Rental Property vs. Cashing Out: Which Investment Builds More Wealth?

Owning rental properties has long been a go-to wealth-building strategy. But is it always the best option? Many investors reach a point where they ask themselves :

• Should I keep my rental property for long-term appreciation and rental income?

• Or should I sell it and reinvest in a high-performing, passive investment fund?

For busy professionals who already juggle demanding careers and family commitments, the appeal of passive investing is undeniable. But does it make financial sense?

Let’s compare three potential paths:

1. Keeping the rental property and collecting rent while the property appreciates.

2. Selling and reinvesting in a fund that generates a steady 10% annual return.

3. Selling and reinvesting in a high-growth fund targeting 20% annual returns.

For simplicity, we’ll assume:

• The property is worth $500,000 today.

• It generates $2,500/month in net rental income after expenses.

• Property values appreciate at 3% per year on average.

• Selling the property means paying $150,000 in taxes, leaving $350,000 in post-tax proceeds to reinvest.

Scenario 1: Keeping the Rental Property

If you hold onto your rental property, you benefit in two ways:

1. Ongoing Rental Income: You’re collecting $2,500 per month, or $30,000 per year. Over a decade, this amounts to $300,000 in total rental income.

2. Property Appreciation: If the property value increases at an average rate of 3% per year, in 10 years, it could be worth nearly $672,000—a gain of $172,000.

Adding rental income and appreciation together, the total value of your investment after 10 years is approximately $972,000.

However, this return doesn’t account for the time commitment, stress, and potential unexpected costs that come with managing rental properties. Maintenance expenses, vacancies, and market fluctuations can impact profitability. If you’re managing the property yourself, the time involved is another hidden “cost” that must be considered.

Scenario 2: Selling and Investing in a 10% Return Fund

If you choose to sell, you’ll walk away with $350,000 after paying taxes. Reinvesting this into a stable, diversified fund targeting a 10% annual return could provide a more hands-off approach to wealth-building.

Here’s how this plays out:

• Consistent Growth: A well-managed investment fund compounds over time, meaning the money you earn is reinvested, accelerating your returns.

• Passive Income Potential: Some funds distribute earnings quarterly, providing an income stream without the responsibility of managing tenants or repairs.

At a 10% annual return, your initial $350,000 investment could more than double in value over 10 years, reaching approximately $907,000.

The returns in this scenario are similar to owning rental real estate, but without the headaches of property management. You can also diversify across multiple assets, reducing the risk associated with a single property investment.

Scenario 3: Selling and Investing in a 20% Return Fund

For those looking for high-growth opportunities, investing in a 20% return fund can dramatically change the outcome. While higher returns often come with higher risks, certain private real estate funds and alternative investments have historically delivered these types of results.

Here’s what happens:

• Accelerated Wealth Building: At 20% annual growth, an investment can multiply several times over in a relatively short period.

• Compounding Effect: Instead of rental income trickling in, returns are reinvested, generating even higher returns over time.

• Truly Passive Investing: Unlike real estate, where you're responsible for upkeep, tenant management, and market fluctuations, a well-structured investment fund allows you to grow your wealth without active involvement.

In this case, your $350,000 investment could grow to over $2.1 million in 10 years. That’s more than double what you’d earn from holding onto the rental property.

Which Path is Best for You?

Let’s summarize the potential 10-year returns:

Investment Strategy 10-Year Value
Keep the Rental Property ~$972,000
Invest in a 10% Return Fund ~$907,000
Invest in a 20% Return Fund ~$2,170,000

The Takeaways:

• Keeping your rental property is a solid option, but it comes with ongoing work, unpredictable costs, and market risk.

• A 10% return fund provides comparable returns to rental real estate—without the landlord responsibilities.

• A 20% return fund significantly outperforms both options, making it the best choice if you have access to high-quality investments.

The Bigger Question: Do You Want to Be a Landlord?

For many high-income professionals, time is their most valuable asset. Owning rental properties can be a full-time job. Unexpected maintenance issues, tenant turnover, and property management headaches often become more of a burden than a benefit.

If your goal is to maximize returns while maintaining a hands-off investment approach, reallocating capital into a diversified real estate investment fund could be the best way forward.

What’s Next?

At AMS Capital, we specialize in passive real estate investment funds that provide strong, stable returns—without the day-to-day stress of managing properties.

If you’re ready to explore high-performing, professionally managed investment opportunities, let’s have a conversation.

📅 Schedule a call today to see if passive investing is right for you.

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