Why Retirees Should Consider Investing in Rental Real Estate
For many people, the mere thought of retiring is enough to induce feelings of profound anxiety about their future financial safety and security. Without the consistency of a paycheck that provides a single, steady income, most retirees rely on a collection of different streams of income, including pensions, social security payments, and annuities, to make ends meet. What a lot of retirees don’t realize, though, is that investing in real estate – specifically rental properties – is a great way to bring in another substantial stream of income, thereby increasing both the amount of money coming in each month and one’s overall financial stability.
You may think it seems counterintuitive to spend the kind of money that is required to buy a property when you’re already concerned about your finances, but the fact of the matter is, buying real estate is one of the safest ways to invest. Unlike stocks, the real estate market is not very mercurial, and it doesn’t run the same risk of price fluctuations, which means that the income stream you’d generate as a landlord would be both reliable and stable. And here’s some more good news: according to Bill Brown, the president-elect of the National Association of Realtors, “Now is still a great time to buy rental properties,” as “interest rates are still low and rents are rising in a lot of areas.” Brown predicts that the market will continue to grow over the next two to three years, so if you’re interested in investing in rental real estate, now is the time to do it.
The question, then, is first how to navigate the process of finding and buying a property, and then how to handle serving as its landlord and management company all by yourself after you’ve purchased it. For the average layperson, it makes the most sense to hire a real estate professional to help guide you through the process of buying an investment property. Working with a broker gives you access to his or her extensive bank of industry knowledge, and real estate professionals already have many connections to players in the world of real estate that could prove to be helpful to you.
It’s also very important to perform due diligence to make sure that your real estate investment will be profitable. When considering buying a property and calculating the cost of the property versus the revenue that renting out its various units would generate, it is imperative that the rental income stream is significant enough to not only cover the battery of costs that comes with owning a physical property, but to provide you with additional income for your personal use. To crunch these numbers, you can use a document called the IRS Income Tax Schedule E. You’ll want to price your units as highly as possible while still keeping the pricing competitive. Price your units too low, and the cost of maintaining your property becomes a financial drain instead of a boon – but price your units too high and people simply will not rent them from you. This is another instance of why it’s most beneficial for first-time real estate investors to consult a professional advisor who knows what other properties like yours are renting for in your market, as a broker can provide you with assistance in pricing your units appropriately.
You should also be discerning about the kind of property you purchase. Location is a major factor in determining if a property is rentable – for the safest investment, look for properties that are in good neighborhoods, located close to good schools, and are physically well-maintained. If you’re more of a risk-taker or have prior experience in real estate investing, you could also consider purchasing a property in a less established neighborhood that seems like it’s up-and-coming, as getting in on the ground will cost less initially and may very well bring in more revenue in the future as the quality of the neighborhood improves.
Finally, remember that investing in real estate is, essentially, owning your own business. Screen your potential tenants carefully by running background and criminal checks on them, running their credit, and, ideally, obtaining at least one reference from a past landlord of theirs. Generally speaking, being extra careful will always serve you well in the long term, so take the time to cross all of your T’s and dot all of your I’s before you officially open up shop – and good luck!