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A personal-finance blogger quit being a landlord, sold her rental properties, and still plans to retire early. Here’s how.

A photo of houses in a typical suburb.Houses in Indiana similar to the ones that Holly and Greg Johnson rented out for 15 years and just sold.

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  • A personal-finance blogger sold two rental properties and reinvested the money into index funds.
  • Holly Johnson said that even though her rentals made a profit, being a landlord is costly and risky.
  • She plans to retire early and likes that index funds “never call you in the middle of the night.”

While countless people jumped headfirst into real-estate investing over the last few years, Holly Johnson and her husband have decided that it’s a great time to get out.

Johnson, who sold two rental properties in a suburb of Indianapolis after 15 years of ownership, told Insider that the move made sense for the couple’s goal: to have financial independence and to retire early, or FIRE.

Johnson said she directed the proceeds from the two sales into index funds because managing rentals can be hard work and passive investing takes basically no effort. Johnson, who owns and manages the personal-finance advice website Club Thrifty, added that the timing made sense given the state of the housing market. 

“Prices are high,” she said. “It was the right decision. I will never think about it again because I set aside dollars for taxes and invested the rest immediately.”

One house, a 1,200-square-foot three-bedroom they purchased in December 2006 for $102,500, sold for $212,000 in November 2022, records show. Johnson said they owed about $20,000 on it. Another three-bedroom house they purchased in June 2007 for $85,000 sold in March 2023 for $175,000. It was fully paid off.

Trading rental properties for index funds

The Johnsons, who are both in their early 40s, plan to retire in the next few years. They want to spend much of their time traveling as money flows in from passive investments, including index funds, she said.

Many people on the journey to financial independence and early retirement opt to sink money into index funds, a mutual fund or an exchange-traded fund (ETF) that pools investors’ money to purchase a portfolio of stocks, bonds, or other securities. The idea is to reduce risk by owning small amounts of many companies. And instead of having to pick individual stocks, people opt to invest in index funds for the ease of buying into a preselected portfolio of companies. 

It wasn’t that the Johnsons’ rentals lost money. They had always been profitable, Johnson said, fetching $1,250 a month on the first three-bedroom they purchased and $850 a month on the paid-off house they purchased a year later. The couple was lucky to experience no issues with late or unpaid rent during the pandemic.

There are challenges to being a remote landlord, she added, which is what they would have become when they started to travel. Paying a property manager just didn’t make financial sense, she said, and selling comes with the added benefit of not having to handle tenant emergencies and rental turnover.  

“The stock market never calls you in the middle of the night or breaks your crap,” she said. “And if you’re going to use a property manager, that’s going to cost you money and eat away at your profits. It’s hard to find help, otherwise you’re stuck doing it yourself.”

Other downsides of landlord life

A lot of eager real-estate investors may not be fully aware of the downsides of being a landlord, Johnson said.

Beyond being on call and performing regular maintenance, tenants can inflict costly wear and tear to a house. For instance, Johnson said, they can routinely damage to lawns, drywall, and hardwood trim and floors.

And in Greenfield, Indiana, where the Johnsons’ properties were, the odds of significant price appreciation or home equity wasn’t enough to make holding onto them worth it, she added. 

When interest rates fell and rents skyrocketed between 2020 and 2022, investors of all sizes and stripes rushed into buying real estate to fix and flip homes or to renovate them and rent them out.

“So many people are getting into rental properties who have no idea what they’re getting into and probably shouldn’t be at all,” she said. “Prices are so high, and a lot of people are making poor financial investments.”

But the rush into real estate was also a signal that it was time to sell, Johnson said. 

“When people get crazy about something, that’s when I feel like it’s time for me to stay away from it,” she said. “Be fearful when people are greedy, and be greedy when people are fearful.”

Read the original article on Business Insider
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