So much focus in the investment world is given to traditional investments such as stocks and bonds. With so much volatility in the stock market, though, it’s key to expand your rental portfolio with assets that are considered alternative investments.
Real estate is one of the best alternative investments that you should add to your portfolio. For years, it’s been considered one of the best ways to build generational wealth, and the same is true today, especially in the Austin real estate market.
If you diversify your rental portfolio in the Austin real estate market, you get consistent, passive income that you can rely on for years.
Below are four of the main reasons why property investment helps to build generational wealth.
Real Estate Typically isn’t a Depreciating Asset
Most assets that you invest in are considered depreciating, i.e., they lose value over time.
How can this be, you might ask, when it’s widely accepted that the average return of the S&P 500 Index is roughly 10% annually? Even when adjusted for inflation, the tech-heavy stock market index typically results in an annual return of between 6% and 7%.
The answer is actually quite simple.
Even if you only invest in an S&P 500 index fund, for instance, and you do it in a tax-advantaged retirement account such as an IRA, your assets can lose value in two ways.
First, your holdings can fluctuate, substantially at times, from one day to the next. This means that whether your asset has gained or lost value depends on the exact day when you withdraw it.
Second, this asset will lose value when you’re forced to withdraw your earnings from them. If the asset is in a Traditional IRA or 401(k), you’ll pay taxes when you withdraw your earnings — since you didn’t have to pay taxes on that money when you contributed to the fund.
Real Estate Can Be Passive
Running a rental property in the Austin real estate market might sound like a lot of work. Managing your property investment alone can be challenging.
Partnering with a trusted Austin property management company like 1836 Property Management allows for a hands-off approach to rental management. This means that even if you don’t live in the Austin area. You can build generational wealth with the passive income your rental property can create.
Your trusted property management partner can advise you on what you need to do to improve your property to make it more attractive, properly market your property to high-quality tenants, handle ongoing maintenance, ensure you’re compliant with local laws and regulations, and even collect rents.
This type of hands-off approach isn’t really available in the stock market.
Real Estate Isn’t Liquid
Having an asset that isn’t liquid doesn’t sound like it would be a positive, but it actually is.
Compared to stock market assets, real estate isn’t liquid at all, which can benefit those looking to expand their rental portfolio. Today, you can buy and sell stocks in an instant by clicking a few buttons on the computer or even your phone.
To get your cash out of a rental property, you need to list it for sale, enter into a sales agreement with a buyer, and go through the normal mortgage approval and inspection process before you can close the deal. How long that takes depends on the market and how fortunate you are.
The upside to liquid assets, of course, is that you can obtain your cash almost any time you want it. The huge downside is that it can be too easy to withdraw your money.
When times get tough, many people panic and make short-term choices that hurt them financially in the long run. If the stock market goes sour, for example, they may sell their assets to preserve what they have left. Or, if they need cash for an unexpected expense, they may turn to their retirement account for help.
Since it’s not as easy to get your cash out of real estate, this forces you to keep your money invested. Over time, this often results in big gains.
Real Estate is Relatively Predictable
Unlike the stock market, real estate is a very proven commodity. There are down years in real estate, but it consistently appreciates over time.
In 1970, for example, the median home price in the U.S. was $112,941, when adjusted for inflation to 2020 dollars. In 2020, that number had ballooned to $336,900 — an increase of 198%.
But, success in property investments doesn’t just come from the overall value of the asset itself. Since you will have tenants living in your rental property, they will be paying you monthly rent, which can go toward paying down your mortgage.
Any excess money above and beyond that amount can go toward other operating expenses and as pure profit. This means that, in essence, if everything goes right, the only expenses that are out of your pocket will be your initial acquisition costs and major upgrades.
The cash flow you receive from this monthly rent generates consistent income, which other investments don’t provide.
Partner with 1836 Property Management to Ensure Your Success
Expand your rental portfolio to build long-term wealth and create a valuable asset that you can pass down to future generations. The benefits outlined above highlight why this investment strategy is so effective.
To ensure success with your property investment, it’s important to partner with a trusted and experienced local property management partner.
In the Austin real estate market, that partner is 1836 Property Management. Our team of professionals has years of experience helping people earn passive income in real estate investing, and we can do the same for you.
Contact us today to learn more.
