Should You Be A Landlord?

What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values. How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice.

To find a Certified Kingdom Advisor in your area, visit faithfi.com and click Find a CKA. Owning rental property is like ordering pizza with anchovies. It's not for everybody. Hi, I'm Rob West. There's no question that a rental property can be a lucrative investment, but it's certainly not a passive investment, like owning stock. Today, we'll explore the pros and cons of owning rental property, and then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is Faith and Finance, biblical wisdom for your financial decisions. Okay, my analogy may have been a bit extreme. Not many folks like anchovies and probably a whole lot more would like to own rental property someday.

In fact, we've been getting a lot more calls about it recently. But my point is that owning a rental property is not for everyone. You have to know your limitations. Do you have the right temperament to be a landlord? You have to be actively involved with a rental property or pay someone else to do it. We'll get into that, but first, let's look at the pros of being a landlord. First, there's the income stream. A rental property provides rental income.

That's the whole point. Now, if you're carrying a mortgage on the property, it will eat up your rental income, and it goes without saying that you don't want a negative cash flow. But having a positive cash flow is like having money in the bank, literally.

Then there's the appreciation. Homes almost always increase in value. When you sell a rental property, you'll probably make a nice profit, but keep in mind that it may be subject to capital gains taxes. Next, there are tax breaks. The IRS allows you to deduct maintenance and improvement expenses and depreciation. So, for example, you can deduct insurance, mortgage interest and lawn maintenance. When deducting for depreciation, understand that it will reduce your cost basis, meaning you'll be liable for more capital gains taxes when you sell.

Here's another pro. Let's say you buy a beach house to rent out on a seasonal basis. You can use the property yourself for 14 days a year or 10% of the number of days you rent it out and still deduct your expenses.

Oh, and one more. You may already own a rental property. By that, I mean you could rent out part of your house such as a garage or basement. You'd get the rental income and be able to deduct a portion of your mortgage interest and other expenses. So there are plenty of pros to buying a rental property, and that's why a lot of people do it. But what about the cons of owning a rental? Well, first, there's often a huge upfront investment cost if you don't already own the property. Not many people can afford to do it, so there's probably a mortgage involved either when converting a principal residence to a rental or buying one to start out as a rental. That means you must charge enough rent to cover the mortgage plus additional expenses.

Will you still be in the black? Next, there's the lack of liquidity. Money in your checking account is considered highly liquid. Money tied up in a rental property is considered highly illiquid, meaning you can't get to it quickly or easily.

You also have exposure to events you can't control. You must pay taxes, and you must have adequate insurance on the property, but you can't prevent increases in those costs. Another example of that is the neighborhood may decline, making it more difficult to rent out your unit and negatively affect appreciation. You may have difficult tenants who are late with the rent or don't take proper care of your investment, even if you have a security deposit. It doesn't take much to do more damage than a security deposit will cover. But even with considerate tenants, you still need to keep the property in good repair. There will be midnight calls about broken water pipes and toilets that won't flush.

Will you grab a tool bag and head over? Or will you hire a management company to do that for you? That will cost around 10% of your rental income. The final con is actually having to be a landlord.

Again, unless you pay someone else to do it. You have to find and vet prospective tenants. Sometimes you have to be firm with folks when they're habitually late with rent or don't pay at all. Do you have the stomach to evict someone? Of course, you want to help a tenant who's having a temporary problem. But can you be firm when it's necessary?

These are all things you must consider if you're contemplating being a landlord. It's a big decision, so don't make it alone. Of course, bring God into the discussion in prayer. Ask him to show you the path you should take.

James 1 five reassures us if any of you lacks wisdom, let him ask God, who gives generously to all without reproach and it will be given him. All right, your calls are next. The number 800-525-7000.

That's 800-525-7000. And by the way, you can call with your questions. We'd also love to hear your testimonies as well. How is God working in your financial life as you've applied his principles to your stewardship? I'm Rob West and you're listening to faith and finance biblical wisdom for your financial decisions.

We'll be right back after this break. What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values? How about someone who will take the time to explain your options? Certified kingdom advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice.

To find a certified kingdom advisor in your area, visit faithfi.com and click find a CKA. Paying too much for health insurance? Frustrated by high deductibles and increasing premiums?

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Take control over your healthcare costs with a program from CHM that could save you up to 40%. Learn more and enroll today at chministries.org slash faithfi. That's chministries.org slash faithfi. Thanks for joining us today on faith and finance. We're so glad you're along with us today as we help you apply God's wisdom to your financial decisions and choices. You know, as we think about our role as stewards, this is a really important responsibility. We've been entrusted by the Lord.

It all belongs to him. Therefore, we're managers and the goal is faithfulness, long obedience in the same direction as it relates to all facets of our lives. But that certainly includes our management of God's money.

We want to help you get it right. And the only way we can do that is to look to scripture to see those big themes of lordship and stewardship and generosity and contentment, and then drill down into the practical decisions and choices realizing that our goals should be informed by our values. We shouldn't take our cues from this world if we can't get stuck in the comparison trap. Comparison is a contentment killer. Instead, we need to start with the admonition of scripture that money has the potential, despite it being a good creation from the Lord, to compete with our hearts for devotion to God.

We can't allow it to do that. We see God as our ultimate treasure. Money is a tool to give and to provide and to enjoy and to even invest in ways that promote human flourishing and are a blessing to the world. We also make those practical decisions as we live, give, owe, and grow God's money. And so we want to spend less than we earn and avoid debt and we want to set long-term goals. We want to have some margin or some liquidity and we want to give generously because giving breaks the grip of money over our lives. Well, in all of that, I think we can find God's heart, but for each of us, it's a matter of on our knees saying, Lord, what would you have me to do? I can't tell you what your lifestyle should look like. I think that's between you and the Lord, but it should be an ongoing conversation and we want to help you navigate those very practical decisions that you have each day in your financial life.

So what's on your mind today? Give us a call. That's 800-525-7000.

That's 800-525-7000. By the way, in the news today, there's debate on whether social security benefits should be taxed at the federal level. And that's coming up in election politics these days. While it's becoming less common for states to tax these benefits, eight of them still do impose taxes on social security. Those include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont. Now the rate of taxation varies by state, of course, with some having more generous exemption than exemptions than others. Certainly probably not worth moving to a state that doesn't tax social security benefits, but still something that's important to know. And that, among other things related to economics and our economy moving forward, but also taxation are going to continue to be hotly debated, especially as we move ever so swiftly toward November the 5th.

But a lot to think about there. We want to get into your economy, though. What's going on in your financial life? That number 800-525-7000. You can call right now. Let's dive in.

We're going to begin in Georgia today. Hi, Deanne. Thanks for calling.

Go right ahead. Well, thank you. My goodness, it's wonderful to talk to you. I listen to your program regularly and have learned so much. Well, that's great. Thank you, Deanne.

Anyway, this is my question. In mid-April this year, I received an email from AT&T informing me of a data breach which could have exposed some of my personal information. They offered a free year of credit monitoring and identity theft detection. Then the first week of May, I received a letter in the mail from AT&T detailing the same information. I have not yet signed up because I'm concerned the email may not be genuine. How can I determine if the email is genuine? Yeah, it's a great question. There was a data breach that affected AT&T customers, and I got the same letter.

My mom did as well, interestingly. But you do have to be careful about fraudsters that are piling on something legitimate and using it for nefarious purposes. So AT&T as a result is advising customers, and this is just good information, to never give any personal information through a text, a phone call, or an email. I will say, though, that on the heels of a data breach, I think that is the time to take advantage of these free credit monitoring services. Typically, I would say, until you've been the victim of such an event, probably not worth paying for that kind of service unless you just have that available in the budget and it gives you added peace of mind.

But there are most of the things you need to do just as a best practice on an ongoing basis you can do without paying for it. That would include changing your passwords regularly, signing up for two-factor authentication, keeping your operating system up to date, monitoring your accounts and credit reports to be vigilant, looking for signs of scams, freezing your credit, also free, where you put a PIN number on each of the three credit bureaus. Those would be the types of things that you can do without any cost, but in the event of a data breach like this one, I think signing up for this free credit monitoring is a great way to go. One of the things you can do is just go directly to AT&T.com and review AT&T's fraud page.

They have a web page that they've set up for this and you can just verify that the credit monitoring you're being alerted about is in fact the one that's legitimate and that they are going to pay for. But I would advise you in this case to go ahead and take advantage of it. I think it's a good move for you here as you think about protecting yourself in the future. So, Deanne, it looks like you were not able to hold and we were disconnected, but hopefully you're listening to me right now. And again, AT&T.com if you have any questions, but I would say the data breach is accurate related to AT&T.

I would advise you to take advantage of the free credit monitoring and just use this as a great reminder and a time to check that you are using some of those best practices that I mentioned. Thanks for being on the program today and for your kind remarks. We're grateful.

To Texas. Hi, Quentin. Thanks for calling.

How can I help? Rob, thanks for your time. Just had a question about the guaranteed rates, be it high interest savings or short term CDs versus, say, a mortgage rate that you locked in in 2021. So a lot of people are liking the twos. And I know there's a lot of strong feelings on that balance, but how do you feel about that, especially if someone doesn't have any additional debt? So just making more on your savings versus paying down your low interest mortgage?

Yeah, I mean, I think first of all, it's a conviction matter. A lot of folks that I talk to on this program who are Bible believing Christians, you know, they just they read the scriptures, they see the warnings around debt and they just have a conviction to be debt free. And I would say if that's you, then I would say pay off that debt and don't look back. Now, I would not be one to say that the borrowing is a sin by any means. And I think in this case where you have the collateral to pay it off, you're not overextended, you're not presuming on the future.

I'm completely fine with you hanging on to it. Now, the issue of paying off the low interest rate mortgage versus investing it with a guaranteed return higher makes all the sense in the world today. The key is, though, that we're enjoying some higher than average interest rates right now, at least over the last 20 years.

So I think these are temporary. I think you are going to see these rates coming down. And so the question is, can you, without taking on additional risk, continue to outperform even your low interest rate mortgage after taxes? You probably can for the foreseeable future. You probably won't be able to over the next 10 years. It would involve you putting that money to work, which means you're risking it.

But even then, you could probably outperform a two and a half percent interest rate with a good diversified investment strategy. So apart from a conviction to be debt free in the context you're describing where this is your only debt, I'm completely comfortable with it. If you are, it's a great question. Thanks for your call today. All right, a quick break and back with much more, including your questions. Call right now with a financial question, 800-525-7000.

We'll be right back. If you enjoy this radio program, you're going to love all of the many different resources waiting for you at faithfi.com and the Faithfi app. You'll find powerful wisdom, free podcasts, articles, videos, and more from leading voices such as Randy Alcorn, Howard Dayton, Ron Blue, and our own Rob West. Grow in wisdom and knowledge by connecting with a community of thousands of Christians striving to be good and faithful stewards at faithfi.com or by downloading the Faithfi app. If the heavy burden of debt is robbing you of freedom and peace of mind, Christian credit counselors can help. We're a nationwide nonprofit credit counseling organization that has helped over 300,000 individuals in the last 27 years get out of credit card debt 80% faster while honoring that debt in full. To learn how Christian credit counselors can help you, visit christiancreditcounselors.org.

Or call 800-557-1985. Hey, thanks for joining us today on Faith and Finance for taking your calls and questions today. Hey, before we head back to the phones, let me just remind you as a listener support in ministry, we rely on your generous support each week and each month to be able to bring you this broadcast and our website and the Faithfi app and all the resources we provide including the resources we give away to callers just as a blessing. And if you find yourself listening regularly, maybe by appointment, and you've been able to apply something you've heard on the program to your financial life, or you just like to ensure that the broadcast continues and others can benefit from it, we'd invite you to become a Faithfi partner.

What is that you ask? Well, it's those who support Faithfi at $35 a month or more. And you can become a Faithfi partner when you go to faithfi.com slash give that's faithfi.com slash give. And when you sign up to become a monthly Faithfi partner, you will get all of our studies and devotions pre release. So our newest devotion is coming out next month. It's called look at the sparrows. It's a 21 day devotion on financial fear and anxiety.

It's beautiful. It's, it's biblical, I think it'll be a real encouragement to you. You'll also get our new Faithfi publication that will launch in the new year, right there at the beginning of the year, a beautiful digest of wonderful articles that are practical and theologically sound with a beautiful design will produce one each quarter. And I think it'll be something that you'll look forward to receiving in the mail, just to encourage you in your stewardship journey. All that plus discounts on the Faithfi app pro subscription and more is yours. When you support us at 35 a month or more.

So consider becoming a Faithfi partner and you can do that at faithfi.com slash give. All right, let's head back to the phones. Looks like we have lines all full. So we'll get to as many as we can.

Let's go out to Iowa high gauge. Go ahead. Hi, Rob, thank you for taking my call. Yes, sir.

I have a question. Right now it is open enrollment for insurance plans at my work. And they offer two plans, a standard PPO plan and a high deductible plan. And that plan is HSA eligible. Yeah, just I'm wondering which would be best to enroll in. And the it really the kicker of the question is, they pay for both premiums. So there's really no difference in the premium.

And I'm just wondering what would be best? Yeah, it's a good question. Let me ask a follow up, though, gauge Do you know, with the high deductible health plan, combined with the HSA, obviously, their premium would be a lot lower. Typically, what companies do is, they will offer to not only cover the premium, if you choose that option, but they might make a certain contribution every month to the HSA, perhaps equal to what they would have had to pay in, you know, paying the PPO plan. Do you know if there's any kind of assistance there?

Um, no, there is not. Okay, so it would be the straight premium for the PPO or the straight premium for the HDHP. And if you're going to put anything in the HSA, a lot of acronyms here, then that's going to be up to you. Is that right? Yeah, pretty much.

Okay. Yeah. And you guys have a young family. Is that right? Well, no, it's just me and my wife right now. But we've been married for a year and a half now.

So could be children in the near future, but not yet. Okay, got it. Yeah, I mean, it's up to you, of course. But you know, typically somebody in your stage of life, you may want to go with the PPO option, just because they're providing more benefit to you with the PPO, in the sense that if they're willing to cover the full premium, that's a much more expensive premium. And you have, you know, the flexibility to see any doctor you want, essentially, and you know, you're going to have better coverage with lower out of pocket costs. And they're covering, you know, the premium, so you don't have to worry about that being higher. The only upside to the high deductible health plan with the HSA is if you all are in relatively good health, you know, and you wanted to contribute or you had the ability to contribute beyond let's say, your 401k to an HSA and you didn't use it, you could build that up over time, it's not a use it or lose it. So you can let it accrue beyond a year at a time and just let it grow.

You could even invest it. And then it becomes another retirement planning tool down the road. But at this point, if you know, you're trying to just balance the budget, and you know, you're barely, you know, covering the bills with some surplus and funding the 401k, and you really don't have a whole lot of money to put into the HSA, there's probably more value for you in the PPO plan. Because you know, with the high deductible health plan, you're essentially paying everything out of pocket.

With the PPO, you're just going to have a small, you know, deductible or not deductible but copay, and your employers cover in the higher premium. So I think that's likely going to be the better option. And it most certainly would be if the Lord blesses you guys with kids because you know, we know how often kids are run into the pediatrician. Yeah, absolutely. Okay, well, awesome.

That kind of gives us some things to think about and consider. All right, good deal. God bless you. Absolutely.

Gage. Thanks for your call, sir. Let's go to Indiana Lucinda. Thanks for calling. Go ahead. Thank you so much for taking my phone call.

I had a quick question. My mother in law passed away at the end of December and upon death, the house transferred into my husband and his sister's name. It was recently sold for 180,000. But 100,000 needed to go to pay her bills that were associated with the house home equity and mortgage. Some of the rest of the money went to pay for the mandatory repairs that needed to be done to the house.

So basically, approximately 40,000 was split between the two siblings. Is that considered capital gain? Or? Yeah, what would that be?

Yeah, it's a good question. So how long after your mother in law is passing was the house sold? It was almost six months.

Okay. And, you know, there probably wasn't a whole lot of increase in the market value of the property from her passing until the time it was sold. But essentially, what happens is when she passed away, as long as she didn't, you know, their names weren't on the deed prior to her death, or she didn't in some way give it to them prior to death. If they received it by way of inheritance through a will or a trust, then they enjoy what's called a step up in basis. So regardless of what she paid for it, the new cost basis for determining capital gains is stepped up to the market value as of the date of death. And then if the property is sold six months later, there's probably I mean, there may be a very small increase, just given you know, what happened in the housing market over that six month period of time, but probably not much. So there really wouldn't be a whole lot of capital gain. If anything, it would just be the small amount that that home appreciated in six months time. But I'm thinking that might be, you know, 1% or something. Does that make sense?

Yeah. Okay, so you'd want to work with your CPA to determine, can we in fact say with documentation, that essentially the market value when we sold it six months after the date of death was the same as of the date of death. If that's the case, then there is no capital gain. And then you all can do what you want with it, settle the estate and split the proceeds.

Nobody's paying any tax, the only tax that would be due on each person's portion of the appreciation between the date of death and the date of sale. Okay, that makes perfect sense. Thank you so much. I appreciate it.

Absolutely. Thanks for calling today. That's going to do it for us. Let me say a big thanks to my team today.

Certainly couldn't do this without them. handling our phones today was Adam Sudduth, producing and engineering today, Mr. Devon Patrick, and providing me with great research today and just helping navigate the program is Jim Henry, my partner in crime here on faith and finance. Thanks to you for being along with us today. And we'll look forward to having you back tomorrow. God bless you. Bye bye. Faith and Finance is provided by Faith Buy and listeners like you.