If you’re planning for your eventual retirement, you might be wondering if rental homes are good investments. They can be if you play your cards right. One thing that people will never outgrow their need for is housing. Investing in trendy items such as pet rocks, Cabbage Patch dolls, or the latest electronic gadgetry may seem like more fun but let’s face it; trends come and go. Housing needs are here to stay because people will continue to need places to live. Just be sure to take location, cash flow, and your backup plan into consideration. We have many more Retirement Investing Help Articles Now Available.
Location, Location, Location
As with any piece of real estate, the most important aspect is the location. You can remodel, beautify, and enlarge rental homes but you can’t move them to other spots on the map. If you purchase places in desirable neighborhoods, you’ll have little trouble finding tenants to sign leases. Look for places with easy commutes to jobs and nearby freeway access. They should also be close to public transportation, and be in well-maintained areas. Stay away from high crime zones or those with high vacancy rates for obvious reasons.
Cash Flow Matters
Cash flow is the amount of money left from tenant payments after you pay the mortgage, taxes, insurance, and expenses on the property. Ideally, this number should be substantially in the positive. If you’re investing in rental homes now but not retiring for twenty or thirty years, you’ll be okay with a small amount of profit. If you’re planning to retire in five years, you need to either pay cash for the property or be prepared to have it paid off soon. Ideally, you want what you own to be free and clear so the tenants’ rent is your income.
Your Backup Plan
When you’re a landlord, you need to have a backup plan for emergencies. It’s not an “if” situation; it’s a “when.” You’ll have months where a unit is vacant, where the HVAC system conks out, or where your tenant loses his or her job and can’t scrape up the rent. You need to be able to cover your payments and repairs without going into debt yourself. If you’re planning to oversee rental homes as a way to fund your retirement, you need to have at least six months of cash saved up in your rainy day fund.
Investing in rental homes can be a solid part of a retirement plan if you’re smart. You need to make sure you purchase condos, townhouses, or houses in desirable locations, that you have adequate cash flow, and that you have a backup emergency fund to cover any unexpected expenses. If you do all of these things, being a landlord can be a savvy method of financing your golden years. We have many more Real Estate Investing Help Articles Now Available.