Renting as Your Source of Income

Renting as your source of income

See this beautiful income property at

Have extra money left over? Some of us do, but unfortunately we sometimes just don’t know where to invest.

Some of us follow the stock market, maybe even the bond market, but it’s tough! We are going against professionals, who research and invest every second of the day! But have you ever considered renting as your source of income?

Why renting as a source of income is a smart move

Rental houses can earn you anywhere from 5% to 20% per year. Here’s how! Let’s take a home in Toronto, as an example.

• Location: Toronto, Canada
• Cost: $200,000
• Rental Income (per month): $1,500
• Year: 2013

We start out by leasing this home out to Person A. Person A pays you the required rental income of $1,500 per month; in one year this adds up to: $1,500 * 12 = $18,000.

$18,000 – Rental Income
$200,000 – Total Investment (cost of home)

Now that is a pretty big amount. Let’s calculate the amount of money you earned in terms of a percentage of the value of your whole investment: $18,000 / $200,000 = 0.09. Yes that’s right, you receive 9% on your investment! I can imagine you giddy with excitement at the moment. But we’re not done; what you looked at is what an average year looks like.

Let’s look at what your investment will look like in a good economy, where your home appreciates over time.

• Location: Toronto, Canada
• Cost: $200,000
• Rental Income (per month): $1,500
• Year: 2014

In this example it is 2014, and there have been a lot of changes since 2013. The economy has appreciated and the housing prices have gone up (tends to happen often). Your house value has appreciated from the $200,000 that you paid for it, up to $210,000.

Let’s re-calculate the amount of income you received from your investment for only the year 2014.

$18,000 – Rental Income
$10,000 – Home Value Appreciation
$200,000 – Total Investment (cost of home)
($18,000 + $10,000) / ($200,000) = 0.14
0.14 * 100 = 14%

Yup that isn’t a typo, you are making 14% on your investments in a year where your house appreciates. Now I’m sure you want to take advantage of these investments and get the most out of them. Well now would be a good time consider renting as your source of income!

Economy calls for renting

The economy right now is a game, and you have the cheat codes.

Canadian banks are currently keeping the interest rates at near 3% or lower, the reason is not relevant for our sake. It is like getting a cheat code from the game developers telling you exactly how to beat the game!

Now is the time to buy your house, you can get loans from the bank for a fraction of the price with interest rates being low, and start collecting rental income! If you’re smart about it, it’s a win-win.

Stock market investing vs. renting

A lot of investors believe the market is a better bet in which to invest as compared to renting as your source of income. I’m going to give you the facts and leave nothing out. As a matter of fact, there are both advantages and disadvantages to both types of investing.

The stock market undoubtedly has a high ROI (Return On Investment) rate on average, per year. If you invest in the market, you are able to receive a 12% gain on your investment and this is absolutely astounding.

Now let’s talk about renting as your source of income. Renting will earn you approximately 9% on your investment (from example above). In terms of ROI, the stock market does beat out the renting as a source of income.

But let’s look at the “market crash” in the latter half of 2008. The markets crashed to rock bottom! Some of my colleagues lost 10s of thousands of dollars in the crash. The market, it would seem, is a very risky investment.

Let’s look at the worst case scenario for your house: One of my tenants stayed at my rental home for a month, after the month he decided not to pay me my rent and disappeared! He also kindly left me with a hole in the wall to fix. I used his deposit and fixed up whatever damages, but had to pull an extra $1,000 from my pocket.

Now I would much rather lose $1,000, than lose $10,000 any day from my investments.

Undoubtedly, the stock market does look like a pretty attractive investment, but you have to look at how much risk you are willing to take.

If you plan on buying or selling a home, visit today.


Author bio:

Mark Goldmanning writes about finance. Check out his blog Finance Outpost, which features new articles every week.

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