Money Management

Investors are scooping up rental properties, and that could leave tenants paying more. 

The housing market has been extremely tight over the past few years. Prospective home buyers have been forced to grapple with not just high mortgage rates and home values, but also, competition from investors with deep pockets.

But new data from MetLife Investment Management shows that Wall Street investors might control as much as 40% of single-family rental homes by 2030. And that’s a bad thing for a couple of reasons.

Regular buyers could get squeezed out, and tenants could end up paying more

The problem with Wall Street taking an interest in the rental market is twofold. The first issue is that the more properties that are scooped up by investors, the fewer that will be available to everyday buyers who may want those homes for their own use, or to rent out for income.

The second issue is that if investors take over the rental market, they might hike rental prices and spur a major affordability crunch for those needing a roof over their heads.

Over the past three years, a good 15% of U.S. households have fallen behind on rent payments, according to MyEListing. That’s roughly 6 million households all in. If rent prices climb even further in the coming years, it could drive a major eviction crisis and leave lots of renters struggling to find a place to live.

Will lawmakers help reverse the trend?

Having Wall Street own a large chunk of the broad rental market isn’t wonderful. And some lawmakers are pushing investors to back away from the market.

Of course, investors will argue that they don’t control enough of a share of rentals to determine prices in any specific market. But that could change if investors buy up more rentals. And seeing as how investors might hold a whopping 7.6 million rental homes by 2030, it’s easy to see why housing advocates may be nervous.

Does it really matter to tenants who their landlords are?

To an extent, yes. Landlords dictate prices, and if those go up, homes become harder to afford.

Also, investors aren’t going to be the ones overseeing daily operations and issues at rental homes. Rather, they’re apt to outsource that to property managers. And that could be a mixed bag.

On the one hand, in some cases, working with a property manager can be a more positive experience than working with a landlord directly, especially if that landlord tends to take a hands-off approach. On the other hand, mom and pop landlords often do a better job of addressing tenant issues than property managers.

Also, mom and pop landlords are often more sympathetic to financial issues that arise among tenants. So if a tenant runs into hard times and can’t make rent, they may get more leeway from a mom and pop landlord than a property manager who can’t even match a name to a face.

It’s one thing for investors to buy up stocks. It’s another for them to buy up rentals. And if they ramp up on the latter, it really has the potential to negatively impact the housing market.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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They could end up costing you more. 

Renovating a home is one of those things you need to put a lot of thought into before moving forward. That’s because home renovations can be expensive even in the best of economic times. And right now, you might pay a lot more to renovate thanks to surging inflation.

A Houzz survey of nearly 4,000 homeowners conducted in October 2022 found that most homeowners will move forward with their 2023 home remodeling plans despite inflation and other challenges, like lingering supply chain shortages. But you may want to postpone your home renovation plans not just due to these issues, but another big one that could hurt you financially.

Borrowing costs are way up

The Federal Reserve raised interest rates seven times in 2022 in an effort to combat inflation. And in doing so, it’s made the cost of borrowing more expensive.

The Fed doesn’t set consumer interest rates directly, which means it won’t dictate what the rate on your mortgage or credit card is. But when the Fed raises its benchmark interest rate, the cost of consumer borrowing tends to increase nonetheless.

Meanwhile, many homeowners can’t afford home renovations outright. Rather, they need to borrow money to finance them, whether in the form of a personal loan, home equity loan, or home equity line of credit (HELOC). But because borrowing rates are higher these days, if you take out pretty much any type of loan to finance your home improvements, you’re going to end up spending more. And that’s a great reason to wait.

Hold off on home projects that aren’t so pressing

You might have an issue with your home that’s seriously impacting your quality of life and comfort. And that’s the sort of renovation you may want to move forward with, despite inflation and higher borrowing costs.

Let’s say your kitchen is tiny and dated. You have very little counter space, which makes it hard to prepare food, and your oven isn’t reliable, which makes it hard to cook food. Worse yet, your fridge keeps failing on you, forcing you to throw out food due to safety issues. That’s the sort of renovation you may not want to postpone, because your kitchen is something you use daily and it needs to be functional.

But let’s say you’ve been wanting to remodel your office by adding new floors and built-in shelving. If your office is perfectly functional right now, you may want to wait on that project.

Similarly, you may be thinking of upgrading your wooden deck to a composite deck so it’s easier to maintain. But if there’s nothing wrong with your existing deck and it can easily last another season without any issues, then you may want to hold off on that project until financing it becomes less expensive.

All told, any sort of home remodel or renovation has the potential to cost a lot of money. So you don’t need to make things even more expensive by borrowing at a time when interest rates are up. Pressing projects may be worth pursuing despite the higher cost, but you’re probably better off waiting on anything that isn’t really essential.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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The answer depends on your financial situation and goals. 

Many people struggle to build retirement savings. And it’s pretty easy to see why.

It’s hard to allocate money to future expenses when you’re barely able to cover your near-term expenses — something a lot of people are experiencing these days due to inflation. And even during periods when inflation isn’t as much of an issue, between your mortgage, car payments, and general bills, you might struggle to consistently fund a retirement plan, even if you’d like to.

But what if you’ve managed to build yourself quite a respectable nest egg already? The average IRA account balance as of 2022’s third quarter was about $102,000, according to Fidelity. But you may have saved a lot more by contributing steadily to your IRA over time and investing your money in a savvy manner.

In fact, you may already be sitting on a $1 million IRA balance with many more working years ahead of you. And that raises the question: Should you push yourself to keep funding that account, or is $1 million in savings enough?

Take your personal needs and goals into account

For some people, $1 million in retirement savings will more than suffice. But for others, a $1 million nest egg might fall short. And you’ll need to figure out which category you’re in before you decide to stop funding your IRA after reaching the $1 million mark.

Seniors are often advised to try to replace about 70% to 80% of their income to live comfortably. So if you earn $100,000 a year, you might want $70,000 to $80,000 in retirement income annually.

Now, let’s say Social Security will provide you with $24,000 a year in benefits. If you withdraw from your $1 million IRA at a rate of 4% per year, which is what financial experts have long recommended, you’ll have $40,000 a year to work with. Add that to your $24,000 in Social Security, and you may end up a little short.

But that assumes you’ll need $70,000 to $80,000 a year in retirement. Maybe you won’t.

Maybe your plan is to downgrade your lifestyle a bit in retirement by relocating to a less expensive part of the country and living more frugally. If so, then a $1 million IRA might more than suffice. And if you’ve sacrificed many things to fund that retirement plan through the years, you may decide that you’re done, and that going forward, you’ll use the money you would’ve contributed to do things like travel or even help your kids out financially.

Keep the tax benefits in mind, too

You may decide that with a $1 million IRA, you’ll have access to all of the retirement income you’ll need. But even in that case, you might still want to keep contributing money to your IRA for one key reason: to score a tax break on your income.

When you put money into a traditional IRA, you exempt that much of your income from taxes. So even if you’re thrilled with your $1 million IRA balance and feel you’re more than set with it, pumping extra cash into that account could still be a wise move — especially if you’re someone who likes paying the IRS as little money as possible.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Orman thinks we should make saving for emergencies a financial priority. 

Bestselling author and personal finance guru Suze Orman is a big fan of emergency funds. She frequently tells her fans to build up their emergency savings, arguing that it can be a lifeline in times of financial difficulty.

Most recently, Orman tweeted an image captioned, “The more money you save, the happier you’ll be.” The accompanying text said, “The biggest favor you will do for yourself is to make emergency savings a priority starting right now. Save. Save some more. And then keep saving.”

Why emergency savings matter

Unfortunately, life does not always go according to plan. Let’s say your car breaks down tomorrow or you suddenly need to cover unexpected medical expenses. Perhaps your work cuts your hours or lays off a large number of staff members. Do you have enough cash in the bank to cover that kind of financial shock?

Many Americans do not. One recent study showed that 50% of Americans have less than $500 in emergency savings. It’s understandable, particularly given the pressures that soaring living costs and all the financial challenges of the COVID-19 pandemic have put on our wallets. The difficulty is that if life throws you a curveball and you don’t have any cash put aside, you may find you have to take on debt. Over time, the interest payments on loans or credit card debt can add up, leading to more financial insecurity.

Orman recommends we aim to have at least one year’s worth of essential living costs stashed away in an accessible savings account. Other financial experts suggest three to six months’ worth is enough, but a lot depends on your situation. If you have a family to support and your job situation is not stable, you might want to aim for a year’s worth of living expenses. If you’re single and confident on the job front, three to six months’ might work for you.

READ MORE: Emergency fund calculator

If you’re not there yet, try not to panic; you don’t have to build your fund overnight. Set yourself a goal and start to contribute something each month — even if it’s a small amount. If you’re able to bring in some extra cash via a side hustle or cut something out of your budget to save more, so much the better. Put any unexpected windfalls into your emergency fund. In time, you will reach your goal.

Is Orman right about this?

Don’t get me wrong, it’s hard to understate the importance of building a decent emergency fund. It’s a cornerstone of any solid financial plan and can insulate you against unforeseen difficulties. Not to mention, if you worry about money, knowing you have savings can help you sleep easier at night.

That said, there’s a limit on how much you need. It isn’t entirely true to say the more money you save, the happier you’ll be. You need enough to give you peace of mind and tide you over. But money that’s sitting in a savings account isn’t earning the types of high returns that will help you to build wealth.

There’s a big difference between saving and investing. Saving involves putting money aside in a bank account or savings account for shorter term goals, including your emergency fund. It’s money you don’t want to take risks with and might need to access quickly. Investing is about buying assets with a plan to generate wealth over time.

Right now, you could get an APY of around 4% on a top savings account, though many pay lower rates. That won’t make you rich — in fact, it may not even beat inflation. In contrast, the compound average annual returns on the S&P 500 over the past 30 years is over 10%. If you invested $1,000 today and earned 4% a year in interest, it would be worth around $2,200 in 20 years time. If it earned 10% a year, that $1,000 would be worth over $6,700 — three times as much.

You may be reading this and wondering why not put all your money into a brokerage account and skip savings altogether. The issue is that there are no guarantees when it comes to investing. There will be years when the stock markets fall, and some investments may not perform as well as you’d hoped. The longer you can leave your investments, the better able you’ll be to ride out any short-term drops.

Investments are for money you won’t touch in the coming five years or more. If you can build a diversified portfolio of assets, they can start to work for you and build wealth for the future. But before you do that, you need a solid emergency fund. That way, if something goes wrong, you won’t be forced to sell your investments (potentially at a loss) to cover your bills.

Bottom line

Emergency funds are essential, but you only need a finite amount of money in savings. If you save too much, you’ll have less cash available to invest for the future. On the other hand, if you don’t have any savings, you may be in a precarious position. The idea is to build both savings and investments. Each fills a different role and together, they can help you build wealth.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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There are so many money management resources out there. 

We live in the Age of Information, and it’s gotten very easy to find help with just about any subject imaginable. Naturally, this has also translated to personal finance and money management advice.

Since so much of this information is free (like the personal finance resources here at The Ascent), you may wonder why you would ever consider paying a professional for help. And this may especially be true for you if you’re an average American, rather than part of the 1%. If you don’t have a lot of money to worry about, why waste some of it on financial advice? According to the Northwestern Mutual 2022 Planning & Progress Survey, just 35% of those surveyed have relied on finance professionals for money help.

Last year, I met a financial planner on social media, by pure chance. We ended up trading professional services, and with his help and wise counsel, I turned my finances around. I was able to get out of debt, bring my credit score up to the highest it’s ever been, and start to save money to buy a home. While I did the work myself (and it has been a lot of work), I know I couldn’t have done this so successfully without the ongoing support and advice of a finance professional. Here’s what a finance professional can do for you, even (and especially) if you’re not rich.

Back to basics

A finance professional has likely heard it all before, so no matter how bad you think you are with money, they’re not going to judge you (and if they do, find a new one — there should be a lot less shame around learning from your money mistakes). If you’ve struggled with money, a financial advisor can help you get back to basics with advice on budgeting and ways to increase your income. We’re not always the best judges of our spending and savings habits. A neutral third party is in a good position to assess your current financial situation and offer useful tips and an action plan to improve.

Managing debt

Being in debt is as American as apple pie. Research from The Ascent found that in 2021, the average household debt was $96,371. Despite what some finance gurus will tell you, it isn’t automatically bad to be in debt. For example, if you took out a mortgage loan to buy a home that is appreciating in value, you have the ability to increase your own net worth thanks to that debt (especially if, like many Americans, you wouldn’t have been able to buy a home with all cash without saving up for many, many years). That said, if you’re carrying high-interest credit card debt, it’s worth paying it off sooner rather than later, and a finance professional can give you advice and discuss the different options you have to pay off debt.

Planning for the future

A major topic of discussion between my financial planner and me has been my plans to buy a home. It’s been helpful to crunch those numbers and see, in black and white, how much I should save and what homeownership costs I’ll have to account for. If you need some help seeing the financial forest for the trees, a professional can help you look for your own “big picture.” That could be a big future expense like a home purchase, or building up a solid nest egg for retirement, or paying for your kids’ higher education expenses.

Professional financial advice is for everyone, regardless of your income level. If you’ve ever thought you would benefit from some help with money, I urge you to find a financial advisor of your very own.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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It’s worth getting rid of that debt as soon as you can. 

It’s not so uncommon for U.S. consumers to land in debt, whether via financing the purchase of a home, a car, or something else. New York Life’s latest Wealth Watch survey reveals that 70% of U.S. adults have some sort of debt. But 42% have debt of the credit card variety, which isn’t great.

The problem with credit card debt

There are two key reasons why credit card debt is a point of concern. First of all, credit cards are notorious for charging high interest rates. And credit card interest commonly compounds daily. What this means is that for each day you continue to carry your balance forward, you rack up additional interest not just on your principal balance, but the interest on it as well.

Furthermore, too much credit card debt can damage your credit score. That’s because your credit utilization ratio plays a big role in calculating that number.

Your credit utilization ratio measures how much of your available revolving credit you’re using at once. If that ratio is over the 30% mark, you may incur credit score damage. So while a smaller credit card balance may not cause much or any damage to your credit score, a larger balance relative to your total spending limit could.

How to shed credit card debt quickly

Paying off your credit cards quickly could save you a lot of money on interest. It could also help bring your credit score back up if your existing debt has caused it to drop.

One option in this regard is to take a serious look at your spending and come to terms with making some cutbacks until your balance is whittled down. It wouldn’t be reasonable to tell yourself that you’ll never spend money on things like restaurant meals or social outings again. But let’s say you have a $1,500 credit card balance and you normally spend $250 a month on nonessential purchases. If you were to stop spending that for just six months, you could be debt-free. And once you’ve gotten there, you can go right back to spending on the things you enjoy.

Another good way to get rid of your credit card debt? Pick up a side hustle. If you give your income a nice boost, you may not have to cut back on spending as much. And you might pay your debt off even sooner if you’re able to drum up a few extra hundred dollars a month and apply it to your balances.

The great thing about working a side hustle is that many of these gigs are quite flexible. You may not have to commit to a preset schedule or even leave the house if you take on a second job.

Owing money on credit cards is really far from ideal. If that’s the boat you’re in, the sooner you pay off your credit card debt, the less money you stand to waste on interest, and the better it might serve your credit score. And if you’re planning to apply for a larger loan at any point in the near future, that’s a very important thing.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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