As you plan out your future retirement years, you might want to think about adding some kind of supplemental income to your regular retirement savings. This could be in the form of rental properties, which can bring about consistent cash flow long after your working years.
But before you purchase rental properties, there are a few things you should know about getting the most out of your investment and making sure you don’t end up with something that ends up being a liability.
GOBankingRates spoke with Alex Coffman, Realtor and co-owner of Teifke Real Estate, and Colten Claus, associate broker at 8z Real Estate, to get their thoughts on renting out property to earn money during retirement. These are their top tips.
Start Small (And Have a Plan)
Rental properties come with their fair share of advantages, but they also pose some risks. The real estate market constantly fluctuates, you could struggle to find tenants — or ones who pay — and you have upfront costs that can make the whole endeavor more expensive than expected.
So, start small.
“Try starting with one rental unit at first so that you get hands-on experience with being a landlord without overwhelming yourself too much at once,” said Coffman.
And make sure you have a clear financial plan before you buy your first rental property.
“Ensure you have a clear understanding of your financial goals and how rental income fits into your retirement plan,” said Claus. “Consider the costs of property maintenance, taxes, insurance, and potential vacancies.” It also helps to have a financial buffer for any unexpected expenses.
Do Your Due Diligence
You’ll also want to choose a good location for your rental property.
“Invest in rental properties located where there is a high demand from tenants, like near good schools, low crime areas with public transport facilities, shopping centers, among other necessary amenities,” said Coffman.
It helps to choose a location that’s already near where you currently live. But even if you buy property farther away, it’s crucial that you research the local real estate market.
Both Coffman and Claus recommended researching local market trends, demand, rental rates, and the types of properties that are currently in demand. “Knowing your market helps you set competitive rental prices and attract reliable tenants,” said Claus.
Screen Your Tenants
To make sure you’re getting reliable income from your rental properties, you’re going to need to choose good tenants — that is, those who will pay the rent every month and not cause major damages that are going to cost you.
“Conduct thorough background checks, including credit history, employment verification, and references from previous landlords,” said Claus. Don’t skimp on this part. Even if it’s a hassle at first, you’ll sleep better at night knowing you’ve chosen responsible tenants.
Go Through a Reliable Property Management Company
Managing even one rental property can be a lot of work, but if you end up expanding into multiple properties, you might want to get a property manager.
“If managing properties becomes too much work for you, then hiring professional property managers can be of great help since they will take care of everything, including tenant selection, rent collection, maintenance issues, and legal matters,” said Coffman.
A property manager can also help you maintain the property to a point. But you’ll still want to keep up with preventative maintenance to avoid more costly repairs down the line. If the company you choose doesn’t help with this, make sure you’re handling all upkeep on your own.
Learn the Legal Implications Inside and Out
Knowing the legal implications of renting out properties, as well as your rights as a landlord, is crucial. Of course, your property management company might be able to help you with this, but it doesn’t hurt to know the laws yourself.
Claus suggested familiarizing yourself with local landlord-tenant laws. That way, you’ll know the regulations related to security deposits, eviction procedures, leases, and the like. This can also help prevent any legal disputes between you and your tenant.
You’ll also want to keep detailed records of everything — from rent payments to maintenance expenses to communication with your tenants. This can make it easier to file taxes accurately, manage your finances, and resolve potential disputes.
Have a Way Out
While you’re at it, have a plan for what you want to do in the future. Even if you plan to rent out properties for the rest of your life, you might need a way out eventually.
“Ensure that you have an idea of what you want to do with the property in the future, like selling it or transferring ownership to your children,” said Coffman. “You may also need to make it sale-ready or increase its value by putting it in order.”
Budget for the Unexpected
Rental properties can be quite lucrative, but you’ll still need to pay for some things. Set aside some of your rental income for vacancies, maintenance, and repairs.
“Always budget for potential vacancies,” said Claus. “It’s unlikely that your property will be occupied 100% of the time. Having a financial cushion for these periods will ensure that you can cover mortgage payments and other expenses without stress.”
Get Insurance
Generally speaking, you’ll need insurance when you own property. But if you’re a landlord, you might want to take this one step further.
Claus suggested getting landlord insurance that covers property damages, liability, and even the temporary loss of rental income. Doing this can provide you both peace of mind and financial protection.
Is Renting Out Property During Retirement a Good Idea?
Renting out property can be a good way to make money during retirement — but there are a few caveats.
“Renting out property can be a lucrative way to generate income during retirement, provided you are well-prepared and understand the responsibilities involved,” said Claus. “Managing rental properties requires time, effort, and a certain level of expertise, especially if you own multiple units.”
If you’re new to it, or if you want more of a hands-off experience, going through a property manager can help. They’ll generally charge a fee, but the ease of knowing your properties are being properly handled — and that you’re still earning supplemental income — could more than make up for that.
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Source: I’m a Realtor: 8 Tips on Renting Out Property To Make Money During Retirement
