Get Out of the Rat Race with Rental Income Properties

Owning rental properties can be risky, but they can also generate a great return, making them an ideal investment option for people who are looking to generate retirement income.

  • Friday, January 15, 2016

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Owning rental properties can be risky, but they can also generate a great return, making them an ideal investment option for people who are looking to generate retirement income. One of the most common concerns among people who are considering investing in rental properties is whether the return will be sufficient for their retirement needs. Financial experts often recommend having 85 percent of your pre-retirement income in order to continue living in the same lifestyle to which you have become accustomed. Depending on your needs, that number could actually be a lot less, which means that you might not need nearly as much money as you think to retire. In fact, you could get out of the rat race and retire a lot faster than you think by investing in rental properties. Let's take a look at how that's possible.

Expenses Are Lower After Retirement

A factor that many people fail to consider in determining the amount of money they will need to retire is the fact that expenses are generally lower after you retire. For example, you will no longer need to pay the percentage of your current salary that goes to Social Security and Medicare taxes. Additionally, once you are retired, you will not have to worry about making contributions to your 401K.

There are also many other expenses that you no longer need to be concerned about once you retire, including dining out for lunch. You can also slash commuting expenses and costs for dry cleaning and business attire.

Depending on when you choose to retire, you may also be able to cut the cost for your health insurance. If you retire at the age of 65, for example, Medicare may be less expensive than what you pay for your part of your employer's health insurance plan.

Mortgage Payoff

When you are ready to retire, your home may well be paid off, which means you no longer need to worry about paying a mortgage. Another option to consider is purchasing a duplex or multi-family property that will allow you to live in one unit, rent out the rest, and benefit from being able to manage the properties onsite while the rent from your tenants covers the mortgage.

Tax-Free Income

It's also important to consider that the rental income generated by your rental properties is considered passive income. This means it can be offset by depreciation, which is money that may be able to go to you tax-free. To find out exactly how this could work, be sure to check with your accountant.

Real estate can be an excellent way to generate a great investment return, particularly if you are looking at replacing part of your salary and retiring. Of course, you should keep in mind that higher returns also come with higher risks. You can mitigate many of those risks by carefully prescreening applicants and accepting only high-quality tenants. Using a service like VerticalRent can help you to do that with ease.


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