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Building Wealth with Rental Income – Stocks vs Real Estate

Given today’s unstable economy, savvy investors increasingly look beyond the traditional avenues of stocks and bonds. They see the light dimming on Wall Street’s allure, with its promise of high returns repeatedly canceled out by market volatility, and so they turn to building wealth with rental income as a more stable investment opportunity.

Ditching the Stock Market to Generate Wealth with Rental Income

Unlike the highs and lows of the stock market, rental real estate offers a steady, predictable stream of income, making it one of the best avenues for wealth-building over the long term. With that in mind, in this article, we’ll explore several reasons why rental real estate is a stronger candidate than Wall Street-based investments for building and securing wealth.

1. Invest Without the Draining Fees of Stock-Based Retirement Vehicles

The traditional approach to investing has been handed down through generations – go to college, secure a job, enroll in an employer’s retirement plan, and keep funding the account until retirement age is reached. What wasn’t handed down is information on account fees and just how much is being siphoned out of the investor’s retirement fund each year. People blindly invest in these accounts without knowing the amount of money being taken out in fees – some may not even realize any fees are taken out at all!

The following was borrowed from our post on Why the 401(k) is a Bad Investment Vehicle; it’s worth including here to give you the big picture:

In an example given by the U.S. Department of Labor itself, if an employee has 35 years left until retirement and currently holds a 401(k) balance of $25,000, assuming a 7 percent annual return and a 0.5 percent reduction in fees and expenses, the employee would retire with $227,000. Now, in another example, if the fees and expenses are instead 1.5 percent, the investor will only retire with $163,000.

As you can see, even a small jump in the percentage rate would mean losing thousands of dollars. Do you know what the fee percentage rate is on your retirement account? Also, do you realize that retiring on $227,000 or $163,000 would not be enough to get you through your golden years?

2. Avoid the High-Risk Investment Battleground that Wall Street Provides

Ok, so we covered how retirement account fees can affect your bottom line, but there is much more to the story. These accounts, including 401(k), traditional IRA, and Roth IRA, are directly influenced by the stock market’s performance. Because of this, it’s not surprising that individuals have had to postpone their retirement because their funds were wiped out when Wall Street was hit hard.


The truth is that stock-based retirement accounts are exposed to numerous external factors capable of causing a market downturn. This could include war, political upset, pandemics, interest rate changes, inflation, and geopolitical turmoil, among other things. In fact, Wall Street went into a frenzy recently, and stocks crashed when the new CPI inflation report came in hotter than expected. You can read more about this in our latest post – CPI Numbers Released – Housing Market Still Expected to Surge.

When events or situations like this occur, there’s a risk of having your life’s savings dramatically plummet overnight. With the recent pandemic, for instance, many 4o1(k) retirement funds dropped considerably. Imagine the shock and panic of individuals planning to retire that year, potentially forced to prolong their working lives due to depleted funds.

3. Real Estate has Inflation Hedging Capabilities that Can Generate More Income

Real estate investments stand out as an excellent hedge against inflation. Historically, as inflation rises, so do property values and rents. This intrinsic relationship between real estate and inflation means that property owners can protect their purchasing power, raise their rental rates and see an increase in property value. Unlike many other investment vehicles that can be eroded by inflation, rental income can adjust upwards in inflationary times, ensuring the investment’s real value is preserved.

Be sure to dive into our article which will give you more insight into the topic – Why Rental Properties are a Safe Investment During Times of High Inflation.

4. Build Wealth with Steady Long-Term Appreciation & Equity

While it’s true the stock market can yield long-term wealth creation, it’s also true that it can all be taken away in the blink of an eye. In contrast, while the real estate market has its cycles, the long-term trend is generally upward, and no economic swing will take away the wealth generated from it.

Typically, real estate in growing markets has appreciated in value over time, which can become a reliable source of wealth creation for investors. So, by holding onto properties for the long term, investors can benefit from the appreciation of the property’s value, as well as the equity that goes along with it.

Equity is gained when real estate rises in value, when your property loan is paid down, or by improvements and developments in the surrounding area. Strategic investment in locations with growth potential can lead to substantial equity growth over time. Once equity is built up, the investor can tap into it as a down payment for additional rental properties.

Here are a few related articles that may be of interest:

5. Allows for Diversification to Protect Against the Risks of the Stock Market

Not diversifying and investing solely in the stock market carries huge risks, which are characterized by volatility and uncertainty. As mentioned, stocks can soar to staggering heights or plummet to distressing lows based on market sentiment, corporate performances, economic downturns, and a host of other factors.

Generating Wealth with Rental Income Instead of Stocks and Bonds

This unpredictability can lead to significant financial losses for investors who put all their eggs in one basket. Market crashes and corrections, while generally temporary, can have long-lasting effects on investment portfolios, which makes it essential to funnel some of your money, if not all, into other assets that are not connected to Wall Street.

Real estate presents a more stable investment avenue because it has traditionally stood its ground and kept steady during the ups and downs of the economy that has beat up retirement accounts over the years. With all that said, diversification is key and crucial for building wealth and reducing risk. If you’d like to read more about lowering your risk factor, view the following article we put together – Risk Mitigation Strategies for Real Estate Investors.

6. The Tax Benefits of Rental Real Estate are Incomparable

Rental real estate investments stand out significantly in terms of the tax advantages they offer compared to stock-based investments. One notable benefit is the ability to deduct various expenses related to the operation and management of rental properties.

This includes mortgage interest, property taxes, insurance, maintenance, and improvements, to name a few. Essentially, these deductions can significantly reduce taxable income and, in some cases, create a situation where the investor owes zero to the government.

Save Thousands in Taxes with a Cost Segregation Analysis

One powerful tax strategy that real estate investors can leverage to save thousands of dollars is utilizing a cost segregation analysis. This approach involves breaking down property costs into categories that can be depreciated over shorter periods, mainly 5, 7, or 15 years, rather than the standard 27.5 or 39 years.

This accelerated depreciation can significantly increase tax deductions in the early years of property ownership and, therefore, reduce taxable income and boost profits. This alone can expedite the wealth-building process by keeping more money in your pocket. See our article on cost segregation studies to learn more about this tax strategy.

Must-Have Resources for Enhancing Your Investment Journey

To help start your investment journey toward building wealth through real estate investments, you’ll want to dive into these essential resources by Morris Invest:

Build Wealth Through the Security of Rental Real Estate Investments

Having experienced the unpredictable nature of the stock market firsthand, you might be reconsidering where to place future funds. This is where the security of investing in tangible assets, like rental properties, comes into play.

Morris Invest specializes in new construction real estate investments and we’re here to guide you towards securing a reliable, income-generating property that can pave the way to substantial wealth. We can also transfer your 401(k) funds into a self-directed IRA, allowing you to invest in rental properties while still saving for retirement. See our article on this topic that breaks down the details – Why Switching from a Traditional to an SDIRA is a Smart Strategy.

One key takeaway I’d like to end with is the resilience of real estate investments – they maintain their value and continue to yield returns, regardless of market crashes or economic downturns. If the volatility of the stock market has you seeking alternatives, consider scheduling a complimentary 30-minute call with a Morris Invest team member – we’d love to explore the possibilities with you.

Dive into this video to hear more reasons why real estate is a better wealth-building strategy than investing in the stock market:

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