Few people believe that real estate investment is a great idea to create comfortable retirement. By purchasing a property, renting it and collect income as mortgages being paid off by the tenant, you can really generate additional cash during your post-work life. A well situated rental property can fetch you more than $200 to $1000 per month after meeting all expenses.
If you are a retired person and not getting any pension, real estate can be an excellent asset which pays you a monthly income as rent from tenants. Also, there are lots of other benefits owning a rental property such as you can get tax benefits such as depreciation and as years pass by you can increase the rental value and also you gain the ability to fix the mortgage costs.
On the other hand, there are certain cons owning a rental property as a monthly income generating source and as an alternate option for pension. The expenses keep on rising, and if you have deadbeat tenants or property being empty for a consistent span of time, there will not be an inflow of cash.
- According to McLean, an author published books on real estate, “When compared to the rising value of the asset and rents, most of the costs incurred seems to remain the same, especially if you consider a fixed mortgage rate”.
- Pietrowski says “Another major benefit of income generating rental properties is the IRS. It facilitates you to depreciate the value of the building portion of your property from the total land value over 27.5 years. In the sense, most of your cash will gain tax deference. Added, you have to bring back the depreciation while selling the property. If you are not at all going to sell, then your heirs after your death, no need to pay it as all it goes away”
- Rental properties still available with risks, especially for beginners, it is too expensive. Banks expect one to make huge some as down payment and levy higher rate of interest for rental property when compared to owner occupying homes. It is also a form of liquid asset. At times of emergency, if you wish to sell the home suddenly during the down market scenario, it becomes difficult for you to unload it for a reasonable cost.
- It is also difficult to find tenants when you need them and you may be forced to bear the mortgage costs at your end. If you get a deadbeat tenant, you must be ready to attend the calls even during odd hours. Or else, you have to pay a higher amount for hiring property Management Company for doing all such dirty works on behalf of you.
Elements of a good property
It is good to buy a single family home within a good school district and enough space for accommodating future renovation. It is great to buy near to landlord’s home and those properties which positively fetch you at least 6% of cash above all costs.
Even if you hire property Management Company, a property close to your home will help you to keep a close eye on your investment. McLean says that “you may get into risk if you stay away from your property especially out of the town.
There are instances where a property management company claims the owner that the property was vacant, which was actually not as the former enjoyed the entire rental benefit”
At the same time, if you are expecting 10 to 15 years later retirement and know exactly where you are going to get settled down, it’s better to own a property in your future city, says Pietrowski.
She added it is advisable to purchase a home and get it mostly paid off before getting retired by using the rental income and while you relocate selling the current home, you can make the rest of the mortgages paid off.
Do extensive homework
It is recommended to hire an inspector to review the property and to rule out potential repairs such as repairs in roof, foundation or basic structure of the home. You can do some detailed research to ascertain expected monthly costs comprising Insurance, mortgage fees, taxes and maintenance fees.
You can review the local real estate agents and classifieds to understand the current rental value being charged in your property located town. How long properties are remaining empty and regarding the property appreciation value can be ascertained. Also, check with a tax consultant to know about the tax implications while owning a property.