Property as partial retirement fund

[Nenibay]

Does anyone have multiple rental properties as part of their retirement fund. DH is interested in this option as his family friend has been successful with this plan. Any good resources or tips? What do you plan as your liquid vs property ratio?

[daisypaloma]

This guy that I dated did this. His plan was to buy enough in his portfolio to net out $5K a month (after mortgage and expenses) that will pay for his basic living expenses. I thought it was a pretty good plan. He was in his mid-20's. I'm pretty sure he lost a lot of $ during the recession, but he's likely back up again.
 

[awick14]

I have no tips but this is what DH and I hope to do as well. We currently own one home with a basement rental suite. We never used the space so turning it into a suite made sense for us. Once we have all our consumer debt paid off we are going to save for a down payment of our next place. And eventually we will have a few places.

This is not our sole retirement plan and it comes after funding our retirement accounts.

[imojoebunny]

We have two duplexes that make up currently about $1M of our earmarked for retirement assets (pretax). They will be paid off around the times the kids start college/we plan to retire. Our plan is to sell them in retirement, and invest the money in less time consuming investments. Since I don't work anymore, it is a good way to fund my portion of retirement in a tax advantageously way.

It they change the rules, as is sometimes discussed, to tax long term capital gains as ordinary income, I will be fucked, since it will be taxed as if I made all the money in one year, rather than a little each year, over 25 years.

My best advice is to make sure you have substantial savings/investments to supplement cash flows outside of the rental properties before you purchase, to be able to weather down turns in the market and the random big expenses that come up, like a new roof, or some other large, unexpected expense. The other thing I am glad we did was to avoid buying the cheapest properties, since the cash flows are smaller, but many of the expenses are still the same, like HVAC, roof, and appliances. Our places are in areas popular with young professionals, who are usually good tenants, with good credit, who do not cause a lot of problems, and take reasonable care with the properties.

They are also close to our home, so it is easy for me to manage them. If I had to drive a long way to meet contractors, it would be much more time consuming. We like the two family model, over single family, but that is specific to the area our rentals are in. There is a premium for not an apartment, and decent single family rentals are beyond the reach of many perspective tenants. The oddest thing is that our tenants do not mail their checks, they drive them over to our house. I find it very strange, but they are nice people, so I don't mind. Other friends who have multiple properties have a PO box and set up an LLC company that owns the properties, but this was to expensive and complicated for the number of units we have. We also have a larger liability umbrella than we would have, if we didn't own the properties to protect our assets, if something happened.  Edit:if you go the multi family route in a single family neighborhood, make sure the rentals are legal.  There are a number of properties here that are not legal rentals, single family homes people have added a rental to, and if your neighbor complains, you cannot rent them out.  

[Pom]

What are your plans for property management, maintenance, etc...? Me, I hate being a landlord, but the more hands on you are, the more more "mail box money", you get to keep obviously. There are so many variables with this such as market for your properties, time you have to devote to this, how much cash to have in reserve for vacancies and repairs, etc... it's hard to give advice. Some people do very well and some people hate it with the fire of a thousand suns. We inherited some "rough" properties from FIL and we unfortunately, will be landlords, holding land contracts for sometime. My mom also has land she cash rents to tenant farmers and that is totally the way to go. Her income at 80 is far more than it ever was during my father and her prime earning years. GL. If I were going to get in to land-lording, I'd try to find a mentor to walk through all the pros/cons before taking the plunge.

[farfalla2011]

FIL has about 10 rental homes actually in his retirement account, there's cash held in his IRA that manages all the expenses similar to a trust from my understanding. There are a lot of different rules involved to do it that way though - he has to contract out any maintenance to the homes, can't sell it to family members, can't use family to do any of the maintenance, along with a lot of other stuff I don't fully understand. He started in 2009-2010 and is doing very well.

DH & I have 1 investment home that we plan to hang on to for at least the next 10-15 years mostly due to the appreciation we expect to see and wanting to move out of the area eventually, but without a huge mortgage coming up on retirement age. Both our home and investment property will be close to being paid off by the time we are looking to sell and move.

Also, ditto @rennido about upgrades. It helps tremendously with what you can get for rent and can help with the type of tenants you get.

[LoveTrains]

We have one rental and consider it part of our retirement portfolio. We will be done paying the mortgage at 55 (20 years from now) and it doesn't require a ton of maintenance. It's a condo where we used to live and it's still in good shape with high end finishes etc. it's in a great area for rentals too.

[Cicero]

We have a rental property that we plan to reevaluate when it is paid off in 10 years. We might keep renting it out for a diversified retirement income or we might rent it out long enough to generate the cash to gut and redo it so that it's exactly what we want in a retirement property. Given its location next to a ritzy university I don't see it tanking as a rental regardless of what happens with the market value of the home.

[Marmee]

Feb 13, 2016 9:49:31 GMT -5 Nenibay said:

Does anyone have multiple rental properties as part of their retirement fund. DH is interested in this option as his family friend has been successful with this plan. Any good resources or tips? What do you plan as your liquid vs property ratio?

We do.  We have a rental house, 2 condos & an accessory unit on our primary residence.  When paid off, it'll be (depending on rental market) around $7-9+/K a month in income. We plan to buy several more &/or consolidate & buy a mid-sized apartment building.  Our main goal for our 40s is wealth building as our 30s were spent having 4 kids primarily (& I didn't work but plan to soonish) & DH climbing in his career.  Honestly it's been a very good investment thus far...RE has gotten crazy here & they are all worth double what we paid for them if we sold today.  I property manage myself and have great tenants in the 6-7yrs we've done this.  The location is urban and popular so we can  be picky about tenants & demand nice rents.  I've never had a unit empty except by choice (remodeling).  They'll be paid off around when our children start college as well (10-15yrs).  We have traditional IRAs, 401(k)s, the market (indiv stocks) as well but the bulk of retirement will likely be DH's privately held company stock.  I'd say it'll end up being roughly 50/50.  My H read a lot of books and we sort of have a background in this.  I hired out my initial leasing transaction (a realtor who specialized in rentals) & I hired a RE attorney to check all his documents.  It was like $1000 up front and i've just been reusing it ever since.  Best investment.  Also I hired him (realtor) to do all my background checks (the potential tent paid as an application fee) for the first 5yrs too.  I always say it's the easiest money I've ever made.  The trick is being able to pick out the money making properties and getting banks to give you loans.  The last couple we got through a portfolio loan and will for future properties.

[daisypaloma]

Feb 13, 2016 13:49:35 GMT -5 farfalla2011 said:

FIL has about 10 rental homes actually in his retirement account, there's cash held in his IRA that manages all the expenses similar to a trust from my understanding. There are a lot of different rules involved to do it that way though - he has to contract out any maintenance to the homes, can't sell it to family members, can't use family to do any of the maintenance, along with a lot of other stuff I don't fully understand. He started in 2009-2010 and is doing very well.

DH & I have 1 investment home that we plan to hang on to for at least the next 10-15 years mostly due to the appreciation we expect to see and wanting to move out of the area eventually, but without a huge mortgage coming up on retirement age. Both our home and investment property will be close to being paid off by the time we are looking to sell and move.

Also, ditto @rennido about upgrades. It helps tremendously with what you can get for rent and can help with the type of tenants you get.

Your FIL has a self-directed IRA that's involved in RE investment. It's a great way to avoid taxes especially if you're doing well. Any gain from sales or rent income will not be cashed and will go back to the/his fund, and he can't cash it until retirement.  So if he invested in real estate in the 2009-2010 years, he would have had a lot of appreciated properties.  He can sell them anytime and he does not have to pay for any gain.   But, he can't take the cash out. 

It's like self-directed Roth when/if you buy and sell stocks.  I plan to do that once I have enough to hire an investment company that will likely charge a few % annually. 

[farfalla2011]

Feb 14, 2016 18:07:38 GMT -5 daisypaloma said:

Feb 13, 2016 13:49:35 GMT -5 farfalla2011 said:

FIL has about 10 rental homes actually in his retirement account, there's cash held in his IRA that manages all the expenses similar to a trust from my understanding. There are a lot of different rules involved to do it that way though - he has to contract out any maintenance to the homes, can't sell it to family members, can't use family to do any of the maintenance, along with a lot of other stuff I don't fully understand. He started in 2009-2010 and is doing very well.

DH & I have 1 investment home that we plan to hang on to for at least the next 10-15 years mostly due to the appreciation we expect to see and wanting to move out of the area eventually, but without a huge mortgage coming up on retirement age. Both our home and investment property will be close to being paid off by the time we are looking to sell and move.

Also, ditto @rennido about upgrades. It helps tremendously with what you can get for rent and can help with the type of tenants you get.

Your FIL has a self-directed IRA that's involved in RE investment. It's a great way to avoid taxes especially if you're doing well. Any gain from sales or rent income will not be cashed and will go back to the/his fund, and he can't cash it until retirement.  So if he invested in real estate in the 2009-2010 years, he would have had a lot of appreciated properties.  He can sell them anytime and he does not have to pay for any gain.   But, he can't take the cash out. 

It's like self-directed Roth when/if you buy and sell stocks.  I plan to do that once I have enough to hire an investment company that will likely charge a few % annually. 

That's the word! I couldn't think of it for the life of me the other day. He's actually already retirement age, but isn't ready to cash in yet. He's also in Colorado in the front range where property values are increasing at a ridiculous rate over the past 5 years or so. It's definitely something I'm fascinated with, just don't have the time to really figure out the ins and outs, plus to go that direction, I think we're more at the top of the market again which is also making us hesitate.

It's good to hear someone else knows about this type of retirement investing. It's not something that is very widely known about I feel like.

[jwright]

My parents invested in commercial real estate first as part of tax planning for my dad's business and then as a way to accumulate wealth. Now they have passed a lot of it to my brother and me under various estate tax planning strategies. We have a property management company handle everything from leasing, maintenance and accounting. Right now we invest profits in the market, but when we are ready to cut back on working we will start taking distributions monthly.