5 Smart Ways to Start Investing in Rentals Later in Life

by | BiggerPockets.com

“The best time to plant a tree was 20 years ago. The second-best time is now.” —Chinese Proverb

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!

who-invests-in-real-estate

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 investing later in life? Or if you haven’t started yet, what are your concerns?

Weigh in below!

About Author

Brian Davis

Brian is a landlord and long-time rental industry expert, who offers a range of free landlord resources through his company, SparkRental. Grab a state-specific lease agreement or take our free mini-course on buying 2-4 unit rental properties while you’re at it.

Message me if you’d like me to write for you about real estate or personal finance!

31 Comments

  1. Ali Hashemi

    Don’t forget about house hacking via your children!

    If your kids are going to school remotely, it’s a great opportunity to buy a house and rather than your kid and 5 of their friends squeezing into a 3 bedroom slum house paying exorbitant rent to a landlord, get them a decent place and charge them and their friends reasonable rent!

  2. Hugh Nelson

    This is a great article – I’d like to see more of them. As the article correctly highlights, investing in real estate is not the same for a 60 year old as it is for a 20 year old, due to the different resources (experience, contacts, money) typically available to each. The time horizon for each is vastly different, as well. We could go into greater depth for older new investors about the relative merits of leveraging properties, how you might use turnkey investments, managing investments out of your home area, the fuller range of alternatives (notes, hard money, transactional funding, General Partnerships), etc. Thanks very much for the great contribution!

  3. Brad Taylor

    Hey Brian,

    This is a great refresher, especially for someone like me, now age 50, done with the media and ad world, and wanting something more exciting, fulfilling, and making myself rich instead of someone else! In fact, I committed to blogging my experience and transition here on BP…laying it all out on the table.

    Ultimately, it’s the personal challenge and not letting age define your limits!

  4. Susan Maneck

    I started investing in real estate in my fifties precisely because I saw my retirement savings invested in mutual funds nearly disappear. Now, I didn’t take anything out, in fact I put as much as good back into the stock market, but once it started to rebound and housing in Mississippi had not, I began to invest in real estate, mostly by buying up the houses in my own neighborhood. House-hacking though, is for the young not those of us who are old and cranky. But as Ali suggests it is a great way to finance your kids education and maybe teach them a few lessons about real life. FHA has a kiddie-condo program wherein you can cosign for a property up to a four-plex with your kid and you only need 3% down.

  5. Gregg Benningfield

    Outstanding article Mr Davis. I am 47 and closing on our first rental property at the end of this month with a plan to buy one more this year. I have made and utilized several real estate related contacts in my current business. We have a HELOC and access to cash or low interest loans from a long, excellent credit history. I have been making excuses for not jumping in since my first flipping class in 2012. With the help of articles like this and BP I’ve finally taken the plunge and the water feels great! Thank you Brian.

  6. William Gilstrap

    I am 48 and have owned 3 personal homes, but never invested in a rental or flipped. Since I was young, in my 20’s, I have been interested in real estate, but never actually took the plunge. I was always careful with my money and paid my homes off in a few years. I now realize the enormous potential is in real estate and want to buy my first true investment property. I do know a thing or two about real estate and have great handyman skills. I am learning as much as I can through BP, but would like to have some extra guidance from people who know what they are doing since I am new at this. I really want to do something exciting in real estate. I am motivated and ready to rock the ship.

  7. Byron Law

    Don’t forget the capital gains tax exemption from the 1998 Tax Reform bill (I think). Every two years you can sell a personal home and take the capital gains tax free up to $250K for singles and $500K for couples. If you are reasonable at project management, you can build a new house every two years and sell your previous residence. If you are smart and strategic in how and where you do this, the capital gains you realize can approach or even surpass this exemption. For a couple, that could be an annualized return of $250K/yr. There’s a lot entailed in such a strategy that goes beyond a simple post, but it boils down to the basics of all investments. Do your due diligence. Buy maximum value at minimal cost and sell at maximum price.

  8. Penny Dun

    I’ve lost money in real estate and just haven’t been able to get back on track . I don’t want to lose again so I’ve done nothing. I’m retired but need some passive income. I just don’t know where to start . Great article thanks

    • Brian Davis

      Thanks Penny, and I’m sorry to hear you’ve been burned in real estate. I lost plenty of money in the beginning as well, because I didn’t have the training I needed. It’s definitely not like throwing money in an index fund! Please don’t hesitate to contact me any time with questions, I’m extremely responsive and accessible.

  9. Kathy Lindsay

    This is a great article! I am in my late fifties and began my rental real estate journey this year with a vacation rental in the Florida Panhandle. It has been so successful that I am in the market for a second property now. I love BP and find it a great resource for learning the ins and outs of real estate investing. I would welcome additional articles on the topic of starting the RE investing later in life. I also have a son away at college and thought about purchasing a property for he and his roommates to rent. Thanks again for the article – I am excited to be on the passive income train!

      • doris lewis

        Hi Brian,

        Greetings!
        Thank you for your article. I would love to see more article with similar topic. I love RE investing..lost lots of money and also made lots of money. So, for 26 or 62 years old, financial education and self-knowledge are relevant. I have neither skillet nor interest in fix and flip or bird-dog properties.
        However, I am learning more about equity sharing and notes investments for passive incomes. I’ve purchased Dave Van Horn’s book on notes investing. Still learning.

        Your article speaks to my demographic…enough for me to reply first time in BP. Thank you for your encouragement!

  10. Alexandra King

    Hi Brian,
    Great article. But, it assumes one has capitol buy property, or, a 401K, savings or surplus income. I lost all my money during the recession and – like Denise – have no money to start over. I have a real estate license but not enough $$ to join a company because that’s a $5,000.00-$7000.00 investment. It’s one thing to start from the bottom as a young person, but a single 66 year woman – that’s another.

  11. joel swanson

    Great article Brian! Real estate investing makes a great retirement career. You can make it as active as you choose. I am 59 and started to make it a reality. I do have the resources to jump start into real estate and it makes for a great inheritance alternative for my sons.

  12. William Gilstrap

    I live in Las Vegas and I am having a hard time buying my first property. I just can’t compete with the bigger investors. Property here has skyrocketed in price and everything good sells before it even shows up. I am a bit frustrated. I want to rehab and flip my first property, or rehab and rent. I am working with one realtor.

      • William Gilstrap

        I started looking in the greater Phoenix area in small towns like Goodyear, and Buckeye, where my brother lives. Housing there is also booming, but the prices are 30 to 40% Less for comparables. My brother is having a 2800 square foot home built outside of Buckeye in a new community replete with amenities. He is only paying $270,000 for it with all upgrades. In Vegas a home line that by the same builder, you can’t touch for under $400,000. I am going to talk to my brother an find out if he wants to get into real estate investing with me. He demonstrated an interest many years ago when I brought it up in a casual conversation. He is going to sell the home he is living in now and put the money down on his new home. He got that home really cheap 3 years ago. He should rent it out instead. Or maybe I can buy it from him and make it my first rental. But yeah, I think that the Phoenix greater metro area has some great opportunities. I am going to check it out asap. Thank you for asking me about looking elsewhere. I will be on it. William

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