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Dividend Stocks vs. Rental Properties

Suppose you have a chunk of money you’d like to invest. You like the idea of equity[CW1] and that the value of your investment can grow over time. However, the idea of regular cash inflows has you hooked as well. Fortunately for you, there are two common investments that fit the bill perfectly: dividend stocks and rental properties. The only question is which one you should buy.

What Are They?

When a corporation earns a profit, it may decide to distribute it to its shareholders. This distribution is called a dividend. Dividends are usually small, but if you own a lot of shares, they add up quickly. Some companies distribute dividends regularly and reliably, while others may choose to only do so on occasion.

A rental property is simply an apartment or home that you own and rent out. As the owner, you choose the amount charged for rent, but you’re also on the hook for managing the building. If something goes wrong, like a broken light switch, you need to make sure it is repaired in a timely fashion.

Dividend Stocks: Ups and Downs

One feature of dividend stocks for many investors is the fact that they aren’t running the company. They see the dividend as “free money” because they can simply go about their business and receive a quarterly or annual payment. Another upshot is that publically traded dividend stocks are highly liquid assets. If you sense an impending change in the market and think it’s time to switch your money from one industry to another, you can do so almost at the drop of a hat.

However, some people like to see a more immediate connection between their actions and their cash flows. If you like to be hands-on in managing business, dividend stocks aren’t for you.

The Deal With Rent

A point of pride for many landlords is their personal investment. They can have a direct involvement with their property, which can influence the amount they earn in rent. Everything from selecting tenants to making renovations is under the purview of the owner. On top of the ability to set rental prices, there can be a point of pride for contributing to a community. 

The problem with rental properties, however, is they can require a lot of hands-on work, sometimes more than a landlord is interested in. There’s always the option to hire a management company, but then your returns will suffer. The other drawback of rental properties is that they’re highly illiquid assets. If you ever need to sell quickly, you’re going to do so at a serious discount.

How’s the ROI?

Of course, the deciding factor should be the return you’ll see on your investment. The number of different possibilities in each investment category is almost endless, so it’s futile to try and compare the two overall. To come to a conclusion about where to park your dough, spend time making a determination about the best investment you might choose in each category, given your circumstances and preferences. Once you’ve identified a potential property situation and a dividend stock or combination, then you can lay out the cash flows side by side and determine which is the best fit for you.

Happy investing!