I’m looking for a variety of income streams in retirement and wondered if anyone had a rental property for that purpose? Was it overall a good idea?
Was thinking when we sell our home and move, perhaps buying property with an accessory dwelling unit could be a useful supplemental income stream?
I’ve heard that being a landlord can create headaches, though. And I know the laws in each state very re: 'tenant friendliness"‘ etc. (wouldn’t want to have to go to court to evict someone!)
On the upside my husband is super handy in all things home-related.
He wants to retire very soon, though - making me look around for supplemental $$ sources that are less stock market dependent (and to take the pressure off my sole income generation role!). Thanks for any thoughts!!
My parents had rentals for decades. It was great income stream until they ran into a renter who stoped paying rent and it took more than two years and a crazy amount in legal fees before they were finally able to evict him. And he trashed the apartment prior to move out. Literally stripped out wiring, holes in walls, graffiti, etc…. Then they had a couple that ended up using another apartment for drug deals. Police were out all the time but again, it took lots longer than they should have needed to get them out. They thought they had a good vetting process too! They sold all their properties after that and felt there were less stressful ways to grow their $.
From dealing with my dad’s properties, I wouldn’t recommend it. With all of the expenses involved, he doesn’t make much profit. And SO many renters leave the houses with a lot of damage. The security deposits aren’t nearly large enough to pay for it. We are in the process of selling all of his houses off now. That will still leave him with the condo on the Texas coast. He had to contribute many thousands of dollars for hurricane damage repair, even though his unit was barely affected.
Obviously, many folks have made their wealth in real estate but if you had a big chunk of change and were looking for easy, reliable and nearly assured income (which a rental isn’t), why wouldn’t you buy fixed income securities like municipal bonds, which are tax efficient and provide reliable income. It’s what the wealthy buy - in addition to real estate.
But as you get older, you want to take on less risk. A rental property is definitely not that.
Today, you can reliably earn 4.75% with strong security; add onto that no federal income tax and possibly no state tax. I don’t think owning a property, from a cash flow POV, is going to greatly outperform.
My sister is not retired but owns a property and it’s not easy. The agent in charge is not you - they don’t have your care. Things go wrong - that need repairs, with neighbors (relations), and more. And when someone moves out - what if it’s not in good shape, - i.e. they half trash it. While regularly it’s been fine, there’s a lot of nerves - when one leaves, finding another, etc. and then the repairs, including for her a broken window and something with trash cans and hte HOA.
There’s a lot of risk there when you are retired - and much safer and easier ways to build income.
This is very true. I have had experience as a tenant, and I have had experience as a landlord. I have had good tenants, and I have had one bad tenant. Not paying rent and messing the place up have happened.
It might have been Shakespeare who once said: “Neither a landlord nor a tenant be” (or perhaps it was me after the one bad tenant).
Thanks so much for all this feedback! Much appreciated.
Since my husband announced his desire to stop working (asap)I’ve been nervous about finances (and feeling the money-generation pressure!) which is why I looked into real estate. Lots of ‘Financial Independence Retire Early’ podcasts and FB groups preaching the ‘house hack your way to FI!’ route, too.
But I like the municipal bond idea! Will definitely check that out. Want easier in retirement – not harder/more litigious!
Was also thinking if we had an ADU rented on our property there’d be a certain loss of privacy. Don’t really want that either!
Thanks again! (happy to have that idea no longer occupying my mental real estate!!)
I was going to say that if you haven’t yet invested in additional real estate I don’t know if retirement is the best time. We only own our primary residence. I know several people that have been involved in buying and selling real estate here in Southern California as well as others that have rental properties. These people have been doing this for more than 20 years and their rentals are part of their retirement planning. H and I never wanted to be landlords as one of our best friends had a year long battle to evict a terrible tenant which costs our friend a lot of money!
One more expense to consider: if you plan to travel in retirement, while you are gone, someone has to be paid to be on standby to manage issues with the rental that the landlord is responsible for, like a broken washer.
Munis are for the wealthy but obviously you need pincipal.
You could, for example, get AA rated paper at 4.875 - priced at 100 so for every $10K, $487.50 a year federally tax free and potentially state tax free and with call protection to 2035 - so you have near 10 years without risk of it being paid off early. There’s higher paying paper too - same rating but a worse underlying but rated high due to insurance.
Whatever you do, with munis, you buy individual paper and not mutual funds.
If you have enough capital to spend, it can easily make up an income.
That’s how I’ve built (and will continue) to build my retirement til I actually do retire.
If he is the one retiring asap, I hope that he is also looking around for alternative income sources!
I had a friend who family would gift a rental property upon graduation from high school/college or whenever they would be “out on your own”. Of course this was decades ago.
How about if your H is handy he earns some extra income as a handyman? Take as many jobs as he wants, turn down what he doesn’t. People are constantly looking for a “handyman” here.
Just piling on , now. My inlaws purchased a second rental property in a sunny southern state, which they are having trouble renting out due to the immense competition there. So now they have a mortgage in their 80’s, two properties to manage and a growing rift between DH and them since they keep insisting it can be inherited as part of their estate and it will grow in value and make us comfortable in our old age. DH has made it very, very clear he absolutely does not want either property, now, or ever. (BiL is fine with it all – his wife is in poor health in her 70’s, he is a multiple heart attack survivor….I just know we are gonna get stuck with these albatross homes.)
Ask yourself what happens if you or your husband, God forbid, become incapacitated or die prematurely. Do your children want to manage property? Do they want to have to sell it? (selling is no easy picnic either). Lots of questions, make sure to ask them.
I know many people who own rentals. Most of my neighbors own rentals, a good portion of my colleagues, some relatives, as well as many I communicate with online in different regions. Some of these are vacation type rentals in areas they enjoy visiting. They use the property some of the year, and rent it out in other portions of year. Some of these are renting property that is very near their primary home or part of duplex, which can have a variety of advantages – both financial and for mitigating risks described below. There are many different possibilities.
The overwhelming portion of them have positive overall comments about their experiences. Positive/negative largely relates to whether you get a good or bad renter. Many renters will be ideal tenants – consistently pay on time and rarely hear a peep out of them while renting. However, there is a chance of a nightmare tenant, and there is no shortage of persons with anecdotal horror stories about bad tenants. This risk can be dramatically reduced with detailed vetting and careful selection of renter, but the risk still exists.
Many of this landlord group prefers owning rentals to market investments and keep increasing their number of rentals, rather than investing in market. Their positive comments partially relates to recent years being an abnormally good time to own rentals. Case-Shiller home value index increased by nearly 50% in 2 years shortly after COVID . In my bubble region, home value gains were much larger. Average mortgage rates were under 3% during this period, so in addition to the large property value gains, many have an arbitrage situation with their mortgages. I expect persons who purchased rentals near 2007 had very different experiences, as well as different feelings about using rental properties as an investment.
In short, I don’t think it’s a simple “good idea” or “bad idea.” Instead it depends on which rental you choose and personal benefits you get out of the property. It depends on whether you are okay with the degree of financial risk, as well as okay with the potential time commitment. Average expected return is likely positive and higher than other alternative investments with low risk level, but there is also a risk of a notable loss. If you want a near-guaranteed positive return with little effort, that’s not a rental.
We own one rental. It hasn’t been entirely problem free, but it has been 95% of the time. We are choosy about who we rent to. It’s been a valuable source of retirement income for us - at least partly because rents go up, so it’s a good hedge against inflation.
Who you rent to and where re important considerations. We keep our rent attractive, so we can be choosy.
We’ve also learned that it’s cheaper to pay a problem tenant to leave than it is t g through the eviction process.
In some places, you can’t be too choosy by law. First applicant who barely passes a background check must be rented to. Research the local L-T laws well!
We have owned rentals for 20 years and currently own 2 in the midwest, where the rent compared to property value is MUCH higher than it is where we live in the PNW.
In all of our time as landlords we’ve never once had someone pay the rent late nor have we ever had a vacancy. We always rent our properties at slightly under market rent in order to maximize our selection of ideal tenants. More importantly, when our tenants say “jump”, we JUMP.
Because we live so far away from our current properties we do have a property manager…which only costs $110/month each. In spite of that we are 100% in charge of everything that happens to our houses. We get to pick which applicants we want for tenants and approve or deny maintenance requests. We pick and choose when we want to do maintenance/updates ourselves vs letting the PM service handle it. We regret not having a property manager sooner.
For us, they have been ideal investments. I like having real properties that, though they could decline in value, they will never be worth zero, which is theoretically possible with securities. Even CDs, which we also currently own since their rates are higher than they have been for awhile, could not compare to the return we get from our rental properties. Cash flow is one thing, but long term, when you calculate the monthly cash flow, the tax advantages, the annual average appreciation, the cheap ‘leverage’, and the equity increase that the tenants are funding, our rentals provide a very solid roi.
I would absolutely love to know a handy guy who wants to work on smaller jobs. We could use someone to paint and hang new interior doors, which H could do but won’t (based on how long I’ve waited for it to happen). No one wants to do jobs like that around here. If he’s up for it, I would bet he could stay busy and earn money … and the flexibility can’t be beat.
I clearly have to research more about muni bonds - just the terminology is a lot :)! I’ve also heard of ‘laddered CDs’ - I’m seeking some more stable income sources - apparently that doesn’t need to be real estate (although nice to hear the positive stories!).
@abasket good thoughts about my husband doing part time work! He’s got some (what we hope are) temporary health issues that have him on temp disability - and doesn’t want to return to an uber-stressful job. I get it!
While he’s not amenable to part time work discussions now, perhaps that could change as he recovers from the stress and rebuilds his health (and we meet with a financial planner!).
I have to do more research on some stable resources - as being the sole breadwinner is giving me a lot of anticipatory stress! lol.