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Property Management Blog

Developing Passive Rental Income for When You Retire

Dora Pinter - Wednesday, November 14, 2018

 Looks can be deceiving. One of my neighbors always has the nicest gadgets, latest cars and best vacations. He earns an above-average income, so his family lives a comfortable life. Until the topic of retirement came up the other day, I never realized that his comfortable lifestyle was due to a lack of savings.
 
 The crazy part is that my neighbor actually sells houses for a living. He knows quite well that an investment property could bring him extra income each month. All he has to do is delay some of his shopping splurges while he saves up a deposit. He knows all of the legal issues, insider tips and tricks for getting a great deal on a rental. With retirement just around the corner, my neighbor is going to need a new nest egg option soon if he wants to stay financially afloat. 


 When you retire, you want to have a decent nest egg that will last for decades. One of the easiest ways to do this is by investing in real property. For some reason, even licensed realtors forget to invest in rental properties. If you want to make sure that your retirement savings will last, you need to get the right investment vehicle.
 
 When you get an investment property, you are able to maximize your income. You can enjoy long-term capital gains as your real estate property grows in value. While the real estate's value increases, you also enjoy rental income from your tenants. Your rental income covers the carrying costs of maintaining, repairing and insuring your property. Best of all, a property manager can handle all of the legwork of finding tenants, collecting rent and managing your property.
 
 If you have not already purchased a rental, you could be missing out. You would never forget to make a 401(k) contribution when your company matches your contributions. Why would you skip out on an investment that you know someone else, your tenant, will pay down the principle investment? Same concept. While everyone purchases an investment property for different reasons, there are a few benefits that this type of investment can give you.
 
 The Benefits of Getting a Rental Property
 
 1. Stop Working
 
 While some people love their career, there are plenty of people who would rather retire early. If you have money coming in from one or more rental properties, you could actually retire earlier.
 
 2. Passive Income
 
 Passive income is one of the best ways to gain a more comfortable pace of life. With an IRA, 401(k) or investment, you have to withdraw money when you need extra cash. By getting a passive income source, you are able to have a regular stream of income without losing your initial investments.
 
 3. Estate Planning
 
 If you have children, a spouse or grandchildren to care for, a real estate property is a useful form of estate planning. It can be used to build an annuity so that your heirs are cared for after your death.
 
 4. Worry-Free Income
 
 When a company goes bankrupt, pensioners start to worry. Sometimes, bankruptcy negotiations include changes to pension payments. While you still have your Social Security payment, this is rarely enough to live on. If you want a worry-free income stream, a rental property is the right choice for you.
 
 5. Mortgage-Free Assets
 
 When you buy a home, you have to pay a mortgage every month. Until the mortgage is paid off, you have to worry about making enough to cover debt service. With a rental property, your tenant covers the debt service and eventually provide a free and clear asset for you.
 
 6. You Join the Ranks of the Wealthy
 
 There are very few wealthy people who became rich by earning a higher salary. A higher salary helps, but the important thing is what you do with that money. Most people who retire to a life of riches reached that point by developing passive income and investing in the right things. If you want to become wealthy, you need to start investing your extra money into things like rental properties.
 
 7. Mailbox Money
 
 We like to think of rental income as mailbox money. All you have to do is check your mailbox each month to get paid. When you have the right property management company, you can relax while the management team handles the rest of the work.
 
 8. Diversification
 
 While the stock market will increase over the long run, sharp declines can happen in the near future. If you want a stable investment, you have to diversify your portfolio. Stocks are a great option, but you need a different income source so that you can ride out a bear market.
 
 9. Time for Volunteering
 
 Do you have a passion for helping the homeless? Do you love volunteering with school children? If you have a different source of income, you can start devoting your time to helping others instead of working constantly.
 
 10. Cash for Elderly Parents
 
 Unfortunately, a number of people end up outliving their retirement fund. If they are lucky enough to have children and relatives, their family members end up paying for medical care and the nursing home. When you have a rental property, you get a predictable cash flow that can be used for taking care of an elderly parent. You might not need this income now, but you may be thankful for it one day.
 
 Why Do People Forget to Invest in Rental Properties?
 
 This is an excellent question. After all, it seems fairly clear that a rental property can be a desirable investment opportunity. In most cases, the reason people avoid investing is because of fear and uncertainty. They are unaware about how property management works, and they are afraid of losing money.
 
 In a sense, investing in rental properties is like recovering from a surgery. You have to slowly build up your muscles. If you do not do the work, then your healing process breaks down.
 
 Rental properties are the same way. Sooner or later, something will inevitably break down. You cannot possibly plan for every problem along the way, but you can put the right measures in place to make responding to problems easier. A good management team, the right systems and strong contingency plans will help you navigate all of the tough moments.
 
 One of the biggest reasons why landlords fail is because they set unreasonable expectations and did not set aside enough cash. Before you invest, you need to make sure you have enough cash to navigate economic downturns, sudden repairs and tenant problems. By preparing for these problems in advance, you can prevent them from hurting your financial freedom.
 
 While a rental property is an excellent investment, it is not a fly-by-night, get-rich-quick scheme. You have to be financially prepared for anything that can happen. If you are not prepared, it can quickly ruin your investment. With the right preparation, your new investment can be a viable source of income for years to come.