Posted on 09/15/2025 10:00:59 AM PDT by SeekAndFind
“Passive income.” That’s the sales pitch for rentals. Tenants cover the mortgage, you collect the rent, the property appreciates, and you’re off sipping margaritas. Sounds dreamy… until Saturday morning shows up with a broken appliance. Ask me how I know.
Here’s the reality from my own ledger: one of my rental properties in the Finger Lakes, NY area is locked at $2,200/month. That’s the ceiling. Meanwhile the expense list has no ceiling.
In the last year alone I replaced the gas range, microwave and dishwasher. That’s just a tiny sample of a seemingly never-ending list of surprise expenses. “Passive” income? Cute.
Dividend growth investing is the opposite. Buy once. Collect forever. No clogged toilets, no surprise repair bills, no property taxes and utility rates creeping up on you.
And even if you hire a property manager, you’re still managing the manager, and still paying the fees. If it looks like a part-time job and feels like a part-time job… you know the rest.
Dividend growth investing, on the other hand, is wonderfully boring. You own world-class companies that pay you — and raise your pay — year after year. Checks show up on a schedule with no emergency texts attached. Many blue chips hike payouts annually, so your income compounds without effort.
There are no midnight repair calls, no vacancies, no capex surprises. Rent is negotiated. Dividends are announced. One demands your time; the other deposits into your account.
And when it comes to predictability, dividends win again. Public companies publish payout schedules so you can plan cash flow to the week. With rent, tenants move out, markets cap rent hikes while your costs climb, and what looks steady on paper often becomes “where did the month go?” in real life.
Both rentals and dividend stocks can build wealth, but they do it in very different ways. With real estate, you’re betting on appreciation plus rent checks — both tied to location, cycles, and constant upkeep. Dividend growth investing has two engines working at once: rising payouts and rising share prices. Reinvest those dividends and the snowball rolls itself.
And let’s not forget time, the most ignored line item in most spreadsheets. Rentals demand hours of tenant screening, late-night calls, and vacancy fills — an ongoing to-do list. Dividends? Build the portfolio, then get back to your life. Weekends at the lake beat weekends under a sink.
Numbers matter, but so does cortisol. With rentals, you’re always one call away from a “situation.” With dividend growth, you’re one click away from an income stream that quietly gets bigger. When companies hike payouts, it feels like a raise you didn’t even have to ask for.
| Factor | Rental Property Income | Dividend Growth Stocks |
|---|---|---|
| Income | Capped by lease until renewal | Payouts rise over time (dividend hikes) |
| Expenses | Unlimited: repairs, taxes, insurance, upkeep | None after purchase; no surprise maintenance |
| Time | Hands-on (or pay a manager) | Hands-off once built |
| Predictability | Vacancies & timing risk | Announced schedules; highly predictable |
| Growth | Market-dependent; capex drags returns | Dividends + price appreciation compound |
| Scalability | Capital & debt heavy; slow to scale | Scales instantly with reinvestment |
True stability. True scalability. Truly passive.
Good post, however each region has its own niches and concerns.
The article gives a good explanation of why I have never purchased rental properties.
If I was a professional handyman I might have chosen differently.
“...rising payouts and rising share prices...”
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Certainly not always true.
NYC used to be a good place to invest in rentals. Demand always outstrips supply even in the suburbs of Long Island ( where the schools are top notch ). The price of real estate has been going up since as long as I can remember.
Enter potential mayor Zorhran Mamdani who wants to FREEZE rentals when he becomes mayor but NOT freeze property taxes. As a landlord, your expenses goes up, but not your income. You’re screwed.
I have never owned a rental and never had much luck in stocks until I gave up and decided to just go for dividends. Then in a year or so I looked at the portfolio and saw the stocks had mostly doubled in price.
It sounds like the author bought some rough properties and didn’t invest in improvements on the front end. My rental properties are a cash register that return about 7 to 8% on my investment annually, and all have appreciated in value. On dividend stocks you’re lucky to get 3.5%, and contrary to the author’s statements, they do go down in value.
Diversification is the key. Nobody should put all their eggs in one basket.
The biggest issue I ever had with rental property is…renters. I’ve heard nightmares from friends and business associates. I don’t need the extra money that much.
Rental properties crushed dividends when I did both, but you have to know HOW to make that work and you have to own them for long periods, like 20 years.
Landlords can write off expenses against income
Yes, rental income property is not a “passive investment” where the money is “parked” with the “gain” of the rental income. That “gain” has many factors against it with rental income property, that blue chip corporate and treasury dividends do not have.
Nearly all dividend payers increase their payouts every year. In many cases, the dividend increases are far more than annual pay raises that most people ever hope to get.
The majority of companies that pay dividends do so on a quarterly basis (which varies) so if you hold enough companies you’ll probably have some money coming in every month. A lot of dividend growth investors prefer companies that pay on a monthly basis.
Dividend payers also make holding stocks less stressful as you are getting paid while you wait for the stocks to appreciate in value. And qualified dividends get favorable tax treatment.
It takes a lot of time to build an income generating portfolio that pays out enough in annual dividends to produce a nice financial cushion, but it can be worth the effort.
1) Income “Payouts rise over time (dividend hikes)” ... not necessarily so. Sometimes, the dividends are reduced or eliminated.
5) “Dividends + price appreciation compound” except when they don’t, because the company suspended its dividend, and the price per share dropped.
I get that the author is big on dividend stocks, but he’s being a little dishonest. That’s bad.
Not really a complete comparison.
With rental properties, you have depreciation for tax purposes, and likely owe no taxes (or very little) annually. You might even get a refund (if you had other taxable income), reducing your net taxes due. You’ll also increase your returns by leveraging OPM (other peoples’ money), as you’ll almost certainly invest maybe 20%, and borrow the balance from a bank. When you sell, you can roll gains over into a new property and defer capital gains taxes. You will have concentration risks (property specific and location specific (think house fire, or hurricane/tornado). None of that is true with dividend investing (unless you want to borrow in a margin account to buy more stock, or buy single, speculative dividend stocks).
With dividend investing, you can easily diversify via ETF’s or mutual funds, but portfolio yield will suffer vs. hand-selecting higher-yielding stocks. Not so with rental properties, unless you want to be a REIT investor. You can also pursue stocks that pay “qualified dividends”, in part or total, to minimize annual tax obligations. But regardless of this, you’re going to have taxes due each year on this passive income.
(Disclosure - I don’t do rental properties due to: concentration risk, lower liquidity, more time consuming.)
The carrying costs and management hassles make real estate a questionable investment. If you do a discounted cash flow analysis on a rental property you’ll find that the constant outflow of money results in a return that isn’t that good, unless maybe the property is in a hot area, in a great location or has other highly desirable factors.
Its true that dividends are discretionary and there’s no obligation for a company to pay them, but dividend cuts are rare, and often predictable. Of course, any cut will also likely impact the share price as well.
The author/landlord is doing it wrong. You’re supposed to collect the first and last month’s rent and UNDER NO CIRCUMSTANCES give back the deposit. The huge rental companies are evil bastards.
Agreed. Though unlike you I didn't do any rental or real estate directly (I have a mutual fund for real estate). I simply invest in 30+ mutual funds for growth plus 12 mutual funds for bonds/treasuries/money markets for relative stability (and some hedging).
During the growth phase, each month's investment simply goes into whichever mutual fund has the lowest balance (buy low). And during the retirement phase, each month's withdrawal simply is withdrawn from whichever fund has the highest balance (sell high). I'm currently in a quasi-retired phase where I'm neither withdrawing or investing, but the above algorithm is how I've managed ours during the growth phase and many multiple family members during their growth or retirement phase.
Diversification is amazing for growth, not just withdrawal stability. Because I invest in 30+ different growth asset classes, they almost always go up and down in separate patterns. In other words, each month when it's time to invest there's almost always something that's low to take advantage of an opportunity.
Dividends of blue chip stocks almost never go down. I’m about to find out how well that works because I just retired in May and I’m going to be living off of SS and stock dividends.
Cuts or suspensions in dividends can certainly happen, but that depends to an extent on the size/stability of the company and economic conditions. The facts show that dividend cuts occur at a rate of less than 2% with stable companies in a typical year. Of course, economic stress can increase the likelihood of a cut, but over time its a relatively small number.
That said, the big problem with cuts is that they can negatively affect the stock price in a big way so you run the risk of losing money in the value of the stock.
It advisable to keep an eye on a company’s pay out ratio, its free cash flow, and other measures of financial health.
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