L ooking to create financial stability? Buy an extra house.
According to the findings from the National Bureau of Economic Research, landlords of single-family houses are generating annual returns of approximately 9%—on par with those who are actively investing in the stock market. The study, which spanned across three decades and included data from cities across the United States, highlights several variables that impact the success of landlords, including:
- The rental market boom. Homeownership rates have dropped from 70% to 64%. Approximately one-third of renters lease single-family homes.
- Smaller markets prevail. You don’t have to invest in big cities like New York or Los Angeles to get a win in real estate. In fact, the research found the opposite is true. Landlords in “heartland” cities, or Middle America, fared better.
- Lower prices yield bigger results. Potential real estate investors shouldn’t feel pressure to buy in trendy areas. The study found that landlords in not-so-popular neighborhoods earned better returns on their investments.
- Property appreciation is key. Over time, the value of real estate typically increases, and that equity is an essential component of the owner’s bottom line. Properties in areas primed for growth are the best investments.
- Buying with cash is a game-changer. Owning the property outright eliminates the expenses of a mortgage, which puts more money in the landlord’s pocket.
Despite the advantages of owning a rental property, many people remain anxious about making the investment, since the real estate bubble debacle left many individuals in financial ruin. While investing in a full-time rental has risks (tenants not paying, property damage, etc…), it does not create the same economic vulnerabilities as purchasing a vacation property (rented out periodically, leaving owners responsible for more costs). It also doesn’t rely on the equity of a single-family home that serves as the homeowner’s residence.
Want to learn more about investing and real estate? Talk with a personal finance expert, like Ash Cash, and a real estate expert in your region to get more information before you take the leap.