Real Estate Investment for Retirement Income
Since real estate can be a source of income, especially in rental properties, you can divert some of your retirement fund and invest in this market, but before doing so, take time to study the market and learn the trade so you’ll have a good idea of what are the upsides and the downsides of the business.
Study and learn the real estate investment market
As a retiree, you need to be extra cautious on the kind of business investment that you would like to be involved in, because you’re using a portion of your retirement money for investment where the ROI may take some time, such that if you desire to invest in real estate rental properties, know what you are doing, be knowledgeable by reading good books about it, attend seminars from a recognized real estate company, consult with a friend lawyer who has had experience in real estate cases.
The advantages and disadvantages of rental properties
The pros and cons of income-producing properties or rental properties (commercial office space, apartments or duplexes, or residential homes) are the following: rental property does not guarantee a 365 days rental, which means there are lean months that the space is vacant; this business requires record keeping, which entails regular examination of rent payment; while there is the advantage of a rental real estate tax deduction but you will have to recapture the depreciation value when you resell the property; rental will definitely rise over the years, but you also have to spend on maintenance and upkeep; the cost of investment is high and ROI will take some time, so be prepared to wait but because you’re retired, make necessary computation when you’ll be getting the real income; if you plan to let a property management company handle the management of your rental property, you have to pay between 7 to 10% of the total monthly rent.
What to look for in a rental property
If you’re planning to purchase a rental property, look for the following: a single-family home or space that is located in a good school district; buy a property large enough to accommodate future additions or renovations; see to it that the property can generate positive cash flow of at least 6% above cost; and, if possible, a property that is close to your home.
Carefully weigh down a potential rental property
Try to follow these guidelines, before you buy a potential rental property: hire an experienced building inspector to rule out repairs and problems like the building foundation, roof and home structure; determine monthly costs of insurance, taxes, mortgage fees, maintenance fees; consult a tax adviser for any tax implications; consult a real estate agent on comparable rentals in the area, how long properties stay vacant.
Consider the risk of having bad tenants
The risk of bad tenants can be reduced by using these approaches: go through the process of carefully selecting tenants; ask for recommendations from previous landlords or employers; ask a real estate lawyer to write a lease agreement; and get a landlord insurance if case of damage to property by a bad tenant.