We recently sold our rental house and we’re in a position of trying to figure out what to do with that money. We’re not quite as Jean-Ralphio from Parks and Rec would say, ‘flusssh with cassshhh’ (in a sing-song voice) but we do need to figure out something to do with it. Having cash just sitting in the bank actually makes me nervous, especially as inflation numbers are in the 5% range. So, while my money is safe in a savings account, it’s actually losing 4.5% annually. While I’m earning 0.5% interest on it, inflation is at 5%, so that means my money is worth 5% less as prices go up. So, I’m a bit anxious to put that money to work. 

As Mrs Money and I have been thinking through options; stocks, index funds, crypto (not joking about that), real estate seems to be the winner for us. Here’s how and why we’re planning on getting back into real estate investing. 

It’s in our swim lane

One of the greatest tips I’ve been learning about being successful with any type of saving and investing is doing so within your comfort zone, with stuff you understand and feel good about. There are so many scams out there, so many complicated investments that sales people try to get you to buy into, so many hidden fees and high volatility (ie big ups or big downs) and a ton of risk with many investments today. Keeping it simple is one of the best ways I’ve learned to a) earn a decent return and b) minimize my risk. I buy very few individual stocks, don’t have complex insurance products and stick mostly to tax preferred (ie 401k, IRA, 529) plans. 

Mrs Money and I also feel that real estate is in our swim lane. We’ve bought/ sold houses a few times (one due to the unfortunate living situation with a neighbor and a dog), and have also been landlords for almost 3 years. It was a learning curve and some work but we found the experience manageable. 

We’ve got a good network of friends/family that have real estate experience and have developed relationships with good realtors and mortgage brokers. Although real estate is still a bit scary, we feel like we’ve got the skills, grit and support to make it work. 

We like it 

Being a landlord or real estate investor definitely takes time in addition to money. Or perhaps it’s a balancing act, you can spend less time but your money will increase. Although we don’t have a ton of time with regular full-time jobs, social lives and 2 kids, we did spend time as landlords. Whether it was coordinating repairs, doing lawn care, paying bills or keeping our accounting spreadsheet up to date, there was definitely work to be done. However, this was work we didn’t mind doing, and in some cases, enjoyed doing!

Mrs. Money and I enjoy the house hunting process, we enjoy looking at houses, and really enjoy the payoff that comes with collecting that rent check each month. Since we don’t mind it, and actually enjoy the work, it seems like a great place for us to invest our time and money. 

Tax benefits and decent returns

I had always heard that there were tax benefits that came with being a homeowner, and being a landlord. It was one of those things that you couldn’t really be sure until you actually tried it, but we felt comfortable enough with our numbers to give it a whirl. What we had heard proved true; and the interest deductions, the depreciation, the mileage and other expense write-offs that come with being in real estate proved pretty helpful when it came to our bottom line. 

There are two main ways to make money in real estate: either from price appreciation or from cash flow, meaning your rent check is greater than your mortgage + any other expenses. We were fortunate enough to have both, as we got a bit lucky with the neighborhood and area of town we were in and also because rents in the area were favorable, allowing us to put aside a little money each month after paying the mortgage. I would still like to credit a bit of good sense and intuition but also for sure some luck but overall it was a great financial experience for us!

Diversification 

Finally, I’m seeing more and more the importance of diversification when it comes to investments. Although everything seems expensive and overpriced right now, I still don’t believe that cash is that great of an investment. I’ve learned time and time again that attempting to ‘time the market’ doesn’t work. Furthermore, the old adage of having all your eggs in one basket I believe still holds true. It’s amazing how the stock market can rise and fall so quickly, and although it’s been a good investment over the past year or so (which who would have thought during early March 2020), I still think it’s wise to diversify. It seems like one errant tweet, once rumor of bad news, one sneeze by a Federal Reserve official and the stock market goes down. Although I’m in the stock market for the long term, I still think diversifying is smart! 

Summary

Real estate has been a great investment for Mrs. Money and I. We’ve learned a lot throughout our time as a landlord/homeowner, and enjoy the work that it requires. So, the plan is for us to buy a rental house and get back into the landlord game!