Nearly 60% of millennials say they want to own rental properties.
The appeal is obvious: let tenants cover the mortgage, collect appreciation over time, and enjoy a steady stream of passive income.
But the reality is more complicated.
For high-income professionals looking to build long-term wealth, real estate can be a powerful tool, yet it’s not a guaranteed win. It requires capital, time, management, and a willingness to take on risk and complexity.
The Benefits
Cash Flow
When structured properly, rentals can generate income above the costs of mortgage, taxes, insurance, and maintenance. That cash flow can feel like a second paycheck or eventually, a retirement income stream.
But true cash flow is what remains after planning for vacancies, repairs, taxes, and reserves. Many investors fool themselves into thinking they’re cash flow positive when they’re not. Treat it like a business, not a hobby.
Leverage
Real estate allows you to amplify returns with borrowed money. Put 20% down on a $500,000 property, and a 5% appreciation adds $25,000 to your equity. On a $100,000 down payment, that’s a 25% return. Leverage is one of real estate’s most powerful tools, when used carefully.
Tax Advantages
Depreciation, deductions, 1031 exchanges, and pass-through treatment all give real estate investors tools to reduce or defer taxes. In some cases, short-term rentals or a spouse qualifying as a real estate professional can even allow losses to offset active income. But this requires material participation rules to be met and proper planning with a tax advisor.
Appreciation
Real estate is a long game. Over decades, properties in strong markets tend to rise in value, while mortgages shrink or disappear.
Inflation Hedge
Rents and property values often rise alongside inflation, protecting wealth in ways that bonds or cash can’t.
Control
Unlike owning an index fund, you can directly improve your returns with better tenants, renovations, or strategic pricing. For some, that level of control is the appeal.
The Real-World Challenges
Of course, none of this comes without trade-offs. Rental properties demand:
Upfront capital for down payments, closing costs, reserves, and renovations.
Time and skill to analyze deals and run properties like a business.
Management headaches even with a property manager (and managers take a cut).
Tenant risk ranging from vacancies to legal disputes.
Liability if accidents or lawsuits arise.
Liquidity risk; selling isn’t quick or painless.
Concentration risk if a large portion of your net worth is tied up in a handful of properties.
Who Should Consider Rentals?
Rental properties can make sense if you:
Have strong cash flow and patience.
Want diversification beyond stocks.
Are comfortable with a hands-on investment.
Understand the tax implications and risks.
Qualify for added tax benefits as a real estate professional.
They’re probably not right if you:
Expect a 100% passive investment.
Are stretched thin with time or cash.
Already have most of your wealth tied up in illiquid assets.
Are only doing it because you heard “that’s what wealthy people do.”
The Bottom Line
Rental real estate can be a powerful path to wealth, but only if it fits your goals, risk tolerance, and lifestyle. The investors who succeed aren’t gamblers. They run the numbers, plan for the worst case, and treat it like a business.
If you’re considering real estate, ask yourself: Do I want to be a landlord, or do I just want the returns I think landlords get?
It’s a different kind of investing, and not as passive as buying stocks (in productive companies).