Category Archive Investing Information

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.

5 Tips for Selecting a Property Management Strategy

Can You Do It Yourself or Do You Need Help?

Real Estate Investing As A Business

“Investment is most intelligent when most business like” – Warren Buffett

If investing is better when conducted most business like, does it mean that more real estate investors ought to be investing in a more businesslike fashion? Should every real estate investor be investing as a business? What does that really mean? What does it look like? Does that limit the types of properties and strategies that can be applied? Where can help and support be found for building a more businesslike property portfolio?

What does Real Estate Investing as a Business Mean?

“Businesslike” investing suggests a less emotional, better organized, well thought out approach to real estate. Definitions of ‘business’ can range from describing a profession, to commerce and trade, to an actual company. All of these definitions likely influence Warren Buffett’s decision to be more businesslike in investing. It has certainly worked for him, and for his own prized real estate investments, and real estate companies. It could mean running a real estate company of some type, owning an investment (which is distinctly different from managing one), or just being more businesslike in every day investment and real estate decisions.

Why Should Investors Approach REI as a Business?

There are many practical benefits of taking a business approach to real estate including:

• Scalability
• Better true investment decisions
• More profitable investment moves
• Efficiency in organization
• Separating personal from investment finances, assets, and income
• Building substantial additional value within a business entity
• Tax reduction
• More free time

What does Building a Real Estate Business Look Like?

Not everyone envisions building a company and mounting an international conglomerate when they get interested in investing in real estate. So will you need an office, hundreds of staff, and have to go back to wearing uncomfortable suits again?

Most won’t.

Many simply want to generate some extra income, and perhaps build more wealth over the long run. Others aspire to building multinational real estate empires. Yet, what we are really talking about here is approaching investment with a businesslike mentality, and structure. Even for those wishing to go really big, most will find they can now operate a multi-million dollar company from their patios via their smartphones.

However, there ought to be businesslike characteristics regardless of size. This may include incorporation and forming a registered business entity, obtaining business credit and bank accounts, setting up a new business phone number, hiring professional vendors to help out, and having a real estate website.

What Types of Properties can be Invested in as a Real Estate Business?

Not all will incorporate as a C Corp, or LLC. Regardless, of which entity type is chosen, or none is used, every type of property is open to investment.

This may include:

• Single-family homes
• Small multifamily properties like duplexes, triplexes, and 4 units properties
• Apartment buildings
• Office buildings
• Industrial real estate
• Hotels
• Retail property
• Vacant land and lots

What about Real Estate Investment Strategies?

The same goes for real estate investment strategy. Virtually any real estate investing strategy can be formalized and systemized to create a business model.

These REI strategies include:

• Wholesaling houses
• Fixing and flipping homes
• Acquiring and holding income generating rental properties
• Commercial real estate investing
• Mortgage debt investing and note investing
• Private mortgage lending
• Options
• Buying, selling and leasing various real estate related rights
• New construction

Where can Real Estate Investors find Support in Building a Business?

The majority of new real estate investors may have very little experience in starting and running a real business. So where can they find help in investing more intelligently, and building a real estate business which can produce better returns, and build more wealth over the long term?

Simply relying on out of date books, and trolling online real estate forums may not be well suited for investors that want to invest intelligently and businesslike. Look for an organized real estate course and proven system that has synergy with your big picture goals. Build on this by seeking out a mentor or coaching program which actually offers business building help, or combines both real estate and business.

Is This the Best Approach for Everyone?

Certainly not all investors want to, or are suited to full time investing, or even running a real estate investment business. There is nothing wrong with that. Yet, all can benefit from taking a more businesslike and smarter approach to investment. This applies whether simply renting out your old home, flipping one or two houses a year, or investing capital in real estate startups.

Those that want the best results, with the lowest risk, and see the value in fast tracking to their goals, while avoiding the pitfalls will see the wisdom in educating themselves on this approach to investing, and will incorporate the best elements to suit their personal goals and aspirations.