6 Reasons Why I Sold My Rental Properties and Moved to Index Funds
For years, being a landlord felt like the smart, responsible thing to do. Buy a property, rent it out, watch the equity build while someone else pays down the mortgage. It’s a story that gets repeated at dinner parties and on financial podcasts alike, and for a long time I believed it …
1. The Expenses Quietly Ate the Profit
When I first bought rental property, I budgeted using rough rules of thumb, the kind you see in every beginner’s guide. Reality turned out to be less forgiving. Industry data shows multifamily operating expenses now average roughly 40% of gross rental income, though the ratio varies widely by market, asset age, and management efficiency.
Insurance was the part that really changed my thinking. Landlord insurance premiums have risen 119% over four years, according to RealPage data. That single line item alone was enough to turn a property that used to cash flow comfortably into one that barely broke even most months.
2. Vacancies and Turnover Cost More Than I Expected
Nobody warns you enough about the gap between tenants. Even a quick turnaround eats into income fast, since even the quickest turnover often takes 2 to 4 weeks to fill, and if a unit goes for $2,000 a month, three weeks of vacancy means $1,500 in lost rent before a single repair bill shows up.
Most planning guides suggest budgeting for this reality rather than hoping it won’t happen. A common benchmark is that most investors plan for at least one vacant month every twenty months, which results in a 5% modeled vacancy rate, and in softer markets that number climbs higher. Add lease-up costs, marketing, and the occasional bad tenant, and the “passive” label starts to feel like wishful thinking.
3. Maintenance Costs Kept Climbing Faster Than Rent
Repairs used to be predictable. Lately they haven’t been. Recent industry tracking found that repairs and maintenance costs have risen more than 28% since 2021, reflecting sustained inflation in labor, materials, and insurance, which matched exactly what I was seeing on my own invoices.
The old shortcuts no longer hold up well either. Property managers now warn that managers can no longer rely on the “50% rule” or outdated benchmarks to maintain NOI, which was a quiet admission that the rules I’d learned as a new landlord were becoming outdated. Between HVAC servicing, appliance replacements, and the occasional roof surprise, the reserve fund I kept aside was shrinking faster than it was refilling.
4. Landlording Was Never Actually Passive
I liked the idea of rental income showing up while I slept. In practice, it required constant low-grade attention: screening tenants, chasing repairs, tracking depreciation schedules, and keeping receipts organized for tax season. The IRS itself frames rental activity around ongoing documentation requirements, noting that you can generally deduct expenses of renting property from your rental income, though such expenses must be incurred in carrying on a trade or business, for the production of income, or for the management, conservation, or maintenance of property held for income.
That paperwork burden is real, and it doesn’t shrink as your portfolio grows, it multiplies. Every property added another layer of bookkeeping, another set of vendor relationships, another Schedule E line. Index funds require none of that. There’s no 2 a.m. call about a burst pipe, no negotiation over a security deposit, no vacancy loss calculation to untangle at tax time.
5. I Couldn’t Sell Part of a House When I Needed Cash
Liquidity is the part real estate investors talk about least, probably because it’s the least flattering. A rental property is an all or nothing asset. If you need part of your money out, you either sell the whole thing, refinance, or wait.
Index funds don’t have that problem. Shares trade instantly during market hours, and you can sell exactly as much as you need, when you need it, since you can buy or sell an ETF instantly through a brokerage at the then-current price. That flexibility matters more than it seems until you actually need it, whether for an emergency, a opportunity, or simply peace of mind.
6. The Long-Term Numbers Favored a Simpler Approach
Once I stripped out the after-cost math on the rentals, the comparison against a broad market index became hard to ignore. Historically, the average annual return stands at 11.5% for the past 40 years, and the S&P 500’s average 30-year return from January 1996 through December 2025 is 10.4%, all without a single tenant call or maintenance invoice.
That return also comes with genuine diversification across hundreds of companies and industries, something a single duplex or fourplex simply cannot offer. Costs matter too, since several S&P 500 ETFs are available that have very low annual expense ratios, far below what most landlords spend on property management fees alone. Even Warren Buffett, hardly a stranger to evaluating investments, has said an S&P 500 index fund is the best investment most people can make, and after several years of running my own numbers, I found it hard to argue with him. None of this means rental property is a bad investment for everyone, or that index funds are risk free, because they aren’t. Real estate can still work well for people who enjoy the hands on work, have the capital cushion for surprises, or benefit from local market conditions I didn’t have access to. For me, though, the combination of rising costs, unpredictable tenant turnover, and the quiet drag of ongoing maintenance made a diversified, low-cost index fund feel like the more honest trade of time and money. Selling wasn’t a dramatic decision in the end. It was closer to admitting that a simpler tool had been sitting there the whole time, quietly outperforming the more complicated one I’d been so attached to.
