Does Rental Property Make Sense in My Retirement Plan? With John Stanfield

Cameron Valadez 00:28
Hello, everyone, and welcome to another episode of Retired-ish. I’m your host, Cameron Valadez, and today we're discussing the pros and cons of utilizing rental property as part of your retirement planning. And to help give us some insightful tips and other insights, I have a guest joining me today, real estate lending expert John Stanfield. John will be educating us today on rental properties in general, as well as some popular methods of financing real property should you choose to go that route in retirement. Hey, John! How you doing, my friend?

John Stanfield 01:03
How's it going, man? Happy to be here.

Cameron Valadez 01:05
Good. Yes, happy to have you. John Stanfield is a mortgage broker with a decade or so of experience. He has a very well-rounded understanding of the mortgage business after starting his career in underwriting, and funding on the operation side of the business and before moving to the consumer-facing side, actually originating loans for individuals in 2016. And I believe he's been there ever since. For his industry, John has consistently demonstrated exceptional skills and efficiencies when it comes to real estate that hasn't gone unnoticed as his determination has earned him accolades from United Wholesale mortgage as being among the top 1% of fastest purchase transaction closers in 2020, 2021, and 2022. Wow! His passion for helping clients achieve their home ownership dreams has driven his success thus far. And he continues to be a respected and sought-after professional in the mortgage industry. In other words, he lives and breathes this stuff and works pretty darn hard at what he does. How's that for an intro, buddy?

John Stanfield 02:13
That was amazing, I couldn't have said it better myself.

Cameron Valadez 02:16
Alright, so the reason that we want to shed light on this topic for listeners is that there is what seems like an endless amount of different opinions and stories out there regarding how to create a “passive retirement income stream” so that you don't have to worry about continuing to work a nine to five, when you reach your retirement years, or worse, get stuck in a position where you have to work for decades longer than you intended. Having another income stream or multiple you can rely on is the retirement dream, right?

Cameron Valadez 02:45
That seems to be what everyone wants to know the secret to. But when you go looking for the solution, most of the information you find regarding, again, “passive income” will almost inevitably point you towards investing in rental properties and only rental properties by using them to create that income stream. Unfortunately, a lot of sources will also who other investment alternatives such as, you know, investing in, say, the stock market or bonds or mutual funds, index funds, etc. And again, claim that physical rental property investing is the only way to go. While many of these opinions are just that, their opinions, and many of them flat-out not true, we will try to dispel some of those myths for you. So you can decide how you want to approach retirement, given your own situation. And while a portfolio of rental properties can absolutely generate wealth and income in retirement, there is no one size fits all solution as everyone will have different opportunities, situations, and skill sets.

Cameron Valadez 03:51
And at the end of the day, the decision of whether or not to incorporate real estate in your plan will ultimately come down to personal preferences, time, and experience. The answer is not one or the other. There is no perfect investment. So that's what we're going to hit on today. We will provide you with some of the pros and the cons of owning rental property and retirement. Together we will try to share some various tips and things to consider, and John will also be sharing with us some of the options that you have to actually acquire real properties using financing should you decide to use them as part of your retirement income and wealth accumulation strategy. And just to be clear, we're not talking about fixing and flipping here we're talking about physical rental real estate as part of your long-term strategy for retirement wealth and income.

So first things first, how do rental properties actually work? How can they potentially help grow your wealth and provide cash flow or retirement income? Well, there are essentially four cogs that can make up the wealth-building engine of nearly any physical real estate investment property. And they are one, cash flow. This is the most important thing to pay attention to when it comes to rental properties. This is essentially the income that the property can generate minus its expenses. The goal is to always have positive cash flow. And number two is appreciation, which is the potential increase in value over a long period of time, such as 20 years or so, similar to other capital assets, such as stocks and the like. The third way that you can generate a return, possibly from physical real estate, is loan amortization. So this refers to the fact that you build more equity as someone else pays down a mortgage you may have on the property. Obviously, this is only a component when you are using leverage or a loan, which we will discuss more of shortly. And number four is tax shelter and deferral. The potential appreciation of the property over a long period of time is generally not taxable until you sell it, meaning that the taxes are deferred. This is similar to the appreciation of most other types of assets again, like stocks or bonds, mutual funds, etc. In addition, there are many tax deductions you can take when real estate is used as a rental property that can offset some of the income that it generates. And I might add that this benefit is even better if you are able to be classified as a professional real estate investor per the IRS guidelines.

Now each rental property will provide these returns in different measures since each property will be unique in some way. Some may even lack one or more of those components that I just discussed. For example, when buying residential real estate in very expensive markets or areas, you may find it difficult to provide positive cash flow for many years if you're using a lot of financing or leverage. However, the property can still possibly provide you with one or all three of the other elements of return in the meantime. On the flip side, if you are great at finding and negotiating deals, you may end up with a property that can cash flow nicely right out of the gate. Alright, so now that we have a very basic understanding of the different ways you can potentially grow your wealth and generate positive cash flow using rentals, let's dive into some of the major pros and cons of using them specifically as your income plan throughout retirement. Alright, so let's start with the potential pros of owning rental properties. John, what do you have for me?

John Stanfield 07:40
Well, the big pro is the ability to raise rent prices, and raising those rent prices creates better opportunity for immediate cash flow. With rent, it can be increased every year, if you'd like. It's up to your discretion on how much or if you will be raising that. But that is the number one thing about pros of renting real estate.

Cameron Valadez 07:59
Yeah, I would probably agree that that's up there with one of the, you know, top two or three pros. In the real world, I believe there's a big caveat to this one. However, I have talked to many retirees over the years with rental properties that have not increased rents in years. And this is due to whatever excuse they want to tell themselves, you know, it's either, you know, my tenant is great, or they're so nice, sorry, I promised them XYZ rent years ago, or another common one is, I inherited this property from my parents. And they promised to only charge the tenant XYZ and the tenants been there for 15 years, so I don't want to disrupt that. Or the tenants are jumping around job to job, so you know, I feel bad, yadda, yadda, yadda, whatever it is, you know, for many different things, really, what I have to say is, hey, when it comes to supplementing your retirement income with rentals, it's either an investment or it's not, you know, we're not necessarily talking about raising rent on your adult child that you might be helping out and leasing the home to however, if you operate your properties, like a business from the get-go, this control of rent prices, that least you know with the market, and those expectations with your tenants can serve you really well in the long run. I would also add that if you haven't bought property yet, but plan to for your own retirement plan, remember that you are buying numbers, not emotions. Again, it's an investment. So hopefully, you've done your research with the numbers and know what you are doing, and are buying the potential rate of return and the property that you can get based on your own calculations and assumptions. Increasing rents should be part of those numbers. If you create this habit from the start, it will be easy to actually do sell when the time comes and not get caught up in emotions and various excuses.

John Stanfield 09:53
Yeah, and another thing that's a pro of owning rentals is the fact that there's a severe housing shortage in the country. Competitively priced, middle-class homes are not being built at the rate they should be to keep up with the amount of people that want to buy currently in this market. This creates a demand in the real estate market, the rental real estate market, and everyone who buys a house in this market won't be able to, and that's why so many people are forced to rent. Another thing about real estate as an investment is it's a mostly tax-friendly investment. Operating expenses, repairs, and depreciation those can all be used as write-offs, and that keeps the taxable income low on investment properties.

Cameron Valadez 10:35
Right. Depreciation is basically a deduction that has no effect on your cash flow. However, you must be actually renting the property out. So it needs to be a working investment property in order to potentially get that deduction. And if you make, say, improvements to your rental property, not repairs, and that's key to understand improvements, not repairs, that you get to capitalize those and add the cost of the improvements to the initial cost of the property itself. And this is called your cost basis in the property. This means you can have a smaller gain if you eventually sell the property at a gain, but you need to keep adequate records of your improvements over time. This is similar to when you reinvest dividends received from stocks as well. When reinvested, those dividends increase your cost basis in the stock. So there's a little similarity there. And keep in mind that physical real estate can have many tax advantages when operating it. But when you decide to sell rental properties, it's time to pay Uncle Sam via capital gains and possibly tax on what is called the recapture of the depreciation deductions you took over the years. So careful planning is definitely required.

John Stanfield 11:55
And you know, obviously, we aren't going to hit every single pro or every con about investing in rental real estate. But I do want to mention one last pro that's arguably the biggest pro to investing in rental real estate. However, this pro does add risk, and that's leverage. Talk to any successful rental property investor. They'll tell you this is one of real estate's unique benefits over other investments. When we say leverage, all I'm referring to is the fact that you get financing, such as a mortgage, to buy your property. The reason this can have an advantage is the fact that the property's potential appreciation over time doesn't care how much equity you have in the property. An example of this is if a property's worth $500,000 and appreciates by 4% over one year, but you only have $200,000 equity in the property, and the remaining $300,000 is financed, the property will still appreciate at 4% of the $500,000, which is $20,000. Your net worth essentially increases by $20,000. Therefore you've leveraged somebody else's money to grow your own personal wealth. Of course, leverage is a double-edged sword and can add significant risks if you run into financing trouble. The other caveat here is that if you have a high amount of leverage on any particular property, the payments for that property will likely cut into your cash flow, that may counteract your retirement income goal. So again, you have to really understand your numbers and risks to help you determine if you're someone who needs to take this risk or you're better off avoiding it, even if it can be an advantage for other investors. I'll talk about some common financing options shortly.

Cameron Valadez 13:27
Alright, so John, now that we shared some of the main pros of investing with rental properties, of course, we can't name all of them, there's gonna be lots of different things, and everything's gonna depend on each person's situation. But now that we've run through some of those, what are some of the potential cons to owning rental properties?

John Stanfield 13:47
Well, first and foremost, it's the capital required to get into the rental property space, as that can be much more expensive than other investments.

Cameron Valadez 13:55
Sure, sure. But this wouldn't always be the case. Right, John? I mean, your primary reasons for not buying rental properties shouldn't really be, in my opinion, for lack of funds or credit or skill, as we'll go over in a bit when it comes to options for getting capital. And over enough time, you could probably find ways through partnering with other people who know how to do the things that you've done.

John Stanfield 14:20
Yeah, for sure. With the lack of funds being an issue, if that's an issue for you, that shouldn't be the first thing that pops up on the issue chart for you if you're looking into buying rental real estate.

Cameron Valadez 14:32
Gotcha. Are there any other cons?

John Stanfield 14:34
Well, the second is its tenants. So they're a part of the first pro, which was cash flow. But they can also be the biggest downfall. Because no matter how well they're screened before getting into the property, they can be unpredictable, and they can end up damaging the property, pay rent late, or not even at all.

Cameron Valadez 14:53
Yeah, I mean, that's a really good point. And I think this is where many, many investors and retirees get confused. Everybody says, you know, “passive income this, passive income that,” when in reality, depending on your tenants and overall “health” of your property, your rental properties can become anything but passive. In fact, most of the time, I'd argue is the exact opposite. I ask people that enter retirement that already own rental real estate whether or not they want to have to manage this throughout retirement and have them imagine it when they're in their late 70s or 80s. Even if you have a property manager do it for you, as you know, John, you oftentimes need to manage your own property manager in order to make sure they are actually doing what they should be doing. So, in that case, it's never truly passive. Even if it has served you well throughout most of your life doesn't necessarily mean it's the right investment during your retirement years or that it's going to act the same way. Or you're gonna have the same great tenants all the way through your retirement years. Again, this will ultimately come down to lifestyle preferences and are the properties producing consistent positive cash flow. The mere fact that you have tenants who are unpredictable adds a bit of risk to using rentals as a reliable retirement income stream since they are human, and they aren’t you. If, for example, you enter retirement and you collect, say, Social Security and rental income that covers your basic necessities, but then the tenant picks up an abandoned dog on the street to take care of that then tears apart the yard and the house, and you don't find out until your long term tenant surprises you and doesn't renew their lease, then you're going to have some problems on your hands and possibly a major disruption to cash flow, property manager or not, you're going to have to get those repairs done quickly, which will require a lump sum in order to get a new tenant and cash flow up and running again, which could take months.

John Stanfield 16:53
Yeah, that's another con of owning rentals. You know, maintenance costs and repairs can be excessive. And even though their write-offs that doesn't mean that they're free, they still require real-life capital to complete in the moment. And that can burn through your emergency funds, payment reserves, anything that you had set aside for that property, it can go through those.

Cameron Valadez 17:14
Yeah, I'd say that's a big one as well. But if you know what you're doing, you could definitely be prepared for and manage to a degree usually, when it rains, it pours. Sometimes your tenant ignores the leak in the ceiling until it's too late, then one repair leads to discovering another, and you're suddenly caught shelling out another, you know, other personal savings to keep your property up. You have to expect these kinds of things to happen and prepare ahead of time when utilizing rental real estate. This is especially the case when you don't have a really high margin of positive cash flow. In that case, like John said, you'll have to start tapping into other financial resources simply to keep your investment property in working condition. On the flip side, this keeps some retirees busy during retirement, which is actually a very important thing. I talk to retirees all the time or pre-retirees who are making the decision to retire. And one of my first questions is, hey, what are you going to do during the retirement? So if this is something that you enjoy doing, and it's gonna keep you busy, then you know, go for it.

John Stanfield 18:22
And another big thing to note is just like every other investment, profit is not guaranteed when owning a rental property.

Cameron Valadez 18:28
That's right. Whether or not your rental properties are profitable or not, will rely heavily on your understanding of those four ways that they can potentially grow your wealth and the decisions you make with them over your lifetime. In other words, your rental real estate success won't simply rely on how the housing market is doing at any given time. Right? And I want to discuss one more thing in depth that you can't really classify as a pro or con, and that is real estate appreciation. Obviously, appreciation itself is definitely not a con. However, much of history shows us that, at least for residential real estate in the United States, home prices have appreciated nationally at an average annual rate between three and five percent, give or take, and depending on the index used for that calculation, home value appreciation in different metropolitan areas can appreciate at drastically different rates than the national average. Again, I want to caveat that is an average over a long period of time, and there are many factors that influence a property's value at any given time. And the only way to potentially realize that average appreciation is obviously to own the property through the good times and the bad. The reason why this can be thought of as a potential con is because three to five percent on average is not a very large amount, especially when inflation has averaged about two and a half to three percent over similar time periods. And this is why I think that if you invest in real estate to build wealth, you shouldn't invest in it simply because you think “it always has a chance to increase in value because someone will always need a home.” I can't tell you how many times I've heard that, you know, one, it doesn't always go up, it also goes down in terms of housing market. And two, there are alternatives, some of which can have similar returns with less risk, some with more risk. That being said, a big piece of your returns can be determined by a combination of possibly using leverage and your ability to create positive cash flow, which, when combined with the appreciation, can contribute handsomely to your wealth. That's the name of the game in the world of rental properties, but it takes work. And there are risks, just like anything else, that can provide a meaningful return, whatever that is. Okay, John. So let's clear the air on the myth that rental property investing is too difficult or only for rich people. Let's get into the different funding options someone may have when trying to get a loan or finance a rental property.

John Stanfield 21:20
Yeah, so first things first, we have your regular conventional loans. This is probably the loan that your mom, grandma, grandpa, sister, brother they all have one is the standard loan that we're all familiar with. For an investment purchase, 20% down is the standard, although some lenders do offer products that you can put 15% down, but usually, when your goal is cashflow off the bat, only putting 15% down will come with increased costs, higher rates, and that may wipe out any benefit from the cash flow side of not putting that extra 5% down. For this qualifying, it's just like a regular loan. You have to submit a full loan package of income, credit, assets, everything that you would submit for a loan on a house that you're purchasing for yourself. And usually, with conventional loans, you can have up to 10 finance properties while doing this conventional loan. If you have greater than 10, you can still get a conventional loan, it's just that stricter underwriting guidelines and reserves requirements and other things will apply when applying for the 11th plus finance property. And that only includes finance property. So say you have 20 properties, 10 with a loan, 10 without their own free and clear. That means that you only have those 10 properties that you want free and clear, don't count for this. So it's not like you have 30 financed properties because, in the past, you had financed them. Once the property is free and clear, it's no longer financed.

Cameron Valadez
Okay, yeah, good point.

John Stanfield
Another one that's not as popular because the pool of clients that it can help is smaller than usual, but it's still the best wealth-growing tool that there is on the loan side, VA loans. A lot of people think you can only buy primary residences with VA loans, and that is the case, but you can buy a two to four-unit property as long as you're living in one of the units. You can get into that two to four-unit property with zero down, and if you qualify for a conventional loan, if you have put time in the service, or you're in the reserves, and you have eligibility. That is the best option there is because you get in, and you have that barrier to entry that we mentioned earlier of capital that no longer exists.

Cameron Valadez 23:42
Nice. So is there like a minimum amount of time in the service or anything like that to qualify? Or is it just any amount of time?

John Stanfield 23:49
There is no minimum amount of time just to qualify as long as when you receive your DD-214, it says that you're eligible for VA benefits. A VA benefit is having this entitlement to although sometimes it may not be full 0% down depending on the amount of entitlement you have. But in most cases, it will be. The amount of cases where it's not a full 100% financing are very few and far between for people who served.

Cameron Valadez 24:17
Nice. Okay, and just to be clear, so with VA loans, are you only allowed to give out one rental property using a VA loan?

John Stanfield 24:25
So you can have multiple rental properties with a VA loan, as long as they are other types of loans. You can only have one current VA loan at a time. So say you sold your house. It had a VA loan when you bought it. You sold it. You can use your VA entitlement now because that loan has been paid off, so you can move that VA loan to a new property, your eligibility, not the entire loan.
Cameron Valadez 24:50
Yeah, so you can't necessarily go around and use this awesome benefit and say, okay, I'm gonna buy a whole bunch of, you know, rental properties and have multiple VA loans up there. Yeah, yeah, there. We're not giving you that big of a benefit.

John Stanfield 25:02
You can't build a VA loan rental empire, unfortunately.

Cameron Valadez 25:06
Right. Exactly. Makes sense. All right, what else you got?

John Stanfield 25:11
The next one is the most popular one among true investors. I say true investors for people who have above those 10-plus financed properties, and it's called a DSCR loan. DSCR is short for debt service coverage ratio because the formula they use to qualify for that mortgage, the formula is very easy. It's rent divided by projected loan payment. So say you have a $1,200 expected rent from the property. Your mortgage payment is $1,000. That's a debt service coverage ratio of 1.2. And that has positive cash flow, meaning the property can be financed. And the thing with DSCR loans is that it's not always required to have positive cash flow on the property. So you don't need to have that cash flow off the bat to qualify for these. But there will be increased reserve requirements and stricter underwriting guidelines, just so that the lender mitigates the risk a little bit. With these, it's standard to have at least 20%, down in anywhere from 6 to 18 months of monthly payment reserves. Reserves are one month of the mortgage payment. So say I have a $2,000 mortgage payment. Six months' reserves would be $12,000. So usually, that would be the requirement, 6 to 18 months, depending on your credit, how much you're putting down, and what that debt service coverage ratio ends up being. All that will be handled during underwriting, and the underwriting on this one is generally a little more lax because they don't care about your income. As far as you know, what you do for a living. It's only if the property is self-sufficient in that cash flow generation. And another reason why I say this is for the more seasoned investor is that this loan, unlike the others, you can close in an entity, whether it be an LLC corporation, you can close in that rather than closing in your name and then having escrow or title deed to your entity after closing. So it just makes it very smooth, just takes out any clouds on title, or any issues going down the road that's changing from a personal to an entity via grant deed can happen sometimes.

Cameron Valadez 27:23
That's a very important concept to bring up.

John Stanfield 27:25
Yes, and there's no limit, unlike the conventional loans and VA loans, how many DSCRs you could have at a time, which is, you know, another reason why it's the most popular one for true investors. And, again, I just got to hammer home real estate investors, every single one I've worked with in the past, they hate providing paperwork as far as, you know, documents they need to provide for qualifying. So with the DSCR loans, it's very easy. I don't have to see a single document or your tax returns, no W2. All I care about is what the appraiser says the property will rent for and what the rate ends up being so we can calculate that DSCR ratio. So it's a very clean loan. Very easy, very straightforward. What you see is what you get, and just like any other loan, any rate would be based on the amount down and your credit score.

Cameron Valadez 28:17
Gotcha. Okay, that's what I was gonna ask you. So your credit score is an important factor, and basically the property itself and pretty much nothing else, whereas your other loans or conventional loans, they are going to ask for those things, you know, debt to income ratios and all that sort of stuff. So, okay, understood. Okay, let's give everyone some final thoughts and just tips in case they decide to go the rental property route. John, what are some of the most important things or, again, tips that you want people to know who either own rental properties already and are going to keep them throughout retirement? Or maybe they're thinking about, you know, adding this to their current retirement planning?

John Stanfield 28:55
Well, yeah, first and foremost, I'd say consider putting any rental property owned in an LLC. This way, it puts a barrier between you and your investment. Of course, just like with anything else that comes with this territory, you'll want to consult your attorney about this. But in general, an LLC may help protect you and your personal assets from would-be litigation. And, like I mentioned before, with DSCR loans and with the other types of loans, you'll want to talk to your attorney, your lender, read your closing documents about putting the property in an LLC because if it's not done correctly, or if it is not allowed to be done at all, the risk you take is that the lender can call the note due immediately any outstanding principal would have to be paid back right away.

Cameron Valadez 29:40
Wow, yikes! Yeah, probably want to avoid that.

John Stanfield 29:44
Yeah. And for everyone out there who already has a property in an LLC, or if you have multiple LLCs, you should also make sure you have done some estate planning regarding those entities. You might consult your attorney about putting the LLCs in a trust this way should you die. The probate process is slow and expensive. It's a nightmare on the lending side with probate. Utilizing a trust can possibly help your surviving spouse, your heirs, anybody who has a vested interest to your property after you pass. They have a clear blueprint of who owns what, who can sell what, and this will eliminate any anxiety, any confusion, or anything on what they can and can't do while you're gone. It may also, you know, save a relationship after you're gone as well.

Cameron Valadez 30:32
Oh, yeah, I could definitely speak to that one. If you haven’t experienced this yourself, money, especially like a lot of money or a lot of wealth, can definitely drive family members in opposite directions and cause chaos and ruin relationships when things aren't lined out appropriately. So yeah, I think what John's saying is, you know, if you use something like, you know, maybe a living trust or a revocable trust, with some very specific and up-to-date language in there, you can control what happens basically from the grave and say, you know, who gets what, and again, if you say, what's going to happen, they can't change it after you're gone. So hopefully, that prevents them from fighting. If they want to be mad at somebody, well, they gotta be mad at you. And I would add here that you'll want to be careful of this concept. Because if you have a lot of personal assets, and you simply include your investment properties in your personal living trust, or you simply leave them in your name, or you know, joint with your spouse, you're essentially inserting more risks into your plans. The LLC, on the other hand, is an entity, and it's a different entity than you. It’s separate. And if treated and managed correctly, it can serve as an important barrier between you and a litigious tenant. Again, check with your attorney before doing anything here, and understand that there are additional costs for someone like an attorney to create an LLC for you. And there's the potential additional state taxes on LLCs for you to maintain it. And those do differ depending on the state in which you have that entity. And on that note, a quick tip I might add is to put even more barriers between you and your property. You can do this by having really well-drafted leasing agreements by an attorney, with all of your tenants having the proper amount of insurance on the properties, being a responsible landlord, of course, you'd be surprised. But you know, there's a lot of landlords out there that it a little bit lazy with things. And that just, again, that adds risk to your situation. And you should also highly consider an umbrella insurance policy, which is cheap relative to the coverage. It should be well under $1,000 a year for one to two million and additional liability coverage. All of these little details matter and can significantly reduce the risk to the wealth that you've accumulated over your lifetime. And understand that none of these things guarantee that someone can't touch your personal assets. However, you want to make it as difficult as possible for them to do so.

John Stanfield 33:27
Yeah, and another important thing that I like to recall is that even with the property management company handling rentals if that is the route you choose to go, rental real estate is a very hands-on investment. Things happen. Life happens in these properties. So you can't go into it expecting smooth sailing 100% of the time. There is risk. But the reward can be great if you've done your research on the property, you know your numbers, and it will be what sets you up for success as a landlord going forward.

Cameron Valadez 33:56
Yeah, you nailed it. I would encourage you to consider hiring a property management company unless you are literally a full-time rental property investor and a tough sob, especially if you're in your retirement years and wanting to be extremely intentional about spending more time with maybe family or enjoying the fruits of your labor or you know traveling at this point in your life. Expect this cost of doing business hiring a rental property management company to be around 10% or so of your gross rents. So your total rental income or property before any expenses come out. Does that sound alright, John?

John Stanfield 34:42
Yeah, usually, the going rates around 10%. And I will say that a good property manager is worth their weight in gold. I've seen some of the things these people deal with. And I truly, truly would not recommend doing this yourself. Especially when there are people out there who are professionals, and it's their job to handle it. Ten percent is a drop in the bucket compared to the issues that they take care of on a daily basis.

Cameron Valadez 35:09
Right? It's like, are you going to be willing and able, when you're in your mid-70s, to wake up in the middle of the night and deal with a tenant issue, or a water main break or something crazy like that, or be able to get up one day and have to go evict somebody right, especially if the person is hostile or something crazy like that. So yeah, I definitely would agree. Definitely consider a property management company, especially if you're going to continue owning rental properties, you know, as you get older in retirement. And guess what you will have to learn to manage your property manager. Don't think for a second that because you have delegated the operations of your rental property to them that you can now be completely hands-off. You'll still have to pay attention to you know what they're doing or what they don't do. And you might have to pick up the slack sometimes or just make sure that they're fulfilling the needs that you have regarding your specific properties.

And here's the final point I want to make about investing in anything really, whether it's rentals, stocks, combination of whatever it is. To find success, you have to stick with your strategy or process to see it materialize. We are talking about long-term investing here. More often than not, people get caught up in the short-term, recent negative things that happen. And they suddenly start basing decisions on that. Even though when they meticulously planned out their journey at the start, it entailed a strategy that had to be diligently followed for many years. And there's a term for this. It's called recency bias. This applies to all long-term investing, including rental property investing and investing in things like stocks, mutual funds, index funds, bonds, whatever. This is typically where I see a huge disconnect with most people. They assume that investing in rental properties is the best or investing in the markets is the best, and vice versa, simply because, at some point in their life, they had an experience that left a bad taste in their mouth. However, this is typically due to thinking and reacting to something short-term in nature and essentially breaking your investment strategy at exactly the wrong time. Which is typically when it seems like everything around us is falling apart. You know, whether it's home prices or tenant issues, the stock market volatility, there are recessions going on in our economy, political turmoil, war, you name it. If you give up or make hasty decisions without backing up and revisiting your why or your purpose for that particular investment, you'll likely hurt yourself financially, and you could erase years, if not decades of investing success in a matter of days. Then what's worse is that after you do something like that, you look back and you say, wow, investing in real estate is terrible, or investing in stocks is a waste of time. And so you don't ever invest again. Or worse, you go looking for some new shiny fad investment that everyone's buying. And acting like this will get you absolutely nowhere. No one accumulates wealth that way, that is not a strategy.

Ultimately, the decision to incorporate rental properties into your retirement strategy is going to come down to your determination, the free time that you have, or the time to dedicate to it, I should say, priorities, and your skill sets. Real estate investing takes work and, therefore, also takes time. If you're in a place in your life where you want to intentionally maximize your time with family or doing other hobbies, or your health is deteriorating maybe, then you may consider an alternative method of investing that doesn't require as much TLC. If, however, you find real estate investing as a time filler like I mentioned earlier, or a hobby itself in retirement and it keeps you busy, then again, have at it might be a great option for you. And don't try to base the decision on what returns are better. Real estate or the stock markets is like the most common example I can think of because there's a lot of people that want to go back and forth on this. And this isn't a black and white, and remember, there is no perfect investment. Far too many investors argue about and get caught up in this dilemma, and if this is you, I say you're spending valuable time focusing on the wrong things. And although these two methods of investing have many differences and even some similarities, one thing always remains the same. And that is your ability to implement whatever strategy you choose or combination of and stick with it forever. And sticking with it requires you to have a very good understanding of how your strategy is actually working. And, more importantly, a plan of action when things go bad because they will. If you don't have a plan of action, you will again react based on short-term thinking and emotions, which will likely hurt you. You can learn to do this stuff yourself if you have the time and the determination, or you can use professionals to implement your strategies for you and keep you on track each and every year. Again, that's gonna depend on ultimately your goals and where you want to dedicate your time.

So I think that about does it for today's show. Hopefully, this episode was insightful for you and your retirement endeavors. I can't thank you enough, John, for coming on the pod and edumacating the Retired-ish community.

John Stanfield 41:15
No problem, man. Thanks for having me. Hopefully, everybody who’s still listening is still awake.

Cameron Valadez 41:20
We will have to have you back sometime to drop some more real estate knowledge bombs. I know that you've gotten a lot more in your quiver. We will include a link to John's website in today's show notes if you care to learn more about your options when it comes to financing or refinancing your real estate. There'll be some contact information on there as well if you want to reach out to him and have some questions. Or, of course, you can always reach out to myself on Ask A Question on retiredishpodcast.com.

If you have a minute and find this information actionable and insightful and want to stay up to date on the latest and useful retirement planning content, please subscribe to or follow the show on your podcast app. If you'd like to learn more about the rules and strategies discussed in today's show, you can find links to the resources we have provided in the show notes again on your podcast app, or you could visit us at retiredishpodcast.com/17. There you could also sign up for our monthly Retired-ish newsletter, where each month, we discuss money and emotions investing tax, estate tips, Medicare and Social Security, and even a brief discussion about the current markets, always in layman's terms. We also always include something actionable in our newsletters so that you can implement them right away, such as how-to guides and other simplified strategies. Again, this can all be found at retiredishpodcast.com/17. Thank you for tuning in and following along See you next time on Retired-ish.

Securities and advisory services are offered through LPL Financial, a registered investment advisor, member FINRA, SIPC. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

John Stanfield and Viewpoint Financial are not affiliated with or endorsed by LPL Financial Planable Wealth.

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