What about Bonds

Quality bonds pay more annual income than stocks, but they still lag leveraged returns from income properties. However, let's say that to boost his income, Roy moves his portfolio from stocks that earn a dividend yield of 3.0 percent to 30-year bonds yielding an above market rate of 6.0 percent. Sounds good until you think longer term. Unfortunately, that $60,000 a year that Roy now receives from bond interest will remain at $60,000 year after year for the next 30 years. This annual income will never go up, and its purchasing power will continue to fall. If, during the next 20 years, the consumer price index (CPI) advances at an average annual rate of 3 percent, Roy's $60,000 income would equal purchasing power in today's dollars just $33,220; after 30 years, $24,719.

Compare this (curently above market) bond income with Sara's (below current market) rental income of $60,000. The bond interest looks about the same—for now. Over time, though, Sara's rental income will continue to increase. If Sara's properties average a 4 percent rent increase each year, here's how her $60,000 of net income would grow:4

5 Years 10 Years 20 Years 30 Years

You must recognize that rental properties are called income properties not only because they yield competitively favorable incomes today but also because that income will multiply itself over time. For future income that you can live well on for as long as you live, no investment comes close to matching the amount and certainty of income provided by rental properties. Inflation does not eat away your rental income because (unlike bond interest) rents tend to increase over time.

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