Transitioning from working a regular 9-5 to retirement can be a daunting experience, especially if you feel you need more financial security. Unfortunately, many intending retirees start looking for other sources of income that can help them sustain their lifestyle when they have only a few short years to go. If that’s your current situation or you’re trying to avoid such a scenario altogether, we’ve got you covered.
Are you considering becoming a real estate investor to fund your retirement? Do you need guidance on choosing the right location for a rental, or what problems to anticipate? Stick around as we discuss retirement income from real estate: is it enough? Find out all the answers and more below:
Can Real Estate Be a Good Source of Retirement Income
Before getting knee-deep in such a capital-intensive business, it’s essential to answer an important question, “can investment properties fund retirement?” Well, it depends.
When people talk about real estate, they automatically think of rental properties, but there are other ways to participate passively in the industry. For example, real estate investment trusts, or REITs, are popular amongst seniors because they’re low-effort assets you can easily purchase, hold, and earn dividends. However, they operate like stocks, and the IRS taxes them as regular income. Still, if you invest strategically in the right fund and live a modest lifestyle, they could cover your retirement.
On the other hand, the most popular real estate investment option involves leasing out a property you own. Instead of earning dividends like in REITs, investors can bank on monthly rental income from their tenants. That also means running a rental property is more profitable and could easily fund your post-retirement lifestyle depending on how many properties you own and how much rent you make.
Importance of Choosing a Good Location
1. Lower Vacancy Rates
One of the importance of choosing a good location is lower vacancy rates. Rental income is only stable when you have paying tenants, and if your house isn’t in a suitable neighborhood, you’ll struggle to attract renters. However, when you own property in a prime location with a low crime rate and proximity to amenities, you’ll hardly have to account for lost income because your units are empty.
2. Better Infrastructural Development
Another benefit of choosing the right location is better access to infrastructural development. Life is much easier for you and your tenants when you own property well connected to roads, commercial businesses, and an excellent public transport network. In addition, it makes it easier to attract more renters, increases your home’s value, and helps you earn more.
3. Higher Paying Tenants
When you invest in a high-value location, you also increase your appeal to high-value tenants. For example, a single-family unit in McLean would be worth more than its replica in Dale City because of its neighborhood. Consequently, the house’s landlord in McLean would enjoy a higher profit margin because their tenants are willing to pay more.
4. Cheaper Expenses
Another reason you should invest in the right location is to lower your expenses. Property taxes vary from area to area and can weigh significantly on your total costs. Also, service providers like cleaning, plumbing, or electric companies can charge you more if you live in a high-brow area. And since you need these services to keep your rental functional, you’ll have to foot the bill. After all, poor maintenance can also increase the likelihood of equipment or installations in your rental needing to be fixed. However, Professional Property Management of Northern Virginia can assist in avoiding potential problems in your rental.
5. Larger Profit Margin
Finally, choosing the right location could yield more significant profits for you. Lowering vacancy rates, attracting high-paying tenants, and reducing your expenses could save money in bills and taxes. Thus, if you want to maintain your lifestyle as it is post-retirement, you should consider where you invest.
What are the Potential Problems?
1. Financing Can Be Expensive
One of the most significant barriers to investing in real estate for most people is the financing issue. Buying a house is expensive and requires commitment because real estate isn’t known for its liquidity. However, many financing solutions come at low-interest rates and require a small down payment. Investors with an existing 401 k fund also have another option to sponsor their real estate venture.
2. Managing Real Estate Can Be Stressful
While real estate might not be as intensive as a 9-5, it does require a lot of hands-on. Calling it a passive source of income is a misconception that doesn’t consider all the duties property owners need to perform to keep their rentals profitable. You need to spend hours on advertising, screening, organizing important documents, conducting inspections, and responding to repair requests. Such duties can take a toll and is often why most seniors outsource their landlord duties to property management companies.
3. Dealing with Difficult Tenants
When you run a business that involves dealing with people, you’re bound to encounter one or two difficult ones. While a thorough screening process can help you avoid the worst, some renters can still slip through the cracks and give you a hard time. That’s why you should draft a well-written lease, store evidence, and have a real estate lawyer on standby.
Conclusion
That’s a wrap. Whether you’re already retired or retirement is just around the corner, real estate can be a profitable solution to securing financial stability. Of course, it would be good to create a bigger cushion by investing in the right property that guarantees higher-quality tenants with lower expenses. Consider drawbacks like initial financing, maintenance costs, and dealing with tenants. If you feel overwhelmed by these potential problems, you could always opt for a more hands-off approach by hiring a local expert property manager to handle your landlord duties.
Click to rate this post!
[Total: 1 Average: 5]
