Daniel May
How to Survive a Terrible or Crazy Landlord Daniel


Photo by Colin Watts on Unsplash

Unfortunately not all financial advice is created equal; some advice would be better off avoided entirely. I want to make sure you know what to look out for, and how to tell the difference between good advice and bad advice.

There are two different types of bad financial advice, intentional and unintentional. People who give intentionally bad financial advice have an ulterior motive. They’re usually trying to sell something; this might be a financial product (whole life insurance, anyone?), advertisements, or some sort of system (like a real estate system or some other passive investing get-rich-quick scheme). Not everyone who is selling something gives bad financial advice, but it does create conflicts of interest.

The other type of bad financial advice out there is unintentionally bad advice. This advice isn’t given with any malice or ulterior motive, but can be just as damaging. Everyone is different, so advice that works for one person might not work for someone else. For example, Dave Ramsey preaches about how credit cards should be avoided, and there are people out there who should avoid credit cards (at least until they can use them responsibly). For a large portion of the population, though, staying away from credit cards is bad advice.

Here’s my list of common money myths, why they’re bad advice, and what you can do instead.

I hear this one often; there are a few prominent YouTubers out there with channels focused on investing in real estate, and I’ve seen countless books and online courses promising to tell you how to get rich with real estate. I don’t think those giving the advice actually make a substantial amount of money with real estate; they make money by telling other people how to get rich with real estate. If you truly had a great system for buying properties and making money (a system that was worth writing a book about), why would you? Why would you want more competition?

To be clear, I’m not anti- buying property as an investment. I just don’t believe it’s as easy as it’s made out to be, and it definitely isn’t for everyone. If you do buy a rental property to generate passive income, you have to manage that property. Being a landlord isn’t a fun job; you’re responsible for maintenance and upkeep on all of your properties, and it can be difficult to find quality tenants who want to live in a unit long-term (as a landlord, you’d rather have tenants living in the property for as long as possible; finding new tenants costs money). If someone can’t pay rent, you have to go through the process of eviction. It can be difficult, emotionally, to evict someone who doesn’t have anywhere else to go or that has young children.

You could always hire a property management company to manage your property, but that will take away a big chunk of your profits. In some real estate markets, you need all of the profit you can get. I think investing in property works for some people, but I don’t think it’s for everyone. There are people that have a knack for real estate; they invest in areas with rising property values, and enjoy taking care of tenants and being a landlord.

I’ve seen some downright dangerous and irresponsible ways to make money in real estate promoted by bloggers, YouTubers, authors and even former financial advisors. Some even recommend taking advantage of loopholes in the law that allow someone to purchase rental property with 0% down. If you’re going to invest in real estate, that’s not the way to do it. Right now it may look like the real estate market can only go up, but if you invest in real estate irresponsibly a single downturn can wipe out your entire empire.

What’s the better way?

There are ways to invest in real estate without buying property. REITs, or real estate investment trusts, are companies that own and/or operate income-producing real estate, including apartments, office buildings, hospitals, warehouses, hotels, shopping malls, you name it. Many REITs are traded on stock exchanges, which means you can have the diversification of real estate without signing a long-term mortgage. Not everyone needs to or should be investing in REITs, though, and any investment should be carefully evaluated before making your selection.

This is another one you’ve probably heard a good bit. Alternative investments are attractive because there’s a small chance of generating astronomical returns. It’s possible to invest in the next big thing and make a fortune, but the chances of hitting it big are almost always not worth the risk. Alternative investments should be looked at like buying a lottery ticket; it can be fun if you have the extra money to spend, but you shouldn’t count on making any money.

What’s the better way?

Instead of investing in risky assets that have a high probability of losing you money, look into investing in target-date funds and index funds. These investments aren’t nearly as exciting, but can set you up for long-term financial success.

It can be hard to face certain realities of our society. One of those realities is that not everyone who is in a bad financial position is completely to blame for their own shortcomings. Michael Kitces, one of the most well-respected names in personal finance, believes that lower income households should focus elsewhere instead of trying to reduce discretionary expenses (like Starbucks or eating out) because they aren’t making much money to begin with. Kitces writes that “trying to earn more — whether by getting or retraining for a new job or industry, putting in extra hours for a promotion, or starting a side-hustle — can have far more immediate and positive impact on the spending rate.” He also writes that “it is actually far better to focus on housing and transportation costs than trying to trim vacations, clothing, lattes and avocado toast from the budget.”

For some households, it can be difficult to spend less than they’re already spending on housing and transportation. Household income has failed to keep up with inflation, but the cost of housing and automobiles has risen at a rate greater than inflation. The numbers don’t add up for many Americans; at a certain point, working harder and longer hours is no longer a solution, and people need to make more money.

What’s the better way?

Investing in yourself early in life by going to college or learning a trade (being a plumber, electrician, or mechanic can be a great career) helps ensure a high probability of earning enough money to live off of and have a good retirement. If you feel like you’ve missed out on college or learning a trade, reconsider going back to school. It’s never too late for a career change, and many companies offer tuition reimbursement to encourage employees to continue their education.

Have a little more empathy for those who aren’t in a great financial position. They may have made some poor decisions that led them to the place they’re at in life, but the environments people grow up in can unfortunately dictate how much success they have in life. Rising above poverty and out of the lifestyle that accompanies being poor is no easy feat.

Passive income includes real estate, which I covered earlier, but can also be blogging, making YouTube videos, or any other form of generating income with little to no work involved. The truth about passive income is that there is a lot of work involved; you won’t just go viral overnight and become an instant internet sensation.

If you want to create content to generate passive income, you’ll often spend years of hard work building an audience, and even then success isn’t guaranteed.

What’s the better way?

If you have a unique skill and can offer something nobody else can, you can use that skill to make money. You’ll have to be willing to spend years of effort on something that might not end up paying off in the end. If you have passion, time, and a drive for success, passive income could be for you. If you are looking for an easy way to make money with little to no effort involved, passive income isn’t what you think.

I hear all the time how Social Security is going bankrupt and won’t be around by the time I retire. 80% of my fellow millennials don’t believe it will be there when they retire, either. Dean Baker, a senior economist at the Center for Economic and Policy Research, says there is “zero doubt that Social Security will be there for millennials.”

Future benefits increase at a rate that outpaces inflation, which means that even if nothing is done to bolster Social Security, and reserves are depleted in 2035, people retiring in 30–40 years can still count on 10% more money (inflation-adjusted) than what retirees get today. Another scholar at the American Enterprise Institute says that “even if Social Security benefits were cut by 25% when the trust fund runs out, the real value of those benefits would still be higher than what’s received by today’s retirees.”

What’s the better way?

Social Security will almost certainly be alive and well by the time you retire, barring any catastrophic government collapse (if that happens, you’ll have bigger things to worry about than a Social Security check). You can safely include your expected Social Security benefits in retirement projections, but it’s okay to be more conservative with other estimates. This includes the amount of income you’ll need in retirement (it’s better to overestimate than underestimate), rate of return, and rate of inflation.

Life insurance is a necessary risk mitigation tool for many families and people with dependents, but buying the wrong insurance product could end up costing you thousands (or hundreds of thousands) of dollars. According to Consumer Reports, the average annual rate of return for whole life guaranteed cash value insurance is 1.5% and for whole life possible cash value insurance it’s 3.5%. Life insurance products can also have high fees and commissions. Whole life insurance may certainly be right for some people, but the low returns and complicated policies can be a major turn off.

What’s the better way?

Term life insurance is best for most people with a life insurance need (which isn’t everyone). Term life is pure life insurance, which means there aren’t any conflated investment options. You aren’t building any cash value, and when the policy expires you don’t get a payout. This keeps prices low (you’re only paying for insurance, nothing else). Term life insurance provides valuable protection in case something were to happen to you at really affordable prices.

Not everyone needs life insurance, either. Typically funeral and burial costs can be paid out of your estate, and if you don’t have any dependents you may not need life insurance. Life insurance is usually only for people who have others that are dependent on them, whether it be financially or in other ways (like a stay-at-home spouse who takes care of children). If life would be tougher for others financially if you were to die, you may need life insurance.

Credit cards aren’t the devil, and you can use credit cards responsibly. In fact, credit cards are better than debit cards (when used properly, of course; I wrote an article about that here). Credit cards are more secure because the bank’s money is on the line, not your own; if you have a fraudulent charge or a disputed transaction, the credit card company is going to fight to get their money back. Debit card users often find themselves out of luck in these types of situations. The protections for credit card users are much stronger than those for debit card users. Even if you don’t like credit cards, you should use one for any big purchases in case something goes wrong.

Credit cards also offer rewards, in the form of cash back or airline miles, and some offer extended warranties, price protection, and special discounts at certain stores.

What’s the better way?

Don’t avoid credit cards entirely. Instead, only use credit cards for everyday expenses and things you would have otherwise bought with cash. In other words, don’t let a credit card make you feel like you have more money than you actually do. If you find that you have trouble controlling spending when you use credit cards, it’s okay to take a break from credit cards for a while and slowly re-introduce them into your life. Credit card interest rates are very high, so it’s important to avoid credit card debt at all costs.

I hope nobody still believes this, but I’ve heard it often enough to warrant inclusion on this list. Making more money and moving to a higher tax bracket does not mean you’ll end up making less money. Your marginal tax bracket is the rate at which the last dollar you earned is taxed, not all of your income. For example, let’s say Bill makes $50,000 per year, and the 10% tax bracket is from $0 to $50,000. This means Bill pays 10% on the entire $50,000. Now let’s say the 20% tax bracket is from $50,000 to $100,000. If Bill got a raise of $10,000 and is making $60,000 per year, he’s in the 20% marginal tax bracket. However, he still pays 10% on the first $50,000 he makes and pays 20% only on the amount he makes greater than $50,000 ($10,000).

What’s the better way?

Getting a raise could mean that you end up paying more in taxes on the extra money you bring in, but it will always be a net positive for you. Never let a fear of taxes scare you away from making more money.



Source link