Good post, however each region has its own niches and concerns.
The article gives a good explanation of why I have never purchased rental properties.
If I was a professional handyman I might have chosen differently.
“...rising payouts and rising share prices...”
-
Certainly not always true.
I have never owned a rental and never had much luck in stocks until I gave up and decided to just go for dividends. Then in a year or so I looked at the portfolio and saw the stocks had mostly doubled in price.
It sounds like the author bought some rough properties and didn’t invest in improvements on the front end. My rental properties are a cash register that return about 7 to 8% on my investment annually, and all have appreciated in value. On dividend stocks you’re lucky to get 3.5%, and contrary to the author’s statements, they do go down in value.
Diversification is the key. Nobody should put all their eggs in one basket.
The biggest issue I ever had with rental property is…renters. I’ve heard nightmares from friends and business associates. I don’t need the extra money that much.
Rental properties crushed dividends when I did both, but you have to know HOW to make that work and you have to own them for long periods, like 20 years.
Landlords can write off expenses against income
Yes, rental income property is not a “passive investment” where the money is “parked” with the “gain” of the rental income. That “gain” has many factors against it with rental income property, that blue chip corporate and treasury dividends do not have.
1) Income “Payouts rise over time (dividend hikes)” ... not necessarily so. Sometimes, the dividends are reduced or eliminated.
5) “Dividends + price appreciation compound” except when they don’t, because the company suspended its dividend, and the price per share dropped.
I get that the author is big on dividend stocks, but he’s being a little dishonest. That’s bad.
Not really a complete comparison.
With rental properties, you have depreciation for tax purposes, and likely owe no taxes (or very little) annually. You might even get a refund (if you had other taxable income), reducing your net taxes due. You’ll also increase your returns by leveraging OPM (other peoples’ money), as you’ll almost certainly invest maybe 20%, and borrow the balance from a bank. When you sell, you can roll gains over into a new property and defer capital gains taxes. You will have concentration risks (property specific and location specific (think house fire, or hurricane/tornado). None of that is true with dividend investing (unless you want to borrow in a margin account to buy more stock, or buy single, speculative dividend stocks).
With dividend investing, you can easily diversify via ETF’s or mutual funds, but portfolio yield will suffer vs. hand-selecting higher-yielding stocks. Not so with rental properties, unless you want to be a REIT investor. You can also pursue stocks that pay “qualified dividends”, in part or total, to minimize annual tax obligations. But regardless of this, you’re going to have taxes due each year on this passive income.
(Disclosure - I don’t do rental properties due to: concentration risk, lower liquidity, more time consuming.)
The author/landlord is doing it wrong. You’re supposed to collect the first and last month’s rent and UNDER NO CIRCUMSTANCES give back the deposit. The huge rental companies are evil bastards.
Scanned the article quickly...but I didn’t see depreciation mentioned.
I think I see the problem here.
Author bought high in one of the absolute worst markets - communist NYC. My (real estate) family ran out of New York for that very reason. Punishing landlords is great for creating slums.
Like many, the author also doesn’t understand that real estate is, almost always, a long, slow game.
The Florida rentals I bought in 2010 after the crash are now yeilding around 75% ROI anually. IOW, in a single year, I’m getting 75% of the full price I paid for the units 15 years ago.
The best part is they’ve increased in value by 700%. Yes, they are worth SEVEN times what I paid during the fire sale.
You don’t get that via Wall St. paper unless your palm-reader gets you into Gamespot at just the right time.
As the result of property purchases I have had three rentals. I was never so happy as to be rid of them. One I traded in a barter exchange and it was carted away in a fiasco of a house moving operation. The other two I tore down, burned the mess, dug a big hole and buried what was left. Good riddance to worthless problems.
If you are smart enough to begin investing in Dividend stocks, particularly Dividend Aristocrats, early in your life and keep a watch on them you should have no trouble at all in paying for your future at ease. I was not that smart when I was young, I knew nothing and had to learn the hard ways.
They are not fool proof, even the Generals had some bad problems. As in General Motors, General Electric and so forth. A good Dividend ETF should ease that individual risk. When I started there were only Mutual Funds. I don’t know of a single fund that has ever beat the market indices. Why pay for it then?
Too old soon, too late smart.
Is their a reason people do not choose JEPI or ARCC?
They seem to pay a very good monthly dividend.
WORSE:
AS EACH YEAR PASSES, VARIOUS GOVERNMENTS ARE RESTRICTING HOW MUCH INFO A LANDLORD CAN DEMAND FROM A POSSIBLE RENTER.
A SEX OFFENDER? NOT ALLOWED TO ASK—EVEN IF APARTMENT BUILDING WITH OTHER OTHER DWELLERS ARE INVOLVED.....KIDS, ETC.
A CREDIT RISK? A DEADBEAT? MULTIPLE EVICTIONS? NOT ALLOWED TO ASK...
A CRIMINAL IN ANY CATEGORY? NOT ALLOWED TO ASK.....
WOULD NEVER RENT OUT A HUMAN ENCLOSURE EVER AGAIN.
MIGHT HAVE RENTAL STORAGE SPACES IF I HAD THE $$$ TO INVEST...
DO NOT PAY FOR 2 or 3 MONTHS? YOUR SPACE IS PADLOCKED WITH MY LOCK & SOLD OFF....YOUR FAULT-—NOT MINE...
HOURS OF ACCESS ARE UNDER MY CONTROL.
PRICES ARE UNDER MY CONTROL.
ANYTHING ELSE: “YOU CAN KISS MY GRITS”.