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March 21, 2017 0

How To Find Your Perfect Retirement Investment Property

 by Paul Esajian | @pesajian                 

Rental properties aren’t just a great way to inject your short-term finances with much-needed cash, but they can also offer a path to building long-term financial wealth through streams of passive income.

It’s worth noting, however, that most would-be rental property investors have a few questions: When developing a retirement investment property strategy to build wealth for the golden years, how many rental properties will I need? Better yet, how do I know exactly how much income I’ll need for retirement? And how can I be sure that I’ve made the proper calculations to ensure I’m protected when retirement age comes?

Here’s a quick step-by-step approach showing you the ins and outs of creating a retirement investment property strategy, and making sure you’re more than ready when the time to enjoy the golden years comes.

Retirement Investment Property 101

What is a retirement investment property?

As the name suggests, retirement investment properties are assets in which you derive tangible, passive income — through consistent rental payments from tenants — from real estate you own. Though most people think of rental properties as exclusively single-family dwellings, rental properties that serve as retirement investments can take many different forms: single-family, multifamily, office, retail, etc.

What makes rental properties one of the best retirement investments available is their predictability. When occupied, a retirement investment property provides a steady, reliable source of income you can depend on. Perhaps the most attractive selling point of a retirement investment property, however, is its ability to create a continually profitable asset using somebody else’s money, namely using your tenant’s income to pay off the mortgage of a property.

This isn’t to say acquiring retirement investment properties is an overnight strategy, but by adding one property after another to your retirement portfolio, you can slowly build a lucrative nest egg (without having to pay for nest materials yourself).

Begin With the End in Mind

So how do you determine how many rental properties you need? Well, this will depend on how much income you require over the course of your retirement.

This is figured by establishing three key elements:

  • How many years of retirement you need to account for (a life expectancy of 85 years is a good benchmark)
  • How much cash you’ll require each year (80 percent of your current income level is recommended)
  • How much cash you currently have saved

For example, if you you currently make $100,000 and plan to work until you’re 65 — and have $50,000 saved — your equation would look something like this:

  • 20 years of retirement
    • MULTIPLIED by $80,000/year (80 percent of your current income)
    • MINUS $50,000 (money saved)
    • Which EQUALS 1.5 million dollars needed for retirement

    Yikes! Well, certainly that pension fund or Social Security will help knock down that monumental number a bit. Or will it?

    A Most Inconvenient Truth

    The topic of Social Security is a controversial — and politically-charged — one. All we’ll say on the subject is Social Security should be a supplement to your retirement income, not the primary source of your retirement income.

    As the Motley Fool addressed in a recent column, “Social Security is quickly burning through its reserves and scheduled only be able to cover 77 percent of promised benefits beginning in 2034.”

    This wouldn’t be so bad if it wasn’t for the fact that, as the Motley Fool reported, 36 percent of American adults over 65 weren’t completely dependent on Social Security. And another 63 percent are dependent (but not reliant) on Social Security, relatives, friends or charity at age 65.

    So, how do you combat the possibility that Social Security may not exist in the future? Well, one good strategy is to create a portfolio of retirement investment properties.

    Finding Your Magic Number

    Discovering how many rental properties you’ll need to retire just requires a bit of simple arithmetic.

    • Take the amount you need to retire (number of retirement years MULTIPLIED by your desired yearly income MINUS money saved)
    •  DIVIDE that number by the estimated monthly income from each rental unit

    Now, of course, this final number will depend on a variety of factors: location of your rental properties, condition of the properties, vacancy rates, etc. But a good rule-of-thumb number is to expect — after you pay off the mortgage of the rental property and deduct taxes, repairs and property management fees — approximately $400-$500 per tenant, from each rental unit.

    So, if we take this number and put it into our formula it would look something like this:

    • 1.5 million dollars (Amount we need for retirement minus money saved)
    • DIVIDED by the number of years in retirement (20)
    • DIVIDED by 12 (Months in a year)
    • DIVIDED by $400 (Average rental income per unit)

    In doing so, we come up with a much more attainable number of 15.625 (we can round up to 16 just to be on the safe side.) This means your retirement investment property goal is 16 rental units at $400/month.

    And this doesn’t necessarily mean 16 rental properties, but rather 16 rental units (meaning we could have a commercial property or apartment complex with multiple properties that help us reach our retirement goals).

    Turning a Dream Into a Goal

    Using real estate as the basis for retirement income and bringing cash flow to your golden years is not an overnight strategy. Doing so requires dedication, knowledge, time and capital to acquire the real estate needed to establish a healthy retirement investment property portfolio.

    But by picking up pen and paper — and doing a bit of number-crunching — you’ll find that mythical goal of learning how to invest for retirement with real estate becomes less like wishful-thinking and more like concrete reality.

Angela Cox
Investing Information
January 31, 2017 0

5 Tips for Selecting a Property Management Strategy

Can You Do It Yourself or Do You Need Help?

Picture of Tips for Selecting Property Management Strategy

Updated October 04, 2016

The great thing about investing in rental property is that it is not a one size fits all approach. There are options available for those who want to have an active role in management and for those who want to be more passive managers. To select the best management strategy for you, you need to understand your lifestyle and what your goals are as an investor. Here are five tips to help you decide on the best approach.

5 Tips for Selecting a Property Management Strategy

Before you decide which management strategy could be the best fit for you as a landlord, you should do a little self-reflection. You need to evaluate how much time you can, and are willing to, devote to the property, how much experience you have with the various parts of rental property management and your personality. These five tips can help you make the right choice.

1. Distance From Rental Property

How far do you live from the rental property? If you are a quick drive away, it may be easy to visit the property frequently to take out the garbage, perform maintenance, handle tenant issues and collect rent. If you are an hour or more away, driving two hours round trip to take out the garbage may not be the best use of your time.

Your time is valuable. You have to consider the opportunity cost of traveling to the property. You may think you are saving money by doing everything yourself instead of hiring a building superintendent or a property manager, but when you take into consideration all of the time you are wasting traveling to the rental property, you may actually be losing money.

You could be using your time more efficiently to find other investments or discover other money making opportunities.

You should also not immediately discard a potential investment because it is too far away from your current home, even if it is in another state. In these cases, a hands-on property management approach will be unrealistic.

A hands-off approach that involves hiring a local individual or company to handle daily operations can still make the investment possible. You just have to determine if you are comfortable giving over control.

2. Size of Rental Portfolio

How many rental units do you have? It is much easier to manage one rental unit by yourself than it is to manage fifty. The larger your portfolio of rental units gets, the more you may want to consider bringing in outside help.

However, it is not necessarily an all or nothing approach. You can remain in charge of certain operations, while giving over control of other operations that have become too overwhelming.

For example, you have 25 rental units. You feel like you can still manage the paperwork part of management, such as collecting rent, managing leases and screening prospective tenants, but the physical management and property maintenance, such as taking out the garbage, fixing leaky faucets and showing the properties to prospective tenants, has become overwhelming.

In this case, you may not need to hire a property management company, but hiring a building superintendent could be very helpful to you.

3. Level of Skill

You have to be honest with yourself about your strengths and weaknesses.

  • Organization: Owning a rental property is a business. Successfully managing a business involves a fair amount of organization. For example, you need to know rent collection dates, lease expiration dates, when bills, mortgage payments and property taxes are due, when inspections will take place at the property, when garbage and recycling are collected and even when to change the batteries in the smoke detectors. Quicken Rental Property Manager can help you get organized. However, if you are still all over the place, hiring a property manager may be the best fit for you.
  • Business: If you are not the most business savvy individual, there are two different approaches: get help, or, learn as you go. As a property investor, you need to have a business plan in place, a strategy for dealing with everyday operations and the all-important exit strategy if you need to get out of the property investing business.
  • Maintenance: How handy are you? Even if you are handy, are you comfortable fixing any maintenance issues at your rental or would you rather hire a licensed individual to deal with the issues?

4. Desired Time Commitment

Are you more interested in being a landlord or being a rental property owner? If you are working another job 40-hours a week, it could be overwhelming to manage a rental property full time as well.

Either investment strategy is fine, as long as you understand what your goals are. If you like the idea of passively managing the property, more like investing in a stock, then an outside property manager may be the best fit for you. If you like the idea of active management, interacting with tenants and collecting monthly rent, then you will favor a more do-it-yourself approach.

5. Personality

Owning rental property is a great investment for all types of people. However, actively managing the property is not the right fit for everyone. You may be great with fixing all types of maintenance issues, but may have a short fuse when the actual tenant is complaining about the maintenance issue. Consider the following questions.

  • How Do You Handle Stress? Are you able to deal with unexpected problems? Can you multitask? Problems will come up and they always seem to come up when you are on vacation or during a holiday weekend. Can you stomach this kind of stress or would you rather have someone else deal with it for you?
  • How Do You Handle Conflict? Are you level-headed or more of a hot head? You will see a lot of tenant turnover if you are constantly fighting with your tenants.
  • General People Skills: Do you like interacting with people? You may be great at finances, but horrible when it comes to human interaction. Having a middleman between you and your tenants could be a great option if this is your personality type.
Angela Cox
Investing Information

Copyright @ 2016 F2G Property Solutions LLC

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