Running a Rental Business in Retirement

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It seems more and more of us are taking the leap into property investment these days, and it’s no wonder. With low interest rates, awesome mortgage premiums, and the high price of rent working in a landlord’s favor, there’s more reason than ever to make your real estate ambitions a reality. If you’re retired or will be in the near future, running a rental business could be the supplementary income you need to live the after-work lifestyle you’ve always dreamed of.

Taking the Plunge

If you’ve decided that you want to invest in a rental property, consider the costs before signing the dotted line. If this is a fresh decision and you don’t already own property, the venture becomes more complicated. Is this move financially sound for you? You may not see income until months or even years down the road, and you must make an initial investment to receive any returns. I have a couple of friends who started a we buy houses company after retirement and instead of doing rentals they buy the properties, fix them up and then sell them for a nice profit. The reason that they chose this route instead of rentals is because they did not want to have the problems with tenants and late rent and a ton of other issues.

However, these returns can also make retirement much more monetarily steady. If you don’t receive a pension, rent income could serve as your essential bread and butter. With appreciation rates as they are, you stand to gain on any home purchase as prices and interest rates will undoubtedly raise as time goes on. Ultimately, the decision must be based on your individual circumstances and finances, in conjunction with the general health of the rental market in your area.

How Will You Fund Your Venture?

There’s also the question of capital. Will you apply for a Freddie Mac mortgage? Do you have the savings to fund a down payment? If these options don’t work for your aims, you may need to consider alternative sources. Perhaps you’ll borrow from a hard money lender like Source Capital Funding, Inc. or use a person-to-peer funding website like the aptly titled Prosper.com. Whatever you choose, do your research ahead of time and ensure you’ve found the right fit. Many experts caution against carrying a mortgage into retirement, but the benefits can often outweigh the costs, especially in today’s competitive rental market.

Maintenance Issues

Consider all the problems you’ve had with your current home. Now double that. That level of maintenance is what you’ll be facing during retirement should you choose to dip your toe in to the rental business—and that’s assuming you’re purchasing a single family home for renting purposes. Whether it be a leaky faucet, backed up toilet, cockroach infestation, or rain damage, you’ll be responsible for getting any issue fixed promptly and correctly. Tenants do hold much of the power in terms of legal issues, so making sure your property is habitable and safe for anyone you rent to must be of top priority.

The Question of Property Management

Are you against the idea of running the rental yourself? Did the previous section cause you some undue stress? Running a rental property can be a full-time job, depending on how many homes or units you acquire. If your idea of retirement fun doesn’t include remaining on call for tenants who may face emergencies at any time, then hiring a property manager might be the fit for you. These professionals are well-versed in the market, will know your area and the regulations it requires (including both state and federal legalities), and deal with all the nitty gritty details that come along with tenants.

From face-to-face interactions to carrying out evictions, you can think of a property manager as your right-hand man. While they do lessen the amount of liability, remember that you are still ultimately responsible for the tenants you place under their “care”, as the property is legally under your name. Property managers don’t come cheap, but the investment is often more than worth the benefits that they provide. Most property management companies charge a rate of 10 percent or higher of your rental income, so keep that in mind when creating your budget.

Real estate can serve as a wonderful asset in retirement, as it provides a supplementary income, often qualifies you for tax breaks, and provides a fixed-cost way to increase your profits through the years. It’s not without its caveats, so it’s essential that you take the time to determine whether or not becoming a landlord, whether owning or managing, will work for your individual retirement and monetary goals.