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I did a quick search and haven't come up with anything discussed previously (maybe because it's not strictly retirement investing in the normal sense.

What are the thoughts here on purchasing rental properties as part of a retirement strategy?

I can see both pros and cons here.

Pros:
Property appreciation
Monthly income
Will stay current with inflation (?)

Cons:
Insurance
Maintenance
Possible problem renters
Property Taxes
If you need to sell, it could take a while

I ask because I already have one rental property and so far it hasn't been a problem (crosses fingers).

Any thoughts?

Thanks,
B
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You haven't addressed the biggest con: work. Being a landlord is a 24/7 job. Why retire from one job that you know well to another job you know less?

It's pretty tough to take a three month trip to Africa or meander thru Mexico for six months when you have to worry about clogged toilets etc.
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Being a landlord is a 24/7 job. Why retire from one job that you know well to another job you know less?

Heh. THat's what management companies are for. :P

A friend of my father's had 12 properties when he retired and he simply had a management company do all the work, paid themn a cut and got a nice check every month. Sounded pretty good to me. Not sure how much that would cut into the income, but ya can't win 'em all.

B


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Barak0:

<<<<Being a landlord is a 24/7 job. Why retire from one job that you know well to another job you know less?>>>>

"Heh. That's what management companies are for. :P

A friend of my father's had 12 properties when he retired and he simply had a management company do all the work, paid themn a cut and got a nice check every month. Sounded pretty good to me. Not sure how much that would cut into the income, but ya can't win 'em all."


A management company rarely runs the units as well as the owner, and the management company will take a decent size cut. From the owner's perspective, the management company is jsut another expense that needs to be paid before the gravy is collected.

Regards, JAFO


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Author: galeno Date: 4/20/02 2:32 PM Number: 34281
Why retire from one job that you know well to another job you know less?

There are probably a thousand reasons:

1. Tired of the old job? Layed off?

2. Not enough retirement savings?

3. Always wanted to own/manage rental property?

4. Don't want to flip burgers?

etc, etc, etc.

RK
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There are plenty of stories out there of people who have been able to do well with rental property. The key I think is to start buying when you are young and accumulate enough rental properties so you can hire a staff to help with maintenance. Then you have freedom to travel if you like. Being small and first starting out can be difficult.

If you do it right, its a solid business that generates tax advantages in depreciation. So current income taxes can be managed. Also, they are nice assets provided you are in an area where they appreciate over time.

For most, this turns out to be a long term investment. Flexibility can be limited if the area declines. Do you want to be an inner city slum landlord?

Take the time to learn the market before you invest. Do your research. Find yourself a good tax advisor.

Many people do it. It can work.
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There are plenty of stories out there of people who have been able to do well with rental property. The key I think is to start buying when you are young and accumulate enough rental properties so you can hire a staff to help with maintenance. Then you have freedom to travel if you like. Being small and first starting out can be difficult.

That was basically How I thought I would approach it. I'm only 32 now and I currently have one rental property.

If you do it right, its a solid business that generates tax advantages in depreciation. So current income taxes can be managed. Also, they are nice assets provided you are in an area where they appreciate over time.

For most, this turns out to be a long term investment. Flexibility can be limited if the area declines


Where I live (and where I would buy more rental properties) is rural and is in what I would call the boom section of the state. People are moving in and property values are appreciating quickly, so currently I have no fear of the property not appreciating.

Do you want to be an inner city slum landlord?

Good lord no! To be honest, I thought about it though, because I live near a college town (with multiple colleges) so there'd always be renters. But I've heard and seen too much of the bad stuff that happens renting to college kids. I'll stay out here in my rural area.

Thanks for the feedback.

B
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Hey, R. MacDonald just asked, "Don't want to flip burgers?"

Heh heh heh heh heh...
Joe
Yes, I know McDonald's has only one "a" in it, but they do call that sandwich the "Big Mac", after all. ;-)
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Author: joebedford Date: 4/22/02 9:32 AM Number: 34290
Hey, R. MacDonald just asked, "Don't want to flip burgers?"

Heh heh heh heh heh...
Joe
Yes, I know McDonald's has only one "a" in it, but they do call that sandwich the "Big Mac", after all. ;-)


Hmmmmm..... I sure wish I was connected to McDonald's somehow! I would surely not be worrying about extra income in retirement!! :)

RK
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Actually, I think the actual McDonalds who started McDonald's were bought out fairly early on, in the 1950s or 1960s.

But they did get a few million, so they didn't end up on welfare or anything.

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This is a little long.....

I've had two experiences with rental properties:
- I rented out my primary residence for five years while I was reassigned out of the area (but knew I would be back). I had 3 separate tenants over that period. The first was excellent and I was able to manage the property myself from a distance of about 200 miles. The second was OK; I was still able to manage it myself. The second tenant left and I had been reassigned about 1000 miles away; I used a "property manager" to find me a tenant and take over management responsibilities. He found a good but not great tenant but did very little to earn his share of the rent. (Example: my neighbors told me the tenant had a dog even though pets were prohibited by the lease; I called the manager and asked him to look into it. I made the point that the lease specifically prohibited pets. He said "Who reads the lease?" My point back to him was that I was paying him damned well to ensure the tenant understood the lease.)
- I inherited a house in a resort area. While I was trying to decide what to do about it (rent it as a summer place, rent it year round, sell it) a little old lady approached me about renting in year round. She lived there for 5 years and paid the rent regularly and made very few demands on me. She also got a good deal on the rent because she did not demand that I fix it up and I was able to store things in the basement that I wasn't prepared to deal with at that point. (I had no manager for this rental.) When she died, I considered putting money into the house to do some needed beautification, but decided to sell it. (It was about 400 miles from the house; if I had been closer I might have used it as a weekend getaway.) Although the rental experience was a good one, I would have been just as well off financially to have sold the house just after I inherited it and invested the proceeds conservatively.

Bottom line is that my experiences have been generally favorable. But I believe in "reversion to the mean" and I think I have used up all my good luck as a landlord and would not want to be one in retirement.

jtmitch
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Although the rental experience was a good one, I would have been just as well off financially to have sold the house just after I inherited it and invested the proceeds conservatively.

When the stock market is returning 8% a year, the steady income from a rental might not seem so exciting. But if the stock market continues to go sideways, the steady income will seem a lot more atractive to people.
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When the stock market is returning 8% a year, the steady income from a rental might not seem so exciting. But if the stock market continues to go sideways, the steady income will seem a lot more atractive to people.

That's one of the main reasons I'm considereding it besides the fact that I own one rental property already.

By no means would I pull money out of investments or in any way curtail future investments, but it seems that, done properly, being a landlord is just another form of diversification for your retirement portfolio.

The stock market might go down 20% (hmm, when did that last happen? :P ), but I'd still be colllecting the same amount of rent. :P

Thanks to everyone for the anecdotes and thoughts on things I need to consider.

B
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When I turned 24 the wife and I decided to get into the rental bussines. We started out small at first.

I have learned that single family homes as rentals do not make much if any cash flow month to month. They do however create a sizable tax advantage in the form of depriciation. The money to be made on a single family home in in the form of capital appreciation.

Duplexes and other multi family dwellings create largs cash flows and a medium tax advantage. This was great as an offset to my normal wages which allowed a huge reduction in taxes and quite a bit of working capital to fund growth. The capital appreciation is not generally very large. Duplexes do have more maintenance, though not much.

I have had a few rough tennants and a lot of good tennants. It all comes down to screening. An easy way around college kids and the possibility of bad tennants is to put the parents on the lease. Mom and dad will keep them in line or cover the costs. Check your local laws first, though.

I've had a good overall experiance with the rental thing. It has funded most of my education and created sizable growth in my investment portfolio.

Later,
Scott
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My family has owned several rental properties over the years, and never managed them directly. I rented out my condo while living in China (not much chance for self-management there :) and now own a triplex out of state (we live in SF Bay Area - local prices on multires property out of our league) which has done well with a local manager. The key is to get a property manager who has a clue and knows that you may do more business with them if they don't screw up.



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