I don’t know about you, but I practically fall asleep when a certified financial planner starts talking about investment goals, tolerance to risk, and tax brackets!
My financial goals are simple: I want to make as much money as possible on my investments, and I have zero tolerance to risk.
That’s why I believe rental property is the best investment option for baby boomers looking to supplement their incomes.
Investing in real estate has what Warren Buffet calls “intrinsic value.” That means its value is based on more than just what you see; it’s also based on what it does or what it provides. People will always need a place to live and for many of the younger generation, buying a home is out of reach. That means most of them will be forced to rent.
Providing rental space can be a great source of passive income for boomers, provided it’s done right.
Below are 5 rules to keep in mind before buy a rental property:
Always target the middle-to-lower end of the economic scale when you consider who rent your property to. This group will be long-term tenants because they will not likely have the means to save enough money to buy a house.
Use the 1 percent factor before you decide to purchase a rental property. My rule of thumb for purchase price vs. monthly rent is a 1 percent factor. In other words, if a 3-bedroom condo can rent for $1,700 per month, I am willing to pay as much as $170,000 for the property. (See example below).
Always pay cash for rental property. That way, if the economy takes a dive I can reduce the rent. Because I own the property, I could easily cut the rent dramatically and wait for the market to come back without the risk of losing the property to foreclosure. That’s why reverse mortgages are so important. They allow homeowners to turn their equity into cash without a mortgage payment.
Fix everything in the property to like-new condition. If you want to avoid ongoing complaints from tenants about repairs, start with a full rehab before you rent. This investment upfront will save you time and hassle down the road.
Hire a good real estate firm to find and screen tenants, and to draw up rental agreements. There is a saying in the legal profession that attorneys who represent themselves in court have fools for clients. The same thing can be said for property owners who lease their own properties. A bad tenant can be a nightmare and it’s too easy to be played by a good con artist. Property managers are usually good at identifying and screening out potentially problem tenants. Skipping this step will cost you in the long run.
Below is a real-world example of one of my rental properties:
This rental property cost me $170,000, however, it gives me an income stream of just over $1,000 per month. That’s a 7.1 percent return on my investment.
There’s no such thing as easy money, but this comes close. So ask yourself: What difference would an extra $1,000 a month make in your retirement life?
If you’d like to hear more of my fact-based examples of how I use real estate property to supplement my income — or if you’d like to ask me questions about other innovative ways to bring in more money every month — Simply click here to schedule a FREE Strategy call with me. You have nothing to lose. We’ll discuss different options you might consider, and I’ll recommend resources to help you move toward your goals.
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