Why Rental Properties Help You Retire Earlier than the Stock Market

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Outliving your retirement is one of the biggest fears of Americans. In fact 59 percent of people in a recent survey said they are afraid they will outlive their retirement. I think people should worry about outliving their retirement if they use traditional methods to retire like the stock market. There are many ways to retire including ways that avoid worrying about running out of money. Rental properties are already providing me with a great income that will last my entire life and I will never have to worry about outliving my savings with them. They provide income, which comes in every month as long as I own the property.  If you own enough rental properties to provide the income you need in retirement, you never have to worry about eating away your savings.

Rental properties can take a lot of cash to buy initially, but in the long run you can provide much more retirement income with rental properties than the stock market. The best part about rental properties is you can retire earlier with less of an overall investment than the stock market.

Why do Americans worry so much about outliving their retirement?

With traditional retirement methods you save as much money as possible over as many years as possible. The longer you save, the faster your money will grow thanks to compounding interest. Compounding interest is fantastic for growing your money, but compounding interest is not the reason traditional retirement methods are scary. The scary part is after you retire and stop saving, you start spending your savings.

If you use a retirement calculator that can be found on almost any retirement website, you have to enter how long you will live and at what age you want to retire. The retirement calculator assumes you will use the income your savings produces plus the principal balance until you run out of money. If you plan to live to 80, but end up living to be 85 you may end up having to go back to work or cut way back on your spending in your later years.

Why you avoid running out of money in retirement with rental properties

Rental properties provide cash flow every month if you make a good rental property investment. I own 11 rental properties and they provide $6,000 a month in cash flow, which will increase over time. That cash flow keeps coming in as long as I own the rentals and I never have to worry about running out of money. The cash flow will increase over time because rents will increase with inflation and mortgages will eventually be paid off. I had to invest over $300,000 to buy my 11 rental properties, but that $300,000 will produce $70,000 a year or more for as long as I own those properties. There are many more advantages to rental properties that are discussed in this article like appreciation, tax advantages and more.

What return will you get from the stock market?

Retirement calculators need an average yearly return entered into them to calculate how much someone needs to retire. Retirement calculators will suggest a yearly return from 7 to 10 percent in my experience. The historic average of the stock market is over 7 percent, but many retirement calculators still suggest a higher return. Remember a historical average of 7 percent does not guarantee a future gain of 7 percent. We saw negative returns in the 2000’s and huge returns more recently. The longer you invest the more likely you will see historical averages. The shorter time period you invest in the more likely you will see big gains or losses. If you want to retire early in life hopefully you see big gains and not the losses.

The uncertainty in the stock market makes it very scary to invest in. A difference of a few percentage points in the returns in the stock market can mean running out of money five or ten years sooner than you planned.

What returns will you see from rental properties?

I see 20 percent cash on cash returns on my rental properties, but that is not possible for everyone. Every market is different, people have varying amounts of time to dedicate to investing and I am a real estate agent which is a huge advantage. The average investor may not see 20 percent returns when they buy rental properties, but they can see ten percent returns or higher if they take the time to learn to invest. The returns on rentals are based on the supply and demand of rental properties in local housing markets. In my experience the rental rates in most areas is much more stable than the stock market has been. Even during the last housing crisis when we saw housing prices plummet, rents did not drop nearly as much.

Those returns are based solely on the cash flow from rental properties; not any appreciation, tax advantages or equity pay down. The returns end up being much higher when you consider the tax savings and equity pay down. Appreciation is a nice bonus as well, but you won’t actually see that money unless you refinance or sell the rental.

Why are stock market returns not as high as they appear?

Seven percent is a good return to many people, but to me I want a better return on my money. I like the 20 percent cash on cash returns I see from my rentals. The seven percent historic return is not really the true return of stocks because it does not consider inflation. If you consider inflation, the return changes to a 4.4 percent historic return. 4.4 percent is not the return I am looking for with my money.

Why rental properties guard against inflation

Rental properties naturally hedge against inflation. When inflation is increasing housing prices, rental rates naturally increase as well. My rents will keep increasing over time as inflation increases, and I will not have to deduct the historic inflation rate from my returns. In fact as far as housing prices are concerned, inflation actually increases my returns.  I get loans on my rentals, which allow me to put 20 percent down. If I buy a $100,000 rental property, I will put $20,000 down and most likely make some repairs. I will assume I have $30,000 in cash into the property, and if the house increases in value $35,000 over ten years (this would be the increase with 3% inflation) my increase in equity would be higher than the inflation rate. My increase in equity would actually be 8 percent each year, because I did not buy the house with 100 percent down.

When rents increase in value, the same thing happens. My returns are not based on the full amount of rent I receive each month. For example:

  • Rent is $1,000 a month
  • Cash flow or money I make each month might be $300 a month
  • If rents increase 10 percent over 3 years, my rent would increase to $1,100 a month
  • My cash flow would increase by more than 10 percent, because my payment stayed the same. Taxes, insurances, property management (other expenses on rentals) may go up as well with inflation, but my mortgage payment is the biggest expense.
  • Cash flow might be $350 a month or more with that increase in rents. That means my cash flow increased by 16 percent, which is 6 percent higher than inflation.

While inflation decreases the returns on money invested in the stock market, it increases the return on money invested in rentals.

Why you can retire earlier with rental properties than the stock market?

The hard part about retiring early with the stock market is you have to save enough money to last your entire retirement life. If you want to retire at 65 and assume you will live to 85, you will need enough retirement to cover 20 years. If you want to retire early and retire at 45 you will have to have enough retirement to last you 40 years. Not only will you have to save much more money to last the extra 20 years of retirement, but you will have much less time to invest and save, which means your money will not grow as fast. Compounding interest has the biggest effect on your money the longer you invest it.

If you invest $100,000 and earn a 7 percent return on your investment it will grow to just under $200,000 in ten years. If you invest it for 20 years it will grow to $386,000 and if you invest it for 30 years it grows to $761,000. The huge benefit to compound interest is in the later years of investing. If you can invest that $100,000 for 40 years it will grow to almost 1.5 million dollars.

When you retire young, you don’t have time to see your money grow exponentially and you will have to invest a huge amount of money for it to last 40 years. For me to produce $6,000 a month from the stock market for the next 50 years I would need 2.5 million dollars saved already! The funny thing is most retirement calculators do not even let you enter a retirement age below 50. With rental properties, I am already producing more than $6,000 a month with 9 or 10 times less money invested.

Here is a great article that explains why rental properties are a better investment than stocks.


If you want to retire early without worrying about running out of money in retirement, the stock market is a risky move. Rental properties on the other hand produce much more income, do not eat into the principal balance and you invest much less money into returns that will last a lifetime.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.

This post may contain affiliate links and I may be compensated if you make a purchase after clicking on my links.


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