Have you talked to a home owner in a luxury neighborhood lately? How much are they down? 10%, 20%, 50%?
Both investments are risk-based, so what about low-risk investments?
Bank accounts are paying 1%, less than the rate of inflation- which means your investment is going backwards each year.
Fixed annuities have a reasonable rate of return, maybe 3-5%, but it's a retirement product and it puts you in bed with the government. Want to cash it out before age 55 1/2? Take a penalty from the IRS- it's an early withdrawal.
You see the issue? Where do you put capital?
The Moderately-Priced, Single Family Rental House
Let's look at a single family house investment on a cash basis only. If you invest cash $100,000 in a single family home and the rent is $1,000, that's $12,000 per year. With no expenses, you have a 12% annual return on your investment. With vacancies, taxes, insurance and repairs, you might have 50% expenses. Your cash flow is now $6,000 per year. That's a 6% return on your investment. Year after year, with the return going up as rents go up.
Can the house go away? Disappear from a rumor about the economy? Be stolen? The answer is no. It can burn down, but then it will be replaced by insurance. Of course, a chunk of the value is the land, and that's not going anywhere.
So, the moderately priced single family home's value is supported by the rent and cash flow from the property. There is an intrinsic value to the property from the rent. What is that intrinsic value? It all depends on the economic times and the return an investor is looking for.
Additional Investment Value
When you add to the equation the tax benefits of a rental property, the investment is even higher. If you leverage your capital and borrow some of the investment, the return on your cash continues to grow.
But this is not about capital growth or astronomical returns. This is about preserving your capital. An investment that pays year after year, while the value stays in place.
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