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| Pathways Advisory Group, Inc. Jeff Karst, CFP® |
I have two rental properties as investments (I didn’t set out to own rental properties but that’s how they evolved). One is pretty easy. The renter pays the rent on time every month and I almost never hear from him. Once, the main water line was leaking so he wrote me a note. The other rental property is a different story.
With my second rental property, it seems like there is always something going wrong. It could be late rent, a broken kitchen faucet, or a water leak that destroys the flooring. (These things all happened recently which is why I wrote this blog.) Anytime I see the renter’s name pop up on my phone, my stress level instantly doubles.
I could have a management company to help take care of these things, but that cuts into cash flow and I’m not sure how much stress it relieves when they would call for permission to replace the faucet or flooring.
My other investment is my well-diversified portfolio of mutual funds. These mutual funds never call me. They don’t cause me any stress. True, there is a lot of volatility. However, I don’t really see a lot of volatility. I look at my portfolio once a month (but that’s only so I know where to invest my retirement plan contribution). My mutual funds are (relatively) stress-free, whereas my other investments only add to my stress. If you’ve ever owned rental property, you probably know what I’m talking about. If you don’t, consider yourself lucky.
If you are considering a rental property as an alternative to investing in a well-diversified portfolio of mutual funds, you should first ask yourself a few questions:
- Who will manage the property? If it’s a management company, what’s the negative impact on cash flow?
- Will this endeavor really cause me less stress than watching my portfolio daily (if you do, indeed, watch it daily)?
- How will I handle the stress of a deadbeat tenant who trashes the place?
- Do I really expect a greater return on investment than my portfolio?
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