By: Neil Fjellestad & Chris De Marco
Rental ownership has a long history of satisfying the primary investment priorities of personal financial independence: safety of capital, inflation hedge and tax-favored income. Traditionally, if the detailed financial statements of the wealthy are available for review it becomes apparent that long-term income producing real estate assets directly or indirectly contribute substantially to their net worth.
Certainly there are exceptions that get the notoriety. There are the entrepreneurs that hit the jackpot with a new invention, the right innovation at the right time and/or the market control of a needed commodity. Then there are the speculators that successfully capture the benefits of leveraged capital, cheap labor or some windfall in the short-term that cannot be repeated with consistency.
However, forget the outliers and the top one-percent and concentrate on the basics of what has worked for the top twenty-percent. Locally understood and available rental properties purchased carefully one at a time consistently becomes the safest real asset to own. Note that a small share in a national real estate investment trust may seem like a “safe way to get the benefits of real estate ownership” but in fact, this is just another financial asset with the same characteristics and historically similar results as any other stock market investment.
Well-located, rental-producing real estate has usually fared better as a long-term hedge against inflation when compared to financial investments. The closer your investment resembles a small business serving customers with an essential part of daily life the more likely that its operations and value are going to keep up with the cost of living.
Though assets may hold value no reliable income is produced. Equity in your personal residence is its own goal providing a sense of financial wellbeing, a source of emergency funds and a reduction of household expense as you approach retirement; but no income. However, a well maintained and managed rental (house, condo, duplex, and apartments, commercial) that is held free of debt produces tax-favored income on a consistent basis.
Finally, providing ongoing rental housing for households and/or businesses within your community is socially responsible and should be a greater source of personal satisfaction and connection compared to institutional financial investments.
About Rent Sense
“Rent Sense” is an informative article for Rental Owners or those looking to become investment property owners. This weekly insight is brought to you courtesy of Neil Fjellestad and Chris De Marco, President and Vice President of FBS Property Management in San Diego, CA. The goal of “Rent Sense” is to educate existing and perspective property investors on the Property Management field, the ever changing Real Estate regulations as well as the technology advances being made by our company and other industry leaders. We have been in business for over 40 years, cover 65 zip codes, over 700 single family homes and over 1,200 clients thus providing us with a variety of topics to discuss. Neil, Chris and the rest of the FBS team is available at 619-286-7600 or www.fbs-pm.com.