6 Reasons Why a Rental Property is Perfect for Building Your Retirement Income

Market Insights
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11 Jan 2022
5 min read
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You know that saving for your golden years now will benefit you in the long run. But will traditional retirement savings be enough? And will you get to retire as soon as you’d like?

With real estate investing, you can start to grow your retirement income today through either a short-term or long-term rental property. In fact, there are many advantages to using this method to help you save for retirement. Keep reading for six of those reasons.

1. You Can Generate a Consistent Monthly Income

Unlike the ups and downs of the stock market, rental property can bring you a fixed amount of money monthly. This can partially or even fully replace previous gains from employment after you’re retired. Assuming you generate $1,500 from a rented-out home, you could pocket anywhere from $300 to $800 in profit per month, minus expenses like mortgage, upgrades, maintenance fees, insurance, and taxes.

2. It’s Not Complicated

Real estate has long been a popular means of investing due to its simplicity. Although the specifics of landlord-tenant laws vary by state, the basics are the same – you’re expected to provide a habitable, safe space and follow the lease agreement. This is by no means time-consuming, and much of the work can be outsourced. For instance, you could hire a property manager to manage your rental (for a fee, which is typically 10 percent of the income).

3. Your Property Will Appreciate in Value

Beyond monthly rental income, real estate tends to consistently appreciate in value over time. This means the $100,000 house you buy now may well be worth $200,000 or more in 10 years' time. According to an Ownerly report, homes in the US appreciate at an average rate of 3.8 percent per year. This rate varies drastically by location. Indianapolis, for instance, has a one-year appreciation rate of 13.9 percent.

4. There are Tax Advantages

You can claim tax deductions on the income you generate from your rental, including depreciation, repairs, maintenance, transportation, and miscellaneous expenses. This can significantly reduce your annual tax burden. However, keep in mind that some of these tactics will lower your “cost basis” when you sell your house, meaning you may have to pay more taxes at that time.

5. Rentals are Fairly Recession-Proof

Unlike many other sources of income and investing – like stock markets or businesses – rentals are comparatively unaffected by recessions. People will always need housing, regardless of the state of the economy, and there are more renters than ever before. Keep in mind that this recession-proof aspect doesn’t apply to commercial properties – they tend to become vacant quickly during downturns.

6. Social Security Benefits are Not Reduced by Retirement income

A popular misconception is that income from your rental could affect your social security benefits. As the AARP can confirm, this is not the case. Your rental income does not reduce your social security benefits. Only earnings made as an employee, earnings through self-employment, and work-related bonuses count toward the limit.

Be Prepared For a Few Challenges

As with any investment, there are some challenges that come with investing in rental property. For instance, you may at some point face problem tenants, high insurance premiums, declining property values (it can happen), high vacancy rates, or a lack of liquidity. What you can do to protect yourself is to become knowledgeable of these risks. With experience and a great team of professionals to lean on, you can find out how to avoid these situations as well as how to handle them should they arise.

Maximize Your Gains

Last, but not least, it’s essential that you choose the right property to maximize your gains. Location is everything in real estate. Any property you choose should be in a good neighborhood and have in-demand amenities or features to be “future-proof”. If you want this rental property to last long into your retirement, it must be able to stand the test of time.

Getting Started Has Never Been Easier

One of the first steps to building a rental portfolio that will grow and maintain your retirement funds is establishing financing. Temple View Capital is a hard money lender that works with real estate investors every day. We understand the need for flexible financing from a private money lender when you’re building your rental portfolio. Let’s have a conversation about how we can help you get started on the path to your golden years, fully funded by your rental property investments.