Historical Returns For Rental Property Investments: How This Asset Class Compares

One of the most reliable and sought after ways to build wealth and a passive income stream is investing in residential real estate. Despite housing being the single largest asset class in the world, there is surprisingly little information available publicly on the type of returns and profits investors can expect from investing in this asset class. Specifically, investing in single family rental homes over the past 20 years would have resulted in an 11.7% annual return on investment. (Source: Arrived Homes)

Furthermore, the annualized return for the S&P 500 was 9.43% over the last 20 years, meaning the rental property asset class outperformed the S&P 500.

What makes single family rental homes profitable? 

Returns on single family rental homes come from consistent growth in property values over time and the strong renter economy (36% of U.S. households as of 2019) providing dependable rental income to its owners.

Property Value Growth: ​​As property values appreciate over time, investors grow their equity value in that property. These returns are magnified by purchasing a property with the help of low-cost debt in the form of a mortgage loan.

• Average 20-year historical return of 6.1% per year.
• Property value changes + Use of Mortgage = Changes to equity value.
• Using a mortgage as debt to purchase the property operates as a risk/reward multiplier. With a high amount of debt, changes in the property value can significantly increase or decrease your equity value.
• Arrived Home property listings typically use a 65% mortgage and 35% cash when purchasing a new property. It finds that this 65% debt is common with investors and believes that 65% helps deliver increased potential returns for customers while not adding too much additional risk.

Rental income: Tenants pay rent on a monthly basis, and after expenses, cash flow goes to the investors.

• Average 20-year historical return of 5.6% per year.
• Buying properties with reliable tenants means that rental income is a great way to make consistent passive income. For every $100 invested, Arrived investors would receive cash payments of $5.60 on a yearly basis from rental income.
• Rental income is also a great way to protect your capital against rising inflation, as rents typically rise with increased input costs.

Why use Arrived Homes? 

This historically attractive investment opportunity has largely been out of reach for the average investor because it typically carries a larger barrier-to-entry than asset classes like stocks and cryptocurrency. However, that has all changed with a new way to invest in real estate that makes it easier for the average investor to take advantage of this consistently profitable asset class: Arrived Homes.

With Arrived, anyone can buy shares in income-producing rental properties starting at just $100. Arrived takes care of all the real estate operations so that investors can sit back and collect net rental income and their share of the home's appreciation.

Just like you would seamlessly invest in stocks and cryptocurrencies on an online brokerage, Arrived gives the average investor the power to invest with ease in residential real estate.

View current offerings available on Arrived Homes.

Photo by Blake Wheeler on Unsplash