Investing in Real Estate as another option for Retirement income

[xmanz3]

I'm 40 and my wife is 32. We have an annual income of $150,000 and this year we will be debt free not counting the home mortgage.

We currently own 3 rental homes and 3 pieces of land. Our goal is to acquire 3 more homes in the next 2-3 years. We are planning to pay off all homes in the next 15 years and be able to retire with approximately $9,000 on rental income along.

We are investing on ROTH IRA, mutual funds, 529 savings accounts, and we have Emergency Fund account and other savings accounts.

If there are any members out there that have invested in Real Estate as part of their retirement planning please share your story and provide me with some feedback regarding our current plan.

 

[calmloki]

We are big fans of structures and places - buildings just get us going, especially if they are challenging. We considered/dreamed about a small air force facility in Condon Oregon, the current UWC-USA building (originally a grand railway hotel) in Montezuma New Mexico, McAffee's place in Rodeo New Mexico, various commercial buildings - (still think having the second floor as a residence would be cool).

Dreams are one thing, finances another. We ended up with a number of sad old places that we brought back from ruin. Interest rates were high, so we pushed money at the mortgages. Added lots of work, lots of thought, and every cent of work or rental income that wasn't needed for a minimal subsistence lifestyle. Result was we ended up with 52 doors at our peak. Everything was paid off, plan was to sell out and then there was this little real estate crash. No problem though - rent was still coming in so we just kept banking more money.

We sold or disposed of several places and are down to 38 units now and use a manager for much of the in the trenches work. Rent keeps coming in and we started loaning money out on property, which resulted in a substantial unsecured loss and acquiring a beat to death trailer park in a great location (there went a summer prepping it for sale) and a postage stamp coast property. Oh - and more money. We put some of the money in the market, but it just is not us - we are enjoying financing other people who invest their time and effort to turn dreams into cool places.
Sounds like you have a more thoughtful balanced plan, though I question investing in land - not much work, but slow to appreciate.

 

[xmanz3]

I invested on these lots at foreclosure prices NE of Atlanta. 2 of them are lakefront and one of them is sitting on a golf course community with 3 lakes, resort pool, gym and 6 tennis courts.

After only 3 years, all of them have increased in value 5 times or more what we paid for. Buying land is not for everyone but if you do your research and study the area it might be worth investing. All 3 lots are for sale right now, after we sell them I'm still planning to buy 1-2 more lots.

 

[calmloki]

well hush my mouth. good on you for the perspicacious purchase.

 

[xmanz3]

Calmloki: I greatly appreciate your feedback and I'm thinking on buying a multi-unit building. I just need to do more research and ask other people about their experiences and how profitable it is.

 

[SumDay]

If you're already landlording, then you know that the real estate isn't the issue - it's the occupants. I for one am not cut out for it. I inherited quite a few promissory notes when my folks died, so while I don't have the maintenance issues that come with rentals, I do have people with really bad credit who couldn't make their house payments in a timely manner if they were $100 a month. I've sold 50% of them after foreclosing or owner abandonment, and while the sales would have been a loss for my father, I just had to consider it found money and ignore my dad yelling at me in my dreams at night. Some people can make a real go with real estate. I am not one of them. It's not for the faint of heart.

 

[xmanz3]

SumDay, I'm really sorry you had to go through all that but if you cannot manage or handle being a landlord, your other option is to hire a property management team. If you can't deal with either one, then you should not be investing in RE.

As you stated, it is not for everyone. Also, another big mistake is rushing into buying instead of doing your homework.

 

[Backpacker]

We've got 4 single family homes, have had the first one for about 7 years. We bought all of them at very low point in RE market. all are 2 bedroom homes, 3 in town 1 in the country. I am a money lender (and of course a money collector) so I felt ideally suited for judging character for re-payment odds, and if it goes bad I have been in court enough times for my job to know the process of collection. In 7 years only had one person I served papers on to evict and they moved along on their own with no further court involvement.


Some folks love cars - I love RE! We are holding firm at 4 as DW and I both have FT day jobs. If I croaked tomorrow my DW would probably have 4 listings signed before I was in the ground the people side is not her cup o' tea, but she is a tremendous help in cleaning and fixing between tenants.


Our plan is to hold the RE until 59 and I am able to draw from tax advantaged account's without a penalty. Using the income to keep out of after tax savings as much and as long as possible. I am 51 and have 2-3 years to work.


We did buy one vacant 5.5 acre parcel and I am paying taxes each year licking my wounds for the 50% drubbing we are at on value, but I plan to sell it the same year I sell one or some of the rentals and off set capital gains with the loss. I don't see managing rental as a post retirement hobby / job, when I am 60 I doubt I will want to deal with the repairs and day to day management.


As OP and calmloki said, land can be high risk low return.

 

[SumDay]

SumDay, I'm really sorry you had to go through all that but if you cannot manage or handle being a landlord, your other option is to hire a property management team. If you can't deal with either one, then you should not be investing in RE.

As you stated, it is not for everyone. Also, another big mistake is rushing into buying instead of doing your homework.

1. I'm not a landlord, I'm the bank. They bought the houses from my dad, and he owner financed. I inherited the promissory notes. I did not invest in RE, I inherited it.

2. Property Management companies aren't interested in promissory notes, they don't make enough off just the collection of house payments (NOT rent!). No maintenance to do since the occupants are the owners. We initially tried that route, and the buyers paid even less regularly than when I constantly harp at them.

3. I didn't rush into buying. They landed in my lap, and I've managed to off-load half of them. Foreclosing is an expensive slow process, and then selling the [-]house[/-] dump is no piece of cake either.

But thanks for the condolences!


I will tell you that this was my father's retirement plan, and it worked well for him, but he literally visited each of the houses/buyers several times per week to stay in their faces. I already have a full time job. But they had a comfortable retirement off it!

 

[xmanz3]

Backpacker, I also love RE. It seems better to me than the stock market or parking my money on CDs or Savings accounts.

After retirement, I might keep all my rentals only hiring a property management team to take care of all issues.

 

[Backpacker]

Our best deal was 14,500 for 1000 sq foot house on a nice in town lot. It needed practically nothing. Replaced a door and cleaned up an inch or so of pet waste (yuck), new carpet and rented out at 500 a month. 30k gross income in about the 5 years we've owned it. Best guess on value today is 55k or so. Way better return than my savings account

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[xmanz3]

Backpacker, that was awesome! Good for you guys!

Fur us that we love Real Estate we know that's a way to go in addition to your other retirement accounts.

 

[wolf]

Worked for me. Retired. Rental Income supplements, SS, and investment
income.

This worked for me.

1. Invest in Quality, not Quantity.

2. A Couple of "Prime" rentals in Prime location. (school, jobs, etc).

Easy to rent out. Tenants have good jobs. Low turnover.

Added bonus. Appreciation of property.

3. Have seen friends go the Quantity route. To much work. Higher
turnover. Minimal Appreciation.


They would have made more income, less head aches, by consolidating
in "Prime" locations.


Oh, vacant land, never a good idea. Does not produce income. Rarely appreciates fast enough to
cover expenses. Better off, selling, and using the money to buy rental real estate that produce
positive cash flow, and tax write off.

 

[pb4uski]

^^^^ good advice

I personally have always preferred equities to real estate since I'm inherently lazy and don't like dealing with tenants. My dad liked real estate and at various time owned land, residential rentals and commercial rentals. He eventually sold the land (usually installment sale to spread out the taxes on the gain) and decided that residential tenants were the pits and sold his multi-unit as well. He did retain one commercial single-tenant property that I manage for my mom since he passed. IMO commercial is the way to go but we have been lucky and have a stable tenant (over 30 years). I renegotiate the lease every 10 years or so, coordinate maintenance and improvements to the (outside of the) building and the rent magically appears in mom's bank account.

When mom passes I suspect that we'll keep that property only because it provides a nice return and the management is easy, but on the other hand, I think it would be a challenging property to manage if we ever lost that long-term tenant so perhaps we would decide to sell.

 

[dallas27]

Problem for me with realestate os that to compound growth you must keep leverage up, and therefore taking on more assets that require my time to manage, and protect. Your a business owner.

With paper assets, they require my time at purchase and sale, never any other time. And compound on there own.


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[knucklehead 61]

i have 22 different rental properties, 9 that are mortgaged.
the rents generated by them will allow me to retire in about 6 months at 49 & carry me to 60 or so when i can tap into my ira & 401k accounts.
many of them i bought as fixer uppers & did it all out of pocket creating sweat equity.
i have made way more $ with real estate than from the stock market.

 

[Fishingmn]

We have 11 rental properties we purchased in the last 3-5 years. This is allowing DW to retire in 98 days at 52 so been a very good choice for us.

 

[REWahoo]

i have 22 different rental properties, 9 that are mortgaged.
the rents generated by them will allow me to retire in about 6 months at 49 & carry me to 60 or so when i can tap into my ira & 401k accounts.
many of them i bought as fixer uppers & did it all out of pocket creating sweat equity.
i have made way more $ with real estate than from the stock market.

Are you planning on managing all those properties yourself? If so, I don't see how you could consider yourself retired - that's more than a full time job!

 

[kgtest]

Between me, my sister and my dad we own quite a few. I polled the family and asked when we had all last been at any of our rentals and none of us could actually recall...it's been years. Sometimes this passive income becomes an active PITA but its only when flipping the tenants. Quality tenants with no children or pets and fair annual incomes seem to reward us with the least amount of stress. We owned a 6plex once but sold it because as a prior post states, quantity over quality is just more work. We can usually get a unit ready in a week or less and have had fairly low vacancy rates considering what some folks report. We are probably at less than a years vacancy for all our units combined.

The opportunities that my father helped to present to us was directly related to the rental incomes he received. I remember him blabbing the day he paid off his primary home...he had only had the note for 9years.


Fast forward 22 years later and we use the same strategy of using all ROI to reinvest into the mortgage balance. All properties we own will be mortgage free in > 5 years.


This will allow my father, my sister and me to all RE in a much easier glide path.


My motto with these rentals is don't get involved in the tenants personal life and drama...run it as a business, its a for profit business and as soon as the model is jeopardized, action is needed.


Only 1 eviction between us 3 landlords in over 34 years of Real Estate Investing. That actually led to us receiving some outstanding backpay once the notice was served. We negotiated one extra weeks stay if the back-rent owed was Paid in full. An hour later the lady showed up with all the cash. She was out of the apartment the next day on her own terms...just took a little nudge from the courts.


We've been sued twice, lost one, won one and they were for less than $1000 in damages.


As with purchasing equities, its always a good idea to buy low and leverage any financial vehicles you can.

 

[ERD50]

....

I will tell you that this was my father's retirement plan, and it worked well for him, but he literally visited each of the houses/buyers several times per week to stay in their faces. ... But they had a comfortable retirement off it!

That doesn't sound like a comfortable retirement to me! One of the last things I'd want to do while retired is spend several days per week getting in someone's face over the money they owe me.

-ERD50

 

[pb4uski]

+1 I have never had to get in the face of a fund manager.

 

[SJ1_]

I'm 40 and my wife is 32. We have an annual income of $150,000 and this year we will be debt free not counting the home mortgage.

We currently own 3 rental homes and 3 pieces of land. Our goal is to acquire 3 more homes in the next 2-3 years. We are planning to pay off all homes in the next 15 years and be able to retire with approximately $9,000 on rental income along.

We are investing on ROTH IRA, mutual funds, 529 savings accounts, and we have Emergency Fund account and other savings accounts.

If there are any members out there that have invested in Real Estate as part of their retirement planning please share your story and provide me with some feedback regarding our current plan.

sounds good to me. we did rentals in Atl, for yrs and retired with just two.
If you can manage 3 rental homes 6 should be more prob. During the RE boom expenses went up a lot more than rent and we decided to cash in on
most of our rentals. I always managed the rentals myself and just make
a phone call when there is a prob. the only time we do actual work is when
the tenants leave. seems impossible to get someone to do a good job as we
do getting it ready for the next tenant. Both tenants have been there for
over 11 years so it is almost like having a annuity in that we basically
cash checks pay a handyman and make roughly 5K each per yr.
When the economy was real bad it just took a little longer to rent than when things are booming. At times it was real slow but a good tenant eventually
would show up.

You prob. know by now but you must run credit checks on your tenants and have a list of what they must have to be qualified. If they do not qualify
no matter how slow things are you will regret it.
good luck

 

[Closet_Gamer]

Anyone just use REITs to round out their income? I don't have the stomach to own individual real estate -- much like individual stocks -- but I am rounding the portfolio using REITs for RE. (For now they're buried in an IRA for tax efficiency.)

Anyone else doing the same?
Pros? Cons?

 

[Senator]

I have 24 units, I manage and maintain them myself. I have not lost a day of rent in several years, and typically have all my rents deposited by the third of the month. I typically have to get ~10 tenants a year, most with zero vacancy expense. So far, I am about 2.5% vacancy.

The units are 5-four plexes and 2 duplexes.

It will be 100% of my retirement money from 56 to ~62. They generate 3-4x what my annual budget is. Considering most are paid off, it's a great gig. All the 4-plexes were foreclosures, purchased since 2008.

 

[knucklehead 61]

Are you planning on managing all those properties yourself? If so, I don't see how you could consider yourself retired - that's more than a full time job!

no way, i have a property manager who handles it all.