Thursday, December 25, 2014

Investments: Rental Properties or Dividend Stocks?


What to invest in? 

Investors buy rental properties and dividend stocks for similar reasons, to receive cash distributions at predictable intervals throughout the year. With enough of the two different asset classes, you can effectively replace paychecks with these distributions as passive income.

But which are better?

Analysis of Rental Properties: 

Rental properties offer the following benefits to the investor:
  • Tangible property ownership;
  • Historically less fluctuation in a market downturn;
  • Historically appreciate in value over time;
  • Ability to leverage money via a mortgage; and
  • Deduction of mortgage interest and certain expenses from your tax return (s).

Analysis of Dividend Stocks

Stocks typically offer the following:
  • Higher market returns;
  • Liquidity in case you need money;
  • More diversification of assets;
  • No maintenance fees;
  • Ability to buy into higher variety of assets; and
  • Job mobility in case you want to move to a different location.

Comparison

On average, rental properties tend to be a much safer investment compared to stocks and you're able to leverage your income via a mortgage to increase your gains.

If you're willing to put in the time and effort into finding a good location, maintaining the property, and staying close-by to keep an eye on it, rental properties are almost certainly the way to go.

However, if you plan on moving sometime in the near future and/or have strong faith in your stock picking skills, then stocks are likely your cup of tea.

REITs

Interestingly, if you'd rather not leverage yourself too highly via a mortgage and still like the flexibility of stocks, then Real Estate Investment Trusts are a good cross-breed between the two. They pay a mandatory dividend from their rental holdings and are essentially a diversified, less leveraged, and lower maintenance version of owning a rental property.

Thoughts? Comment below!

Photo by Sarah / CC BY

No comments:

Post a Comment