E92:Should I invest in a rental property in retirement?

Rental real estate can indeed build wealth. But for CRNAs and nurse practitioners earning $200,000 or more, the math works differently than it does for buyers at lower income levels. Three problems consistently show up when high earners invest in rental property, and most nurses never know they’re walking into them.

The Cash Flow Illusion

Most people run the rental math the same way: Rent minus mortgage equals profit. That calculation leaves out property tax, landlord insurance, maintenance reserves, and property management. When you add it all up, a property that looks fine on paper can run several hundred dollars negative every month. Before a single vacancy. Before a single repair call.

At today’s investment property loan rates of around 7.4%, the problem is worse. A $525,000 property financed at that rate might need $3,400 a month to break even. If market rent in the area is $2,800, it’s $600 a month in the red from day one. The advice floating around social media about rental property was built for a 3% rate environment. The rates changed. The advice didn’t.

The Write-Off That Isn’t

Depreciation sounds like a powerful tool. On a $300,000 residential rental with $240,000 in depreciable value, you can generate roughly $8,700 a year in paper losses. Add operating losses on top of that, and you might have $13,000 in losses sitting on your return.

For most CRNAs, those losses are worthless while you’re working.

The IRS allows passive rental losses to offset W-2 income, but that allowance phases out between $100,000 and $150,000 in modified adjusted gross income and disappears completely above $150,000. If you’re earning $220,000, those deductions are suspended. They sit on your return and do nothing until you sell the property or your income drops significantly.

There’s one way around this: Real Estate Professional Status. To qualify, you need more than 750 hours per year in real estate activities, and real estate has to represent more than half of your total working time. A CRNA working 2,000 clinical hours would need to match that with property management hours. That’s a second full-time job.

Depreciation is also not free. It’s deferred. Every dollar you write off lowers your cost basis. When you sell, that depreciation comes back, taxed at up to 25% on regular depreciation and as ordinary income on accelerated cost-seg amounts. You’re borrowing a deduction from your future self.

What the Exit Actually Costs

When a property has gained value, it’s easy to call it a win. But the exit tells the full story.

Take a $300,000 property that’s now worth $390,000. That’s a $90,000 gain over six years. Before you count it as profit, you need to factor in realtor commissions averaging 5.7%, closing costs, depreciation recapture, long-term capital gains, state income tax, and potentially the 3.8% net investment income tax if the sale pushes your MAGI above the threshold.

When you run all of that, a six-year annualized return on a property like this might come in around 6 to 7%. Over that same period, an S&P 500 index fund inside a 403(b) compounded at roughly 11 to 12%.

There’s also the time cost. Managing a rental typically runs around 20 hours a month. At a CRNA’s clinical rate, that’s roughly $2,300 a month in time value. Over six years, that’s around $165,000 in time invested into an asset returning 6%.

The Capital Priority Ladder

Before you write a check for a rental property, there’s a better question to ask: Have you maxed every account that lets your capital grow more efficiently? The Capital Priority Ladder puts that decision in order.

Rung one is maxing every tax-advantaged account you have access to: your 403(b), a 457(b) if your employer offers one, a backdoor Roth IRA, and a Health Savings Account. For a dual-income nursing household, the total contribution room can reach $90,000 a year or more. Every dollar reduces your taxable income now, grows with no annual tax drag, and requires zero management.

Rung two is a taxable brokerage account. No contribution limits, and in retirement, long-term gains may be taxed at zero if your income stays below the threshold.

Rung three is real estate exposure without the management. A REIT ETF like the Vanguard Real Estate ETF holds hundreds of properties across every property type, costs 0.13% a year, and can be sold on any business day. A REIT inside a Roth IRA is particularly useful. REIT dividends, normally taxed as ordinary income, grow and come out tax-free.

Rung four is direct property ownership, once the first three rungs are complete. For nurses who have exhausted every other account and still want hands-on real estate experience, a rental can make sense. Most nurses working with Brett Fellows, CFP®, haven’t finished rungs one through three.

One real-world example: a CRNA who shifted capital from a second rental purchase into her 457(b), backdoor Roth accounts for herself and her spouse, and an HSA sheltered $71,000 from taxes in her first year on the new plan. That reduced her federal tax bill by roughly $22,000. No additional tenants. No negative cash flow.

At this stage in your career, you should ask yourself: Where can my capital work the hardest at my income level? Oak Capital Advisors can help you run the numbers. Ready to see how we can help? Schedule a meeting.

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