Using rental property for reitement after 60 or so
va beach, VA 路 Member since 2018 路 66 posts 路 4 votes
Using rental property for reitement after 60 or so
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Investor 路 Union, NJ 路 Member since 2011 路 838 posts 路 295 votes
8yWhile I understand what you are saying, retirees aren't most concerned with making the highest return at this point. It becomes more about stable monthly cash flow and wealth preservation and having a few properties paid in full generating significantly more and stable cash flow than when having debt to service will accomplish this and may give them piece of mind as it is an asset they have held for many years 15, 20 30 years so they feel comfortable and trust this asset to continue to pay them monthly VS. going into the stock market or another security where you have less control over the assets ability to produce stable steady income. Sure your return will be less not leveraging but there is piece of mind and more net monthly cashflow which they will probably want at this point if they are not working
I have 2 paid off properties that each currently generate ~ 11% annual return before any tax benefits. That to me is not a bad return at all. Sure, if I leveraged them I would boost this ROI to the mid to high teens however I have a good amount of leverage currently and like the fact that if I need cash in a hurry I can always pull cash out and re leverage.
There is no right or wrong answer here
Best,
Chris
32 Replies
- Member since 2016 路 13k+ posts 路 12k+ votes8y
It boils down to a personal decision. Retirement for me means liquidating everything and investing in passive income. When I die I want to leave my children cash not a business that they will likely sell.
You are not retired if you still have income investment properties. Real estate is definatly not passive.
If your properties have considerable equity you could probably generate sufficient income by selling and holding the mortgages.
- Rental Property Investor 路 Durham, NC 路 Member since 2016 路 7k+ posts 路 7k+ votes8yJoe Sz I guess it would depend on my kids. Either they鈥檇 want to expand the business and I鈥檇 leave it to them or I鈥檇 sell probably. I鈥檇 know one way or the other years beforehand
- Ormond Beach , FL 路 Member since 2015 路 345 posts 路 223 votes8y
Joe, I am nearly 66 and retired. I bought several SFRs before I "retired" and the market was just beginning to recover. These rentals have paid me good money every month for the past 4 or 5 years and I just sold one last month. Bought it all cash for 100k and sold it for 180k. I don't see that neighborhood growing too much more, so it seemed a good time to sell. Made a pretty good return on it and I intend to reinvest in further properties. I enjoy the little bit of work that they do require, and intend to keep at it. One can only play so much golf! 馃槉
- 8yJennifer T.Pro MemberInvestor 路 New Orleans, LA 路 Member since 2014 路 1k+ posts 路 944 votes
Although I'm not retired from the W-2 job world yet, that is EXACTLY the reason I started in REI. Not to be a Debbie Downer, but I have a serious medical condition that will shorten my life a good bit. Even if I live to be the more typical retirement age of 65, I'll probably be severely disabled by then. I needed to find a way to retire much earlier than usual.
Buy/hold REI was one of the answers I found. A monthly income that is my own business.
I started 6 years ago, am 44, and already at a place where I could almost replace my W-2 income from net cash flow alone. Give me another 3 years and I'll be there. I also keep my expenses down by keeping my own lifestyle comfortable, but not extravagant in the least.
Never say never, but I don't really plan on selling my properties, as long as I forecast their value holding steady and they are still a good ROI. I manage things myself at this point, but might need a PM for the future.
That's my retirement plan...at least "retirement" from working for others...in a general nutshell.
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Jennifer T.:
Although I'm not retired from the W-2 job world yet, that is EXACTLY the reason I started in REI. Not to be a Debbie Downer, but I have a serious medical condition that will shorten my life a good bit. Even if I live to be the more typical retirement age of 65, I'll probably be severely disabled by then. I needed to find a way to retire much earlier than usual.
Buy/hold REI was one of the answers I found. A monthly income that is my own business.
I started 6 years ago, am 44, and already at a place where I could almost replace my W-2 income from net cash flow alone. Give me another 3 years and I'll be there. I also keep my expenses down by keeping my own lifestyle comfortable, but not extravagant in the least.
Never say never, but I don't really plan on selling my properties, as long as I forecast their value holding steady and they are still a good ROI. I manage things myself at this point, but might need a PM for the future.
That's my retirement plan...at least "retirement" from working for others...in a general nutshell.
I like your plan....intetesting
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Eugene Kemp:
Joe, I am nearly 66 and retired. I bought several SFRs before I "retired" and the market was just beginning to recover. These rentals have paid me good money every month for the past 4 or 5 years and I just sold one last month. Bought it all cash for 100k and sold it for 180k. I don't see that neighborhood growing too much more, so it seemed a good time to sell. Made a pretty good return on it and I intend to reinvest in further properties. I enjoy the little bit of work that they do require, and intend to keep at it. One can only play so much golf! 馃槉
I like it Eugene...I am of the same thought...keep the rentals for retirement..work on those. The rest enjoy hobbies and travel...
I was wondering if management of properties is to hard for someone in their 80s
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Eugene Kemp:
Joe, I am nearly 66 and retired. I bought several SFRs before I "retired" and the market was just beginning to recover. These rentals have paid me good money every month for the past 4 or 5 years and I just sold one last month. Bought it all cash for 100k and sold it for 180k. I don't see that neighborhood growing too much more, so it seemed a good time to sell. Made a pretty good return on it and I intend to reinvest in further properties. I enjoy the little bit of work that they do require, and intend to keep at it. One can only play so much golf! 馃槉
I like it Eugene...I am of the same thought...keep the rentals for retirement..work on those. The rest enjoy hobbies and travel...
I was wondering if management of properties is to hard for someone in their 80s
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Joe Szymczyk:
Originally posted by @Eugene Kemp:
Joe, I am nearly 66 and retired. I bought several SFRs before I "retired" and the market was just beginning to recover. These rentals have paid me good money every month for the past 4 or 5 years and I just sold one last month. Bought it all cash for 100k and sold it for 180k. I don't see that neighborhood growing too much more, so it seemed a good time to sell. Made a pretty good return on it and I intend to reinvest in further properties. I enjoy the little bit of work that they do require, and intend to keep at it. One can only play so much golf! 馃槉
I like it Eugene...I am of the same thought...keep the rentals for retirement..work on those. The rest enjoy hobbies and travel...
I was wondering if management of properties is to hard for someone in their 80s
Wondering as one gets older if ..its really good to keep properties for income....as how long can one keep up with them? eventually you have to selll and get income another way or am I wrong?
- Investor 路 Union, NJ 路 Member since 2011 路 838 posts 路 295 votes8y
I like many have mentioned you tend to reap more benefits with a long term hold strategy and once you pay off your debt you get even more rewarded by reaping the full cash flow potential.
I tend to try and buy properties that I can maximize cash flow from the start even while servicing debt. I have also struggled about when to sell as I am a buy and hold and generally do not sell but as one gets to retirement 65+ one can either continue to manage the properties, hire management to ease your burden and let you enjoy life without the hassles of land lording, OR you can begin a sell off strategy where you can stagger your sales by selling 1 every other year or spread this out based on your need for cash and cash flow.
In the end it is a personal decision based on your own personal needs. Frankly, working a full time and managing 15 properties can be very stressful at times BUT if I didn't work a day job I think it would be very leisure to put around in my pickup truck and manage my properties. The biggest issue for me now is finding time while forking a day job in NYC with a hour commute each way.
OTOH, if by the time your are 65+ you may be just totally fed up with this business and want to cash out and hopefully by this time you have built up a good amount of equity in your investments if you bought right and managed right you should be in a great position to cash out and find truly passive investments if that's what you desire
It's also hard to predict how one will feel 15 20 years into the future. Things change and events happen also. Long as one has options which is the beauty of Real estate IE. Sell, refinance, owner finance, contract for deed, lots of options
I'm still in the accumulating stages so it's hard to think about selling :)
regards,
Chris
- Realtor and Investor 路 Scottsdale, AZ 路 Member since 2017 路 1k+ posts 路 1k+ votes8y
NEVER leave your kids a buisness to share. It just is begging for issues. Set up your estate to liquidate upon your death, and give the kids equal shares of the profits. They can do with the money what they'd like. If THEY decide to buy rental properties, great! But don't saddle them together with the same decision. Not all kids are alike.
Now, back to the OPs question.....
Rental income can definitely support a retirement. My parents are doing it now. My husband and I are situating our portfolio to do the same thing.
As you age, you may want to consider adding a property manager to eliminate the active participation that you have in the earlier stages, so that you are more of a passive participant. However, I don't think it is necessary to liquidate everything. You will always be in a better position by living off of the fruits of the tree, and not the tree itself.
- Member since 2016 路 13k+ posts 路 12k+ votes8y
The biggest misconception small time investors have is that, at retirement, they are receiving a good return on their properties/investment. In reality by that time most properties are paid off and the ROI is in fact dismally low.
So low in fact that the property itself actually is in negative cash flow and is not a asset but a liability. High risk, low return = poor investment.
No investor would ever hold onto a paid off income property at retirement if they truly understood money, finances and investing.
They have unfortunately lost site of the value of money and are tricking themselves into believing they are smart investors. They are in fact losing income by not realising it's value and investing it smarter.
Real estate is a terrible investment if all you do is use it to park cash when you could triple your returns in something as simple as a income fund.
At retirement if you hold on to paid off properties it is no more than a hobby. Which is fine since retitees do need hobbies.
- 8yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges 路 St. Petersburg, FL 路 Member since 2013 路 9k+ posts 路 9k+ votes
@Joe Szymczyk, If you 1031 properties throughout your life you will have accumulated a lot of deferred tax. You've used that tax to grow your investing portfolio. The end game is fluid but generally involves increase of free time and reduction of risk as @Chris Masons said. Reduction of risk involves a lower ROI as debt decreases. So rate of return becomes secondary to net cash. The time when that is appropriate is fluid and individual. But there are ways to keep the tax deferred for life while providing enough net cash for a good retirement without management time suck. It's all in transitional defensive investing. And it can leave your heirs with assets to enjoy after your death without leaving them a business to worry about as @Cara Lonsdale said.
The 1031 Investor5137 Reviews - Investor 路 Union, NJ 路 Member since 2011 路 838 posts 路 295 votes8y
While I understand what you are saying, retirees aren't most concerned with making the highest return at this point. It becomes more about stable monthly cash flow and wealth preservation and having a few properties paid in full generating significantly more and stable cash flow than when having debt to service will accomplish this and may give them piece of mind as it is an asset they have held for many years 15, 20 30 years so they feel comfortable and trust this asset to continue to pay them monthly VS. going into the stock market or another security where you have less control over the assets ability to produce stable steady income. Sure your return will be less not leveraging but there is piece of mind and more net monthly cashflow which they will probably want at this point if they are not working
I have 2 paid off properties that each currently generate ~ 11% annual return before any tax benefits. That to me is not a bad return at all. Sure, if I leveraged them I would boost this ROI to the mid to high teens however I have a good amount of leverage currently and like the fact that if I need cash in a hurry I can always pull cash out and re leverage.
There is no right or wrong answer here
Best,
Chris
- Member since 2016 路 13k+ posts 路 12k+ votes8y
@Chris Masons I do not advise retirees to leverage I strongly advise they sell for numerous reasons.
Higher returns on moderate to low risk income funds, freedom from maintaining real estate, less liability risk, less stress, simplify inheritance, No more demanding/crazy/stupid tenants, retirement.
You will never be retired as long as you own income properties.
- Investor 路 Union, NJ 路 Member since 2011 路 838 posts 路 295 votes8y
@Thomas S. While some retire at 70+ years of age I would somewhat tend to agree with you on this. However, there are plenty of people who for various reasons may be able to retire in the 50s and 60s which to me is still young enough to manage and take care of some rental property. I plan to be one of those people. I have a nice portfolio of single family, multi family and condos. Out of this portfolio I have a couple single family properties that perhaps I will pass on to my kids to either A. live in or B. rent out and continue to generate income if they so desire OR it can be sold after I die and they will receive a STEP UP in cost basis potentially saving them ALOT of money in Cap. gain taxes which can be very beneficial...
As far as never being retired owning rentals you can always hand it off to a management company to ease the stress giving you freedom to do other things.
Best,
Chris
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Thomas S.:
The biggest misconception small time investors have is that, at retirement, they are receiving a good return on their properties/investment. In reality by that time most properties are paid off and the ROI is in fact dismally low.
So low in fact that the property itself actually is in negative cash flow and is not a asset but a liability. High risk, low return = poor investment.
No investor would ever hold onto a paid off income property at retirement if they truly understood money, finances and investing.
They have unfortunately lost site of the value of money and are tricking themselves into believing they are smart investors. They are in fact losing income by not realising it's value and investing it smarter.
Real estate is a terrible investment if all you do is use it to park cash when you could triple your returns in something as simple as a income fund.
At retirement if you hold on to paid off properties it is no more than a hobby. Which is fine since retitees do need hobbies.
Wow Thomas ...very interesting...
So if you have a 300k property paid off ...1800 income from tenants...plus u pay property manager.150....plus pay for maint....plus pay insurance 600 a year plus pay taxes 2400 a year...
How would that look in your example...?
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Chris Masons:
I like many have mentioned you tend to reap more benefits with a long term hold strategy and once you pay off your debt you get even more rewarded by reaping the full cash flow potential.
I tend to try and buy properties that I can maximize cash flow from the start even while servicing debt. I have also struggled about when to sell as I am a buy and hold and generally do not sell but as one gets to retirement 65+ one can either continue to manage the properties, hire management to ease your burden and let you enjoy life without the hassles of land lording, OR you can begin a sell off strategy where you can stagger your sales by selling 1 every other year or spread this out based on your need for cash and cash flow.
In the end it is a personal decision based on your own personal needs. Frankly, working a full time and managing 15 properties can be very stressful at times BUT if I didn't work a day job I think it would be very leisure to put around in my pickup truck and manage my properties. The biggest issue for me now is finding time while forking a day job in NYC with a hour commute each way.
OTOH, if by the time your are 65+ you may be just totally fed up with this business and want to cash out and hopefully by this time you have built up a good amount of equity in your investments if you bought right and managed right you should be in a great position to cash out and find truly passive investments if that's what you desire
It's also hard to predict how one will feel 15 20 years into the future. Things change and events happen also. Long as one has options which is the beauty of Real estate IE. Sell, refinance, owner finance, contract for deed, lots of options
I'm still in the accumulating stages so it's hard to think about selling :)
regards,
Chris
Chris,
I am with you. I am still accumulating .now it seems like it would be nice to payoff everything and live off of income...
But having all that cash in the houses and only getting the income...where if one were to put it in market...may make out better...
So this is the battle I have...
Would like to hear from others...
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Cara Lonsdale:
NEVER leave your kids a buisness to share. It just is begging for issues. Set up your estate to liquidate upon your death, and give the kids equal shares of the profits. They can do with the money what they'd like. If THEY decide to buy rental properties, great! But don't saddle them together with the same decision. Not all kids are alike.
Now, back to the OPs question.....
Rental income can definitely support a retirement. My parents are doing it now. My husband and I are situating our portfolio to do the same thing.
As you age, you may want to consider adding a property manager to eliminate the active participation that you have in the earlier stages, so that you are more of a passive participant. However, I don't think it is necessary to liquidate everything. You will always be in a better position by living off of the fruits of the tree, and not the tree itself.
Cara
Your last statement on living off the fruits is what I am thinking also....its almost guaranteed..and you know how you got it and what your asset can do...good point
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Chris Masons:
@Thomas S. While some retire at 70+ years of age I would somewhat tend to agree with you on this. However, there are plenty of people who for various reasons may be able to retire in the 50s and 60s which to me is still young enough to manage and take care of some rental property. I plan to be one of those people. I have a nice portfolio of single family, multi family and condos. Out of this portfolio I have a couple single family properties that perhaps I will pass on to my kids to either A. live in or B. rent out and continue to generate income if they so desire OR it can be sold after I die and they will receive a STEP UP in cost basis potentially saving them ALOT of money in Cap. gain taxes which can be very beneficial...
As far as never being retired owning rentals you can always hand it off to a management company to ease the stress giving you freedom to do other things.
Best,
Chris
Good points Chris
This is a tough one.
I don't know anyone with rentals passed 70
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Dave Foster:
@Joe Szymczyk, If you 1031 properties throughout your life you will have accumulated a lot of deferred tax. You've used that tax to grow your investing portfolio. The end game is fluid but generally involves increase of free time and reduction of risk as @Chris Masons said. Reduction of risk involves a lower ROI as debt decreases. So rate of return becomes secondary to net cash. The time when that is appropriate is fluid and individual. But there are ways to keep the tax deferred for life while providing enough net cash for a good retirement without management time suck. It's all in transitional defensive investing. And it can leave your heirs with assets to enjoy after your death without leaving them a business to worry about as @Cara Lonsdale said.
Sounds good
- Real Estate Investor 路 Encinitas, CA 路 Member since 2016 路 3k+ posts 路 3k+ votes8y
@Joe Szymczyk I don't think there's a right vs. wrong answer on this one. Only looking back in time will someone know if they sold "at the peak". And even if you do sell at the peak you then have to figure out when the "trough" is and hope there's enough of a drop to offset selling costs, lost cash-flow, etc.
Personally, when I buy a property it's with the intention to "hold until I die". I don't know if I will, I don't know if I'll want to, I don't know if I'll have a chance of heart in 5 years, but that's the intention at the moment. And all I can do is make decisions with the variables that are around, again, at the moment.
But that intention does help me to decide where and what to invest in. I'm probably "too picky" I'm probably going to miss out on finding a "up and coming market" so it's not like my strategy doesn't have holes in it. And I since I do that have intention I always have a property manager look after the property. Again, others will say I'm lazy but I like to operate now how I plan to operate in the future. You learn the margins, challenges, etc. and can at least have solid expectations.
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Very good info. One idea i am thinking is...sell the houses currently being rented out and keep the townehomes for the long term and retirement. but normally the townehomes appreciate less but are also cheaper to buy and maintain. its a bit of a dilemma keep the houses or the towne homes?
- Investor 路 Melbourne, FL 路 Member since 2017 路 159 posts 路 116 votes8y
Father sold most of his properties off in retirement but kept one rental till he died at 95. Cash flowing property with low value. Income from this house paid all of his personal housing expenses. He self managed and handled most repairs himself.
- va beach, VA 路 Member since 2018 路 66 posts 路 4 votes8y
Originally posted by @Ron H.:
Father sold most of his properties off in retirement but kept one rental till he died at 95. Cash flowing property with low value. Income from this house paid all of his personal housing expenses. He self managed and handled most repairs himself.
That is too awesome ....first success story I have heard...like this...
- Rental Property Investor 路 Red Bank, NJ 路 Member since 2017 路 1k+ posts 路 1k+ votes8y
I pay my mortgages to the guy who sold me his properties. When I retire I will definitely hold the note on my 5 unit because I think you can maximize the selling price while offering a fixed loan which is far better than the commercial loan one is forced into at 5 units. I would be very happy at 1% below the commercial rate at that time.
Guy who sold me his properties held onto his newest building after unloading 6 others. He "retired" and manages the other from out of state. Called me up a couple of months ago wanting to know what my tax assessment came in at, he was upset because his was valued at over a million and he was waiting for the other shoe to drop. Called me up two weeks ago after one of the nor'easters because a tenant was screaming about a leaking ceiling in his "new" building and he needed a roofer- he was calling from vacation in Hawaii.
Heed @Thomas S. words of insight.
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