Is Your Money Working For You?
One of the first things any good financial advisor will tell you is to make sure that your money is working for you, no matter where you put it. This means that instead of holding cash in a checking or savings account, you should choose investments that allow the total value of your account to grow without any further effort on your part. The extra money you earn from this type of set-it-and-forget-it investment is called ‘passive income’ and it is the holy grail of prudent money management.
One of the most common investment strategies people use to create passive income is to buy dividend stocks. A dividend is simply a periodic payment made to shareholders according to the size of their holding. For example, a company that pays a $0.50 dividend per share each year would issue a $100 dividend payment to a shareholder that owns 200 shares. Dividend stocks typically pay out annually, semi-annually, or quarterly, though a small few may pay very small monthly dividends.
Now, dividend stocks can be a great investment, but the returns they offer are generally paltry compared to the capital investment required. Dividend payments have nothing to do with the price of the stock, or how much you paid for it originally. In the example above, assume the stock cost $50 per share at the time of investment. To amass the 200 shares necessary to earn the $100 annual dividend, therefore, the investor would need to have paid $10,000. The annual payout as a percentage of the cash investment is only 1%. In truth, even the carry prices well over $100. More moderately priced dividend stocks often pay annual dividends of $0.50 or less.
So how can you reap the benefits of passive dividend income while securing a better rate of return? Two words: Real Estate.
Real estate investing is much like investing in dividend stocks, but is less volatile, less complicated, and provides a much better rate of return. Like buying a dividend stock, you are investing in a commodity because you believe it will maintain its value over time while providing regular ‘dividend’ income in the form of monthly rental payments. However, real estate is not subject to the same daily roller coaster ride that the stock market is. Yes, the housing market has it’s own ups and downs but, unlike a company stock, a house is unlikely to lose 50% of its value overnight if some corporate scandal emerges or if a competing company unveils a superior product.
In addition to the capital preservation offered by real estate investment, the dividend income you earn is much more substantial than anything you’ll find in the stock market. Even after expenses like maintenance costs, taxes, and insurance, your net rental income can total thousands of dollars a year. If you choose to use financing rather than paying cash, your initial investment can be less than $20,000. If you invested only $20,000 in the example above, you’d only earn a paltry $200 per year in dividend income, whereas an investment in real estate can generate $200 or more in net income per month. The properties we offer at Spartan Invest generate annual returns of up to more than 20%, depending on the financing option chosen, far outstripping the returns offered by even the most lucrative dividend stock. If you choose to finance, the equity value of your investment grows each year as you pay down your loan, and your rate of return increases. At the end of paying down a 15-year note, your return on investment could be upwards of 40%.
The passive income created by a real estate investment is also much more reliable than that offered by a dividend stock. Unless you own preferred shares of stock, a company can elect to stop paying dividends at any time. Even if you do pay the extra price for preferred shares, a company can delay payment indefinitely if their finances look rocky. With real estate, monthly rental income is only compromised when the property is vacant. At Spartan Invest, we obsessively track our occupancy and vacancy rates so we know without a doubt that, as of May 2016, our 52-week rolling occupancy rating is 96.1%. We only buy solid B properties and pride ourselves on executing high-quality renovations so, unlike a dividend stock, you don’t have to worry that you’ll suddenly be without passive income for months or years at a time.
When it comes to investing, there is an overwhelming number of options available for different risk tolerances and financial goals. If you’re looking to generate healthy monthly returns with minimal effort, however, an investment with Spartan is the best way to put your current capital to work.
If you want to know more about the properties we have available, how we do business, or what sets us apart from other turnkey outfits, just drop us a line on our contact page! We’re happy to answer any questions, any time!