How Real Estate Can Generate Income For Your Retirement

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A steady, predictable, and adequate income stream throughout retirement is a must for anyone in their Golden Years who wants to live comfortably long after they’ve said goodbye to their careers. But without a decent pension, considerable savings, or sizeable dividends from investment vehicles, having the pool of income needed to keep up a certain lifestyle after retirement can be downright difficult.

Luckily, real estate investments offer another lucrative and attainable channel to pad retirement funds.

Collecting Passive Income From Rental Properties

While high investment risk is something that a thirty-something might be able to tolerate, it’s not something to toy with once retirement hits. The goal at this point is to protect your invested capital while generating an income stream at the same time.

Investing in real estate provides opportunities to deliver cash returns, whereby you continue to generate cash flow from your capital contribution. Ideally, real estate investing can provide you with the cash dividends necessary to not only cover operating expenses, but expand your bottom at the same time.

If done right, real estate investing can bring in a steady stream of income no matter what current economic conditions are like, unlike the stock market. They can appreciate over time, leaving you with a comfortable financial cushion to rest on in retirement.

One of the best sources of passive income comes from rental properties, be they commercial or residential. And if you are financially secure and have some time to play with before entirely depending on your rental income to sustain your livelihood, you don’t necessarily have to generate a profit right away in order to make the investment of an income-producing property worth your while.

Now is still an ideal time to purchase rental properties, as interest rates are still low and rents continue to increase in many areas.

While you can always play the stocks to a great deal of success, there’s something inherently safe about real estate investment that is almost a sure shot if you play your cards right. Investing in real estate offers a lot more control over property appreciation compared to the stock market because you have a hand at boosting its value, and in turn, its income.

Rents are always going to increase, and the value of real estate is almost always going to go up as well. Not only will you be collecting residual income from rent, you’ll also be reaping the rewards of an increase in equity without hardly lifting a finger. As you pay down the principal portion of your mortgage, the equity will continue to build.

Eventually, you’ll have enough to potentially borrow against the equity in the property in order to finance some of life’s major expenses, or even finance another real estate investment altogether. Of course, the earlier you start investing in real estate for retirement income, the better. 

At some point, your income will steadily climb over time, even if you’re only seeing a marginal profit at the beginning.

Tax Breaks Accompany Rental Properties

You should also consider the tax breaks that you’ll be able to take advantage of as an owner of a real estate investment property. The IRS allows property investment owners to depreciate the building portion of the property over 27.5 years, which means a lot of your cash flow can avoid the tax man.

Of course, such depreciation will have to be recaptured if you ever sell the property in the future. But if you keep the property for life, and you outright own it when you pass away, that depreciation no longer exists. Anyone who inherits the property from you won’t be stuck with paying it. 

Know Before You Buy

There are obviously specific traits that will make one investment property trump another when it comes to profitability: single or multifamily homes in a desirable area is key.

The average investor should also be prepared to buy and hold for the long haul, particularly if the market is somewhat unstable. Properties that are able to bring in a minimum of 6 percent positive cash flow – after costs – should be focused on in order to make sure that more risk is being taken on than necessary.

Even if you plan on bringing a property management company on board to deal with the building and tenants, it’s still best if you can keep an eye on it yourself. That means buying in a location that you can easily get to. 

Of course, before buying anything, make sure you hire a home inspector to uncover any expensive potential repairs, such as replacing the roof or rewiring the entire property. Determine what the forecasted monthly costs will be (on top of your mortgage payments), including insurance, property taxes, maintenance fees, and vacancy rates.

Making sure the numbers work in your favor is key to ensuring the investment will be a profitable one. There needs to be a big enough rental income stream to cover all the expenses related to holding and maintaining a real estate investment property. Determine whether or not the actual market rent that can be realistically demanded is at or above the going rental rates.

Your real estate agent will be able to tell you how much nearby rental properties of similar size command, which will give you an idea of how much positive cash flow you can realistically generate each month. These professionals will also be able to fill you in on how long it takes for vacant rental properties to find renters, and how fast they appreciate in the event that you consider selling.

Real estate is typically an excellent investment vehicle for retirement, and if you do your due diligence, it can really pay off.