When it comes to planning for your retirement, you’ve got to be smart, bold, and innovative. You can go with the standards like stocks, IRAs and participation in an employer-sponsored plan to form your foundation. But these are not the only options out there. One alternative that is too often overlooked is owning and renting your own real estate properties.
The beauty of rental properties is they can provide a steady income source at the same time you are building equity in the property. You could also see the property appreciate in value and certain tax advantages may be applicable. Here’s a short summary of how the process could work for you:
You’ve got to spend money to make money
To generate cash flow from a rental property, you’ll have to first make an investment in the property. Real estate agent Sky Mikesell, who specializes in finding properties, says that you can rent these properties out as a means of funding your retirement. In a nutshell, you’ll need to come up with a down payment on the property. You’ll need to figure your recurring expenses, such as the mortgage, taxes, insurance, repair and maintenance, etc. Let your realtor who specializes in rentals for retirement help you here.
Don’t rush it
Don’t get discouraged if you find it takes a year or two before you start seeing a positive and steady cash flow from your rental properties. Give careful thought to what you’ll charge as your rent. This will have a definite impact on your bottom line. Charge too much and your property may stand empty for an extended time. Charge too little and you may find yourself unable to pay the pills off the cash you generate. Be sure to study the rental market in your area before deciding on your rental price.
Landlords have responsibilities
As a landlord, you’ll have obligations and responsibilities. It can be hard work at times. You’ll be expected to comply with all local, state and federal laws governing renting property. And remember that you, or someone else that you’ll have to designate, are the one the tenant will be calling at 2 in the morning because the garbage disposal is spewing gunk all over the kitchen.
Tenants are a necessity
An empty rental property generates no income. An ideal tenant pays his or her rent in full and on time each month. He or she keeps the property in great condition and meticulously follows the lease or rental agreement policies. Unfortunately, ideal tenants are not so easy to come by. You may want to consult your realtor for help in finding dependable, long-term residents.
Property managers can be good
If you aren’t interested in the day-to-day responsibilities of your rental property, hiring a property manager may be the way to go. A manager can handle such duties as marketing your rental, interviewing and selecting tenants, delegating repairs and maintenance projects, and collecting rent. Just remember that as the property owner, you can be held liable for acts of your property manager.
Rental properties can generate a stable and positive cash flow into your retirement fund. Profiting from rental investments takes time and work, and there are risks and tax implications to consider. But it is an opportunity that can pay off, and pay off well, in your golden years.