Landlording & Rental Properties

5 Smart Ways to Start Investing in Rentals Later in Life

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
133 Articles Written
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“The best time to plant a tree was 20 years ago. The second-best time is now.” —Chinese Proverb

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Think you missed the boat on real estate investing? That it's somehow "too late" because you've reached your 40s, 50s, 60s, or even 70s?

Think again.

Real estate investing is not the exclusive domain of the young, hip, and unattached. In fact, middle-aged and senior investors bring some unique experiences and advantages to the table.

Sure, you might have kids. A spouse. A demanding job. So what? You think you’re the first parent who works full-time to buy a rental property?

You probably have a lot more savings than the 23-year-old who's trying to buy their first property. For that matter, you probably have experience buying real estate—in the form of a home. You've been through the mortgage financing process before and know some of the pitfalls to watch out for.

Here are a few pointers for older adults, to buy their first rental property in middle age or later.

5 Smart Ways to Start Investing in Rentals Later in Life

1. Leverage (and build!) your network.

Think that 23-year-old rascal has a network like yours? Fuhget about it.

Take advantage of your superior network and double down on building an even stronger one.

Who do you know in the real estate industry? In the mortgage industry? In the construction and contracting industries?

Who do you know who has more money than they know what to do with and is looking for a project to invest in?

The electrician in your Friday poker group can refer you to trustworthy and affordable general contractors and handymen. The real estate agent in your bridge club may not service the area where you're looking to invest, but she can refer you to someone who can.

Don’t stop at friends of friends. Join local real estate investing Facebook groups. Participate in our local real estate investing forums on BiggerPockets. Sign up with local wholesalers, turnkey providers, and other off-market sellers in your area.

Start assembling your dream team. After all, real estate investing is a team sport, and you have several more decades’ worth of contacts to draw on to fill out your roster!

retirement-risk

2. Capitalize on your existing capital.

After being employed for several decades, you should have far more money set aside than some 23-year-old just out of college who’s scraping by on their entry-level income.

That extra capital is a competitive advantage!

Maybe you can afford to make cash offers to drive a harder negotiation and avoid financing fees. Or maybe you can afford a higher down payment to avoid mortgage insurance and having to resort to tricks like owner-occupied financing or relying on seller concessions for closing costs.

You may decide that you want to finance your rentals even though you can afford to buy in cash for tax or leverage reasons. But having more money at your disposal is a huge advantage over the young punks out there.

Use it to your advantage to negotiate hard, get the best possible financing, and move faster on deals than your competitors can.

3. Take another look at house hacking.

“Forget it, Brian! I don’t want to live in some trashy duplex!”

First of all, there are plenty of upscale multifamily dwellings out there. Don't discount them just because your experiences with small multifamily properties have been less than thrilling.

But even if you are committed to living in a single-family home, there are many ways to house hack.

First, you could buy a home with an in-law suite and convert it to an income suite.

Or how about a detached casita?

Could you add an apartment over the garage? In the basement? Something with a separate entrance of course, so you don’t have to mingle with the riffraff.

If you have a large garage space, could you rent it out as storage space?

My partner Deni Supplee is in her mid-50s, and she took a unique angle on house hacking. Her children had all left the nest, but she and her husband weren’t ready to downsize from their large suburban home just yet. What did they do? They brought in another child!

Through a foreign exchange student placement service, they welcomed a 15-year-old Chinese exchange student named Alex into their home. They fell in love with him, and he’s become a member of their family.

And the placement service pays the majority of their mortgage every month.

4. Keep your eyes on the prize: income for retirement.

People invest in real estate for many reasons and in many ways.

As an older adult, consider putting “passive income” at the top of your priority list.

One of the things I love the most about rental investing is you can forecast your returns incredibly accurately, before ever putting a single dollar down as a deposit. You know the market rent, the neighborhood vacancy rate, the local property management costs, property taxes, insurance. You can accurately forecast CapEx and repair costs.

You'll know exactly what kind of cash flow you can expect from a property before making an offer. This means you can only invest in properties with strong cash flow.

Appreciation may or may not happen sometime in the indefinite future. But cash flow isn't based on future hopes and prayers.

Rental properties can be incredibly efficient income producers for retirement. The 4% Rule doesn’t apply; in fact, the whole notion of “safe withdrawal rate” goes out the window.

You don’t have to sell off any assets for the income produced by rentals. In fact, they produce more income over time, not less—rents go up, even as your mortgage payment holds steady (and eventually disappears)!

4 Tax Tips for Rental Property Owners

5. Snowball your extra income.

As an older adult, you’ve been at this whole “budgeting” thing for a while now. Granted, that could mean that you’re stuck in your ways—or it could mean you’ve learned a thing or two.

When young people get a promotion, the first thing they do is go out and find a way to spend their higher income. It could mean a better apartment, a better car, or just going out to more bars and restaurants.

It's called lifestyle inflation, and it's insidious.

As an older adult, hopefully by now you’ve witnessed firsthand how counterproductive lifestyle inflation is. Credit card debt? You’ve been there and done that. Faster cars? Not as sexy as they were when you were 20.

So, when you buy a rental property and start earning that extra $200, $300, $500 a month, what are you going to do with it?

Re-invest it.

Set it aside and put it in the stock market. Or in private notes. Or best of all, in more rental properties.

Because ultimately, you’re on a mission. Your mission, whether you choose to accept it or not, is to retire with more wealth, because more wealth brings more options. As you build streams of rental income, you can retire young, or keep working and building more wealth.

And when you retire, you can go travel the world if you want, rather than ducking into the Golden Corral before the Early Bird Special ends.

It’s never too late to start buying rental properties. If you invest strategically, you can accelerate your retirement saving, bend the 4% Rule and build a stable and permanent base of passive income.

What worked for you in terms of investing later in life? Or if you haven’t started yet, what are your concerns?

Weigh in below!

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their ...
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    Allan Guerra
    Replied over 1 year ago
    Thank you very much for this article Brian!! I am 35 and I was thinking it was a bit late for me to think about FIRE. I hate to admit I was becoming a bit discouraged. This article energized my hopes for a nice retirement through RE and reading everyone’s comments, I see that I am not alone. I currently have a tenant in my apartment, but the rent doesn’t cover the mortgage. And I live in another less expensive apartment closer to my children’s school, which allows me to save money. However, I am flipping cars and saving to invest at the end of 2019. Do you recommend I should A: Pay my apartment so I can get a little bit of cash flow every month or B: Buy another investment property that provides me with cash flow?
    G. Brian Davis from Baltimore, MD
    Replied over 1 year ago
    Hi Allan, as someone who is 38 and suffered my own financial setback recently, I can assure you that you are NOT too old to think about FIRE! As for the apartment, if you have negative cash flow, I would personally sell it and find an investment that provides healthy cash flow each month. But take that with a grain of salt, as I know nothing about your investments. Best of luck!
    Account Closed from Kyparissia, Messinia
    Replied over 1 year ago
    I am glad to see that we’re not alone. I’m 65 and my husband is 67. A bit late to think of retiring early. We just want to retire comfortably. We got some money from the sale of my dad’s house after he passed away and just thought that we should invest it somewhere. Real estate seemed the best choice, since we need a steady long term cash flow. Haven’t done anything yet, but in the process of looking for a SFH in MI to start.
    G. Brian Davis from Baltimore, MD
    Replied over 1 year ago
    You are definitely, 100% not alone Estelle. Glad to hear you have some capital to work with, best of luck with your investments for retirement!
    Alyscha Johnson from Fleming Island, FL
    Replied over 1 year ago
    The importance of establishing a dream-team cannot be overstated. I did not believe this was necessary in the beginning. I thought I could simply just google someone or ask for a referral and take the first one I found. Simple! Boy was I WRONG! First electrician – didn’t show for the estimate. First plumber – said he would help but did not even respond to the email with the inspection – at ALL. Finally, I was able to find an electrician after that. Never found a plumber. Next deal – General contractor said he would do it – never showed. Down to the 7 day repair request deadline – never shows. I cannot emphasize enough – find the dream team in ADVANCE. Take you time with this. Do it right. Next, so many people are intimidated when it comes to finding the cap rate. It is not as hard as it seems! Take a two hours to set up the spreadsheet and your formula and you never have to do it again; from there on in, it is simply data entry. It is absolutely, 100% worth it! Just my two cents.
    Susan Maneck Investor from Jackson, Mississippi
    Replied over 1 year ago
    After paying my son’s private prep school tuition there was no way I had the money to go into real estate. Fortunately, that tuition money paid off because he got a full scholarship to an expensive liberal arts college. That’s when I had enough money to invest, in the middle of the recession when real estate was at its lowest point. I was in my mid-fifties by then. I now have enough money from rents that when I retire this year I won’t have to collect my social security right away or even dip into my retirement funds (except my solo401K which own three properties.)
    Henry Kashkevych
    Replied over 1 year ago
    At age 73, I am in escrow on a fiveplex that will take some rehab. We have the work planned out and are ready to go when it closes. Lots of details and lots of fun. It’s never too late to learn to play a new game, or jump back into the old one.
    Mariquita De Mira
    Replied about 1 year ago
    This is so encouraging! Thank you!
    Yifat Gat
    Replied 8 months ago
    Yes, yes and yes. Especially if you are a divorced stay at home mom, what else is there?
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    Glad to hear the article resonated with you Yifat, here's to your (growing) portfolio!
    Eddy Ogbekhilu
    Replied 8 months ago
    Gr8 article Brian and to all that consumed the contents and begin to modify their understanding of age and time in terms of been too late or otherwise. Once again big up everyone on this thread.Be wiling to learn and apply the learned skills.We as human have the ability to flip our mindset like we flip ugly house(s)[email protected] 50, 60 70 or what have we is not an excuse to choose mediocrity, alot can happen in 5yrs.So good luck everyone.
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    So true Eddy! Anyone can change their mindset and strategy at any age. No excuses!
    Simon Si
    Replied 8 months ago
    Great article Brian but there is one thing I do disagree with you on is this. Fast cars are ALWAYS sexy no matter what your age. :)
    G. Brian Davis from Baltimore, MD
    Replied 8 months ago
    Haha, touché Simon!