Owning rental property can be a great idea, no matter what your age. But owning real estate in retirement can be very beneficial, as it can help diversify your retirement income while boosting your retirement savings.
If you’re looking for ways to boost your senior income, here are three reasons why owning real estate in retirement might be a good decision for you.
1. Rental income
Rental income is the most obvious benefit of owning real estate. As a landlord, you receive a monthly paycheck 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 to extra money each month to use as you see fit. This rental income is generated somewhat passively, making it a fantastic way to supplement your retirement income outside of just savings, investment and social security income.
Additionally, rental income yields can be much higher than a traditional dividend stock. As an investor myself, I will generate a minimum return of 10% on my rental properties. This means that for every $10,000 I spend, I expect to generate around $83 per month in passive income.
Rental properties also have the advantage of growing over time. From 2010 to 2020, the average annual rent has increased by 4.7% at an annualized rate. The slight increase can help offset an increase in property-related expenses, but since the mortgage payment is fixed, it can also lead to increased cash flow.
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2. Price appreciation
Home prices are not guaranteed to rise, but historically speaking, most houses appreciate or increase in value over time. Supply and demand in the given market or for the property features themselves will ultimately determine whether the value of the home increases or decreases. 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 enjoying long-term appreciation.
If you invest wisely, a $300,000 rental property could be worth much more in 15 to 30 years. And by using the power of leverage to buy a rental property, with just a 20% down payment on a fixed rate mortgage, every lease payment the tenant makes will build your equity.
As the debt is paid down and the house appreciates, you could find yourself with a noticeable safety net for your retirement savings, all from a 20% down payment. Having the ability to sell the rental property or refinance it if and when you need the cash is a huge security for your retirement years.
3. It can be as passive or active as you want
Many people hear the word rental property and think about work. It’s true; there is a lot of active management that goes into owning a rental property. But the good news is that you don’t have to.
If you are looking to relax and unwind 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 take care of everything from viewing the property, screening tenants, collecting rent and security deposits, and coordinating repairs to the property for a small monthly fee.
On the other hand, if you’re looking for a part-time job to keep you busy during retirement, managing a rental property can help keep you busy. It’s simply important that you learn the most effective steps to managing a rental property from screening tenants, advertising a property for rent, accepting rental payments online, considering accounting best practices, and ensuring you have money set aside for future repairs.
Owning a rental property is not for everyone. And there are a lot of things you need to consider when it comes to buying the right property. However, if you have an additional investment and are looking to diversify your income of seniorsrental property can be a great way forward for your retirement years.