Supplementing your retirement income with rental property income
Some people believe there is retirement gold in buying a piece of property, finding a renter and collecting income while the tenant pays off the mortgage.If you’re willing to take the plunge, rental properties offer a rare opportunity to generate extra cash in post-work life. Indeed, a well-located unit can produce an extra $200 to $1,000 per month after expenses.
“Real estate can be a wonderful asset to have in retirement, because when you have tenants, you have money coming in every month and, if you don’t have pensions, that’s important,” says Barbara Pietrowski, a Certified Public Accountant in Roanoke, Virginia, who specializes in rental real estate.
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Making money in real estate happens in two ways: appreciation which is realized upon a sale, and income that is generated during ownership. During retirement you really want more income than an asset play, but both would be nice.
Investors in income property become familiar with cap rates, internal returns on investments, the cost of and the advantages of leverage value in Florida Real Estate. They learn how to maximize returns while minimizing expenses and increasing income. An income investor values his purchase solely on income stream. The view of the water is only important if it will increase his rents. If, on the other hand, there are two opportunities available with the same cost and same return yet one has an advantage of a superior location (a view, for example), then buy the one the location advantage.
One of the real benefits of income property is the old “making money while you sleep” attribute.
There should be three things in your investment portfolio, says Fous: “1. Income Producing Real Estate, 2. Traditional Stocks and Bonds, and 3. Income producing Websites.”
Let’s talk about being a landlord
Here are some tips to consider:
- Price your rental properly. What you paid for your property has nothing to do with how much you can charge for rent. Look at comparables. It is better to charge 5% less and be 100% occupied than 5% more and be empty for a month.
- Use a lease prepared by an attorney. A lease is a more important document than a document that you use to buy or sell a house – it is a living document that someone will pull out of a draw and read some day.
- The more time you spend qualifying your tenant the less time you will have to spend managing him. Run criminal checks and ask for a Facebook name.
- Prepare an inspection check list with the tenant and take pictures to document. Sign it and have the tenant sign it.
- Know the laws and follow them. There are strict laws on discrimination and escrow monies.
- Specify a place, date, AND time that rent is due by.
- It’s cheaper to keep a current tenant than find a new one.
- Set a list of rules and enforce them and never make exceptions. Have your attorney tie the rules into the lease.
- Do what you say you are going to do in the lease – enforce late fees, pet fees, and document everything you do. (I have never put a bad tenant in a house – but I have had a few go bad after getting there!) What we try to do in the beginning is set the precedence for the term of the lease. If the tenant is one day late I will notice him, in writing, that he is late. I post it right on his door.
- Resort to a higher authority. Have someone else you can make the “heavy” – either your boss, your bank or your attorney.
- Raise Rents regularly, per the lease. Tenants will pay a few points more rather than leave.
- Personally inspect your property as often as possible.
- Limit the number of people, by name, that can live in your property
- Maintain your air-conditioning because your tenant will not. In some leases we like to add that the tenant pay for an air-conditioning and pool maintenance contract in addition to the rent. On my lower rent properties I replaced the filters myself. It gives me a reason to inspect inside the unit. If the lease goes long term, consider annual inspections and repairs by a qualified contractor (such as roof, driveway, soffits and gutters, lubricating hinges, minor painting).
- If you are considering seasonal rentals – know the sales tax and tourism tax laws. The penalties for non compliance are strict and the compliance checking is rigorous. (They WILL catch you if you violate these laws)