Are Rental Properties Worth It?

Nearly 60% of millennials say they want to own rental properties.

But are they worth it?

Owning rentals sounds great in theory.

You can let your tenants pay the mortgage and you get the price appreciation.

And while that can be true, the reality is far more nuanced.

For high-income professionals looking to build long-term wealth, real estate can be a powerful tool, but it’s not a guaranteed win.

It requires capital, time, management, and the ability to take on risk & complexity.

The Benefits of Rental Properties

1. Cash Flow

When done right, rental properties can generate positive monthly cash flow (money in your pocket after covering the mortgage, taxes, insurance, and maintenance).

This can become a steady income stream, especially in retirement.

The goal isn’t just appreciation. It’s income you don’t have to work for.

So many people think they do not need to care about cash flow, but you do.

You should not own properties that are negative on a yearly basis.

You need to run this like a business and plan for:

• Vacancies
• Repairs
• Building cash savings
• Taxes
• Etc.

Only from there can you see your cash flow. So many people don't view it this way and think they're cash flow positive, when they aren’t.

2. Leverage

Real estate allows you to use other people’s money (in this case, the bank’s) to build wealth.

You might only put down 20–25% (or even less) but you benefit from 100% of the property’s appreciation and rental income.

Example: A $500,000 property with a 20% down payment that grew 5%

This does not mean your investment grew by 5%.

You put $100,000 down and the property grew by $25,000.

That is a 25% return.

Leverage is what ends up making rental properties great.

3. Tax Advantages

Real estate offers a handful of tax benefits:

• Depreciation: A paper loss that can offset rental income and you can accelerate this through cost seg studies and bonus depreciation
• Deductions: Mortgage interest, repairs, property management, and more
• 1031 Exchange: Defer capital gains when you sell and reinvest
• Pass-through deduction: Depending on how it's structured, you may get a 20% QBI deduction on rental income

Then if you use short term rentals or have a spouse that is a real estate professional, you can use those losses to offset active income. But do not forget about material participation.

4. Appreciation Over Time

While markets fluctuate, real estate tends to rise in value over the long term.

With enough time and the right location, your property could be worth significantly more down the line while your mortgage stays the same or decreases.

Rentals are not short term investments.

5. Inflation Hedge

Rents and property values often rise with inflation. That means rental real estate tends to benefit during inflationary periods, unlike cash or fixed-income investments.

6. Control

Unlike stocks or ETFs, you can directly influence your property’s performance.

Renovations, better tenants, and strategic pricing all give you more control over returns.

For people who like being hands-on with their investments, this can be a big draw.

But it's not easy, you have to know what you're doing.

But… It’s Not All Passive (or Easy)

Before you dive in, it’s important to consider the real-world challenges that come with owning rental property:

• Upfront capital: Down payments, closing costs, reserves, and renovations add up quickly.
• Learning curve: New investors think they can buy any property and it will be a good rental. This is simply not true. It is like running a business and you need to have an edge for this to go well. It takes a lot of upfront learning to get this figured out and do it well.
• Ongoing management: Even with a property manager, you’re still the owner. Expect calls, decisions, and headaches. And if you hire a property manager, understand you will be giving up a percent of the revenue. Right now is it hard to find cash flowing properties, let alone after adding extra costs.
• Tenant risk: Late payments, vacancies, damage, or even legal issues can wipe out your expected profit. And in some states like California, you can have squatters and it can be hard to get them out due to their rights.
• Liability risk: If something bad happens, you can be sued. You need to have buttoned up insurance to protect your external wealth.
• Liquidity: It’s not easy to quickly sell a rental property without time, hassle, and potential cost. I have seen so many real estate owners get into a pinch after insurances, property tax increases, etc. Make sure to manage liquidity throughout and not only invest in real estate.
• Geographic limitations: Most people invest in areas they know. That limits diversification compared to broader investments like index funds.
• Concentration risk: Your entire wealth in 3-5 properties is a huge risk. You never know what can happen, and I have seen a lot of bad things happen. Be careful here.

So… Are Rental Properties Worth It?

They can be, but they're not for everyone.

Rental properties make sense when:

• You have strong cash flow and can afford to be patient
• You want to diversify your investments beyond stocks
• You’re okay with a hands-on (or at least semi-active) investment
• You understand the risks, tax implications, and time commitment
• You are a real estate professional and can get added tax benefits.

They may not be worth it if:

• You expect it to be 100% passive
• You’re already stretched thin with your time or cash
• You’re only doing it because you heard it’s what wealthy people do
• You do not want to have to do the work or spend the time in it
• You are a very high earner and time is best spent in your job or business
• Your wealth is mostly already tied up in illiquid investments

Real estate can be a powerful way to build wealth.

But like any investment, it works best when it aligns with your goals, your risk tolerance, and your lifestyle.

The people who succeed with rental properties don’t just buy a home and hope.

They run the numbers.

They plan for the worst case.

And they treat it like a business, not a lottery ticket.

If you’re considering adding real estate to your financial plan, make sure you’re clear on why and what role you want it to play in your overall strategy.

And understand, it's not passive like investing in the stock market is.