Approaching Retirement – Think of Becoming a Landlord

by admin on January 7, 2012

Creating a rental unit and becoming a landlord, you put your house to work for you. This looks like a no-brainer, especially if you have a spacious house in an area that is preferred by renters. You make some extra income, which is great if you are living on a pension.

One obvious question here is whether you will feel comfortable sharing your place with another person. According to Antara Financial Group’s president and financial adviser Judith Kane, renting out a basement apartment or another part of your house is a good idea if you can handle sharing your home with someone. This is a fantastic way for retirees to supplement their pension. Moreover, if you have a mortgage loan, this is an opportunity to repay it faster than you normally would. Renting out a part of your house is also a good idea if you do not have a significant retirement income, you have lost your job, or your savings fund is almost depleted (The Globe and Mail).

In addition, income property is a great asset to have when approaching retirement. If you do not have a pension, renting out means money coming in regularly, explains Certified Financial Planner Barbara Pietrowski.

If you have a spacious house, you can choose to rent out a part of it, but what if you do not have enough space yourself? You may think of buying an income-producing property. At the same time, buying a rental property does not mean you have to generate profits immediately, explains landlord and author Andrew McLean. The purchase may still be worthwhile, especially if you have a time horizon to retirement and are stable financially. The reason is that the value of real estate is set to go up, rents are going up, while costs are not, especially if you apply for a fixed-rate mortgage, notes McLean (he is the author of “Making Money in Foreclosures”, and “Investing in Real Estate”). Even if you are not making much in the beginning, eventually, your income will increase over the years (Bankrate).

There are many advantages to becoming a landlord but what are the downsides? To begin with, income property is not the best choice for everyone. And a dead-beat renter can easily ruin one’s budget, while there are tax and bookkeeping headaches and upkeep expenses (Time Moneyland). Second, rental properties are often expensive, and financial institutions usually require a substantial down payment. If you apply for a mortgage loan, your bank will also charge a higher interest rate compared to that of an owner-occupied home.

Another downside is that rental properties are an illiquid asset. If the owner is forced to sell, he may have a hard time, especially in the midst of a down market. Thus, he may not get a reasonable price for the property. Renting out poses other problems as well. For example, those who are repaying a mortgage loan and cannot find a renter when they need one may be forced to pay off the mortgage by themselves (Bankrate).

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