The millions of small-scale rental property owners in the U.S. and others who are considering joining these ranks may be surprised to learn that, as an investment, rental home ownership is nearly as profitable as stocks and substantially more profitable than bonds, investment deposit accounts with risk, and other investment instruments according to a new study.
People become landlords for different reasons; some by choice, others by happenstance. Some set out to purchase homes, apartment buildings or condos as income-generating investments while others leveraged the earnings potential of an inherited property or a former residence by taking on tenants rather than selling, More than likely, most of these small-time landlords embarked on their landlordship strategies without fully comprehending the profit potential of their rentals.
The new study, authored by researchers Andrea Eisfeldt of UCLA’s Anderson School of Management and Andrew Demers of Structured Portfolio Management in Stamford., Conn., finds that rental home ownership is nearly as profitable as stocks and substantially more profitable than bonds, investment deposit accounts with risk, and other investment instruments.
The study found that returns on single-family home rentals in large U.S. cities from 1986–2014, worth an estimated $2.3 trillion, have generated returns of approximately 9 percent, making the profit potential of rental homes nearly as lucrative as stocks and considerably more remunerative than bonds, deposit accounts, and other conservative instruments.
Risky investments tend to generate reasonably high returns over time, and rental property ownership has its share of risks, from fluctuating markets and changing tax regulations to deadbeat tenants and unexpected events such as fire or natural disasters.