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Unlock the Hidden Side of Your Clients’ Portfolios – Rental Properties

Rental property experts Dan Williams and Todd Swanson joined host Tom Dickson to explain how financial advisors can better evaluate clients’ rental real estate. They emphasized converting “hobby landlords” into true investment managers by applying a structured framework, quantifying performance, identifying emotional factors, and modeling alternatives.
 

1. Why Rental Properties Are Often Mismanaged

Many investors own one inherited or former primary residence and lack any performance metrics. Dan and Todd explained that most clients do not track rent-to-price ratio, maintenance cycles, liquidity, depreciation use, or return on equity. They often think “if cash flows a little” and assume that means it’s a good investment.

 

Todd noted that of 10.3 million U.S. tax filers with rental properties, about 6 million own just one, and they frequently do not manage the property as a business.
 

2. Rent-to-Price Ratio: The “First Filter”

A core metric the speakers use is the rent-to-price ratio, expressed in basis points:

Monthly rent ÷ property value

Markets vary dramatically:

• San Diego example: A $1,000,000 property may rent for ~$4,000 per month → 40 bps, too low for meaningful cash flow.
• Midwestern markets: Often exceed 100 bps, allowing much higher cash flow.
  
   

This metric helps clients quickly see whether their rental is underperforming, regardless of appreciation history.

3. The Schedule E Worksheet

Dan introduced a three-page Schedule E worksheet, used by advisors to collect:

• Property value (via Zillow, Redfin, Realtor.com)
• Actual annual rent
• Number of rental days
• Operating costs
• Depreciation
• Repairs history
• Emotional factors

This simple tool reveals issues such as:

• Zero reported depreciation (which occurred for two clients because their tax preparer failed to claim it)
• Unusually high or low repair entries, indicating deferred maintenance or mismanagement
• Low rental days (tenant problems, vacancies, poor management)
  
   

The worksheet also becomes a discovery tool for financial planners to uncover risks hiding inside properties.

4. The Five Options Rental Property Owners Actually Have

Todd explained that when evaluating a client’s property, there are only five possible strategic choices:

1. Stay the course
2. Re-amortize to improve cash flow
3. Cash-out refinance
4. 1031 exchange into better-performing assets
5. Sell and pay the tax
   
    

The speakers built a calculator that models all five options with variables including appreciation, cap rates, taxes, leverage level, and future cash flow.

5. Regulatory & Insurance Risk: A Growing Threat

The transcript contains substantial discussion about regulatory hostility toward landlords in certain states—especially California:

• Chula Vista, CA ordinance: If an owner evicts a tenant for “no-fault” reasons and re-rents within 24 months, they must pay the prior tenant six months of rent.
• San Diego proposed measure: A $5,000 per bedroom annual tax on Airbnb units (proposed to appear on a June ballot).
  
   

Insurance costs are also rising:

• In fire-prone areas of San Diego, insurance premiums exceed property taxes.
• Florida faces similar affordability issues.
  
   

These risks create strong incentives for clients to move assets to more landlord-friendly states.

6. Market Insights: Where the Best Opportunities Are

The presenters stressed that “best market” depends on client goals—cash flow, appreciation, or tax benefits. Some highlights:

High Cash-Flow Markets

• Metro Detroit
  • ~120 bps rent-to-price ratios
  • Highly affordable but older housing stock → higher maintenance
• Memphis suburban new construction
  • Builder guarantees rent from day one
  • No lease-up fee
  • Lower vacancy risk
  • Dan and Todd personally own properties managed by this builder
    
     

Midwest Consistency

• Michigan, Ohio, Indiana
  • Strong rent-to-price ratios
  • Lower regulatory risk compared to CA, NY, Chicago
    
     

Markets with Structural Risk

• Coastal states (CA, NY, WA) → low cash flow
• Florida / Gulf Coast → hurricane risk
• Northern frost-belt states → freeze damage risk
  
   

7. Emotional Factors Matter

A recurring theme: Clients' emotions influence decisions as much as math.

Examples:

• A client refused to sell a San Diego property despite poor cash flow because she loved the market.
• Another client inherited a sentimental home but faced $75,000 in deferred maintenance.
  
   

Advisors must integrate emotional goals with financial modeling.

8. Case Studies Shared in the Presentation

Case Study: 1BR Condo – Negative Cash Flow

• $370 monthly loss
• Refi and cash-out options provided small (“nibbling”) benefits
• A 1031 exchange doubling her wealth in 10 years was best aligned with retirement goals
  
   

Case Study: High-Interest Loan (10.25%)

• Professional dancer couple funding surrogacy
• Re-amortization and primary residence refinance offered best combined benefit
  
   

Case Study: Agent Moving in to Care for Elderly Parents

• Unique loan modification with zero-interest subordinate portion
• Keeping property made emotional and financial sense
  
   

Case Study: Palm Springs Airbnb Collapse

• Cash flow dropped from $70k → ~$2,500/year
• Seasonal volatility made the client reconsider long-term rentals in higher-yield markets

9. Property Management: Common Failures

Tom shared his personal story:

• His property manager paid interest-only on the mortgage for a year
• Charged for unnecessary tasks (e.g., changing lightbulbs at $75/hr)
  
   

The speakers recommended:

• Check references
• Require photos and documentation for repairs
• Ensure departments (leasing, collections, repairs) communicate internally

10. Services Offered by Dan & Todd

They can assist advisors by:

• Modeling client properties using their Schedule E tool and five-options calculator
• Loan origination across ~24 states (plus referral network nationwide)
• Identifying agents and property managers in other states
• Supporting clients in out-of-state acquisitions and 1031 exchanges
  
   

Action Items

☐ Collect clients’ Schedule E, tax returns, insurance, rent rolls, and mortgage statements for property analysis.
☐ Use the replay and summary to identify planning opportunities for landlords.
☐ Schedule a consultation with Dan and Todd to model a client’s property.
☐ Review regulatory, insurance, and maintenance risks for clients owning property in California, Florida, or other high-risk jurisdictions.