Author: Matthew Adair

Fix Your Personal Finances Before Investing in Real Estate
When my students ask me a question about how to start investing in real estate, I tend to respond with a question of my own:

“How much savings does your personal budget generate each month?”

Yes, I know. It’s so annoying to answer a question with a question.

This particular question usually leads to a double dose of annoyance from my students.

My students are first annoyed that I ignored their question about real estate. They didn’t come to me to talk about something boring, like budgeting. They want to know about the exciting stuff, like becoming a real estate investor.

What I’ve noticed is that after this initial annoyance fades away, another form of annoyance sets in. My students get annoyed because they can’t actually answer the question.

They realize they have no idea how much money they’re saving each month because they don’t have a personal budget.

That’s a problem.

Not having a personal budget is a problem for anyone who wants to be a successful real estate investor.

Investing in real estate means running a business. Money comes in and money goes out. To be successful, you have to make sure that more money comes in than goes out.

This is obvious stuff, right?

The same logic applies to your personal budget: if you want to get ahead in life, more money needs to come in than goes out.

The problem is most people have a hard enough time managing their personal finances. How are they going to handle managing business finances?

That’s why I ask my students, “If you haven’t mastered this idea with your personal budget, are you sure you want to take on the stress and risk of an investment property?”

It would be much easier to simply invest in an index fund, like VTSAX. At least in that case, you don’t have to manage a business budget. You just have to do your best to constantly add money to your investment account.

It’s usually around this point when my students start nodding in understanding.

Before investing in real estate, make sure your personal finances are in order.

My goal here is not to dissuade you from investing in real estate. I am a big proponent of rental property investing.

I’ve said it before: I think every professional or lawyer can benefit from owning rental properties.

My only goal is to help you avoid the mistakes that crush so many beginner real estate investors. One of the biggest mistakes I see is people taking on a major financial commitment (and time commitment) without starting from a strong foundation.

If you’ve been following along on the blog, you likely noticed the progression in topics we’ve covered.

You’ll see links to each one of these topics featured on the top of the Think and Talk Money homepage:
- Money Mindset
- Budgeting
- Debt
- Credit
- Investing
- Real Estate
We initially covered each of those topics in order from top to bottom. First, we talked extensively about the mental side of money. Without having your money mindset in the right place, nothing else matters.

We then spent a lot of time talking about personal finance fundamentals, like budgeting, saving, and handling credit and debt responsibly.

Only after having our personal finance foundation in place did we talk about more fun concepts like investing and real estate.

There’s a reason we’ve covered these topics in this order.

If your money mindset is not in the right place, you won’t be able to stay on budget.

If you can’t stay on budget, you’ll likely fall into debt.

When you’re falling deeper and deeper into debt, it doesn’t make a lot of sense to prioritize investing.

Photo by Towfiqu barbhuiya on Unsplash

Why bother with real estate if any profits are just going to disappear?

Let’s focus on that last point for a minute.

What sense does it make to invest if you’ve never proven to yourself that you can use those investment gains responsibly?

I never want to see people take on the challenge of investing in real estate just to have any profits disappear because they don’t have a strong personal finance foundation in place.

Imagine someone does the work to find and sustain a good rental property that generates $1,000 per month in cash flow.

It’s not easy to earn that much. It takes time and effort, not to mention the risk involved.

If that same person blows the $1,000 he earned on things he doesn’t care about, what was the point?

Why take on the risk and do the work if the money will all be gone by the end of the month?

Unfortunately, this is how many people go through life. They work hard, make good money, and then have nothing to show for it.

I don’t want that to be your fate. I want you to have a plan for your money before you earn it.

That means sticking to a budget that consistently moves you closer to living freely on your terms.

Most of us don’t know where our next dollar is going.

The reason most people never get ahead with their finances is because they don’t have a plan for where their next dollar is going.

Their income hits their checking account, they spend it on this or that, and pretty soon that money has disappeared. They haven’t used the money to advance any of their priorities. It’s just gone.

To me, this is one of the most important money mistakes that we need to fix right away. We definitely need to fix it before we take a chance on investing in real estate.

If not, you’ll just be making the same mistakes, just with more money to lose.

Having a plan for our money, before we earn it, is essential if we want to reach our goals. With a plan, we can eliminate the disappearing dollars with confidence that our money is being used to serve our purposes.

How do you create a plan for your money before you earn it?

You need to have a budget.

If you don’t currently have a budget that results in excess money at the end of each month, I encourage you to start there before thinking bout real estate.

How to create a Budget After Thinking.

The key to budgeting is to eliminate disappearing dollars by creating a plan for Now Money, Life Money, and Later Money.

Your Later Money is what you’ll eventually use to accelerate your journey to financial freedom by investing in stocks or buying real estate.

1. Now Money

Now Money is what you need to pay for basic life expenses.

These expenses include housing, transportation, groceries, utilities (like internet and electricity), household goods (like toilet paper), and insurance.

These are expenses that you can’t avoid and should be relatively fixed each month.

2. Life Money

Life Money is what you are going to spend every month on things and experiences in life that you love.

This bucket includes dining out, concerts, vacations, subscriptions, gifts, and anything else that brings you joy.

We can’t be afraid to spend this money. This bucket is usually what makes life fun and exciting. The key is to think and talk so you are spending this money consistently on things that matter to you.

3. Later Money

Later Money is what you are saving, investing, or using to pay off debt.

This bucket includes long term goals, such as retirement plan contributions (like a 401k or Roth IRA), college savings for your kids (like a 529 plan), emergency savings and paying off student loan or credit card debt.

This bucket also includes any shorter term goals, like saving for a wedding or a downpayment for a house.

Most fun of all, this bucket includes any investments you make to more quickly grow your wealth, like investing in real estate or the stock market.

Later Money is the key category that fuels your ultimate life goals, like financial independence. The more you fuel this category, the faster you can reach your goals.

Photo by Kelly Sikkema on Unsplash

When you have strong fundamentals in place, money becomes fun.

Being good with money doesn’t have to be stressful. Once you have the fundamentals in place, you’ll start to see how each dollar you earn gets you one step closer to financial freedom.

Before you think about investing in real estate, make sure that your personal finances are in order.

Owning rental properties means running a business. When the money comes in, you want to make sure it doesn’t go right out.

Otherwise, the effort, stress, and risk of owning real estate is not worth it. Any dollar you earn is likely to disappear as quickly as it comes in.

To prevent that from happening, establish good money habits before you buy real estate.

In the end, you’ll be so happy that you did.

For any real estate investors out there, did you jump in before establishing strong personal money habits first?

What advice would you have for beginners thinking about investing in real estate?

Let us know in the comments below.
July 8, 2025
Use Common Sense to Help Identify Good Rental Properties
If you want to be a successful rental property investor, you need to buy good rental properties.

Good rental properties equal good tenants.

Good tenants equal less headaches.

Less headaches equal a longer holding period.

A longer holding period equals more cash flow, appreciation, debt pay-down, and tax benefits.

Add it all up and that equals more financial freedom.

And, it all starts with buying the right property.

How do I know if I’m buying the right property?

One of the biggest mistakes that beginners make is buying bad rental properties. The reality is that most properties that hit the market are not good rental properties.

I typically look at hundreds of properties online before finding any that are even worth walking through. Of the ones I walk through, less than 10% are worth buying.

Don’t waste your time by running the numbers on every property that hits the market. The numbers only tell part of the story, anyways.

Instead, the first step is to develop and commit to specific criteria for attractive properties in your market.

If a property does not meet your criteria, move on.

This will save you precious time, especially important if you are still working a full-time job.

It will also save you from the disappointment of visiting properties that looked good on paper but failed to meet your other requirements.

So, how do you develop a set of standards for quality rental properties in your market?

Use common sense and your own life experiences to develop criteria for your market.

Obviously, every market is different. Don’t believe anyone who tells you they have a one-size-fits-all solution for evaluating properties. What works in Chicago won’t necessarily work in Los Angeles.

However, regardless of what market you’re in, you can and should use common sense and your own life experiences to evaluate rental properties.

Don’t overcomplicate this part.

Before you do anything else, think about what you would personally want in a rental property.

Forget about complex formulas and deal metrics. We’ll get to the numbers soon enough.

Start with a basic question:

What would I want if I were a renter in this market?

Before anything else, write down a list of the most important features that you would want in an apartment. Then, use that list as a guide to finding the right kind of properties.

By the way, using your own common sense is one of the best parts about investing in real estate. You don’t need an advanced degree or a background in real estate.

We all have some idea of what makes a neighborhood a good place to live. The same goes for what makes an apartment a good apartment.

We may not always agree on what those things are, and that’s OK. It may be for a simple reason, like we are not targeting the same potential tenant pool.

The bottom line is you should absolutely use your common sense and life experiences to help formulate your investing strategy.

Ask yourself what you would want in an apartment. Don’t waste your time running the numbers on any property that doesn’t match your criteria.

I prefer to invest in properties that make sense to me.

Warren Buffett has famously said that he does not invest in companies or products that he doesn’t understand.

We can apply that same logic to rental properties. Invest in properties that inherently make sense to you.

If you are a buy-and-hold investor like I am, you are going to be dealing with a certain tenant pool in your market for years to come. You want to make sure that you understand that tenant pool so you can buy properties that will be appealing to them.

You also want to be able to effectively communicate with prospective applicants and current tenants. The best way to ensure that happens is by investing in markets that you understand.

Photo by Sawyer Bengtson on Unsplash

Work with a real estate broker and don’t be afraid to ask for help.

If you’re having trouble identifying the key factors to look out for in your market, ask around.

Talk to your colleagues and friends about what people in your target demographic look for in an apartment. Most of us tend to want the same things.

Of course, don’t underestimate the importance of working with a good real estate broker.

A good real estate broker can help you come up with a list of the most desirable features for renters in your market.

My wife and I have worked with the same broker for almost a decade now. He’s been a mentor to us and helped us come up with our list of key factors. More on that below.

He also knows exactly what we want in a property and doesn’t waste our time with properties that don’t match our criteria.

Having a good broker on your team is essential if you want to be a successful investor.

How I’ve used my life experiences to target rental properties in Chicago.

I invest in a Chicago neighborhood that typically attracts young professionals in their 20s and early 30s.

Why do I target young professionals in Chicago?

Well, I am one.

OK, fine.

I used to be one. Oof.

As a young professional in Chicago, I rented apartments throughout the city for nearly 15 years. Based on my own experiences, I have a good idea of what that demographic is looking for in an apartment.

I believe that gives me an advantage in targeting the right kinds of properties.

Plus, I teach nearly 100 law students each year and work with young professionals at my law firm. It’s a demographic that I’m comfortable with and still have a good understanding of what matters in a rental apartment.

Besides my personal experiences, why else do I target young professionals?

Generally speaking, young professionals earn consistent paychecks, are respectful to apartments, and are too busy to complain about minor issues.

All good things, as far as I’m concerned.

Location, location, location.

We’ve all heard the number one rule in real estate:

Location, location, location.

While a number of factors combine to make particular locations attractive, I’ll highlight one factor that’s very important to me in the Chicago market.

First, for a bit of context.

As mentioned earlier, I target properties in Chicago that would be attractive to young professionals.

Traditionally in Chicago, young professionals commute to office buildings in The Loop (Chicago’s downtown, central business district) via public transportation.

Yes, even in the “work from home” era, most young professionals living in Chicago commute downtown at least a couple days each week.

Since I know my ideal tenant likely commutes downtown, I look for properties that make commuting easier.

That means targeting properties near public transportation.

More specifically, I target properties within a half mile of the L (Chicago’s train system, short for “elevated.”)

Photo by Pablo Merchán Montes on Unsplash

I target properties close to public transportation because of my own experiences as a renter and because of what I’ve learned from potential tenants.

When I was renting apartments in Chicago, I always wanted to be close to the L. There’s nothing worse than walking 20 minutes to a train when it’s 10 degrees or 90 degrees outside.

It makes sense that now as an investor, I should target these same types of apartments close to public transportation.

Having done hundreds of apartment showings over the years, I’m confident that young professionals want to live close to public transportation.

I believe that the most desirable properties for young professionals are the ones close enough to an L station that people can walk there in 10 minutes or less.

Plus, coffee shops, restaurants, shops and other attractive offerings tend to be located near L stations.

So, in terms of location, proximity to the L is one of the most important factors for me.

No matter how attractive a property looks online, I’m not interested if it doesn’t satisfy this requirement.

What are some of my other top requirements for a rental property?

What I look for in a rental property may be different from what you look for. Use your own life experiences and common sense to decide if these elements would be beneficial in your market.

My wife and I have relied on our own life experiences, coupled with advice from our real estate broker, to come up with this list.

It’s not an exhaustive list, but here are some of the most important factors we evaluate when considering rental properties in Chicago:
1. Location, location, location. See above. Proximity to the L and social life (coffee shops, restaurants, bars, etc.) are crucial. Most of the young professionals we rent to are still in the “going out” phase of life. They want to live in fun neighborhoods so they can enjoy themselves when they’re not working. They typically stay in our apartments for 2-3 years, oftentimes before buying a place of their own and “settling down.”
2. Taxes. Property taxes can eat away your cash flow. We have high property taxes in Chicago across the board, but taxes vary widely from neighborhood to neighborhood. I look for properties in areas that have more attractive taxes.
3. Big bedrooms. One of the most common questions I get when I do apartment showings is, “Can I fit a king size bed in here?” People love big beds these days. This can be a challenge considering Chicago’s standard 25-foot wide lot. I look for properties with a minimum bedroom size of 10 x 10.
4. Outdoor space. Young professionals want to have outdoor space, even if they never use it. When I was a renter, I always wanted an apartment with a balcony for my grill. It didn’t matter to me that I only used it a handful of times each year. Maybe having outdoor space made me feel more grown up?
5. Parking. Even though Chicago is a very public transit-friendly city, people still like having cars. Because most young professionals aren’t using their cars every day, they want to keep it safe in a dedicated parking space.
There are certainly other factors we consider, but these are some of the first things I’m looking for when I look through listings on the internet.

These factors were important to me when I was a renter and are still important to the young professionals I rent to today.

While I don’t invest in other cities besides Chicago, I imagine these factors would also be important for young professionals everywhere.

What is your specific criteria for rental properties?

The fist step in purchasing good rental properties is having a set of specific criteria that match your needs and market.

Don’t overcomplicate it. Use your common sense and life experiences as a framework.

Run your criteria by your real estate broker and other investors in your market.

Only after you have come up with a list of important features should you worry about running the numbers.

Whether you currently own rental properties or are hoping to get started, what factors are most important in your market?

Let us know in the comments below.
July 6, 2025
Why do You Really Want to Own Rental Properties?

Before you start doing something, figure out why you’re doing it.

Someone smart probably said that at some point, right?

We’ve spent a lot of time recently talking about the main reasons why I invest in rental properties. We’ve also talked about the work involved with owning rental properties.

I’m a big believer in the power of real estate. I’ve also come to appreciate just how much work is involved in owning rental properties.

The reason I’ve spent so much time writing about the benefits and the work involved is to make sure you know exactly what you’re getting yourself into.

Once you fully understand and appreciate the benefits and the work involved, you’re ready for the next step:

Think and talk about why you want to own rental properties.

Depending on why you want to own rental properties, your strategy may be different than mine or someone else’s strategy.

The key is to figure out your “Why” before making costly mistakes, in terms of both money and time, that don’t help advance your goals.

Don’t skip this crucial step and jump right to analyzing deals.

The last thing you want to do is take on such a big commitment without truly knowing why you’re doing it.

To help you start thinking about a strategy, let’s review the benefits and also the work involved in owning rental properties.

You can read much more in my series on real estate here.

1. Rental property cash flow is king.

With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses.

For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

If your present day expenses are already covered, you can use your cash flow to fund additional investments.

That might mean buying another rental property or investing in another asset class, like stocks.

2. Long-term wealth through appreciation.

Appreciation simply refers to the gradual increase in a property’s value over time.

While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

Photo by Brandon Griggs on Unsplash

3. With rental properties, other people pay off my debt.

When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

However, I do not pay that debt back with my own money.

Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

I then use those rent payments to pay back the loan.

As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

When my equity in a property increases, my net worth increases.

4. Real estate investors earn massive taxes benefits.

When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

Yes, you read that right.

I’ll say it again, just to be clear:

Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

Do not own rental properties if you want passive income.

Now that you know the benefits, let’s highlight just how much work is involved in owning rental properties.

At one point or another, you may have heard someone say, “I want to invest in rental properties for some passive income.”

Yes, we all want passive income.

No, investing in rental properties is not passive.

Think of owning rental properties as a way to earn “semi-passive” or “partially-passive” or “somewhat-passive” income.

Don’t think of owning rental properties as a way to earn “passive” income.

If you want passive income, you should be investing in index funds, like VTSAX. For more on investing in the stock market, you can check out my series on investing here.

For me, the benefits of owning rental properties significantly outweigh the downsides of being a landlord. It’s a tradeoff that I would happily make again and again.

How does the old saying go? “If it were easy, everybody would do it.”

Being a landlord is not easy. It’s definitely not for everyone.

But, then again, neither is financial freedom.

In the end, if you are willing to put in the effort, owning rental properties will accelerate your journey to financial freedom.

Do you still want to own rental properties after knowing the benefits and the work involved?

Now, you know the main benefits and the work involved with owning rental properties.

Like I said, owning rental properties is not for everyone. It takes time and effort to learn the basics.

Then, it takes more time and effort to do your research and develop a strategy.

At some point, you’ll need to take a chance and make a purchase. That means putting your hard-earned dollars at risk.

None of this will be easy.

But, it sure is a lot of fun.

And, there is a lot of upside.

If you still want in, I’m going to help you get started.

Photo by Aaron Sousa on Unsplash

Ask yourself: what are my main goals in owning rental properties?

Before you start analyzing deals, you need to think long and hard about what your goals are.

Depending on what your’e trying to accomplish, your strategy is going to be different.

For example, are you looking to move to an expensive neighborhood and just want to offset your ownership costs?

You may benefit from owning a home with a coach house, granny flat, or garden unit. You can then live in the primary unit and rent out the second unit to reduce your monthly costs.

Or, your goals might be to leave full-time employment and use rental property cash flow to fund your life. In that case, you’ll need a property that generates significant cash flow, possibly at the expense of personal comfort or long-term gains.

On the other hand, you may love your job and have no plans of leaving anytime soon. You’re not concerned about present day cash-flow. Instead, you’re looking for long-term gains through appreciation, debt pay-down, and tax benefits.

In this scenario, you may target markets that have shown strong growth but don’t necessarily cash flow.

These are just a few possible considerations. One of the things I love most about investing in real estate is how many options there are. It’s up to you to decide what options are most attractive for your goals.

This is why the first step is to think and talk about why you want to own rental properties.

Don’t ignore this first step. Spend some serious time thinking about what you’re trying to accomplish.

Because different properties may offer different benefits, you need to commit to a strategy before you start worrying about how to analyze specific deals.

Too many beginner investors skip this step and realize much too late that a property they bought doesn’t help achieve their goals.

My goal in owning rental properties is to accelerate my journey to financial freedom.

My wife and I invest in rental properties in Chicago and Colorado to accelerate our journey to financial freedom.

In order to be truly financially free, we need cash flow to cover our present day expenses. So, we’ve targeted properties in Chicago that generate strong monthly cash flow.

Don’t get me wrong, we certainly hope to benefit from appreciation, debt pay-down and tax advantages. That’s why we’ve chosen to invest in neighborhoods that we think are only getting better.

However, we view those long-term gains as more of a bonus. Our focus with our Chicago properties is on present day cash flow.

On the other hand, our Colorado property is a long-term play. It does not generate positive cash flow. That said, we use the rental income to help offset our ownership costs.

We are planning to keep our Colorado condo in our family for decades to come. Offsetting the ownership costs with rental income will help us accomplish that goal.

At the same time, we are hoping that our Colorado condo appreciates in value, making it a solid long-term investment. So, even though it does not generate cash flow for us, it still fits into our long-term plans for financial freedom.

One key point: just because my wife and I invest for cash flow doesn’t mean we are planning on leaving full-time employment.

I am a big proponent of all lawyers and professionals having multiple streams of income. I refer to these various income streams as Parachute Money.

Because my wife and I are earning steady paychecks, we’ve been able to use our cash flow for other investments. We have multiple income streams and are putting all those income streams to work. That’s one reason we’ve been able to scale our portfolio so quickly.

What are your goals in owning rental property?

You now know the benefits, the work involved, and some different strategies to consider regarding rental properties.

Now, it’s time to ask yourself why you want to own rental properties.

Once you figure out the “why,” you can then move onto the “how.”

So, if you’re considering owning rental properties, what is your why?

What goals are you trying to accomplish?

Let us know in the comments below.

July 3, 2025
Do Not Invest in Real Estate if You Want Passive Income
Turbo 200 Universal Capacitor 67.5MFD: $501.00

Add Puron-410A, Replace Valve, Freon Charging: $729.00

CO2 Drain Purge, Remove Water: $437.00

2 Ton R 410A Coil: $2,000.00

Total for A/C Repairs: $3,667.00

If you’re thinking that’s a rough year for air conditioner repairs, you wouldn’t be wrong.

Unfortunately, those are all repairs we’ve needed on different units in the past 10 days.

It gets better (worse?)… the average high temperature in Chicago over the past ten days has been around 90 degrees.

Still want to own rental properties?

Why would anyone want to own rental properties?

We’ve spent a lot of time recently talking about the four main reasons why I invest in rental properties:
When these benefits combine, real estate investors can generate significant wealth over the long run.

But, make no mistake:

Owning rental properties does not generate passive income. Being a landlord is a job. Even if you rely on a property manager, it’s still a job.

Before we talk about the job of owning rental properties, here’s a quick breakdown of each of the four main benefits.

For a more detailed description of each benefit, you can read my series on investing in real estate here.

1. Rental property cash flow is king.

With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses.

For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

If your present day expenses are already covered, you can use your cash flow to fund additional investments.

That might mean buying another rental property or investing in another asset class, like stocks.

2. Long-term wealth through appreciation.

Appreciation simply refers to the gradual increase in a property’s value over time.

While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

3. With rental properties, other people pay off my debt.

When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

However, I do not pay that debt back with my own money.

Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

I then use those rent payments to pay back the loan.

As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

When my equity in a property increases, my net worth increases.

4. Real estate investors earn massive taxes benefits.

When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

Yes, you read that right.

I’ll say it again, just to be clear:

Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

Photo by Bernie Almanzar on Unsplash

Rental properties do not generate passive income.

At one point or another, you may have heard someone say, “I want to invest in rental properties for some passive income.”

Yes, we all want passive income.

No, investing in rental properties is not passive.

Think of owning rental properties as a way to earn “semi-passive” or “partially-passive” or “somewhat-passive” income.

Don’t think of owning rental properties as a way to earn “passive” income.

If you want passive income, you should be investing in index funds, like VTSAX. For more on investing in the stock market, you can check out my series on investing here.

For even more, JL Collins literally wrote the book on investing in VTSAX. His book is called The Simple Path to Wealth and is tremendous. You can read my review here.

By the way, there’s nothing wrong with wanting passive income. For those of us on our journeys to financial freedom, passive income is what it’s all about.

It’s just that owning rental properties is not passive.

To be a successful rental property investor, you have to appreciate that it is a job.

Owning rental properties is like having another job.

It’s not a full-time job. In fact, there might be months that go by when you don’t actually do much of anything. Your main job is to be at-the-ready in case a tenant messages with an issue.

On the other hand, there will be 10-day stretches where you have three a/c units break requiring multiple service calls, tenant coordination, and $3,600 in repairs.

Granted, this 10-day stretch was just about the worst stretch for maintenance and repairs we’ve had as landlords. It just so happened to occur in the days leading up to me writing this post about being a landlord. Life’s funny, huh?

Still, talk to any landlord and they will have similar stories to share about the stress involved with being a landlord.

Photo by Jon Tyson on Unsplash

Most rental property investors who give up did not realize the work involved.

I’ve known countless rental property investors over the years.

In my experience, the ones who end up selling their rental properties after a couple of years did not appreciate that becoming a landlord means taking on a job.

Unfortunately, they sell their properties long before getting the benefits from cash flow, appreciation, debt pay-down, and tax advantages.

These landlords had likely been misled into thinking that owning rental properties was an easy way to generate passive income.

Look back at the top of the post for the four main reasons I invest in rental properties.

Cash flow, appreciation, debt pay-down, and tax benefits.

Did I say anything about easily earning passive income?

Don’t make the same mistake that so many unsuccessful landlords have learned.

If you’re considering your first rental property, don’t fool yourself into thinking you’ll be earning passive income. There will be tenant issues, work orders, money spent, and tough decisions to be made like in any other business.

This remains true even if you have a property manager. You’ll often hear real estate investors griping about “managing the property manager.”

The bottom line is owning rental properties is a job. It’s not a full-time job. It’s not even a regular part-time job. But, it is a job.

At times, it can be very easy. Other times, it’s very stressful.

If you can handle the job, you can generate massive long-term wealth for you and your family.

I accept that owning rental properties is a job and have benefitted immensely.

For me, the benefits of owning rental properties significantly outweigh the downsides of being a landlord. It’s a tradeoff that I would happily make again and again.

How does the old saying go? “If it were easy, everybody would do it.”

Being a landlord is not easy. It’s definitely not for everyone.

But, then again, neither is financial freedom.

Coming up, we’ll talk about tips on how to make your experience as a landlord as smooth as possible. You can also follow me on socials for current issues I’m dealing with as a landlord.

In the end, if you are willing to put in the effort, owning rental properties will accelerate your journey to financial freedom.

Are you a rental property investor?

Do you agree that owning rental properties is a job?

Let us know in the comments below.
July 1, 2025
Is There Value in Keeping Both of Our Sapphire Reserves?
I recently posted about the major overhaul to Chase’s popular luxury credit card, the Sapphire Reserve. The change catching most people’s attention is the higher annual fee.

I wrote that even with the increased annual fee, I am keeping the Sapphire Reserve in my wallet.

I heard from a number of readers who also decided to keep the card despite the increased annual fee.

Just as good, I heard from some readers who applied for the Sapphire Reserve for the first time after reading my post.

I love hearing these types of comments from readers. Keep ’em coming!

Today, I want to share my thoughts on another question that came from multiple readers. The question goes something like this:

My spouse and I both have our own, separate Sapphire Reserve accounts from before we were married. With the higher annual fee, we are wondering if it makes sense to keep both accounts open.

If we closed one account, we could then add that person as an authorized user on the other account.

What do you think?

This is a great question because there’s lots to think and talk about.

Besides maximizing credit card value and minimizing fees, this question also touches on how couples manage their finances together.

While that is an incredibly important conversation, we’ll have to leave it for another day. Today, I’ll simply highlight some of the relevant considerations.

Finally, I love this question because it’s a good reminder that talking about money is not taboo. We all benefit when we discuss how to use money as a tool that works for us, not the other way around.

Let’s get to it.

What changed with the Sapphire Reserve?

The Sapphire Reserve now comes with an annual fee of $795 (up from $550). That is the highest annual fee in the luxury credit card market.

On top of that, the fee for authorized users increased from $75 to $195.

In its press release announcing the revamped card, Chase advertised $2,700 in annual value for cardmembers.

Compared to an annual fee of $795, that sounds like a whole lot of value.

The problem is it takes effort to receive all that value. More than effort, it takes spending. This can get complicated, even with only one card. With two cards, it can be even more challenging.

For a complete description of all of the potential benefits, you can visit the Sapphire Reserve website.

Remember that with all credit cards, the more you spend, the more you earn. That’s true whether you are accumulating points or utilizing shopping or travel credits and other discounts.

This is a good place to emphasize the first rule of responsible credit card usage:

Don’t spend money just to earn rewards. That’s a recipe for financial disaster.

The Sapphire Reserve is no exception to this rule, regardless of whether you have one or two cards in your household.

Before we go further, it’s important to understand what it means to be an authorized user.

What is an authorized user on a credit card?

An authorized user is someone added to the primary account holder’s credit card account. Authorized users typically include spouses, partners or children of the primary cardholder.

The authorized user gets his own physical card, but all spending is tracked on the primary account holder’s account.

Importantly, that means that the primary account holder remains responsible for all payments.

That also means the primary account holder receives all the points earned when the authorized user makes a purchase.

Photo by Guilherme Stecanella on Unsplash

With cards like the Sapphire Reserve, the authorized user gets most of the same perks and benefits as the primary cardholder. Most notably, that includes lounge access and other travel perks.

Not all credit cards offer the same perks for authorized users. Be sure to understand the rules about authorized users for any card you are considering.

Before you add an authorized user to your account, make sure you understand that you are 100% responsible for that person’s spending.

On the flip side, before you become an authorized user, understand that all of your points earned will go the primary account holder.

If either of these restrictions are enough to give you pause about adding or becoming an authorized user, there’s no need read any further.

You should continue to have separate credit card accounts.

And, you should review my post to help you decide whether the Sapphire Reserve is right for each of you on an individual basis.

If you have no problems with adding somebody as an authorized user, read on to find out whether it makes sense in your situation.

What is the actual cost difference for adding an authorized user instead of keeping our accounts separate?

Assuming you are OK with adding or becoming an authorized user, let’s look at what the actual cost is compared to keeping your accounts separate.

Here are the options for couples that currently have two Sapphire Reserve accounts:
- Option 1: Keep both accounts open and pay $1,590 in annual fees.
- Option 2: Close one account, add an authorized user to the open account, and pay $990 in annual fees.
Note: while you don’t have to add an authorized user to your account, I’m assuming you’re reading this post because you are considering it.

If you stopped your analysis here, you’d see that there is a $600 difference if the couple keeps both Sapphire Reserve accounts open.

That’s a lot of money and may lead you to think cancelling one of the cards is the easy decision.

However, just like we explored in my post on why I’m keeping the Sapphire Reserve, there are ways to offset and reduce the annual fee.

You can check out my post if you’re curious how I evaluate and use credit cards.

For today’s purposes, remember that the Sapphire Reserve offers a $300 annual travel credit. The credit gets automatically applied whenever you make a qualifying travel purchase.

It’s safe to assume that anyone willing to pay $795 for a luxury travel card is going to spend at least $300 per year on travel.

The same assumption goes for couples thinking about keeping two Sapphire Reserve cards: they are going to spend at least $600 on travel between the two of them each year.

Applying the $300 travel credit, the total cost for each scenario drops as follows:
- Option 1: Keep both accounts open and pay $990 in total fees. (Each account holder receives a $300 travel credit, reducing the total cost by $600.)
- Option 2: Close one account, add an authorized user, and pay $690 in annual fees.
So, the real question becomes: is it worth an extra $300 annually to keep both Sapphire Reserve accounts open?

When the extra cost of keeping both cards drops from $600 to $300, the decision gets a bit tougher.

You may still be thinking that $300 is too much money to spend each year to have two of the same cards in your household.

Personally, I agree with you.

Below, I’ll show you what my wife and I do instead of having two Sapphire Reserve cards.

However, there are some reasons why it may be beneficial for couples to keep both cards. Let’s look at those reasons now.

Why it might make sense for couples to have two Sapphire Reserve credit cards.

Here are some of the main reasons why it would make sense for a couple to keep two Sapphire Reserve cards.

Trust issues. The bottom line is some couples just don’t trust each other when it comes to spending and paying bills. There’s no shame in that. It’s just a reality.

Like we discussed above, if you find yourself in this situation, it doesn’t make sense to add or become an authorized user. The potential downsides, resentment, and arguments outweigh the $300 in annual savings.

Accounting challenges. When you add an authorized user, all purchases get tracked together on the primary cardholder’s account. If it’s important for you to know who is making each purchase, this can be an accounting nightmare.

Plus, some couples maintain separate bank accounts and pay bills separately. Having all credit card purchases appear on only one person’s account makes it more difficult to figure out who should pay for what.

Photo by Felix Rostig on Unsplash

Business expenses. It’s also not uncommon for lawyers and professionals to use their Sapphire Reserve cards for business purposes and then get reimbursed by their employers.

If that’s the case, it may not make sense for you to blend personal and business expenses on one card. You could use one Sapphire Reserve strictly for business purposes and the other for personal expenses.

Impact on your Credit History. You may not want to close your account because of the potential impact it will have on your credit history. This is particularly important if your Sapphire Reserve is the card you’ve had for the longest time.

While this is a valid concern, there are ways to close your account without having any impact on your credit history whatsoever.

The best thing to do before you close your account is to transfer your available credit line to one of Chase’s other credit cards, like the Freedom Unlimited.

The Freedom Unlimited is the only other credit card I keep in my wallet.

There is no annual fee with the Freedom Unlimited, and it’s the perfect compliment to the Sapphire Reserve.

If you need help with this part, reach out to me on Instagram or LinkedIn, and I’ll walk you through the exact steps.

Sign-up Bonuses and Credits. If you are thinking about getting a Sapphire Reserve, now is the time to do it. Chase is offering its biggest sign-up bonus ever: 125,000 points for new applicants.

Using The Points Guy’s valuation, 125,000 points are currently worth $2,562.50.

Combined with some of these other reasons, these bonus points might make this decision a no-brainer.

Besides the sign-up bonus, the Sapphire Reserve comes with a number of other credits and benefits valued at $2,700 annually.

For a complete description of all of the potential benefits, you can visit the Sapphire Reserve website.

If you and your spouse or partner will independently take advantage of all these perks, then it could be worth it to keep both cards.

In the end, if any one of the above applies to your situation, it may make sense to keep two Sapphire Reserve cards despite the extra $300 annual cost.

My wife and I used to have two Sapphire Reserve cards.

There was a time in my life when I had 10 different credit cards because I wanted to maximize the points I earned on every purchase.

My wife and I each had Sapphire Reserve cards, too.

We did earn a lot of points. But, it was so stressful.

Keeping track of what card to use for every single purchase was complicated. Making sure we paid off each card every month was even harder. In the end, it wasn’t worth it.

We now keep things simple, and I recommend most people do the same.

Today, I only have two credit cards in my wallet: the Sapphire Reserve and the Freedom Unlimited.

I use the Sapphire Reserve for travel (4 points per dollar spent on airlines and hotels) and dining (3 points per dollar).

I use the Freedom Unlimited for everything else. The Freedom Unlimited earns 1.5 points across the board for every purchase. In contrast, the Sapphire Reserve only earns 1 point per dollar spent in non-bonus categories.

Same as me, my wife only carries the Sapphire Reserve and Freedom Unlimited. This way, we can combine points to maximize our rewards.

Together, we still earn plenty of points and our finances are much simpler.

I prefer to have two different cards that offer distinct but complimentary benefits.

If your household is going to keep multiple cards, I suggest having different cards instead of doubling up on the same one. That’s true whether you combine accounts or keep them separate.

That way, you can reap a more diverse set of benefits for a comparable cost.

If you go this route, it’s helpful to keep your credit cards within the same bank (i.e. stick with Chase or stick with American Express) so you can combine points and accumulate rewards faster.

Even if the Freedom Unlimited doesn’t appeal to you, I’d suggest looking at other credit cards within the Chase portfolio that earn Ultimate Rewards points.

For example, my wife and I have the Chase Ink Business Unlimited and the Chase Ink Business Cash for our various rental property businesses.

Each card earns Ultimate Rewards points that we can combine with our Sapphire Reserve.

Let us know in the comments below how you view having two of the same cards in your household.

As always, reach out if I can be of any assistance.
June 29, 2025
Invest in Real Estate for Massive Tax Benefits

When was the last time you took a look at your actual pay statement?

Most of us working W-2 jobs have direct deposit, meaning our paychecks are automatically deposited into our bank accounts. On pay day, all we have to do is wake up, open our banking app, and confirm we got paid.

When we do this, all we see is our net pay, or take-home pay. Our net pay is what we earn after all deductions are subtracted from our gross pay.

Deductions may include voluntary contributions, like to our 401(k) and HSA, as well as other benefits, like health insurance.

That’s all nice so far.

Not so nice is that our paychecks are further reduced by mandatory tax withholdings.

For high earning lawyers and professionals, taxes can easily reduce our W-2 income by 25%-40%.

This is not groundbreaking news to anyone, right?

As employees, we are accustomed to having significant taxes withheld from our paychecks.

We’ve become so accustomed to paying taxes as W-2 employees that none of this should surprise us. Taxes are just part of the bargain when you’re an employee.

Well, what if I told you that automatically paying taxes every month does not have to be part of the bargain?

In fact, I know of a way to make money where taxes can be reduced or deferred for a long time, if not eliminated altogether.

And, that means you get to keep and benefit from more of your hard-earned money each month.

This leads us to the fourth main reason I invest in real estate:

Real estate offers massive tax benefits.

I earn income through W-2 employment and rental properties.

As a W-2 employee and a real estate investor, I know firsthand that not all income is created equal.

My W-2 income is heavily taxed every month.

My rental property income is not.

Today, we’ll introduce some of the main reasons why real estate investors pay less in taxes than W-2 employees.

Before we talk about these tax benefits, let’s review the first three reasons why I invest in real estate. Each of these reasons has accelerated my journey to financial freedom.

Note: I am not an accountant or tax professional, so please be sure to consult with an expert for tax advice for your personal situation.

1. Rental property cash flow is king.

With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses.

For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

If your present day expenses are already covered, you can use your cash flow to fund additional investments.

That might mean buying another rental property or investing in another asset class, like stocks.

2. Long-term wealth through appreciation.

Appreciation simply refers to the gradual increase in a property’s value over time.

While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

Photo by Jason Briscoe on Unsplash

Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

Now that we’ve reviewed how cash flow and appreciation work together to generate long-term wealth, we can look at the additional benefits of debt pay-down.

3. With rental properties, other people pay off my debt.

When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

However, I do not pay that debt back with my own money.

Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

I then use those rent payments to pay back the loan.

As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

When my equity in a property increases, my net worth increases.

On top of monthly cash flow, appreciation, and debt pay-down, the tax benefits offered to real estate investors is another way to generate wealth through real estate over the long run.

Let’s take a look at some of these massive tax benefits.

What are the primary tax benefits to investing in real estate?

When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

Photo by The New York Public Library on Unsplash

Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

Yes, you read that right.

I’ll say it again, just to be clear:

Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

Would you rather have rental income or W-2 income?

This post is not meant to be a primer on income taxes, but we can use a very basic tax bracket calculator to highlight the distinction between rental income and W-2 income.

I currently receive both types of income so readily appreciate the difference in how each form of income is taxed.

Let’s say you live in Illinois and are a high-earning lawyer or professional making a gross annual income of $250,000. Based on 2024’s federal tax rates, you will owe $53,015 in federal income tax. That’s 21% of your income.

Source: taxact.com

Illinois is one of the 42 states that also levies a state income tax. Illinois levies a flat state income tax of 4.95%. For our example, that means an additional $12,375 in taxes each year.

In total, a W-2 employee earning $250,000 in Illinois pays $65,390, or nearly 26%, in income taxes each year.

Again, this is not meant to be a tax primer. And yes, most W-2 employees take the standard deduction, meaning they’ll get a small refund when they file their tax returns.

Still, there’s no getting around the reality that when you’re a W-2 employee, you have limited options to reduce your taxable income.

In the end, you will pay a significant percentage of your income to the government every year.

On the other hand, real estate investors have a number of legal tax deductions at their deposal.

That means a real estate investor earning $250,000 in rental income likely pays very little, or even nothing, in income taxes.

How is that possible?

Let’s find out.

How is it that real estate investors pay so little in income taxes?

The federal government has long encouraged investment in real estate. People need places to live, work, and socialize. The government long ago decided to reward investors who take on the risk of providing these opportunities.

The key way the government incentivizes real estate investors is through tax deductions.

To accomplish its goal, the government allows real estate investors to deduct certain rental property expenses from their income.

Photo by Sonnie Hiles on Unsplash

As mentioned above, common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.

When properly tracked and reported on your tax return, these expenses can oftentimes negate all the rental income you earned.

For today’s purposes, I’ll highlight one key deduction that shows just how much the government wants to encourage real estate investment:

Depreciation.

What is Depreciation?

Depreciation is an accounting method that allows real estate investors to deduct some of the cost of owning a property over time.

This accounting process is not a trick and is completely legal.

Calculating your property’s depreciation can get complicated and is best left to the tax professionals.

In general terms, if you own residential rental property and use standard depreciation like me, you can deduct the cost of owning that property over 27.5 years.

Each year, you can then reduce your rental income by that annual depreciation.

Here’s an example to help illustrate how depreciation works.

Let’s say you buy a rental property for $500,000, and the closing costs are $10,000. The property’s in excellent shape so no capital improvements are needed.

That means your total initial cost for this rental property is $510,000.

When you buy a rental property, you are actually buying the land and the building. Your city, county or town’s assessor typically attaches a value to each the land and the building.

For depreciation purposes, only the value of the building is depreciable. The land is not.

In our example, let’s say the land was valued at $110,000. You are not allowed to depreciate the value of the land.

So, your depreciable basis is the initial cost of the property less the land value:

Initial Cost – Land Value = Depreciable Basis

$510,000-$110,000=$400,000

For residential rental properties, you can spread out that depreciable basis over 27.5 years to figure out the annual depreciation.

Depreciable Basis / 27.5 = Annual Depreciation

$400,000 / 27.5 =$14,545.45

What this means is that you can deduct $14,545.45 from your rental income each year.

Combined with the other available deductions, you can see why real estate investors end up paying very little, or nothing at all, in rental income taxes each year.

Note: If you sell your rental property, you are responsible for paying depreciation recapture tax, which is a topic for another day. To keep it simple, depreciation recapture is a non-factor for this conversation for many reasons. The most important reason for that is because you have to pay this tax even if you never claimed depreciation on your tax return.

Your tax professional will help ensure you get all the tax benefits for owning rental properties.

Fully understanding taxes is not easy. That’s why we have licensed professionals to help us.

A concept like depreciation can be very complicated. Rest assured that your tax professional will help you benefit as a real estate investor from all the available tax breaks.

The point of today’s post is to introduce you to the definitive truth that the tax code favors real estate investors.

While we barely scratched the service today, hopefully you can start to see why it is so advantageous from a tax perspective to own rental properties.

Photo by Kelly Sikkema on Unsplash

I personally earn rental income and W-2 income.

When you legally deduct your rental property expenses, it’s likely that your taxable rental income for the year will be reduced to nothing.

Compare this reality to that of a high-earning W-2 employee, who regularly pays between 25% and 40% in income taxes each year.

The W-2 employee needs to earn significantly more money to take home as much as the rental property investor.

I personally earn rental income and W-2 income.

One source of income hits my bank account in full on the first of every month. I never worry about taxes.

The other source of income gets drastically reduced by taxes before I ever see a dime.

Which type of income do you think I prefer earning?

How about you?

June 27, 2025
Is the New Chase Sapphire Reserve Worth the Annual Fee?

Disclosure: This page contains affiliate links, meaning I receive a commission if you decide to apply using my links, but at no additional cost to you. Please read my Disclosure for more information.

Making big waves in the credit card world, Chase just announced a major overhaul to its popular luxury credit card, the Sapphire Reserve.

Think and Talk Money readers know that I only have two credit cards in my wallet: the Sapphire Reserve and the Chase Freedom Unlimited.

Since the announcement of the changes to the Sapphire Reserve, I’ve received a number of questions about whether I’m keeping my card.

To be fair, all the changes are a bit complicated to sort through.

Along with a revamped points structure, the card offers new travel perks and a variety of spending credits.

However, it’s not the changes to the earning potential or redemption options that’s prompting all the questions.

What is the change to the Sapphire Reserve that’s driving most of the questions?

The Sapphire Reserve now comes with an annual fee of $795 (up from $550). That is the highest annual fee in the luxury credit card market.

On top of that, the fee for authorized users is increasing from $75 to $195.

Ouch.

Offsetting some of that pain for new cardmembers , Chase is currently offering a sign-up bonus of 125,000 points, the largest bonus ever offered.

That translates to $2,562.50 in value, according to The Points Guy.

Even with these increased fees, I am keeping the Sapphire Reserve in my wallet.

Today, I’ll walk you through my thought process as to why I’m keeping the card.

I’ll show you how I value certain benefits and ignore other potential benefits, mostly because they’re just too complicated or don’t apply to my personal situation.

Whether you are thinking about applying or are a current cardmember, this post will give you the tools to decide for yourself if the Sapphire Reserve is right for you.

Before diving in, let’s start with a little bit of context.

I used to have 10 different credit cards to maximize points.

There was a time in my life when I had 10 different credit cards because I wanted to maximize the points I earned on every purchase.

I had airline branded cards, hotel branded cards, and general travel rewards cards. I had credit cards with Chase, American Express, and CitiBank.

My wallet was thicker than my Chicago accent.

I did earn a lot of points. But, it was so stressful.

Keeping track of what card to use for every single purchase was complicated. Making sure I paid off each card every month was even harder. In the end, it wasn’t worth it.

Photo by rupixen on Unsplash

I now keep things simple and recommend people do the same. The exception would be if you enjoy the challenge of maximizing every credit card purchase and perk.

How do I keep my credit card life simple?

I use the Sapphire Reserve for travel and dining and the Freedom Unlimited for everything else.

Same as me, my wife only carries the Sapphire Reserve and Freedom Unlimited. This way, we can combine points to maximize our rewards.

Together, we still earn plenty of points and our finances are much simpler.

Before we go any further, to read more about the responsible use of credit cards, check out my series on credit here. A good place to start is my post with 10 credit card tips for lawyers and professionals.

The Sapphire Reserve’s benefits are geared towards high spenders and frequent travelers.

In its press release announcing the revamped card, Chase advertised $2,700 in annual value for cardmembers.

Compared to an annual fee of $795, that sounds like a whole lot of value.

For a complete description of all of the potential benefits, you can visit the Sapphire Reserve website.

The problem is it takes effort to receive all that value.

More than effort, it takes spending!

With all credit cards, the more you spend, the more you earn. That’s true whether you are accumulating points or utilizing shopping or travel credits and other discounts.

This is a good place to remind you of the first rule of responsible credit card usage:

Don’t spend money just to earn rewards. That’s a recipe for financial disaster.

The Sapphire Reserve is no exception to this rule.

In general, if you are a high spender and/or frequent traveler, the card likely offers more than enough benefits to make it valuable to you.

If you aren’t a high spender and/or frequent traveler, you may end up paying more than the card is worth.

Here are the Sapphire Reserve benefits that actually matter to me.

Today, I want to highlight the benefits of the Sapphire Reserve that matter most to me. The reality is that so many of the offered benefits don’t apply to my situation or are too complicated to use.

You may find value in some of the benefits that don’t matter to me. Regardless, you can go through the same thought process to determine if the Sapphire Reserve is right for you.

To begin, the Sapphire Reserve will cost my wife and I $990 per year in annual fees. To justify that cost, I’m looking for benefits that equal at least that much.

There are 3 annual credits that matter for my personal situation.

Not all of the offered credits are useful to me. Here are the three that matter for my personal situation:

1. $300 Annual Travel Credit

Each year, cardmembers earn $300 in credits for travel purchases. These credits are automatically applied when you make a qualifying travel purchase, which is broadly defined.

Put simply, the annual travel credit is not hard to earn. If you book even one flight throughout the year, you’ll qualify.

Applying the annual travel credit, the overall cost drops to $690 per year.

2. $125 credit for Apple TV+

I already subscribe to Apple TV+, so this one is a no-brainer.

I don’t currently have Apple Music, but there’s an additional $125 credit available for this subscription. Because I’m keeping my Sapphire Reserve either way, I’ll probably subscribe to Apple Music, too.

Important Note: if you’re not already spending money on Apple TV+ or Apple Music, I would not recommend using this benefit as a justification for offsetting the annual fee.

Remember the cardinal rule: never spend more money just to qualify for a benefit. Since I’m already a subscriber, this is a good benefit for me.

Applying the Apple TV+ credit, the overall cost drops to $565 per year.

3. $10 monthly credit for Peloton memberships

Like Apple TV+, I already pay for a Peloton membership. This one’s another no-brainer.

Applying the Peloton credit, the overall cost drops to $445 per year.

In total, these three credits reduce the true cost of the Sapphire Reserve for me to $445.

Cutting the true cost in half definitely helps me feel better about the initial sticker shock of the $990 annual fee.

Importantly, I do not have to change my spending habits in any way to qualify for the credits. I would be paying for these things regardless of the credits, so these are true benefits for me.

Here are some of the credits that I won’t ever use.

In contrast to the above credits, there are some other credits offered that are either too complicated or that I won’t really use.

Don’t overlook this distinction. You never want to justify having a credit card because of hypothetical perks. Only focus on the ones you’ll use.

For example, Chase advertises $300 in DoorDash promos. Here’s the offer:

DashPass members get up to $25 each month to spend on DoorDash, which includes a $5 monthly promo to spend on restaurant orders and two $10 promos each month to save on groceries, retail orders, and more.

Uh, come again?

I think what this means is I can save $5 once per month on a restaurant delivery. Then, I can spend more money on two other deliveries per month (but not for food), and save $10 each time.

Did I get that right?

This is way too complicated. I’m ignoring this credit for my analysis.

If I regularly used DoorDash, this might be a different story. Because I don’t use DoorDash, and the credit is so complicated, this one is meaningless to me.

Photo by Jon Tyson on Unsplash

There are other credits like this one attached to the card that don’t do anything for me.

Other examples include credits for dining through the Sapphire Reserve Exclusive Tables and credit for stays with The Edit. In all likelihood, I won’t ever take advantage of these credits.

When reviewing the offered credits, you should do the same analysis and only count what you’ll actually use.

If you won’t currently use the credit, don’t force yourself to use it to justify the cost of the card.

I also don’t put much weight on travel benefits like lounge access and hotel status.

The Sapphire Reserve offers access to 1,300+ airport lounges worldwide through Priority Pass, plus access to Chase Sapphire Lounges.

The Chase Sapphire lounges admittedly look awesome. The problem is there is not a lounge at my primary airport, Chicago O’Hare.

There also isn’t a lounge at any airports I regularly fly to. I likely will get very little benefit from these lounges, unless one opens at O’Hare.

The same goes for the lounges offered through the Priority Pass program. I’ve found this to be a great benefit when traveling internationally but not very useful when traveling domestically.

If you are a frequent traveler and would take advantage of all these lounges, this is a major perk of the card. Personally, lounge access doesn’t do much for me.

The same goes for hotel status through IHG simply because I don’t typically stay at IHG branded hotels.

In short, these benefits may be meaningful to you but don’t provide much in terms of value for me.

If anything, I view them as a bonus. Maybe I’ll take advantage of these travel benefits a couple of times throughout the year, and that would be great.

But, they’re not a factor in my current decision to keep the card.

I am keeping my Sapphire Reserve because I will earn significantly more than $445 in points value.

By this point in my analysis, I’ve reduced the fee as much as possible for my situation. Instead of the sticker shock of $990, the real cost is $445 per year.

Now, I need to decide if I will earn enough points to justify the $445 cost of the card.

It is easier than you think to calculate how much value you’re getting in points.

I like The Points Guy for determining the value of credit card points. While it’s not an exact science, The Points Guy calculates the value of each credit card company’s points and miles every month.

The Points Guy currently values Chase Ultimate Rewards points at 2.05 cents/point. For comparison, American Express Membership Rewards are valued at 2 cents/point.

Meaningful to me, the new Sapphire Reserve offers 4 points per dollar spent on airfare and hotels. It also offers 3 points per dollar spent at restaurants. Finally, you’ll earn 1 point per dollar on everything else.

In my situation, I want to know if I will earn enough points to justify the $445 annual cost. This will require some basic math.

Here’s what the math looks like:

1 point = 2.05 cents.

$445 annual cost x 100 cents = 44,500 cents.

44,500 cents / 2.05 cents per point = 21,707 points.

So, I need to earn 21,707 points to justify keeping the card.

Now, I need to figure out how much I spend each year.

It’s easy to determine how much you spend each year.

The next step is to open your Chase app and look to see how much you normally spend in each category. This is very easy to do.

Chase, like most credit cards today, automatically categorizes your spending for you. Look for the “Spending Planner” option in your app.

Once there, you can find out exactly how much you spent on categories like travel, food, and everything else.

I recommend reviewing your spending for all of last year and so far this year. Then, you just need to do some quick math.

In my case, I use my Sapphire Reserve primarily for travel and dining out, so almost every dollar I spend earns 3 or 4 points.

I can see on the Chase app that I spend thousands of dollars in each category per year. That’s more than enough spending to earn 21,707 points.

In other words, my current spending levels make it an easy decision for me to keep the card.

To put it in perspective, if I spend $5,426.75 per year on flights and hotels, that alone would generate enough points to cover the cost of the card.

5,426.75 x 4 = 21,707 points

Or, if I spend $7,235.67 on dining, I would earn 21,707 points, enough to cover the cost of the card.

In reality, I spend in both categories so neither one has to even reach that level of spending.

That’s all there is to it.

You can follow these same steps to determine if the Sapphire Reserve is worth it to you.

If you aren’t getting enough value, consider the Chase Sapphire Preferred.

The Chase Sapphire Preferred is a less expensive version of the Sapphire Reserve with less overall benefits.

I had the Sapphire Preferred for years before my spending justified switching to the Sapphire Reserve.

You can do the same analysis that we just went through to determine if the Sapphire Preferred is a better card for your personal situation.

Now you can decide if it’s worth applying for or keeping the Sapphire Reserve.

Now you know the exact process I went through when I learned the Sapphire Reserve was undergoing some major changes.

I don’t put much weight on the harder-to-quantify benefits, like lounge access and hotel status, because I don’t have the chance to use those perks very often. If I do get the chance, that’s a nice bonus.

For me, I earn enough points each year to justify the true cost of keeping the Sapphire Reserve in my wallet.

Do you currently have the Sapphire Reserve?

Are you keeping yours or replacing it with something else?

Let us know in the comments below.

June 24, 2025
Invest in Real Estate and Other People Pay Your Debt

Imagine that you have the chance to own something that might be worth a lot of money down the road.

To buy this thing, you will need to pay 25% of the purchase price. The other 75% of the price will be paid by someone else.

Your job is to take care of that thing and keep it for a long time. It won’t be easy, but if you can handle it, you’ll wake up years from now owning something outright that is very valuable.

So far, this sounds pretty good, right?

Of course, there’s a catch. That person paying for 75% of the item will want to be paid back. He’ll want to earn interest, too.

You might be thinking that this opportunity doesn’t sound so promising anymore. Having to pay off that debt might be enough to convince you not to move forward with buying this thing.

You’re smart to be thinking about the debt. I could understand if the prospect of paying back a debt like this didn’t appeal to you. Who really wants to use their own hard-earned money to pay off debt anyways?

Fair enough.

But, what if I told you that other people are going to pay back that 75% (plus interest) on your behalf?

Even more, while those other people are paying back the debt, you still get to benefit from owning the item.

Does that change how you’re viewing this opportunity?

Maybe now you’re thinking that this is too good to be true?

Nope.

This is exactly how real estate investors generate long-term wealth. They buy a property using a loan and then pay back that loan using other people’s money.

This example leads us to the next main reason I invest in real estate:

Other people pay off my debt.

When you acquire the right rental properties, your tenants will pay monthly rent and that rent can be used to pay off your loan.

That means you can pay off that loan without using any of your own money.

As your loan balance shrinks, your net worth increases. As your net worth increases, you are creating wealth for you and your family.

Along the way, you can reap the benefits of monthly cash flow and appreciation. That means your net worth increases even more.

That’s a powerful combination to generate long-term wealth.

If this concept sounds like something you may be interested in, read on.

Before we talk more about debt pay-down, let’s review two of the other main reasons I invest in real estate.

1. Rental property cash flow is king.

With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses.

For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

Photo by Frames For Your Heart on Unsplash

If your present day expenses are already covered, you can use your cash flow to fund additional investments.

That might mean buying another rental property or investing in another asset class, like stocks.

2. Long-term wealth through appreciation.

Appreciation simply refers to the gradual increase in a property’s value over time.

While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

Now that we’ve reviewed how cash flow and appreciation work together to generate long-term wealth, we can look at the additional benefits of debt pay-down.

With rental properties, other people pay off my debt.

When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

However, I do not pay that debt back with my own money.

Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

I then use those rent payments to pay back the loan.

Each time I make a mortgage payment, part of the payment goes to interest on the loan and part of the payment goes toward the principal. This concept is known as amortization.

By the way, this is how real estate investors use Good Debt, also know as leverage, to generate wealth.

You may be totally against debt of all kind. That’s OK. Debt certainly carries risk. I’m not here to convince you that debt is a good thing or a bad thing. I’m just showing you how it works.

For more on the difference between good debt and bad debt, check out my post here.

What is loan amortization?

Amortization is the process of paying back a loan over time in predetermined installments. While your payment amount remains the same, the composition of that payment changes over time.

In the early years of paying off a mortgage, the vast majority of your payment goes to the interest. With each additional payment, more of the money goes towards the principal.

When you take out a mortgage, your lender will give you an amortization table that shows you exactly how much of your monthly payment goes towards interest and principal for the duration of the loan.

For example, if you take out a 30-year mortgage, you’ll receive a chart that shows 360 payments (12 monthly payments for 30 years). You can then look at any month in that 30-year period to see how much of your payment goes to interest vs. principal in that month.

Photo by Naomi Hébert on Unsplash

If you’re so inclined, you can also use an online calculator, like this one at calculator.net, to create an amortization chart for any loan you have.

I’ll admit, looking at the amortization chart is the least fun part of any real estate closing.

Seeing debt payments as far out as 30 years is a bit scary. It’s hard not to think of all the things that can go wrong during such a long time period. That’s why I prefer to think of amortization in general terms instead of specifics.

Generally speaking, I know that some of my monthly payment goes to interest and some goes to principal. The longer I pay back the loan, the more of my payment goes to principal. That’s good enough for me.

With a fixed-rate loan, your monthly payment remains the same.

When you have a fixed-rate mortgage, your payment remains the same for the duration of the loan.

At the same time, because of inflation, rents tend to go up over the long run. Rents may also go up if market conditions improve or if you have forced appreciation through enhancements to your property.

When your rental income goes up, and your debt obligation remains constant, that means more cash flow for you.

For example, say your monthly mortgage payment is $2,500 each month for the next 30 years. And, let’s say you currently earn $3,000 in monthly rent payments.

Over time, your rental income should gradually increase. Some years in the future, you may be earning $4,000 or $5,000 per month in rental income. All the while, your monthly mortgage payment remains $2,500.

You can use that extra income, after covering all other expenses, to pay for your immediate life expenses, pay off your loan faster, or invest in other assets.

It’s for these reasons that having a fixed debt payment over a long time horizon is one of the biggest advantages to investing in real estate.

Think of it this way. Just like with your personal Budget After Thinking, you can make significant strides towards financial freedom when your income increases and your expenses remain fixed.

What do you think of investing in real estate so other people can pay off your debt?

Now, you know three of my main reasons for investing in real estate: cash flow, appreciation, and debt pay-down.

Regarding debt pay-down, each month my tenants pay rent, I can use that income to shrink my loan balance.

As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

When my equity in a property increases, my net worth increases.

So, on top of monthly cash flow and appreciation, debt pay-down is another way to generate wealth through real estate over the long run.

That’s three ways to make money off of a single investment.

Not bad, huh?

If you’re a real estate investor, let us know how you’ve used debt to increase your net worth.

June 22, 2025
Money on My Mind: Read The Simple Path to Wealth
The Simple Path to Wealth by JL Collins is the best book on investing I’ve ever read.

It is a must-read for anyone trying to figure out why and how to invest in the stock market.

If you’re a new investor and don’t understand how to invest in the stock market, Collins will set you on your way.

If you’re a seasoned investor unsure what to do in times of economic uncertainty, Collins is here to help.

Maybe you just need a bit of motivation or a reminder of how simple it is to build long-term wealth. There’s no one better than Collins to provide that pep talk.

Who is JL Collins?

JL Collins is sometimes described as “the Godfather of Financial Independence” in the personal finance community. He has a popular blog where you can read more about his story.

The short version is that he wrote a series of letters to his then teenage daughter about money, investing, and life. He wanted to impart the wisdom he had accumulated during his lifetime and help her avoid the mistakes he had made.

Those letters eventually led to his blog, which then led to his bestselling book, The Simple Path to Wealth, first released in 2015.

Since then, Collins has been a thought-leaders in the financial independence community. He has inspired thousands, if not millions, of people around the world to accumulate massive wealth by following a few simple rules.

What makes Collins so transformative is his ability to make seemingly complex topics (like investing) into easily digestible and actionable information.

If you have any intention of becoming financially independent and haven’t read The Simple Path to Wealth, now is the time to do so.

I’ve read his book cover-to-cover twice and constantly refer back to his lessons.

Photo by Jack Skinner on Unsplash

Each time I read his book, I’m reminded how simple it is to reach financial independence if I can just follow a few simple tips.

I’ll share those simple rules with you at the bottom of the post. Before I do, here is a bit of context about each time I read his book, first in 2019, then again in 2025.

Seeing those dates, you may already be wondering if world events between 2019 and 2025 changed his philosophies.

Let’s find out.

I first read The Simple Path to Wealth in 2019 as a DINK.

I first read The Simple Path to Wealth in 2019 and just finished the updated version. Even if you’ve read the original version, I highly recommend you read new edition released in 2025.

Here’s why.

When I read the original version in 2019, market conditions and the world economy were in very different places than they are in 2025.

Back in 2019, the stock market had been closing out one of the best decades in history. As reported by US News:

From a market’s perspective, the 2010s will forever be remembered as an era of slow but steady gains on Wall Street, and a period of sustained growth for investors and their retirement accounts.

By the end of the 2010s, the market had been on the longest bull run in history. It was such an epic run that it was fairly common for most people to see big gains in their portfolios without much effort or knowledge.

On a personal level, my life was also very different in 2019. My wife and I were enjoying married life before having kids. We had just purchased our first rental property in a trendy Chicago neighborhood.

On top of that, we were DINKs (“Dual Income No Kids) and able to save aggressively for our next investment.

We were considering another rental property, but I first wanted to learn more about the power of investing in the stock market.

This is what led me to read The Simple Path to Wealth the first time.

Side note: If you are currently a DINK, or will soon be a DINK, please pay extra attention here.

Don’t waste this powerful opportunity to supercharge your investments.

When you’re in a relationship where you have two incomes coming in and are sharing financial responsibilities, you have the opportunity to supercharge your Later Money goals.

This is what my wife and I were able to do, even if we didn’t know what a DINK was. We each had good incomes coming in and our monthly expenses were low.

Also, we didn’t have to worry about childcare. We were young so the odds of unexpected medical care were lower. All things considered, it was pretty easy to keep our Now Money to a minimum with plenty to spare for Life Money.

This allowed us to fuel our Later Money goals. We had money in the bank and seemingly endless choices.

And, I didn’t want to screw it up.

Reading The Simple Path to Wealth was a way to educate myself in hopes of not screwing it up.

I read the new version of The Simple Path to Wealth in 2025.

Fast forward to 2025. I read the new version o The Simple Path to Wealth because I was curious if Collins’ viewpoint had changed due to major world events, like the Covid-19 pandemic.

I was also curious to see whether his advice would still resonate with me now that I’m a seasoned real-estate investor and have a personal finance blog.

Well, I’m happy to report that Collins’ message hit me stronger today than it did in 2019.

If anything, Collins’ lessons are even more applicable today than they were in the 2010s when markets were soaring.

In the new edition, Collins discusses how recent world-changing events, like the Covid-19 pandemic and international wars, actually strengthen his long-time recommendations.

This was very refreshing to learn because I have been following his advice and recommending his book for years.

In times of economic uncertainty, Collins explains, it’s even more important to have a plan for your money.

Once you have that plan, you need to stick to it, no matter what.

Collins provides the motivation and tools to stick to the plan.

Why is The Simple Path to Wealth such an important book?

When I teach my personal finance class to law students, I ask at the beginning of class what my students hope to learn.

One of the most common responses I hear every year is, “I want to learn how to invest in the stock market.”

OK, fair enough.

The truth is I’ve yet to find any resource better than The Simple Path to Wealth to teach us how and why to invest in the stock market.

What makes Collins such a good teacher?

In The Simple Path to Wealth, Collins uses basic, every day, language that we can all understand. This is his greatest gift.

Too many books on investing are so dense that they are useless to the average person.

Collins is different. He successfully blends his life experiences with the historical data, in easy to understand terms, to show us that investing is not hard.

For many people, especially people at the beginning of their careers, investing can seem intimidating.

As Collins explains, that’s because it’s big business for investment companies and banks to make investing seem hard and scary.

These companies spend billions of dollars marketing every year to convince us that investing is complicated. Their goal is to convince us to pay them lots of money to manage our money.

You don’t have to believe them. You certainly don’t have to pay them tons of money to invest in the stock market.

Collins will not only show you how invest on your own, he’ll also give you the tools to outperform the financial professionals.

What are Collins’ simple rules to live by?

Collins’ main message is that investing should not be complicated. When done the right way, it’s simple and effective. Hence, the title of his book.

Collins explains that each of us can achieve long-term wealth by following a few simple rules:
1. Spend less than you earn.
2. Invest the surplus.
3. Avoid debt.
Sound advice, indeed.

If you can live by these simple rules, the next question is what to do with your surplus money earmarked for investments.

Collins has a simple and effective plan for you that he details in his book.

What is Collins’ simple and effective plan for investing?

Collins’ plan is both simple and effective. He doesn’t expect you to just take his word for it, either. He has the research and historical data to back it up.

Make no mistake: just because something is simple does not mean it is ineffective.

So, what is Collins’ simple and effective plan to invest for long-term wealth?
1. Invest in low-cost, broad-based index funds. His favorite investment has always been Vanguard’s total stock market index fund, VTSAX.
2. Ignore the noise. Be mentally tough. Stay the course.
That’s it.

You don’t need fancy investments. You don’t need a financial advisor. All you need to do is commit to the plan.

If you’re thinking that this is too good to be true, you need to read The Simple Path to Wealth.

How can it really be that simple?

You might be thinking, how can it really be that simple? If all people had to do was invest in index funds, everyone would be rich.

That’s exactly Collins’ point!

Everyone could be rich if they follow these simple rules.

The problem is most people allow their emotions to get in the way and steer them off the path.

Collins does his best to help you deal with those emotions.

If you don’t believe that index fund investing will make you wealthy, look at this stat about the recently announced sale of the NBA’s Los Angeles Lakers:

A mind blowing stat:

Jerry Buss bought the Lakers for $67M in 1979, and just exited for 149 times his money at $10B in 2025

Sounds like a lot, right?

That is somehow less than he would have made simply indexing the S&P 500 over that time period ($13B)
— Ankur Nagpal (@ankurnagpal) June 19, 2025

That’s right. The Buss family would have an extra $3 billion today if they had invested in the S&P 500 instead of purchasing the Lakers in 1979!

Many thanks to blog reader, DJ, for passing this one along!

I know, I know. Owning the Lakers was probably a ton of fun. They also surely made money on the team along the way.

The point remains: investing in an S&P 500 index fund also would have generated massive wealth. And, that wealth would have come without the effort and the headaches of running a major professional sports organization.

I can picture Collins having a good laugh about stats like this.

Read The Simple Path to Wealth.

I recommend The Simple Path to Wealth to all of my students and friends who ask me about investing.

There is not a better book out there to make the concept of investing seem approachable for all of us.

Collins is clear and humorous. He’s also stern when he needs to be.

If you read this book, you’ll realize that becoming wealthy through the stock market does not have to be complicated.

It can be wonderfully simple.
- Have you read The Simple Path to Wealth?
- Are you convinced that investing can be both simple and effective?
Let us know in the comments below.
June 20, 2025
Invest in Real Estate for Wealth Through Appreciation

We previously looked at the main reason I invest in real estate:

Rental property cash flow is king.

With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses.

For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

What if you don’t need your cash flow to cover your immediate life expenses? Maybe you have a full-time job that provides more than enough.

That’s even better. There’s no rule that says you have to spend your cash flow.

If your present day expenses are already covered, you can use your cash flow to fund additional investments. That might mean buying another rental property or investing in another asset class, like stocks.

The point is cash flow gives you options. Having options is never a bad thing, right?

That’s why cash flow is the number one reason I invest in real estate.

However, cash flow is not the only reason.

I also invest in real estate to generate long-term wealth for me and my family.

I am a buy-and-hold real estate investor.

That means when I buy a property, I intend on keeping it for many years. Circumstances may change, of course, but my intention is to hold property for a minimum of ten years.

The reason I buy-and-hold for the long term leads us to the next major reason I invest in real estate:

Appreciation.

While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits. Appreciation is how I will generate long-term wealth for my family through real estate.

Today, I want to talk about what appreciation is and how it can significantly improve your net worth over time.

Let’s dive in.

What is appreciation in real estate?

Appreciation simply refers to the gradual increase in a property’s value over time.

For example, if you buy a property for $500,000, and some years later it’s valued at $750,000, your property has appreciated by $250,000.

That means through appreciation, your net worth has increased by $250,000.

Except for when you’ve forced appreciation (we’ll discuss below), you have earned that money through appreciation by doing very little. All you have to do is make your monthly mortgage payments, and let the market do the rest.

This is exactly how many Americans generate significant wealth over time.

Photo by Tierra Mallorca on Unsplash

How to target properties with a strong likelihood of appreciating is beyond the scope of this post. I’ll soon share with you my criteria, but there’s no one way to do it.

Entire websites and books have explored this topic. If I were just starting out, I would spend a lot of time on BiggerPockets.com.

For that matter, even as an experienced investor, I still spend a lot of time on BiggerPockets.

For now, remember one main point when it comes to appreciation:

Appreciation takes time.

Successful real estate investors know that appreciation takes time.

I’m not talking about speculators or gamblers. I’m talking about people who are interested in building long-term wealth for their families.

To build long-term wealth through real estate, you need to remember this main rule about appreciation.

It’s so important, it’s worth repeating:

If you can hold a property for years or even decades, you have a really good chance of that asset being worth significantly more than when you paid for it.

Your property may not appreciate at the same rate every year. Some years, your property may even lose value. That’s OK because you’re in it for the long run.

The hard part is just holding on long enough to realize the benefit of appreciation.

In this way, investing in real estate is like investing in stocks.

How is investing in real estate like investing in stocks?

Many of the same fundamentals apply to investing in real estate as to the stock market.

We just mentioned one of the biggest keys with either asset: the longer you hold that asset, the more that asset should eventually be worth.

With stocks, we’ve already spent a lot of time in the blog discussing why you need to invest early and often.

For more information on investing in stocks, you can read a variety of posts here.

When you invest in stocks early and often, you can benefit from compound interest and safely ride out down market cycles. The stock market does not always go up every year, but given enough time, it does always go up.

In large part, the same is true when you invest in real estate.

If you buy good properties in good markets, given enough time, your property should appreciate in value. Like with stocks, the key is your ability to hold on and ride out down market cycles.

Want to know the secret to riding out down markets?

Cash flow.

You saw that one coming, didn’t you?

Cash flow will help you ride out market cycles and benefit from appreciation.

When you own strong, cash flowing rental properties, the cash flow covers all the expenses.

That means you can stay patient in down markets because holding that property is not costing you any money.

To take it a step further, as long as your property is cash flowing, you can hold it for decades and generate massive wealth through appreciation.

Cash flow and appreciation working together is a powerful force. You can see why real estate investors get so excited about their investments.

When a property is performing, the cash flow allows an investor to hold that property indefinitely. During that time, the property becomes more valuable through appreciation.

It’s a beautiful partnership.

What is forced appreciation?

I mentioned earlier that there is one other form of appreciation worth talking about here: forced appreciation.

Forced appreciation is when you improve your property in such a way that it increases in value.

Common examples may include remodeling the kitchen or bathrooms or adding another bedroom. When you make these enhancements to your property, your property should increase in value.

This is what house flippers do. They buy a property in need of some work, do the improvements, and then aim to sell that property for a profit.

It’s not a strategy that I personally use, but it has worked for many people for many years.

The thing is, forced appreciation is not just for house flippers or investors hoping to realize a quick profit.

When done correctly, forced appreciation is another way to make money over the long-term for buy and hold investors, like me.

For example, in one of our rental buildings, we added in-unit washers and dryers. By doing so, our units now command a higher monthly rent, which in turn increases the value of the property.

As a final point, forced appreciation is one way investing in real estate is different from investing in stocks.

When you buy real estate, you are in control. You decide what improvements to make and not to make. Many real estate investors love having this type of control over their assets.

By contrast, when you own stock in a company, there is very little (if anything) you can do to impact how that company is run. Unless you have boatloads of stock in a particular company, you’re essentially just along for the ride until you sell your stock.

What do you think about generating long-term wealth through appreciation?

Now you know two of my favorite reasons for investing in real estate: cash flow and appreciation.

Have you invested in real estate and benefited from appreciation?

Did you force appreciation or hang tight and let the market do it’s thing?

Let us know in the comments below!

June 17, 2025