Should I buy a retirement home and rent it until my retirement?

4 Replies

I am now 3.5 years away from retirement and know where I want to retire. I found a new townhome development with affordable pricing on new build home. The HOA pays exterior and grounds maintenance, which I feel is a big plus for me. I would like to purchase a home there in a few months, but I do have some questions. When I look at the cash flow I expect it to be slightly negative (-$300/month) based on current rental rates in the area. This amount includes debt service, HOA, taxes, property management, repairs, vacancy, and insurance. I live in California and currently rent because of high home prices here, I am unable to own a primary residence. I make about $120K/year and I have no deductions so pay a ton of taxes. I am hoping that I would get some tax benefits to my income in this investment. Is this true? I would appreciate any advice.

@Denise Breheny cannot provide tax advice but I do not believe a negative cash flowing property provides any additional benefit to a homeowner besides the typical deductions you can take (which may or may not be impacted based on new tax bill)

In regards to buying now - what is the benefit of buying now vs 3 years where you will have paid an extra $10k in negative cash flow.

I typically recommend against buying properties which are negative cash flow. One thing to also consider is Rehab costs you will have to incur from the rental

Thanks @Chris Seveney for your response.  Right now I have no tax benefits so even if my new benefit was for just only a mortgage deduction, wouldn't that almost mitigate the $10K over three years.  I know you can't provide tax advise, would a tax accountant be able to help me, is that where I need to turn?

@Denise Breheny - that would be a good place to start. See what they say, there are other real estate investment strategies you could invest in in the meantime that would provide a return on investment. Say you had $25k, if you could get 8-10% returns (which are very doable) over the 3.5 years you just made a few grand on your $ to buy your retirement home versus paying out of pocket every month. If you have an SDIRA you could invest it as tax free (but can’t buy a primary residence with it).

Risk is price appreciation but I view pricing to decline over that period as we have had over 6 years of price appreciation which is one of the longest in history - but I am not n analyst it’s just my opinion

I personally would be hard pressed to convince myself to buy a negative cashflowing property in a market that is experiencing it's highest prices in history just to possibly save a little on taxes.

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