Skip to Content

Retirement Income: Have You Considered a Rental Property?

Retirement Income: Have You Considered a Rental Property?

retirement rental propertyMost Americans find saving for retirement income difficult. Today, the key ways this is done is through Individual Retirement Accounts (IRA’s) and 401K plans. These are great savings vehicles because the money saved is often deducted from your taxable income, and interest accrues without taxation until the funds are withdrawn.

There is an additional retirement income investment opportunity most people never consider: buying a rental property. If one buys the right property and manages it well, it can easily become an additional retirement nest egg. By diversifying investments, one can also mitigate risks from stock market volatility with a more balanced portfolio.

Generally, an investment property such as a three-bedroom single family residence requires a 20% down payment. That’s the biggest hurdle to be overcome – saving for the down payment. (A future post will discuss ways IRA money can be used to buy an investment property.) Over time, a rental property can basically pay for itself using tenant rental payments to cover the mortgage and other costs. At the end of a 30-year mortgage, much of the rental income becomes an annuity to the owner, and the value of the property will have risen dramatically.

However, don’t let the thought of having to put up to 20% down discredit this incredible opportunity. There are things that can help alleviate that coming out of your pocket directly, such as a self directed IRA, alternative financing options, owner carried financing, and quite a bit more! There are a LOT of options when it comes to financing investment properties. The biggest way to avoid something like that, is to invest NOT in a single family home, but in a multifamily complex, even a small triplex or so can help you start off on the right foot with building an investment portfolio! Lending is quite different when it comes to multifamily housing!

For keeping things simple, we will use single family homes as investing examples. Following is an example to demonstrate the point. This example ignores the tax advantages of depreciation and operating cost deductions for the sake of simplicity.

Assume an investor buys a median priced existing home and puts 20% down. The rent for the property would be $1,379 which is the median rent for a 3BR single family residence according to RentRange. Add average maintenance costs, insurance, property management fees and property tax expenses, and this investment would lose just $230 per month for the first year. With rental prices rising, the loss would become a profit in just a few years. (All estimates based on March 2017 online data sources.)


Median existing home price in U.S. (Source: YCharts 1Q17) : $236,400

Down payment @ 20% : $47,280

Monthly median rent for 3BR single family residence (Source: RentRange): $1,379

Monthly mortgage cost @ 5% interest (Source: YCharts ) : $1,015

Monthly maintenance & repairs @ 1% of home value (Source: Zillow) : $197

Insurance (Source: Vale Penguin) : $80

Management fees (Source: RPM estimate of average property management fees): $138

Property taxes (Source: WalletHub): $179

Monthly estimated cost: $1, 609

Monthly net loss/out-of-pocket expense: ($230)


The first year’s annual out-of-pocket expense would be $2,760 , yet the average growth in the value of the house would 3.4% per year ($8,037) according to Case-Schiller data from 1968 – 2009. Over time, rents will increase, so each year the out-of-pocket expense would drop.

When the mortgage is paid off in 30 years, the net monthly retirement income would increase by the mortgage amount of $1,015. Since rental rate growth keeps pace with inflation, the actual monthly income will likely be substantially more.

In addition to the cash flow from the property after 30 years, the property value will increase over time. Assuming an average 3.4% property value increase during the next thirty years, the $236,400 house value will become $477,528. If converted to an annuity with a 2% return above inflation, it would produce $2,500 in monthly retirement income for 30 years.

As this example demonstrates, a rental property investment can basically pay for itself after the initial down payment is made, and becomes a source of on-going retirement income thereafter. Since the actual cash investment was $47,280, the return on invested cash is tenfold. If sold in retirement, the property would yield a payout of nearly half a million dollars.

Not many IRA’s or 401K’s can be expected to deliver that type of return. The main reason is that 80% of the initial property cost is paid by a bank via the mortgage process. The loan funds are being leveraged. Investors receive the full benefit of housing price appreciation, despite only putting 20% down.

As mentioned before, a single family home is a great option – if you choose wisely it can help you ease into multifamily housing units. Imagine, having your entire retirement paid for, early, using multifamily housing complexes? If starting off with a single family home seems to be the best option, make sure you choose one in a market that is increasing, where you can use that equity to leverage lending for a multiplex! One single family home is not enough to help you into retirement early, but it is a great start! However if you are willing to jump right in, explore the world of multifamily housing! Where financing is not dependent upon any market status, but rather income. So regardless of what the real estate market is doing, you can always find a great investment in a multiunit complex!!

The biggest complaints property investors have about rental properties is the time and hassles they can present. By hiring an expert property manager versed in helping you accomplish your goals, these issues are overcome. This type of investment can be as easy and carefree as an IRA or 401K, when you have the right experts and network in your corner!

retirementIf you are looking to find the right investment property or rental unit, give us a call! We can connect you with experts who can specifically find properties that may not even be on the market yet that fit your needs and can help you accomplish your goals!!

We want everyone to have an incredible retirement, and to be able to enjoy that freedom a whole lot earlier. Don’t wait, make sure you contact us right away so we can help make that happen!!


Visit our Video Library and Education Center to find more tips, tools and resources to help you accomplish your goals!


Also find us on Facebook and Twitter!

Related articles:

Is your current Salt Lake City, Utah real estate investment strategy going to get you to your goal.

Stress Management 101 for Salt Lake City Real Estate Investors!

Is Real Property Management Salt Lake City, different than other Property Management companies?

Summer turnover is upon us soon – how long does it take to re-rent your property?

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.

The Neighborly Done Right Promise

The Neighborly Done Right Promise ® delivered by Real Property Management, a proud Neighborly company

When it comes to finding the right property manager for your investment property, you want to know that they stand behind their work and get the job done right – the first time. At Real Property Management we have the expertise, technology, and systems to manage your property the right way. We work hard to optimize your return on investment while preserving your asset and giving you peace of mind. Our highly trained and skilled team works hard so you can be sure your property's management will be Done Right.

Canada excluded. Services performed by independently owned and operated franchises.

See Full Details