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Many folks are drawn to the idea of receiving cash flow during retirement to lessen the burden of amassing a huge sum of money on which to live during nonworking years. If you haven’t gathered $2 million, or whatever sum you determined you’d need to live comfortably, you’ll probably need to generate some money after you retire. Owing rental property is one way to do this.
Crunch the Numbers
Investing in property is not always a sure thing. With that said, rental property can be a good retirement savings investment. But first you need to do some number crunching to make sure what you receive in rent is more than what you pay to keep up the property and to maintain tenants. You need to consider the mortgage, the interest rate, property tax, how much you can likely get for rent, homeowners insurance, advertising for tenants and repairs and maintenance. If your cash flow will be 6 percent more than your costs or more, the rental property should be a good deal.
Pros and Cons
Another way to determine whether you should own rental property during retirement is to consider the pros and cons. The pros of owning rental property are that you receive income each month -- assuming your calculations proved favorable -- you get certain tax advantages and you can increase the rent to match cost of living increases. The cons of owning rental property are that you will have expenses to maintain the unit, you might get a tenant in who doesn’t pay, you might have trouble finding a tenant and a rental house is not a liquid asset.
A safer way to begin being in the landlord business is to use property you already own. Maybe you can rent a room in your home. You might be able to convert a garage or workshop behind your home to a rental house. You could move to a smaller property and rent out your current home. That way you avoid buying an investment property. Banks typically charge higher interest rates and require a larger down payment for investment property than they do for property that will be owner-occupied.
The best rental properties are single-family homes in good school districts, said Andrew McLean, real estate author and landlord, on Bankrate.com. Try to find a property with a large enough piece of land attached that would make future additions possible. Before you buy, get the house inspected by a certified home inspector.