When I moved into my first apartment last summer, I was sure that I would not renew my lease the following year and would instead be on the hunt for a house that I could rent out when I left for business school.
Now, almost a year later, I have no intention of buying a house. It’s too much of a hassle for a 23-year old. Not only would I be required to maintain the property, but I’d be stuck with the property when i eventually moved. Also, I wouldn’t be getting much bang for my buck despite the extra annoyance of maintaining a property. According to Mr. Money Mustache:
I only clear about 5% of the value of the house in rent every year.
5%? I do much better than that by simply owning Index Funds.
If you want to invest in real estate, but don’t want to deal with the mess of being a landlord, a REIT might be more your speed. REITs are diversified (limiting your exposure to local market declines) funds that invest in various real estate properties. Certain REITs even act like index funds, tracking various real estate indices. For example, VGSIX tracks the MSCI US REIT Index and returned 12.33% annualized over the past ten year despite the bursting of the housing bubble. More info: http://quotes.morningstar.com/fund/f?t=VGSIX®ion=USA&culture=en-us