Rental Property As Retirement Income
Is now a good time to invest in property for passive income when you retire? And is it even a good idea for you?
Look before you leap
The Chicago Tribune had an interesting analysisback in May that counseled that loan requirements have changed dramatically over the last 5 years, and that the investor must have realistic expectations with the focus on long-term rather then flipping. Purchasing an investment property as a rental can provide you with a steady stream of income. There are still tax benefits with real estate investments, and you should talk to a professional to find out how it would impact your situation. Real estate investments also mean that you will be a landlord, and either you need to handle finding tenants and repairs, or you need to hire a management company which will reduce your profits. But you get to sleep through the night if a pipe bursts or the tenant gets locked out.
How much income?
Rents are set by where you live. Usually, rents will go up, but the costs involved with owning the rental property will stay fairly flat especially if you choose a fixed rate mortgage. Some investors clear $200-1000/month for one rental home. Some landlords will increase rents every year or two, while others increase only when changing tenants. If your mortgage stays the same, your income will increase over the years. There will always be people looking for rentals. If you have a clean home in a safe neighborhood, people will pay to rent it providing you with a passive income stream.
What should I be aware of?
Renters can leave with two weeks notice, and in some cycles, it’s difficult to replace them. Always keep six months of expenses on hand per property so you’re not caught needing to sell the investment in a down market. Always hire an inspector to rule out any large repairs such as foundation, roof or structure of the home. Research monthly costs. Talk to your Realtor® about comparable home sale prices in that area to have a good understanding of your investment. Investopedia has a great article on Tips for the Prospective Landlord. One of the best tips is to ensure your leases are legal as this could have a long term impact if you end up with a bad tenant. Also, the tip to join the Landlord’s Association in your area is helpful as you will learn a lot from seasoned investors.
What should I look for?
Look for a larger property in case you want to renovate or add on. Single-family homes in a good school district rent more easily. Look for properties that can generate positive cash flow of at least 6% above costs. If you’re new to investing, consider purchasing properties close to where you live to keep tabs on the investment even if you use a property management company. When you’re comfortable, consider looking into purchasing properties where you wish to retire.
So, to sum up…
Talk to a tax advisor to understand any tax implications rental property will have. Find a reputable Realtor® and call your mortgage broker to find the best options for you. To read more about things to look for and how to plan, read The income property: Your late-in-life retirement plan on Yahoo. The more knowledge you have, the easier the process will be. Have you purchased an income generating property or are you looking into one?