Jussi Askola writes in Seeking Alpha, “Rental properties are very popular among income investors and retirees. How do I know? All my rental-related articles receive a lot of comments and attention.
Especially in 2019, as the stock market is still hovering near all-time highs and bonds are yielding very little – I believe that rental property investment can help investors achieve their financial goals.
I’m not the only one to believe so. In a recent survey, 97 percent of investors indicated that they intend to increase capital allocation to real estate in the next 18 months. When you consider that real estate has historically generated higher rates of return with lesser risk than most stocks and bonds, this is not really a surprise to us.
Why is Real Estate So Powerful?
Let’s look at a practical example with my very first rental investment; a 450 square feet apartment in a small student city in Germany.
I bought this apartment back in 2013 for about $50,000 and the market rent at the time was about $500 per month. I financed a large portion of it with a low-interest rate mortgage from a French bank with which I had good connections.
Let’s Make a Quick Calculation:
- Monthly Rent $500
- Monthly Operating Expenses $200
- Monthly NOI $300
- Annual NOI $300 x 12 = $3,600
- Unlevered Cash-on-Cash 3,600 / 50,000 = 7.2%
Then you finance half of it with a cheap mortgage at a 4% interest rate, and you get your expected total return above 10%. Add a few percentage points of appreciation from inflation, and you get closer to 15%.
Now, this was my first attempt at real estate investing so I have no doubt that an experienced investor could do better. Still, it shows the power of real estate investing:
- It pays a high income that’s relatively secure.
- It’s not very volatile.
- It’s simple, predictable and consistent.
- It protects against inflation.
- You can expect 10-15% annual returns.
I don’t know about you, but I pick the rental any day of the week:
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