Are Rental Properties A Good Investment?
Our clients at Phelps LaClair come to us because they are aware of our excellent reputation for designing bulletproof custom estate plans. They choose us when they want to know how to preserve and increase their wealth for the next generations.
With the growing populations in Chandler, Mesa, Phoenix and Scottsdale, a common question we hear is: “Are rental properties a good investment?” There is no easy answer to this question. As in most of life, it all depends. But there is one thing we do know: having rental properties as part of your investment portfolio will impact your estate plan. There are pros and cons to consider before investing in rental properties.
1. Leveraging Assets
Like every other investment, acquiring a rental property means you will be spending money to take a risk on a positive return over time. The good news here is that you don’t need to have all the money upfront. Taking out a mortgage allows you to leverage a portion of your assets to make the investment. You will often be able to acquire greater value in real estate than you would with outright investment in stocks for the same amount of money.
2. Increasing Value
In a rising housing market like we have at present, property value can increase at a faster pace than the stock market. Not only that, but as more people relocate to warmer climates like Phoenix, the need for rentals increases. The time that a rental property sits empty can be only a matter of weeks instead of months. Compared to a downturn in a stock market investment, that’s much more time your investment is earning you money.
Over the long term, rental properties are a stable investment. While the stock market crash of 2007 affected homeowners who were forced to default due to being underwater on their mortgage, rental properties actually increased in demand. Yes, housing markets do fluctuate, but people always need a place to live. For millions of people, renting is more economical than owning.
4. Flexible Management
Rental property management can be hands-on or outsourced to a management agency. If you are a person who wants to be intimately involved and in control of your investments, rental ownership might be just the thing for you. There are plenty of opportunities to make improvements and upgrades—if that’s your thing. If you prefer not to get your hands dirty, there are well established and reliable rental management agencies who will take care of every aspect from vetting tenants to collecting rent to handling all maintenance and repairs.
The Bottom Line on Investing in Rental Properties
Rental property investments are great for some people. They allow you to leverage your assets, they usually increase in value, they can bring in a regular cash flow, and they have tax advantages. Are they for everyone? No, probably not.
At Phelps LaClair, our specialty is designing estate plans, including estates with rental property holdings. We work with professional financial advisors who are well versed in all matters of investment. We can recommend associates who can answer your questions. For all of your estate planning needs, call us for a free consultation with no obligation. Are rental properties a good investment for you? Let us help you determine that!
Be sure to read our next blog post that outlines the cons of rental property ownership.