Liz and I bought a rental house on November 30th, 2015. We fixed it up, had an open house, and landed some awesome renters that moved in on April 15th, 2016. We are now officially landlords (which still seems weird to say).
So what’s the point? Why did Liz and I decide to dump $90,000 into a rental property instead of the stock market?
It’s pretty simple actually. We don’t trust the stock market at all.
The market goes up, tumbles down, it comes back again and thrives, and then all the sudden it’s down in the dirt again. Quite frankly, the market seems about as safe as jumping out of a plane with a 50 year old parachute; we might be completely safe and have the time of our lives…or we might die with nothing.
Yes, we still contribute funds to the stock market to diversify, but we’re not fully depending on them like 99% of the population!
The Rental House or the Stock Market?
So the real question is, which investment has been more profitable so far this year? Since April 15, 2016, how much did the stock market earn us vs. the rental property?
The Stock Market
At the beginning of May, my 401k account was worth $53,845.12. Thanks largely to a work bonus and matching contributions, the account jumped to $63,567.12 (Yay for our future old selves!! We’re making progress!). But how much of this increase was actually due to the market rising?
As you can see in the handy-dandy chart above, the actual investment return was $1,676.56. Over the course of six months, our $53,845 investment went up by 3.1%, or 6.2% annually. It’s not awesome, but also not terrible.
The Rental Property
So many people warned us that owning rentals would be awful. The renters weren’t going to pay, we were going to get sued, they were going to trash the place…blah blah blah. And so far, being land lords has been a dream come true. We took our time in the selection process, we did the background checks, and we stuck to our guns on the criteria we set. Not only has nothing been damaged, but we have already turned a profit.
Here are the main details of the rental so far this year:
- Property investment = $90,000
- Rental income per month = $1,200
- Property Taxes = $3,100
Our renters are awesome and continue to pay their rent 2-3 days early every month. So far, they have paid us $7,200.
In July, we had to pay the property taxes…which amounted to (ugh…) $3,100. Our net income thus far is $4,100 on a $90,000 investment. This equates to a 4.5% return so far. BUT, if we incur no other expenses until next April, our yearly net income will grow to $11,300, a 12.5% annual return. Now THAT’s what I’m talking about!
The purpose of this article isn’t to show that owning rental properties is always more profitable or that you should avoid the stock market because you’ll only earn 6% on your money. Heck, the stock market could jump tomorrow and put us up 15% by the end of the year! You just never know what it’s going to do!
Liz and I want to be responsible with our money. We want to put our kids through private school, help them with the cost of college, and we want to retire the fun way (ie. not on the SPAM only diet). To do this, we must invest wisely and DIVERSIFY, because sometimes the stock market tanks and other times it’s a rock star. To keep earning money through the peaks and valleys, we need to create other avenues of investments.
So how do we diversify our investments?
- We put some into our 401k mutual funds
- We buy real estate for rental income
- We both have side-hustles that produce additional income
If you want to get ahead in this life, then you should really start thinking about something other than your one income. How could you use that money to earn more money? Where could you put it so you’ll earn 10% or more in returns? These are the types of questions you should asking yourself constantly.
Rental house or the stock market? Thankfully, they’re both winners!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.