I would think that would depend largely on how long your retirement plan is and what market you are shopping for RE.
These two 7 year old SFH rentals we currently own were both purchased in 2019. I retired in 2020 and my DH retired in 2022. We were 54 and 59 respectively but have a 40 year retirement plan (in my case I have several grandparents who livef to be over 98).
We only made the required minimum 25% down payment because at the time the interest rates were very low. So we leveraged a relatively small down payment for decent cash flow and for having tenants pay off the remaining balance on real properties.
Should we ever run out of cash, we look forward to being able to cash in on the rental properties.
I realize there are many factors to consider and the interest rates are not nearly as favorable to landlords as they were 6 years ago, but certainly, under the right conditions, rentals can be a sound investment IF they are part of a long term plan.
Clarifying: Under no circumstances would we have considered buying rental properties when we did without planning to use a property manager. We both have extensive home remodeling experience BUT at our ages, we were largely “over it”. We like having the option of doing some work ourselves, BUT would not want to be obligated to do so. With the PM services there is no required physical work-only the occasional yea or nay replies to texts or emails asking for permission of some sort.
Muni bonds are fairly simple. You are lending moneys to city, states, airports, colleges what have you. Things owned by the public domain.
You have an interest rate, a price, and a maturity. When the pay back is.
If interested I can send you resources to learn but it’s fairly simple.
If you’re committed to income, a CD or ladder (multiple with varying maturities) isn’t the way to go - lower interest rates, taxes, and shorter maturities.
Have owned two different investment properties over the years…and as we approach retirement we now own zero (just our primary residence).
Do you know who doesn’t call at 1 am Christmas eve because they stuffed a lb of pasta into the disposal and it’s now leaking water over the newly refinished floor? A no-load mutual fund. Do you know who doesn’t impose a “special assessment” to build a state of the art recycling center which will take two years of increased fees (which you cannot pass on to the current tenant) ? A low fee index fund.
H is very handy and did most routine repairs himself. Even counting his labor at zero dollars per hour, one property broke even when we sold it, and the other yielded something like a 1 percent annual return.
It looks so easy except it’s not. We never had a tenant who did not pay on time. But renters cause MUCH more wear and tear than you can imagine…and it’s hard to sell if you don’t invest in restoring the property to tip top shape before you list it. And of course…real estate prices go up and down. There are easier ways to finance your retirement!
So staying on topic (there are many other threads where other financial investment choices/strategies can be and have been posted), there seem to be people who like real estate investment, and people who don’t. We are the latter. Other than our primary residence, we realize we are not real estate people. Many decades ago we kept my townhouse (that I had watched being built from the ground up on the lot that I picked, so had somewhat of an emotional attachment to it ) and rented it out a few times. We were softies and had one headache after another. One had a big dog and the place was infested with fleas; one claimed to want to do a lease purchase (and we had only a very small deposit) , and he painted the deck like zebra stripes, and we then let someone who we sorta knew (the secretary of a colleague) assume our mortgage and take a second mortgage as well, and they not only abandoned the place, they trashed it. We know friends who have had good experiences with rental properties. Happy for them. We did not. If you have never had frontal property, IMO starting as a retiree is not the time to start.
Btw for one who wants to own rental property without owning there are multiple public companies that do this, the most well known being Invitation Homes - INVH - which currently yields (like any stock, never assured 3.8%). Own their stock and own a piece of thousands of rentals
Their profile states - Invitation Homes, an S&P 500 company, is the nation’s premier single-family home leasing and management company, meeting changing lifestyle demands by providing access to high-quality homes with valued features such as close proximity to jobs and access to good schools.
Of course there are various REITS for every type of real estate from offices to cell towers to college apartments and more. Many pay high yields but of course, future dividends and stock prices aren’t assured - why I personally prefer individual munis and eschew mutual funds for fixed income.
When we first got married, we were landlords for 7 years…on a house I owned in another state.
We were very fortunate to have good friends as tenants, and they were willing to do repairs as long as we paid for them. It worked very well.
The last friend tenant actually bought the house from us so one of their parents could live there. When they were ready to sell, they sold to a mutual friend’s son. It’s nice because I can still visit this place…and all of the owners have taken great care of it.
Sen Jon Ossoff spoke just today about the problems with corporately owned rentals making housing unaffordable for many renters and potential homebuyers. https://youtu.be/W-rciZiBa_Q?si=BNpaEnkCgQ45yKtg
H had rental properties when we met. We were able to exchange 2 rentals to have a very large down payment so we could afford the single family home we bought. His rentals were negative cash flow but fortunately appreciated.
His parents and sister left us with property that we were renting out. We finally exchanged one of the properties for a condo and have a property manager renting it out. She’s also renting out the other property, which is requiring A LOT of repairs after many years of neglect from prior property manager. Insurance and repairs have made it very negative cash flow (in fact we had to loan a lot to upgrade all the electrical, which was a fire hazard), even though there is no mortgage on the property.
My relative in the other hand bought and upgraded a lot of properties and made a lot of money in the process. He died with significant real estate assets that his estate is trying to sell to establish the foundation he wanted.
Most of the folks I know try to get out of the rental business as they get nearer to retirement—too many unknowns with repairs, insurance, special assessments, bad tenants, etc.
Thank you all for these awesome, additional insights! There is nothing like hearing from people who have walked through an experience to bring home the realities. I can see how being a landlord could work for some - but those vivid downsides are very persuasive!
(I laughed out loud at blossom’s ‘you know who doesn’t call you at 1 AM with a jammed garbage disposal? A no-load mutual fund’)
@tsbna44 - if you had anything on the muni bonds and wanted to share - would appreciate!
I’m really thinking a lot about ensuring some kind of stability going forward (to the extent possible) - now that the family’s main breadwinner is stepping back (possibly entirely!). Thanks again.
I buy municipal index funds from my brokerage—it has a very very low annual % fee and no load. They are quite liquid and happily should be exempt from federal tax. Since we are mostly in schwab and they have a bricks & mortar office in our city, it happens to be schwab but Fidelity also has similar fund. Vanguard also has similar fund.
The issue with muni bond funds is principal protection. While the holdings will get to 100, your price won’t necessarily. That’s why it’s better to build your own “index” if you will - via individual securities. Bonds and funds aren’t a good thing. Now the funds will tell you they pay lower prices and that might be true - but you’re not necessarily getting your money back like you do with an individual.
Any investment has a risk of principal plus risks due to erosion due to inflation. One has to decide what works for them and how much they want to manage things.
Yes, inflation - but when you buy a fund, your out prices are different. When you buy an individual security, they are 100 cents on the dollar. The wealthy buy individual securities for that reason. A bond fund - you won’t necessarily get out what you paid or at 100.
But of course, to each their own and if a fund works for you, that’s great too.
