Near and Dear - Managing Wealth through Rental Property Ownership

I was born (…well maybe that is not correct… I cannot be sure… but I have been conditioned) with the ability to think long-term and from playing years of Monopoly as a grade-schooler. It is a very long game. A game that probably would not keep the attention of most kids these days. But in the late 80s, one summer with boyhood friends Josh and John, we played nearly every afternoon after we were exhausted from the lake or pool. The game absolutely taught me to think long term about real estate, to love other people’s money (O.P.M.) doing the work for me and to be very careful about getting too indebted, too illiquid, and too cash poor, BUT and this is a big one…the person with the most cash, never (or rarely won). There was a balance between too much default risk and too much liquidity (cash). You had to find it. And you also had chance thrown in – thanks to the dice, which is very real world. Strategy and Luck, Chance or Risk.

Monopoly led to Real Estate infomercials late night in college and the purchase of Carlton Sheets CD’s for purchasing Real Estate for no money down. Tried a bit to buy property in the mid-90s as a freshman in college but gave up when I was told we needed our parents to sign loan papers. Came back to it a few years later with a gift from my wife, Rich Dad Poor Dad by Robert Kiyosaki and, as they say the rest is History. She bought me the book but, when I said we were going to buy a duplex and she was going to be a landlord, she said I don’t want to do that. I won and now she loves it. 21 years later and we have a number of properties – our side hustle to our main income sources: nursing for my wife, bless her (very stable part of our income, there is a shortage of nurses) and my private business, what readers know as Members’ Wealth.

I personally love owning and managing real estate. It is not for everyone, at least not the managing part, but investors should at least be knowledgeable and make the conscientious decision to be investors in Real Estate or not. Since owning rental properties can often be a lucrative strategy for asset maximization, I wanted to share with everyone how we as financial advisors and planners think about it. Here are some of the reasons we like investment real estate (mind you, this is not your primary home, but properties that can generate income):

1. Passive (or active) Income: Rental properties generate regular rental income, providing a consistent (sometimes) stream of cash flow. This income can help cover mortgage payments, maintenance costs, and provide you with extra money for savings or investments. Passive, you have a property manager, Active- you manage the properties.
2. Appreciation: Over time, real estate properties tend to appreciate in value. This means that the property you purchase today could be worth more in the future, allowing you to potentially sell it at a higher price or use it as collateral for other investments. No Guarantees, but since the Federal Reserve targets inflation north of Zero, hopefully at the very least the value of the Real Estate keeps up with inflation.
3. Leverage: Real estate can be purchased using borrowed money- otherwise known as O.P.M. (Other People’s Money), which allows you to leverage your investment. This means you can control a more valuable asset with a relatively smaller upfront investment. If the property appreciates, your returns are amplified. (Or if it depreciates, your losses are magnified).
4. Tax Benefits: Rental property ownership offers various tax advantages, including deductions for mortgage interest, property taxes, insurance, and certain maintenance expenses. Depreciation can also provide tax benefits by reducing your taxable rental income.
5. Hedge Against Inflation: Rental income and property values tend to rise with inflation, providing a hedge against the eroding purchasing power of money. This can help safeguard your assets over the long term.
6. Diversification: Real estate is a distinct asset class, and owning rental properties can diversify your investment portfolio. This diversification can help reduce risk, as real estate often behaves differently from other types of investments like stocks and bonds.
7. Control Over Investment: As a rental property owner, you have control over how you manage the property. You can make strategic decisions to increase its value, such as renovations or improvements, which can lead to higher rental income and property appreciation.
8. Retirement Income: Owning rental properties can serve as a reliable source of retirement income. Once you've paid off the mortgage, the rental income becomes mostly profit, providing you with a steady cash flow during your retirement years.
9. Equity Building: As you make mortgage payments, you're building equity in the property. This equity can be tapped into later for other investments or financial needs.
10. Flexible Exit Strategy: Depending on market conditions, you have flexibility in deciding whether to sell, refinance, or continue renting out the property. This adaptability allows you to respond to changes in your financial goals and the real estate market. And do not forget 1031 exchanges - – a tax-free way to switch from one property to another.
11. Control Over Appreciation: Unlike stocks or other investments where you have no control over the company's performance, with rental properties, you can actively improve the property's value through renovations, increasing rents, and overall management. Value Add!! A favorite of ours.
12. Pride of Ownership: Many people find satisfaction in owning physical assets like real estate. The feeling of ownership and the ability to shape the property's future can be rewarding. We also like to get to know our tenants, provide them a great place to live, quickly respond to their requests and even take them holiday gifts, etc.

It's important to note that while rental property ownership has its benefits, it also comes with responsibilities, challenges, and risks. No one said it was all milk and honey. These include property management, tenant issues, market fluctuations, maintenance costs, and potential vacancies. Conduct thorough research and consider consulting with financial advisors before making investment decisions.

While we encourage folks to own property directly, to self-manage or at least manage their property managers, there are alternative ways to invest with Real Estate as well. Just ask us!

Full disclosure - I still love Monopoly, reread Rich Dad Poor Dad once per year, now if I could only find those Carlton Sheets CDs…that is so 90s. Check out the Bigger Pockets podcast if you want to learn more about Real Estate Investing for beginner and experts, entertaining and educational for all levels.

There are many types of investments that can help you reach your goals, Real Estate being one of them. Bringing them all together in one cohesive plan for success is what we do to help our investors at Members’ Wealth.

About the Author – Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

You can learn more about how we serve our clients by tapping the button below.

Alternative investments, including hedge funds, involve risks that may not be suitable for all investors. These risks include (but are not limited to), the possibility that the investment may not be liquid, speculative investment practices may increase the risk of investment loss and higher fees may offset any potential gains. Investors should consider the tax consequences, costs, and fees associated with these products before investing.

CS Planning Corp., doing business as, Members’ Wealth LLC provides investment advisory, wealth management, and other services to individuals, families, and institutional clients. Advisory services are offered through CS Planning Corp., an SEC-registered investment advisor. Members’ Wealth does not provide legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences.

Copyright © 2023 Members' Wealth LLC

Advisory services are offered through CS Planning Corp., an SEC-registered investment advisor.