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Rental Properties to Fund Your Retirement

Updated on August 9, 2010

With real estate prices lower than they have been in years, now is the time to think about purchasing rental properties to fund your retirement.  While most people are content to sock their money away in IRAs and 401(k)s, real estate remains one of the top ways that millionaires have made their money.  Investing in real estate can be extremely profitable if done right, and can give you the income you need when you are ready to retire.

Who Should Invest in Rental Properties?

If you have at least thirty years until you reach retirement age, purchasing rental properties as a retirement plan has the potential to provide a significant income in your golden years.  The reason for this is that most mortgages are thirty years in length.  If you buy a house now and rent it out, by the time you are ready to retire the house will be paid off and most of the rent amount will be profit.  Of course, you still have to set aside some money for repairs out of each rent payment, but the majority of the money can be used to live on when you retire.

How Many Rental Properties Do You Need?

One house will not provide enough income to retire on, though. If you truly want to use your rental income to live on during retirement, you need to build a small portfolio of rental properties. For example, if you charge $400 per month for each house and you have ten houses, you would be bringing in $4000 per month. After setting aside 20% for repairs, you would still be bringing in $3200 per month.

You need to figure out for yourself how much you need to live on, and therefore how many rental properties you need to acquire. Unlike other retirement investments, such as investments in the stock market, you don't really need to worry too much about inflation when figuring out what you need to live on. The reason for this is that rental rates are affected by inflation too. As your living expenses rise, so will the amount you can collect for rent on each home. For most people, ten to fifteen rental units will produce a respectable income during retirement.


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