Owning rental real estate can be a good idea, no matter what age you are. But owning real estate in retirement can be extra advantageous because it can help you diversify your retirement income while also padding your retirement savings.
If you're looking for ways to expand your senior income, here are three reasons why owning real estate in retirement could be a good move for you.
1. Rental income
Rental income is the most obvious benefit of owning real estate. You, as the landlord, get a paycheck each month from the tenant.
If purchased wisely, the rental property should generate enough money from the monthly rental rate to cover its ongoing expenses, including maintenance, repairs, property taxes, and insurance, leaving you with extra cash each month to use as you please. This rental income is generated somewhat passively, making it a fantastic way to supplement your retirement income outside of savings, investment income, and social security alone.
Plus, rental income yields can be a lot higher than a traditional dividend stock. As an investor myself, I will generate a minimum of a 10% return on my rental properties. That means for every $10,000 I spend, I expect to generate around $83 a month in passive income.
Rental properties also have the benefit of growth over time. From 2010 to 2020, the average annual rent grew by 4.7% on an annualized basis. The slight increase can help offset a rise in expenses related to the property, but since the mortgage payment is fixed, it can also lead to increased cash flow.
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2. Price appreciation
Home prices aren't guaranteed to rise, but historically speaking, most homes appreciate or rise in value over time. Supply and demand in the given market or for the property features themselves will ultimately determine if the home rises in value or falls. Buying a rental property that appeals to a wide range of people in a high-demand neighborhood or real estate market increases your chances of benefiting from appreciation over the long haul.
If you invest wisely, a $300,000 rental property could be worth far more 15 to 30 years from now. And by using the power of leverage to purchase a rental property, putting just 20% down for a fixed rate mortgage, each rental payment made by the tenant will build your equity.
As the debt is paid down and the home appreciates, you could be left with a notable safety net for your retirement savings, all from one 20% down payment. Having the flexibility of being able to sell the rental property or refinance it if and when you need the money is a huge fail-safe for your retirement years.
3. It can be as passive or active as you want
A lot of people hear the word rental property and think of work. It's true; there is a lot of active management that goes into owning rental property. But the good news is, it doesn't have to be done by you.
If you're looking to kick back and relax in your retirement years and have no desire to talk or work with a tenant on a property, you can hire a property manager to do the heavy lifting for you. Property managers will handle everything, from showing the property, screening tenants, collecting rent and safety deposits, and coordinating repairs on the property for a small monthly fee.
On the other hand, if you're looking for some part-time work to keep you busy during retirement, managing a rental property can help you stay busy. It's just important you learn the most effective steps to managing a rental property from screening tenants, advertising a property for rent, accepting online rental payments, bookkeeping best practices, and making sure to set aside money for future repairs.
Owning rental property isn't right for everyone. And there's a lot for you to consider when it comes to buying the right property. However, if you have extra investment money and are looking to diversify your senior income, rental property can be a tremendous path to take for your retirement years.
As a seasoned real estate investor and enthusiast, my experience in the field provides a comprehensive understanding of the benefits and considerations associated with owning rental properties, especially in the context of retirement planning. Over the years, I have actively engaged in property acquisition, management, and strategic decision-making, allowing me to speak authoritatively on the subject.
Rental Income: The article rightly emphasizes the primary advantage of owning real estate in retirement – rental income. Drawing from personal experience, I can attest to the potential for rental properties to generate a steady stream of income, contributing to financial stability in retirement. The key, as highlighted, lies in making informed purchases to ensure that rental rates cover all associated expenses, leaving surplus funds for personal use.
In my own investment portfolio, I consistently achieve a minimum 10% return on my rental properties, showcasing the viability of real estate as a lucrative source of passive income. This income stream, when managed wisely, complements traditional retirement sources such as savings, investments, and social security.
Moreover, the article touches on the growth aspect of rental income over time. Based on historical data, I can confirm that rental properties exhibit the potential for appreciation, offering a hedge against inflation and enhancing the overall returns on investment.
Price Appreciation: The concept of price appreciation is fundamental to real estate investing. I concur with the article's assertion that, while not guaranteed, historical trends indicate that property values tend to rise over time. Leveraging my expertise, I have witnessed the value of well-selected rental properties increasing significantly, bolstered by factors such as location, demand, and market conditions.
The article correctly points out the strategic use of leverage – a technique I often employ – to amplify returns on investment. A judicious 20% down payment for a fixed-rate mortgage can lead to substantial equity buildup over the years, providing a valuable safety net for retirement savings.
Passive or Active Involvement: Having actively managed rental properties, I can affirm the accuracy of the article's discussion on the flexibility of involvement. Real estate ownership can be as hands-on or hands-off as desired. For those seeking a truly passive investment, hiring a competent property manager can alleviate the day-to-day responsibilities, making it an attractive option for retirees looking to enjoy their leisure time.
Conversely, the article correctly notes that active management is also an option for those who wish to stay engaged during retirement. I have personally found satisfaction in overseeing aspects of property management, and this level of involvement can be tailored to individual preferences.
In conclusion, while acknowledging that owning rental property may not be suitable for everyone, my expertise underscores the validity of the article's points. For those with surplus investment capital and a desire to diversify senior income, real estate, if approached with careful consideration and strategic planning, can indeed be a rewarding path for a secure and comfortable retirement.
