If you're thinking about retirement and you find yourself a bit strapped for cash, why not think about investing in real estate? It can be a great option to boost your funds for the future.

When we think about retirement, buying property is not usually the first thing that pops into our heads. But you know what? Income property can actually be a pretty big deal for those who don't quite have enough to retire the traditional way. Just ask Jeff Camarda, a real estate investor and the CEO of Camarda Wealth Advisory Group in Jacksonville, Florida. He knows his stuff, and he says that income property can be an important bridge to retirement for folks in that situation. So it's worth considering, right?

According to Camarda, the real estate market can be pretty inefficient, but that actually works in your favor. It means you have the chance to snag amazing deals with really high returns on your investment. And if you're up for managing the property yourself, you can make even more money. Camarda explains that if you're able to buy the perfect property at the perfect price and negotiate the right terms, a rental property can bring in way more income than traditional passive investments.

KEY TAKEAWAYS

Rental real estate can be a great way to earn money for retirement.
You know, investing in rental properties can actually be a smart move if you're looking to secure some income for your golden years.
Sometimes, you can find incredible deals in the real estate market that can give you solid returns.
Believe it or not, the real estate market isn't always the most efficient, which means you can stumble upon some real bargains that end up bringing in some serious cash.
If you're planning to take out a loan to buy a rental property, it's better to do it before you retire.
When it comes to borrowing money, it's usually a better idea to do it while you're still in the workforce. So, if you're thinking about purchasing a rental property with some borrowed cash, make sure to do it before you say goodbye to your 9-to-5.
Finding the right location is even more important than finding the cheapest property.
Hey, let me tell ya, it's not just about the price when you're buying a rental property. You've gotta pay attention to where it's located too. A great location can make all the difference in attracting renters and getting a higher return on your investment.
You should aim to earn around 8% per year on your investment, after taking into account all the costs.
When it comes to making money from your rental property, you'll wanna shoot for around 8% return each year after you've subtracted all the expenses. That's a good benchmark to aim for, my friend.

How Much Money Do You Need?

If you're thinking about getting a mortgage to buy a place, make sure you get things in order before you retire. That's what Janice Leis, a real-estate broker specializing in prime residential areas of Philadelphia and South Florida, suggests.

So here's the deal when it comes to getting a mortgage. Basically, the lending guidelines usually say that you need to have a job and have been working steady for at least two years in the same line of work. Oh, and if you're not planning to live in the property you're buying, the lender will usually ask for a pretty big downpayment, like around 30% or even more. This is what John Walters from the LeWalt Consulting Group in St. Petersburg, Florida, says.

If you don't have enough money to make a big down payment, you could think about using your IRA funds. According to Walters, any increase in value or income you get from renting out the property will grow tax-deferred inside your IRA. And if you use funds from a Roth IRA, where you already paid taxes, all your earnings and equity can grow tax-free. So it's a good option to consider!

Remember Recurring Expenses

So, once you've got the whole buying-the-property part figured out, you gotta start thinking about how you're gonna handle all those ongoing expenses. You know, owning an income property is kinda similar to owning your own home 'cause there are more costs to consider than just the mortgage. According to Rob Albertson, a real estate agent over at Realty Austin in Texas, there's stuff like maintenance to think about. You know, little things like fixing a leaky faucet, and bigger things like replacing a whole dang roof. Gotta be prepared for it all!

When you're crunching the numbers, don't overlook the expenses linked to marketing and the money you might lose during those pesky vacancy and tenant change-over periods. Albertson suggests playing it safe and factoring in no more than a 92% occupancy rate, even in sizzling rental markets. It's always wise to be conservative when estimating your expenses and income.

Tax Benefits and Liabilities

So, when it comes to owning rental property, you also need to think about the taxes. A guy named Walters says that one of the main perks is that you can actually deduct some of the property's value from your federal income taxes. It's called depreciation deduction. Can save you some real money!

Depreciation is like the wear and tear on your property that happens over time, and it makes the value of your property go down each year. But hey, the good news is that it also helps lower your tax bill when you claim it. However, there's a catch. It also reduces your cost basis, which means if you decide to sell the property and make a profit, you might end up paying more in taxes. So, it's something to keep in mind.

Leis suggests that you start by having a chat with a CPA, a real-estate attorney, and an insurance agent to get an idea of the financial viability of your plans. They can help you figure out how much everything will cost.

Choose a Location

According to Jenny Usaj, who is a managing broker and owner of Usaj Realty in Denver, Colorado, going for the cheaper option won't actually be beneficial in terms of making a profit on your investment. She explains that if you're unable to find renters who are interested in leasing your property, then trying to save money upfront won't do much good.

If you're not sure where to look for rentals, you can try checking out places near downtown or close to a college campus. Rental homes or apartments tend to be available in areas where there are more job opportunities. It's also a good idea to take a look around the neighborhood and choose a property that matches the people living in the area right now.

““While the price will be higher in better areas, the time marketing the property will decrease as well as the time it might sit vacant,”

“Is the area populated with single adults or families? Will a one-bedroom or three-bedroom residence be more appealing to the renters nearby? Again, be careful not to jump at the best bargain on the market. Make sure the property will appeal to the lifestyle of the area.””

— managing broker and owner of Usaj Realty

What Will You Earn?

““You want to earn at least 8% from the capital invested in the rental, net of all expenses,””

— John Graves, managing principal of an independent RIA, editor of the Retirement Journal and author of The 7% Solution: You CAN Afford a Comfortable Retirement.

So basically, when we talk about expenses for this property, we're looking at everything from the mortgage and taxes to insurance and maintenance. On top of that, there's a 10% fee for property management and a 10% allowance for vacancies.

Now, let's say you decide to invest $100,000 in this property. Your goal is to make a net income of $8,000 per year. The reason we aim for 8% is because it accounts for the risks and the fact that your investment isn't very liquid.

But here's the thing - if you or your spouse can put in some work by doing repairs, taking care of maintenance, or managing the property yourselves, your costs will go down and your income will go up. It's a win-win situation.

Potential Problems

According to Cameron Novak, a real-estate broker and owner of the Homefinding Center in Corona, California, folks who own investment properties might encounter a bunch of issues along the way. These can range from dealing with tenants who don't pay their rent to facing high maintenance expenses and struggling to find suitable renters.

According to John Braun, a real-estate attorney with Young Goodman Brown in Minneapolis and an experienced real estate investor, it's crucial to work with a trustworthy real estate agent who can provide references when searching for an investment property. He emphasizes that this is particularly important because numerous cities enforce strict inspection rules and charge fees for landlords who want to convert owner-occupied properties into rental units.

Before you make that purchase, it's important to take a look at these issues. Also, keep in mind that homestead exemptions don't work for investment properties. This means you might end up with higher property-tax bills.

“ “Owning residential income property is not a hands-free affair,”

”If you don’t want to manage the property, or can’t, as in you live out of town, you will be looking at 8% to 10% of your gross rents going to a management company to cover rent collection and repair requests.””

— Albertson

Before you decide to become a landlord, it's important to consider your own personality and how well you deal with different types of people. Being a landlord means you'll be interacting with all sorts of individuals, so it's crucial to evaluate if you're up for the challenge.

Selecting the right tenant is super important. According to Albertson, you really need to screen them well. After all, you're trusting this person with your retirement asset, so you don't want to end up with a disaster or a bunch of headaches.