One way to increase passive income is to diversify your portfolio to include rental properties.
Somewhere along the line, you have likely heard some form of the phrase, don’t put all one’s eggs in one basket. The meaning behind this is that you should always diversify your investment portfolio. Otherwise, if you do – you lose everything. Have you taken a look at your portfolio lately?
If it is time to diversify your portfolio, you should consider including rental properties.
The Importance of Portfolio Diversification
Diversification means spreading your money around in different assets with different strategies. While it will vary from person to person, your investment portfolio may contain all types of investments, such as stocks, funds, and real estate. The main goal is to reduce the overall risk to your portfolio. The other goal is to increase the value of your portfolio as well.
Many investors use the 60/40 portfolio-building tool when trying to diversify their portfolios. That means they allocate 60% of their capital to stocks and 40% to fixed-income investments like bonds. Keep in mind that this is just the general rule of thumb that many investors follow, but real estate may be a great addition to your portfolio.
It is important to note that once you diversify your portfolio, you don’t set it aside and forget it. Your portfolio should be reviewed regularly and changes made to ensure you are getting the most of your investments.
Steps to Diversify Your Portfolio
To diversify your portfolio, there are a few things you may want to consider doing. For instance, if you are investing in stocks, keep with the egg principle and don’t invest all in one stock, but rather buy stocks in multiple different companies. And you may want to spread them out across different industries. Even if you are partial to a certain industry, spread out your stock purchases anyways. Otherwise, your portfolio will lack diversification.
Complete the diversification of your portfolio by investing in some real estate. There are many ways you can do things and history shows it often brings a solid boost to your ROI. There are obviously many different types of real estate investments you can make, but rental properties can provide you with passive income for an extended period.
Not all investors see their portfolios the same way so it is a good idea to educate yourself on the different strategies and find what works well for you.
Benefits of Including Rental Property
If you have found success with stocks, bonds, or other types of real estate, you may be wondering just why it would be worth your while to include rental property in your portfolio. It’s understandable. To consider rental property is a little more involved than other investments. For instance, while you need to monitor your stocks, no one from the NYSE is going to call you at 2:00 AM about a backed-up toilet.
Below you will find some (not all) of the benefits – and value – of investing in rental properties.
1. Steady, Passive Income
When you invest in rental properties, your tenants pay you every month, providing you with a steady stream of passive income. Finding the right investment can prove to be really valuable.
2. Tax Relief
Many investors love the fact that there are so many tax exemptions when it comes to rental property, including maintenance repairs, insurance, depreciation, legal fees, travel expenses, property taxes, and more. Not to mention that it also entitles the investor to lower tax rates.
3. Great Return on Investment
As rental property increases in value over time, as often happens, you can make a good profit when you decide to sell. This isn’t always the case, but it is more of a rule rather than an exception.
4. Increase Cash Flow
When you receive rental income every month, you are increasing your cash flow. And that’s always a great benefit.
5. Flexibility to Sell When You’re Ready
When you buy a piece of real estate to flip, you have to move quickly, but when you invest in rental property, you can sell it whenever you want to – or when the market is right – but in the meantime, you can earn money through renting it. In other words, it is never just sitting there tying up your profits.
It’s Possible with the Right Property Manager
Those looking to diversify their portfolio by investing in a rental property may be a bit hesitant in taking on the role of landlord. And, it makes sense since landlords have to take a very active role in caring for the property – from finding tenants, drawing up lease agreements, making repairs, routine maintenance, and more. The idea can be overwhelming and can sway some investors.
Thankfully, there is another option: invest in a rental property and hire a property manager.
Finding the right property manager can remove any and every landlord-type task off your plate. You can continue focusing on investing since that is your strong point and let the property manager take care of the rest. They are skilled in marketing properties, screening for the highest quality tenants, and maintaining properties as if they were their own.
At Real Property Management Evolve, we work with investors who have diversified their portfolios to include rental properties and need someone to manage them. It’s what we do. And, as any good investor would want, we even provide detailed monthly statements so that you always know what is going on with your property.
So, handle your investment property using a strategy that works for you. And, if that means investing in rental property in the Phoenix area, then Real Property Management Evolve is here for you.