Caitlin's Corner

Mailbox Money Isn't Just for Landlords

A few years ago, Ryan and I launched into early retirement with a plan to live entirely off of our rental income from real estate investments. Plan B was to supplement any shortfall with CDs we'd set up in the months leading up to our retirement date. And then there was Plan C, which we didn't like to think about.

Plan C was to sell whatever part of our stock portfolio made sense at the time, in order to make up for a shortfall. We had the funds to sell, but we didn't want to; we just couldn't wrap our heads around the idea of selling stocks for income.

Asset Psychology

Before I say what I'm about to say, I acknowledge that there can be benefits to having physical real estate in one's portfolio: hello, diversification and tax deductions. But in the past several years, with real estate underperforming, I've been shocked by how many people are still eager to set aside a huge portion of their allocation for real estate. It's not because the financing is good or the tax advantages are particularly worth it; there's still a strong pull toward the real estate asset class because of its psychology.

Having rental properties allows an investor to receive theoretical rent checks each month. That means if I own real estate, it produces (hopefully) some amount of income for me each month. We used to call this "mailbox money," even though most of the rent we collect these days is digital. However the check is received, the point is that I don't have to make any decisions: I just got some "free money." That's not what happens with our stock account.

Funds in our brokerage account generally appreciate in value. Some of them kick out dividends, which get automatically reinvested into those same funds. If I want money from our brokerage account (rather than our emergency fund), I select which funds make the most sense to sell, and I sell them.

This act of selling isn't the same as decimating my stock portfolio. The idea is that I sell a portion, and over time, that decreased portion can fill back in thanks to my remaining investments going up in value. I understood this logic going into early retirement, but still, I hated the thought of Plan C.

When it comes to selling stocks (or funds) in a taxable brokerage account, there are not only steps to take to determine what even makes sense to sell, but there's a heaviness in that choice: what if I sell this and then the stock goes way up? These are shares I've had for so long, how can I let go of them now? I worked so hard for these, how can I watch them leave my account forever?

All of these questions are valid. And they tend to make a lot of people believe that it's best to leave money in the market forever.

This thinking is also what leads a lot of investors to believe that real estate is the only way to get that "mailbox money." In one case, if I want money from our real estate, I just let a check hit my bank account. In another case, if I want money from my brokerage account, I have to sell a portion of it.

But, even without having to decide what and whether to sell when it comes to collecting real estate income, that mailbox money is never a guarantee (hence having a Plan B and a Plan C). Not to mention the exhausting other problems and decisions that come with owning real estate (see: hundreds of previous newsletters 😆).

So, where are Ryan and I getting our "mailbox money" these days? As you may have guessed, it's been a lot of Plan C. There are a couple of reasons for this that we planned earlier this year: a new deck, a new car, a home sale that would require some capital expenses. One reason was not one we had planned or hoped for (though it's still not a huge surprise): our real estate hasn't been consistent. Thanks to higher vacancy and maintenance costs, our rentals aren't kicking out the income we can usually rely on. So much for that mailbox money.

I can hardly believe the fair-weather fan I've become about real estate investing. It's a change of heart to proclaim so many of real estate's benefits as "psychological," especially since ten years ago, I was a die-hard real estate fan. But it's easy to be a real estate fan when mortgage rates are hovering around 3.5% and the market is considered "first-time-homebuyer-friendly." We all know how that's not the case today.

Fair-weather fan or not, I still believe in the role real estate plays in a portfolio. I know our real estate will be a great source of mailbox money again. What I do wish more investors would understand is that you don't need real estate to have mailbox money. Paper assets (stocks & funds) do that too!

What I'm Reading

📕 Meg Wolitzer's piece in Time Magazine about the life of Gloria Steinem is a great tribute. She highlighted Steinem's warmth and ability to create community and movements, more than her vast accomplishments.

📘 I enjoyed ​this podcast ​ about Dolly Parton's life and impact on storytelling, culture, feminism, and policy.

Join us for free the first Wednesday of each month for an informative money conversation!

Next Up:

October 7th, 1pm CT

​Real Estate Syndications & Private Equity: ​The Good, Bad, and Ugly​

​​For our next Wealth Wednesday, we’re covering Real Estate Syndications and Private Equity - what we like about them, what can go wrong, and some of the things we wish we had known before putting our own money into these types of investments. The potential returns and tax advantages can seem exciting, but it can be easy to overlook the risks (and moral implications) you’re actually taking on in exchange.

When You're Ready, Here's How We Can Help

Comprehensive Financial Planning

Women’s financial realities have historically been overlooked in traditional financial planning. We’re here to change that.

We offer fee-only financial planning to individuals, couples, and families of all kinds. Our planning model includes all aspects of our clients' financial lives - not just managing your investments. We help our clients manage life transitions: career changes, parenthood, caregiving, inheritance, real estate, divorce, and retirement with a plan that reflects their specific values.

If you want help staying on track today and building for the bigger picture, submit our intake form to get started!