I don’t know about you, but there are some days when few things sound as great as an early retirement. Unfortunately I still have quite a length of time to wait, but that doesn’t mean I can’t dream. People like me with dreams of early retirement have been making their fantasies a reality through a lucrative route—rental property investments. Purchasing a rental property catapults you into a journey filled with great rewards, but also its fair share of great risks. From financing issues to property management to location concerns, there’s no end to the list of facets you have to consider before deciding on this route. Consider the following tips and tricks and determine whether this business venture is the right fit for you and your retirement aims.
Consider Your Finances
One thing you need to consider is how you will handle the initial cost and any subsequent cash expenses you’ll need as you continue with your real estate endeavor. Lending requirements have become more strict throughout the years, with most loans requiring 30 percent or more in upfront costs for a down payment, along with the additional closing costs that apply to the property in question. You may have the capital to purchase a second property already, but have you considered the repair and maintenance costs that will accrue over the years? Remember too that your property might not always be filled, meaning there could be months where you have no rental income. You will have to spend more to get more, which usually comes about in insurance costs, taxes, maintenance, and improvements on the property in question. However, the massive amounts of passive income you can generate from rental property purchases can’t be denied. Rental income might also be your financial savior if you don’t have a pension or retirement plan when the day finally comes.
Place Reliable Tenants
If you’re going to rent out your property, you need to take your time finding the right tenant. Post a detailed listing on multiple sites, including Craigslist, LiveLovely.com, and the like. Once you have a pool of viable prospects, use something like SmartMove to get all of the information you need; the company will give you access to the prospective tenant’s credit score, criminal history, and let you know about any prior evictions. Placing a bad tenant can mean a huge loss of money and can make you vulnerable to legal action should the relationship go sour. Finding a quality tenant that you can cultivate a positive relationship with usually means you’ll face less turnover as well, which will help you avoid costly vacancies.
The Time Commitment
There’s no way around it: Running a rental property is a time-consuming and responsibility heavy job, especially for those of us with other jobs. You might think you have too much on your plate to handle all the responsibility that comes with a property investment, but there is an easy way to combat this issue—a reliable property management company. Hiring a skilled company to handle placing tenants, eviction issues, maintenance, and more is more often than not well worth the investment. Be aware that they do charge a pretty penny for their services, with most companies coming in around 11 or 12 percent of your rental income, and it may be more depending on the services chosen. One reason I stress the use of property managers is based on the simple fact that they are more educated on the real estate sector, and will know the ins and outs of local, state, and federal regulations, lessening your liability for issues and any legal suits in the future.
Rental properties can provide that extra bit of income to your retirement plans, allowing you to avoid tapping into your nest egg. While your property might not appreciate to the point where you become a millionaire, it still can be an increasingly lucrative investment. If you think you’re prepared for the added responsibility, investing in real estate can be an excellent way to secure your retirement and reach the age where it’s a viable choice even sooner.
