind of loan you are able to get, investing in a rental property might afford you better leverage than investing in stocks. Lenders usually want a 20 percent to 25 percent down payment on rental property, which is less than than the 50 percent capital you'd have to post if you purchased stock on margin.
Management
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Stocks are in almost all cases easier to manage than rental properties. Running rental properties can be simplified somewhat by hiring a property management company to deal with maintenance and tenants, but you'll still have more small administrative headaches relative to the straightforward process of stock portfolio management.
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References
- Photo Credit Image by Flickr.com, courtesy of Erion Shehaj
