Rental properties are tangible assets from which you can get a passive income. You’ll be able to allow people, even friends, and family, to rent it for their personal use or their business. Whether it’s an office space, a spare bedroom, or an entire house, you’d be able to get monthly income.
The recommendation is that people should plan at least 30 years from their expected retirement age. If they are going for early retirement, let’s say 50 years old, they should have already started building their retirement portfolio by the age of 20.
The portfolio should mainly include your savings and investments; the key to getting stability as you retire would be investments. Rental properties are excellent investments, and having a stable life when retirement comes is every person’s dream.
In this article, we’ll give you the advantages of adding rental property to your retirement portfolio and show you how it would help you earn extra cash and become more stable even when you stop working. Along with the benefits, there are also some things that you should be aware of as it also has some negative sides.
There are tons of reasons and benefits to buy a second home and turn it into an Airbnb and hence adding rental properties to your portfolio, here are some of them:
One advantage of owning a rental property is it can help you earn money. When you retire, it can help you with your living expenses. The process isn’t as technical as owning a company in today’s world.
If you’re considering one, we suggest that you first think of the location. If you are in a good spot where there are plenty of travelers, getting a property that can be put on Airbnb is an excellent side hustle. People can rent accommodation at a nightly rate, especially when they have meetings in your city.
Airbnb has become a companion for the life of many travelers who are looking for short-term rentals. When you buy an Airbnb property, you’ll get the following benefits:
Another way to create income is when you buy a property near universities or city centers. Students would choose a listing nearby than travel hours to get to their schools. The pricing isn’t too strict; you can base it on the length of their stay.
For example, if they are renting for a certain year, you can charge them lower than people who are staying at your Airbnb rentals for the short-term.
Inflation is affecting the world. World economics is tighter than usual, and it affects investments as well, and that could be the same for you. Imagine you purchase a bond that has 3% interest. If the inflation runs at 2%, your return will only be 1% – probably not the one that you are hoping for.
One of the reasons making rental properties the best investments is that you can adjust their prices every year, depending on the market rental trends and other listings. For example, if your tenant is renting an apartment that costs $1000 a month, you can add 2% to every year, giving you a higher annual revenue.
It’s unlikely for rental properties to have price depreciation as it usually keeps up with inflation. When daily commodities get high, rental prices can be adjusted to keep up with them.
ROI for rental properties is actually much better over time.
When investing in stocks, we can only hope for the market to grow. And had to wait for the money to grow, and in case the market goes bad, the only solution is to sell them before losing everything.
One of the most common stocks nowadays is bitcoins. A lot of people bought bitcoins a long time ago and got a good amount; however, not all people were so lucky. Some of them invested later and lost a huge amount. Since they have no control over it, they can only sell their assets.
This is different from investing in Airbnb properties as retirement income as they give more control over returns and risks. Yes, becoming an Airbnb host also has risks. Here are the three main ones, and how to avoid them:
As you see, you can do something when your listing encounters risks, allowing you to have more control.
Another good thing that you can enjoy with having rental properties is the tax deductions. You can deduct almost everything to pay lower property taxes as it’s independent of your personal itemizing of standard deductions.
One of the things to do is deduct cleaning fees and repair costs. Of course, to make your property enticing to Airbnb users, you need to ensure that it’s in great shape. Regular maintenance is one of the keys, especially when your former tenant just left; you need to ensure that it’ll look great to increase potential guests, including a family, and avoid poor reviews. If you don’t have time to clean the accommodation, hire a maid service.
You can also deduct your advertising and insurance costs. Basically, you’ll be able to depreciate reasonable expenses related to owning rental properties or a vacation home.
In case you want to sell the property in the future, use a 1031 exchange to put off taxes and gain more profit from your Airbnb income.
If the investment is assessed to be a rental activity and the income is not regarded as passive, unrelated business taxable income (UBTI) may apply. UBTI is a tax levied on the earnings of tax-exempt organizations, such as nonprofit organizations, from any trade or business that is not directly related to the organization’s exempt purpose. If a person or organization makes money from renting out a house on Airbnb and the activity is regarded as a trade or company and the income is not passive, UBTI may apply.
There are a few things to think about when it comes to the social security implications for retiree Airbnb hosts. First off, any earnings from Airbnb hosting could be counted as earned income and could have an impact on the amount of social security benefits a retiree is able to receive. Furthermore, renting out a portion of a retiree’s primary residence could be viewed as a business activity and have an effect on how social security benefits are determined. Retirees should consult a financial advisor to see how their hosting income may affect their social security benefits.
Generally, real estate appreciates over time. When you buy a property, it will increase its price after a few years. On average, there’s a 7% increase in its value annually; however, there are times that it could go higher. This means aside from getting a good monthly retirement income, this asset will increase its price in the market.
Let me show you how the value increases. If I purchased a property a decade ago for $150,000, the price would be much higher than today. If we use our data over the past decade, that property will cost about $300,000.
For instance, you can buy the property right now and turn it into an Airbnb retirement income. You’ll be able to get profit, yet, that property isn’t losing its value.
If we compare the property to stocks, the difference is too much. In stocks, although there is a chance that the value will increase, there’s still a possibility that it will depreciate. On the other hand, property prices will only get higher, allowing you to get more.
You probably think that putting all your investments in rental properties isn’t for you. However, real estate can help diversify your retirement portfolio.
When the market is down on stocks, investing there wouldn’t be a great idea. You can put in some of your savings but you need to do some research if it’s going to be worth the wait. Putting the money back into the rental investments can generate profit instead of waiting for the stock market to go up.
Since the stock market takes time to get back up, you need something to cover daily expenses and help two ends meet. The rental profit is a great source to reduce monthly living costs and investment plans.
If you’re planning to invest a lot in rental properties, diversify it. For example, instead of buying a property worth $100,000, you can purchase five properties worth $100,000 each but with only $20,000 for the down payment. The remaining cost can be covered by rental property loans.
Having rental properties makes retirement secure and you can enjoy the benefits they are entailed with. However, similar to other assets, they also have disadvantages.
This is probably the biggest downside of owning real estate. You’ll need time and money before you could buy or sell the property.
For instance, you want to buy a property becoming an Airbnb. Before you could start advertising it, you need to ensure that it’s all set, and get five-star reviews.
If you decide to sell the property in the future, you need to process documents and find a good deal. You also have to spend money on a broker and pay the commission.
On the other hand, stocks can be sold right away and often without commissions. You don’t need to wait for a long time for them to become cash.
Rental property isn’t as simple as can be thought. Although it certainly gives a huge return, the process takes a lot of time. You need to find a good deal for a property, arrange all the documents for a property loan, and manage the listing.
Being in the market to search for a property that can be a good rental income can be tough. When you find a potential one, you’ll have to inspect the location, check the structure, and a lot more.
You also need to process paperwork, especially when applying for a property loan. Even if you don’t process a loan, there are still documents you’ll need, such as preparing yourself to become a host, transferring the title, insurance, taxes, etc.
Hosting can be tough for some, so many people choose to hire a property manager to host the accommodation and ensure that all bookings are set. However, the strong recommendation is to have your rental management automated. It’ll save you from paying professional fees as the bookings are managed more efficiently.
Rental properties could sound straightforward where you just need to buy a property listing. I wish it was as simple as that. Before you put your money into a property, you need to understand how it works. You don’t want to be trapped in an investment where you’re losing.
Unlike stocks, you can purchase low-cost index funds, where there is a lower return, but it can give you exposure through the market. This means it’ll be easier for you to make a bigger investment in the future as you understand how the system works.
Keep in mind that if you want the advantages of having a rental property for your retirement, investing time to learn how to do it is a must! After that, you also need to invest the labor to execute the things you learned.
Rental properties are great investments, but they are not enough to give you a balanced portfolio for a retirement income. Still, you could say the same thing for stocks and bonds.
As you plan your retirement, start by setting a target monthly income. Then think of various ways you can have a stream of passive income. For instance, if your target monthly retirement income is $5,000, I recommend getting them from different assets. Let’s say you get $1,500 on rental properties, $1,000 on your bond interests, $1,500 on stocks, and another $1,000 from your Social Security.
Continue your work and put your income into various investments, including rental properties. When it’s time for you to retire, you can start selling your stocks, or make a living from your rental properties as you become one of the senior hosts.
If you do decide to invest in short-term rental property, you will need help managing it. One of the best ways to tackle it is automating daily tasks by utilizing vacation rental software, such as iGMS.
iGMS helps hosts and property managers take their rental businesses to the next level. Harnessing automation functionality, you’ll be able to:
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