Should You Use Rental Properties to Fund Retirement?

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Should You Use Rental Properties to Fund
Retirement?
Rental properties can provide monthly cash flow,
protect against inflation, and usually appreciate
over the long term. Some retirees swear by rental
properties instead of the usual stock and bond
portfolio because they dont have to stomach the
volatile stock market swings.
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How long until you retire?  A rental property can
take a few years to generate a stable positive
cash flow. Some locations are better than others,
and you might be able to generate some income
right away in some markets. However, it can be
much more difficult in western states like
California. The good thing about a rental is that
it is an inflation hedge. Rent goes up and your
mortgage payment remains the same. If you have
five or more years before retirement, then its a
good bet that a rental property can turn a profit
in that time frame. Do you have the funds?  You
need quite a bit of money to start investing in
rental properties. Nowadays, banks generally
require a 20 to 25 percent down payment on
investment properties, and this is beyond the
reach of many middle class investors. You will
also need to pay the closing costs and save up
plenty of money for maintenance and vacancies. If
you dont have a lump sum to invest at once,
maybe a real estate investment trust (REIT) would
be a better option. Repair bills can be high.
Can you pay 5,000 immediately for exterior
paint or roof repair? A rental property
inevitably will need costly repairs. One big
repair can push you into negative territory for
the year. Many new investors underestimate the
repair bills and are surprised by these big items.
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Poor liquidity. Rental properties are not liquid
assets. If you need a large amount of cash, it
will be difficult to get it quickly with rental
properties. The housing market has long up and
down cycles, and if you need to sell during a
down cycle, you might have to settle for less
than youd like. Do you have other types of
investments?  Do you have stocks, bonds,
annuities, and other types of income-generating
investments? Its a good idea to be diversified.
When one asset class is down, others might be up.
While rental real estate can be a great
investment, its also a good idea to invest in
stocks and bonds. Income from dividend stocks and
bonds can cushion the blow of vacancies and other
problems. Being a landlord isnt for everyone.
Rental properties can be a good way to generate
income in retirement, but being a landlord isnt
for everyone. If you are young and have many
years until you retire, then you should try your
hand at rental properties. Youll be able to
figure out if being a landlord is the right move
for you, and you will have a lot of time to turn
the property cash flow to positive.
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Owning rental properties can help fund your
retirement, but being a landlord isnt for
everyone.
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retirement/2013/04/11/should-you-use-rental-proper
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