The allure – and risk – of rental property
Dear Dave,
I’m 38, and after looking and waiting for years, I think I’ve found a rental property scenario I like. My plan is to take $30,000 out of my retirement account and use it as a down payment on a property. My loan payment would be $1,400 a month, but I could easily rent the place for $1,800 a month. What are your thoughts?
Colin
Dear Colin,
No offense, but I can tell you’ve never been a landlord before. Bringing in nearly $1,800 a month, while paying out $1,400 may seem like a nice place to be. But you’ve left one very important factor out of your equation – risk. Rental properties just sit there empty sometimes. And this happens to all rental properties. You’ll also have repairs to contend with, renters who don’t pay and other expenses. See what I’m saying? You won’t be able to count on an easy $400 in your pocket every month.
Now, I love real estate. I understand the excitement and allure. But what you’re really saying is you want to cash out part of your retirement, get hit with a penalty and take on debt, all to buy an investment property. This is not a good plan.
My advice is to save up, and pay cash for one small, decent rental property to see if the landlord game is really for you.
Dave
Your money’s safe place
Dear Dave,
Where is the best place to keep my savings?
Angie
Dear Angie,
In my mind, when it comes to savings, the idea is to park the money in a safe place – like a money market account or basic savings account – and keep it separate from the rest of your cash, so you don’t accidentally spend it on the wrong thing. I’m not really concerned with making money in a savings scenario, so things like setting money aside for an emergency fund or vacations fall into this category.
Investing, on the other hand, is when you’re going to leave the money alone for a bare minimum of five to 10 years to grow it. Things like college planning and retirement fall into this category. In these instances, I recommend good, growth-stock mutual funds that have stable track records of at least 10 years.
I hope this helps, Angie!
Dave