When most people consider thinking about setting themselves up for a stable retirement, often owning rental property is not the first thing people consider. There is a lot of active tasks involved with the management of property and becoming a landlord. This is often the opposite of what people hope for in their retirement years.
Investing in real estate can be a lucrative and powerful way to grow and sustain an extra income in retirement outside of the most traditional avenues of investing through the stock market.
Here are just a few of the reasons why investing in real estate and owning rental property should be considered for a comfortable retirement.
Real Estate Investing Creates Passive Income with the Ability to Have it Grow
One of the best ways to set yourself up for a comfortable retirement is to have a diversified source of income that provides you with more to live off for a longer period of time. Ideally, it is a good idea to have saved a sizable sum of money you have put into a retirement account such as a 401(k) offered through a job. This will help to complement Social Security or pension earnings that you could be eligible for. Rental real estate can be another means of creating substantial passive income in retirement.
With a smart investment in a lucrative property that has great rental potential, you could not only cover the property’s expenses but also bring in extra cash. For example, if you rent out a home for $1500 a month (which is a very reasonable price for rent in most markets currently) and all of the costs of owning the home along with management fees and repairs come to around 1200 a month, you are earning $300 a month in passive cash inflow.
A great means of using this $300 at the start would be to pay down the mortgage to help you pay it off as early as possible and then earn even more passive income from the property. What starts out as $300 could become $800 a month or more depending upon the current rental market and the type of mortgage payment you have at the beginning.
The benefit of real estate appreciation
In most scenarios real estate appreciates in value over time. There are a few where conditions or real estate could lose its value but in normal conditions, appreciation can average about 4% annually in healthy markets. In some very lucrative markets, appreciation grows much faster, and right now appreciation rates are averaging about 19% since the beginning of the pandemic.
If you purchased a home 10 years ago at $150,000 in a bull market that home could be worth about $295,000 today. Not only were you collecting passive income during this time and having the tenant pay the mortgage you were building equity in the property. This equity can now be used as leverage to purchase other investment properties and make retirement even more comfortable.
More benefits on yearly tax returns
Rental real estate offers several tax advantages including depreciation which can help to offset some of your taxable income. Real estate depreciation as far as tax returns go, allows you to deduct a portion of the property’s value each year to reflect the wear and tear a home receives as it ages. This depreciation is eventually recaptured in taxes when you sell the property, but holding onto a rental property for a long time is a hopeful way to reduce your annual tax liability.
You can also take deductions relating to management and ownership costs including repairs and improvements made to the property and management services fees.
Rental real estate does not have to require a ton of oversight
Finding a reliable property manager can help you to be quite hands-off when it comes to being the owner of a rental property. You can hire management services to do as much or as little of the land-lording duties as you like. It will cut into some of your profit, but it’s well worth the cost to generate truly passive income in your retirement years.
For more information on Mesa Arizona real estate and surrounding areas please contact me anytime. For information on the many great retirement communities in and around Mesa Arizona or even just great properties to use as a part-time home please contact me anytime.
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