Yet Another Form of Taxation
Headaches and hassles...
Happy Wednesday!
Call me lazy, but I increasingly place a premium on keeping things simple.
This is not only a foundational tenet in how I think about and deliver financial advice, but it’s also something I value in my personal life.
And it seems to be more of a challenge these days with the exponential increase in the quantity and speed of information.
Which brings to mind a great quote from David Allen, the creator of Getting Things Done:
You can do anything, but not everything.
For instance, while the trend seems to have cooled off a bit, not long ago it seems everyone was talking about how they were “printing money” through short-term Airbnb rentals.
Not only were they getting rental income, but they could utilize depreciation -sometimes even bonus depreciation - to lower their tax bill and supercharge their cashflow.
Certainly, real estate has been a successful way to build wealth for many through the years.
I know people - including some of you reading this - who have done quite well with rental real estate over the years. And some who’ve had a profitable experience as an Airbnb landlord.
But rental real estate comes with a different type of “tax” that either doesn’t exist or is much less applicable to a well-diversified, low-cost investment portfolio.
I’m a little biased here, of course, but hear me out…
With an investment portfolio, you don’t have:
renters
property insurance
additional tax filing responsibilities
property maintenance
illiquidity
and more…
I would loosely categorize all the above into something I think of as a “hassle tax” when it comes to rental real estate.
To me, all the above seems like a hassle.
To you, and to many others, the benefits clearly outweigh the costs.
Airbnb has a business value of $80+ billion. Not to mention all the rental real estate that exists outside the Airbnb system.
A hassle to me might not warrant a second thought from you.
And that’s the point. The hassle tax isn’t evenly distributed.
Here’s another example from a recent tweet I saw:
Whether you consider it a hassle tax or would rather think of it in terms of “return on hassle” per the tweet above, I think it deserves recognition as part of your decision making, financial and otherwise.
Elizabeth and I own 2 homes. One in Atlanta and one at Lake Oconee.
Many of you have told me just the mere thought of a second home gives you indigestion. For us, not so much.
Elizabeth and I take care of our own yard(s).
While we won’t want to do this forever and it probably makes economic sense to hire this out, we mostly enjoy it.
But this hassle tax works both ways.
In fact, I’m a direct beneficiary of the hassle tax.
If each and every one of you had the time and/or interest in doing your own financial planning, I wouldn’t have much of a business.
And while there are a ton of financial DIYers out there who do a great job of managing their family finances, there are also many folks who - while more than capable of doing this themselves - hire me or other another advisor because there are other things they’d rather do with their time.
The “return on hassle” just isn’t enough for them to take it on themselves.
There’s no right or wrong here.
But before making any meaningful decision, I’d encourage you to consider things like opportunity costs and whether this decision will simplify or add complexity (or hassle) to your life.
Call it a headache, a hassle tax, or whatever you want. Just know that it’s real and carries a cost.
What are examples of a hassle tax you’ve deliberately avoided in your life?
Or situations where the “hassle” was worth it for you?
Thank You!
I’m glad you’re here. And I’m grateful to have you as a reader.
If you have any questions or an idea for a future email letter, blog post, or YouTube video, I'd love your input.
Or if you just want to say hi 👋
Simply hit reply - I read (and genuinely appreciate) each and every message you send.
Until next Wednesday,
Russ