Pod Insights The Clark Howard Podcast 01.23.26 Clark Answers His Critics on Clark Stinks / Owning Rental Property About this episode Friday - Clark Stinks day! Christa shares Clark Stinks posts with Clark. Submit yours at Clark.com/ClarkStinks. Also in this episode, Clark shares a narrow set of strategies for becoming a landlord successfully in today’s fraught housing market. To determine if a property is a viable investment, know the classic 1% rule. Clark Stinks: Segments 1 & 2 Investment Real Estate: Segment 3 Ask Clark: Segment 4 Mentioned on the show: How To Sell, Cancel or Get Rid of Your Timeshare How To Make Your Venmo Transactions Private Homeowners Insurance Archives - Clark Howard Teslarati: Tesla partners with Lemonade for new insurance program 10 Things Homeowners Insurance Doesn't Always Cover How To Freeze and Unfreeze Your Credit With Experian, Equifax and TransUnion Should You Invest in a Rental Home? Here's Clark's 1% Rule Why Clark Howard Says It Isn’t a Good Time To Become a Landlord What Is a Solo 401(k) and How Does It Work? Roth vs. Traditional 401(k): What's the Difference? What Is a SEP IRA and Who Is Eligible? What Is the Highest Credit Score? Clark.com resources: Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript 0:00 Speaker 00 Host Thanksgiving with industry-leading quality standards from Whole Foods Market. There are no antibiotics in their meat department, ever, so carve up turkey and spiral cut ham with peace of mind. Shop organic sides like stuffing mix and cranberry sauce from 365 brand. And guess what? All their delectable pies are made with no high fructose corn syrup. Gourmet Thanksgiving flavors with the quality you want, only at Whole Foods Market.
0:29 Speaker 01 They're running a cover two defense. But you're running to get game day deals on Uber Eats. Keep everyone at tonight's watch party fed with deals from your go-to restaurants. Or stock up with deals on your favorite snacks and groceries. Whatever the occasion, get game day deals on Uber Eats all season long. It's not football without food. Uber Eats, order now. Terms apply. Product availability varies by region. See app for details.
1:03 Speaker 02 I'm so glad you're with us here on The Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you so you make better financial decisions in your life. And today's Friday, so we have Clark Stinks for you today, where you get to hear where I gave a lame answer, an incomplete one, or in your opinion, just flat out dumb and wrong. And then after Clark stinks, we're going to talk about strategies if you're considering becoming a landlord right now and buying property to turn into a rental. We need to talk about what works and what doesn't in today's housing market.
1:48 Speaker 02 And Krista, without further ado, it's time to hear how I'm messing up.
1:53 Speaker 03 I should have never encouraged you to speak.
1:54 Speaker 04 You must think I'm pretty stupid. You should be ashamed of yourself. Well, maybe I'm wrong, maybe I'm wrong.
1:59 Speaker 05 You're right, pal.
2:03 Speaker 05 I think you're gonna like the beginning of this one from Mike in Kansas. He says, "You don't stink as bad as my beloved Chiefs this year." Sorry, Mike.
2:13 Speaker 02 The Chiefs have had a run like almost no other team and ran out of gas this year. But since you live in Kansas, what you have to look forward to is the team is moving from Missouri to Kansas. Did you know that?
2:26 Speaker 05 No.
2:27 Speaker 02 Yeah, they're moving across the state line. I don't know when the new stadium will be built.
2:33 Speaker 05 So Mike says, "But on the 17-year-old who wanted to open a Roth IRA with his mowing money, wouldn't you first need to confirm that he's claiming that income on his taxes? The jobs he mentioned are typically cash jobs and may not necessarily show up on a Schedule C. Maybe there isn't a cross-reference for our friends at the IRS to compare Roth IRA contributions to ensure the individual actually had earned income on his or her tax return. Seems like a good kid. I just don't want him to get in trouble at an early age."
3:01 Speaker 02 Okay, that's a great question, and we've had this before. And we had a variety of opinions from CPAs on this. If you remember when this came up before, that his income may not be high enough to require for him to file a tax return. But at the same time, he needs to, this was the consensus of the different opinions, the same time, he needs to have some kind of record of what he earned from various jobs he did. If he was ever subject to an audit for having put money in a Roth IRA and doesn't have any kind of trail showing reportable income.
3:46 Speaker 05 I thought that they were supposed to file a simple tax return.
3:49 Speaker 02 Yeah, but that's what, that's what we had the fuss about before is I said, I said, That he needed to report the income and file a return. And then we heard pretty emphatically, "No, as long as you're below a certain threshold, you don't have to." So let's have the responses come in now from the CPAs who do tax. We'd like to have round two of this.
4:16 Speaker 05 Oh, gosh.
4:16 Speaker 02 So you just go to Clark.com/ClarkStinks and let's have your professional opinion, since I'm not a CPA, have your professional opinion on this question, since we had quite a brouhaha last time this came up. That may have been three years ago. It was a while ago.
4:35 Speaker 05 Wayne in Florida says, "Clark is a little stinky when he paints all-time shares with a broad brush. We purchased 200 points from the Disney Vacation Club for $13,000 in May of 2000. After we enjoyed using these points for 25 years, Disney exercised their right of first refusal and bought them back in July of 25 for $11,500."
4:56 Speaker 02 Fantastic.
4:57 Speaker 05 "In full disclosure, the annual fee when we sold was $10 a point. Thank you. Thanks for all you and your team do, Wayne."
5:05 Speaker 02 Wayne, that is fantastic. That is, that may be the most positive
5:09 Speaker 05 Yes.
5:10 Speaker 02 time share related story.
5:12 Speaker 05 And we've heard
5:12 Speaker 02 we've ever heard.
5:13 Speaker 05 thousands and thousands of negative ones.
5:16 Speaker 02 Wow.
5:16 Speaker 05 To be fair.
5:17 Speaker 02 So you ended up selling for only $1,500 less than you bought 26 years ago?
5:24 Speaker 05 Yep.
5:25 Speaker 02 Phenomenal.
5:26 Speaker 05 Mm-hmm. So the $10 a point, the annual fee, what's that? $2,000 a year? They were paying 200 points? Okay. Corey in California says, "Dear Clark, you stink because your beloved Consumer Reports stinks. When looking at cars for a purchase I hope to be able to make this year, I noticed that their rating does not include the crash safety rating. One car they marked as top rated had the worst NHTSA rating in its category. Why would they not include such a huge aspect of a car?"
5:54 Speaker 02 That's a great question. I didn't realize that they don't include crash rating. You know what's funny about that?
6:01 Speaker 05 What?
6:02 Speaker 02 What does that say about me?
6:03 Speaker 05 Yeah.
6:03 Speaker 02 I read the Consumer Reports vehicle reviews and I've never thought about, well, what's the safety rating on this vehicle?
6:13 Speaker 05 Tom in Georgia says, Clark, did I hear you right? I think you told a small landlord to just ditch the check and receive Venmo. We are a small LLC and we've steered clear of Venmo and Zelle, et cetera, largely on your advice, and we do still receive some paper checks. Please clarify, is Venmo for an LLC fine as long as we don't send money? Also, any implications for piercing the corporate veil? I'm guessing set a Venmo specifically for the LLC. Thanks.
6:40 Speaker 02 Yeah, so that's true, Tom, exactly, that you would set a separate Venmo account specifically for the LLC. So what I said before, and I hope I said it right when I said it before, is that as the recipient, there's not the risk to you that there is to the sender from Venmo or Cash App. I sure don't like big bad sell. But anyway, when you receive money that way, it's a safe method of receipt for you. There are risks to the sender. If money is intercepted in any way, or rerouted in any way, or sent to the wrong place, the money takes a one-way trip, and there's no way to reclaim it.
7:24 Speaker 05 Harry in California says, my home insurer raised my premium by 10%. Per Clark, I had decided to request quotes from other companies. After hours, I had the following results. The original insurer quote, another company nearly 50% above the original insurer's new quote, one offer above original insurer quote for useless California fare plan, 15 denials for any coverage. Now I'm receiving many calls daily from different companies, mostly insurers, as it appears my phone number has been sold to telemarketers. So how did shopping around benefit me?
7:59 Speaker 02 I wasted a lot of your time, didn't I? Your situation is crazy terrible. And the California fare plan, for people who aren't aware,
8:12 Speaker 02 In states with high risk like California from the fires and Florida from the hurricanes, end up with insurers of last resort, either directly or indirectly subsidized by taxpayers. And the California fare plan has not come through so well from last year's tragic fires. People have been just miserably unhappy with how California fare has performed. And that's just terrible that shopping around told you at least that he you were with now with the increase was actually somebody you should be happy to have and stay with.
8:51 Speaker 02 But that's very unusual, it's a very unusual situation you described because of the special circumstances in California that 15 insurers told you got lost when you called for quotes and the only one who quoted you was 50% higher. That is clearly a broken insurance market.
9:12 Speaker 05 Eric in Arizona says, Clark, the question about insurance rates for electric vehicles versus gas powered vehicles, you missed the mark. The reason the Model Y is more expensive to insure is because Teslas are more expensive to repair. There are a number of articles in the automotive press about how expensive Tesla vehicles are to repair after an accident. Insurance on EVs made by conventional auto manufacturers should be less expensive than that for Teslas.
9:37 Speaker 02 Eric, thank you for that. Now Tesla, to combat that market problem that their riders are facing, their drivers, now offers insurance in steadily more states and they announced in late December that they're going to significantly increase the number of states that they offer Tesla auto insurance in. And my daughter, I don't know if I mentioned this when this came up before, my daughter lives in California and switched to Tesla insurance and her premiums dropped 70% from when she was insured by USAA. I mean, it was shocking.
10:21 Speaker 02 She called me, said, I got this quote from Tesla, could this possibly be right? I said, do they send it to you in writing? And she sent it to me, same coverages, and it was 70% cheaper. And Lemonade, which I talked about recently, is insuring Teslas.
10:39 Speaker 02 In a number of states now and is much cheaper to insure a Tesla than other insurers. Now, both Tesla and Lemonade may find out later, they blew it and didn't underwrite well and that they did not collect enough premiums. But the repair cost for Teslas is pretty high and I don't know how it compares since every vehicle in an accident seems to be expensive to repair. I don't know how much worse it is for Teslas than others.
11:12 Speaker 05 Frank in Colorado says, Clark, you stink like my high school gym socks.
11:16 Speaker 02 Thank you.
11:17 Speaker 05 As a coverage for your water line, there is a better coverage available. Check with your home insurance. A lot of companies have a policy that you can add that covers all services, water, power, gas, and a big one, your sewer line.
11:30 Speaker 02 Thank you for that. Okay, so you can add with a lot of home insurers, you can add the optional additional coverages. My worry about that is if they then treat a claim as a traditional homeowner's claim that sits on your record for a long time and can harm your ability to shop for insurance and may lead to a higher premium for your homeowner's insurance going forward. But you're absolutely right that a number of insurers sell a variety of optional coverages. By the way, it used to be part of a standard homeowner's policy, but just know that there
12:11 Speaker 02 is the after effects of a claim, the risk that goes with that, that comes with buying those optional add-ons from your homeowner's insurer.
12:21 Speaker 05 Linda in New York says, Clark stinks worse than a sumo wrestler's Muwashi after a 15-day tournament. In regard to unthawing a credit freeze, he mentioned a woman who had her original PIN number from the initial freeze, but since the credit reporting agencies have moved away from this practice, she has been permanently locked out with her efforts for resolution failing. I'm in the same situation and I refuse to send a copy of every piece of identifying information. In my life to their overseas centers. Folks in our conundrum could certainly use assistance. And your seal laugh implied sucks to be you. Wrap up was anything but helpful. P.S. Thank you for all you do.
13:03 Speaker 05 It truly is beneficial minus the topic above.
13:07 Speaker 02 Well, thank you for that. And I understand your frustration. I have a seal laugh?
13:10 Speaker 05 I that's I didn't. She said that.
13:13 Speaker 02 I like that. Anyway, I'm I've been talking with my sister in law. Who's in this situation? And she feels like she's beating her head against the wall. Getting no help from the credit bureau, trying to get her credit unfrozen for something she's trying to do. And so far I've been of no help helping her with the credit bureau. The credit bureaus are obviously not the easiest organizations in the world to work with. And your point is very valid. That instead of a seal laugh, I should come up with an answer.
13:57 Speaker 02 And I'm going to see if I can come up with one. And I appreciate that. So, thank you. And if I do come up with an answer on how to deal with this problem of credit being permafrozen with no easy way to get it thawed. I will certainly share this again on the podcast YouTube show. Coming up ahead. It is a very unusual time to try to own investment real estate and make money from it. I want to talk strategy with you on this because people continue to ask me. Is it a good time for them to buy and manage rental property as an investment?
14:42 Speaker 00 Hosts Thanksgiving with industry leading quality standards from Whole Foods Market. There are no antibiotics in their meat department ever. So carve up turkey and spiral cut ham with peace of mind. Shop organic sides like stuffing mix and cranberry sauce from 365 brand. And guess what? All their delectable pies are made with no high fructose corn syrup. Gourmet Thanksgiving flavors with the quality you want only at Whole Foods Market.
15:11 Speaker 01 They're running a cover two defense.
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16:41 Speaker 07 Your sausage McMuffin with egg didn't change. Your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5. Only at McDonald's for a limited time.
16:53 Speaker 03 Price and participation may vary. Promotion pricing may be lower than meal pricing.
16:57 Speaker 02 This is such an odd circumstance. We have in a lot of metro areas around the country, a significant percent of single family homes owned by big private equity investors. For them, there's a great business case that they've decided to owning single family homes that they then rent out. And then same time, over and over again, over the last three years, when you've asked me, hey, is it a good idea for me to buy a place and rent it out? And I've said again and again, the economics aren't great right now.
17:41 Speaker 02 Probably not something you should do. How is it that the Wall Street crowd has gone all in on this? In these three years, I've said, this is really hazardous for you to own rental property. So the reason is that for a while, home prices and rents trended up kind of in tandem. But then, starting about three years ago, home prices were going up and rents were much more gradually rising. Today, in a lot of markets, rents have stalled out or even fallen. Home prices also have, but at a much higher point.
18:24 Speaker 02 So it's much, much more difficult now for you to make money today, starting from scratch, buying a potential rental property and getting a decent return on it. Now, there's a really simple, old thing that real estate investors used to use as a simple back-of-the-envelope way to determine if a property that you're targeting is a good rental. And it's so simple. And other people will disagree with this, but it's a long time, kind of not rule, but guideline, that you should be able to charge rent equal to 1% or more per month when it costs you to buy a place.
19:07 Speaker 02 And it's very difficult today for a targeted property to equate to that. You might find, instead of being able to get, you know, 1% of the value of a place in rent each month, that right now, in a lot of markets, you may only be able to get like a third of a cent or a half a cent in rent for each dollar that a place costs you to buy. Making it fundamentally not a great idea. So where is it that people are finding opportunity? They're finding opportunity.
19:45 Speaker 02 In rentals, or projected possible rentals, when they buy a home that's a mess, a home that has not been well taken care of, a home that may be in really bad shape and has ended up in foreclosure or distressed sale, that the opportunity right now requires a lot more work. And it's not like you buy a home that's a mess and you go out and you hire a general contractor to repair it, update it, shine it up and then put it on the market as a rental, because you've got to pay all those contractors and subcontractors markups.
20:30 Speaker 02 Right now, it's threading a needle for you to become an investor in real estate that you're going to rent out. And that needle is this. You have to buy a place that's a mess and you have to be capable of doing much of the work yourself. That means it's a much more limited market than I talked about for decades. We're just in a cycle right now that it's hard to make it work. Gosh, I was at Chick-fil-A eating dinner and a would-be real estate investor came up and started talking to me about the idea of a place that they were thinking of buying.
21:15 Speaker 02 And I had to explain why the economics of what they were looking at buying, in my opinion, didn't work. And I hated to be negative and I was discouraging a really enthusiastic person from proceeding as being a would-be landlord. And maybe I was too negative, but I don't think so. So you've really got to let the numbers guide you, because we are in a cycle that the cost of acquisition ownership is hard. Now, even a lot of these Wall Street private equity outfits buying homes have slowed down their buying in a lot of markets. Some are even shedding
21:59 Speaker 02 some of the homes they bought heavily in bulk, in bulk purchases. In fact, some of the deals going on now are where builders who've built out developments And have had trouble moving the properties have been moving them in bulk to private equity. You and I can't compete against that. And really, we need to wait till conditions change where it becomes economical again, becomes a smart decision again, to be a landlord buying properties one at a time. And what did I do in the cycle of rising prices? I reduced the number of rental properties I owned.
22:41 Speaker 02 Now, it's not a thing that I do a lot of. I have, at this point, I have two rental properties. And I'm hoping to go from two to one soon. Because the economics just don't support something that has made me a lot of money over the years. And by the way, if you are a professional real estate investor, and you feel I'm missing a strategy that would make it work, I'd love your feedback.
23:10 Speaker 05 Caroline in Arizona wrote in to you and says, my husband and I are in our late twenties, and we want to be sure we're efficiently saving for retirement now. I have a steady, high-income job, but my husband will be leaving his traditional job this year to be part of an entrepreneurial venture. As such, he will be paid as a 1099. Our combined income precludes us from contributing to a Roth IRA. I fund my 401K, but I don't have an employer match. We also just bought a house, and we want to aggressively pay down our mortgage. Where else should we be putting our savings? Thank you for all you do to help people save money and spend wisely.
23:49 Speaker 02 Thank you very much, Caroline.
23:50 Speaker 05 Impressive, right?
23:51 Speaker 02 Yes. And I got good news for you. Since your husband's being paid 1099 at this new venture, he can set up his own retirement account. And there are a variety of alphabet options that are available. Since he will be a one-person entity getting this 1099, he will be able to set up a self-employed 401K. You can do a self-employed or solo, it's called solo or self-employed, Roth 401K, or traditional. So far, you've been making, as a family, very high income, obviously, to be Roth income ineligible. So your husband, based on the tax bracket, y'all can guess
24:34 Speaker 02 you're going to be in in 26. If he does a solo or self-employed 401k, and you can do it with all my usual suspects, the low-cost companies, based on expected tax bracket, that's how you make a decision between putting money into a Roth 401k or traditional 401k through that solo or self-employed 401k. Some firms only let you do a solo traditional 401k. Others let you do either. There's also a SEP that your husband can do. That SEP stands for Simplified Employee Pension. And a SEP requires virtually no paperwork. It
25:18 Speaker 02 instantly morphs into being like an IRA. And these things he's eligible for because now he's going to be self-employed.
25:29 Speaker 05 All right. Todd in Florida says, "My bank's read from Fair Isaac suggests I need at least 11 revolving accounts to have an excellent rating in the FICO category."
25:41 Speaker 02 What?
25:42 Speaker 05 "We have four credit cards, which is almost more than I want anyway, but FICO says I should have seven more open?"
25:48 Speaker 02 All right. So Todd, Todd, let's talk here. So when you see your FICO score, you didn't say what it is, but FICO looks for anything at all. And a lot of times, it shows no context. So they'll say, "You need more of this or more of that." And if your credit score is already rock solid, let's say on a FICO scale, 760 or above, then you don't need to worry about that. You can ignore it. The things that really matter are two, that you pay every bill on time every month is the number one factor
26:28 Speaker 02 in your score. Number two, how much of your available credit you're using on these four cards? That is the second biggest factor. Those two things are most of what matters. Having different types of credit, things like that, new applications for credit, that kind of thing. Those are smaller on the scale. If you've got four different cards from different issuers, And you're using very little of your available credit and you pay all your bills on time. I'd be shocked if you don't have a great score already. And four, four cards is plenty unless you're a nincompoop like me.
27:13 Speaker 02 And you've got all these different rewards you're chasing.
27:17 Speaker 05 Megan in Pennsylvania says, the only home internet available in my area currently is Verizon Lite. This offers 10 to 25 Mbps for the first 150 gigs of data. Then up to 10 for the remainder of the bill cycle. Do you think this is enough? They're asking $50 a month.
27:35 Speaker 02 Yeah, so Verizon varies the rates on Verizon. This is Verizon LTE, which is their wireless internet service you can have in a home. And Verizon does not publish a straight price schedule. And what they do is based on how much competition they're facing where you live. They vary how good or bad the offer is for the service. Since it's the only internet available where you live.
28:08 Speaker 05 Don't you think Starlink might be available?
28:10 Speaker 02 Well, but we're talking price because they're the only traditional, let's call them internet service where you live. They cap your data available at a good speed. And then they throttle you down to this slower speed. So the only way you know if it's going to be good enough for what you need over a month is for you to test it out and see, are you able to stream? Once you've gone through the 150 gigs of data. And second, do you know you already go over 150 a month? Or are you steadily under that? If you're under it, it doesn't matter. But if you are over it, you need to just try for a while under their cap
28:54 Speaker 02 and see if it is in fact a problem. And then Krista mentioned that you do have an alternative and you do have Starlink. Starlink tends to be more expensive than what we're talking about here. But you should see what Starlink offer is available to you. And Starlink is an ultra-fast, low orbiting satellite internet service.
29:20 Speaker 02 And without exception, every person I know who's gotten it has loved it. I know there are people that are so into it, who travel a lot, that they travel with a little portable Starlink unit. They're paying a lot of money for that, by the way. But fixed Starlink like you're looking at, that you need something to compare the Verizon LTE to, I would check it out and see if that is going to be an affordable viable option for you, for what would likely be much faster than the Verizon wireless version of home internet, and you wouldn't have the data cap.
30:01 Speaker 02 And I want to thank you for joining us on this Friday edition of the Clark Howard Podcast and YouTube show. I hope that something has been interesting to you, something that you can put to work in your own life, something that you thought, well, you know, I should have done that already, and it becomes a little nudge for you to do it. And I want to thank you for trusting us, for providing you with information that my goal is for it to empower you, so you can save more, spend less, and never, never, never, not ever, let somebody rip you off, and have an outstanding weekend.
30:50 Speaker 01 They're running a cover two defense. But you're running to get game day deals on Uber Eats. Keep everyone at tonight's watch party fed with deals from your go-to restaurants, or stock up with deals on your favorite snacks and groceries. Whatever the occasion, get game day deals on Uber Eats all season long. It's not football without food. Uber Eats, order now. Terms apply. Product availability varies by region. See app for details.
31:20 Speaker 07 Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5, only at McDonald's for a limited time.
31:32 Speaker 03 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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