Having a comfortable retirement means not having to worry about your income streams, because you’ve got that nailed down.
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While many people rely upon tax-advantaged retirement accounts, savings accounts and other financial products, some experts suggest that one of the best ways to achieve a comfortable retirement may be through rental income.
“Rental income is a way to have a steady stream of income that is not as dependent on market forces [like] some other investments,” said Brian Mollo, CEO and founder of Trusted House Buyers, a real estate investing firm.
“The reality is, people will always need a place to live, so having a rental home or two that you can use to shore up your retirement portfolio provides some stability.”
Mollo and other real estate experts explain some of the ins and outs of setting up rentals to deliver a steady stream of income in your golden years.
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Start Early, Be Disciplined
According to Maria Simonetti, a realtor and the owner of the Simonetti Real Estate Team, rental income could be crucial to a financially secure retirement.
“The answer is discipline and to start as early as possible, as the results compound,” she explained. “I own single-family houses — you can do this with little to no money down — and also have significant ownership in syndications-capital intensive. Both can generate monthly cash flow, appreciation and tax advantages.”
Simonetti has purchased a single-family rental (SFR) with as little as 3.5% down. She added, “These do require some active work. However, with good tenants and a system in place, they require little input.”
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Aspire to Syndications
On the other end of the spectrum, requiring a lot more capital, are syndications, Simonetti said, which generally require a minimum of $50,000 investment.
“There are many companies out there, and the presentations generally look similar,” Simonetti explained. “I’ve chosen mine based on the project and trust in the character of the managers.”
Simonetti actively seeks out silent partnerships with solidly laid out business plans. Some of these provide cash flow monthly, while others are purchased for the appreciation and value add, she explained.
“Both options require knowledge [as] lack of knowledge in systems and people can lead to expensive mistakes,” continued Simonetti. “When done right, they can lead to passive income and a legacy creation and freedom.”
Consider It a Tax Write Off
While owning rental homes comes with some associated costs, Mollo said much of this can be written off on your taxes. Even better, there are ways to mitigate some of the costs, such as DIY property management and refinancing the loan (if you have one on the property).
“The other major benefit is that if you end up in a cash crunch, there are no shortage of potential homebuyers that will purchase the home, giving you a large influx of income,” he explained.
Use Technology To Make Renting Easier
Creating an income stream from rentals is a great way to save for retirement. It’s also easier than ever thanks to advancements in property management technologies, said Ryan Barone, co-founder and CEO at RentRedi.
“Property investors can use an app to manage properties and tenant relations, making it easier to generate a good deal of passive income and even help build generational wealth,” Barone continued.
He explained that property management software and mobile apps can do most or even all of the work for you, automating many processes such as listings, tenant applications and screening, lease signing, rent collection, maintenance coordination and accounting.
“Thanks to these apps, landlords can put their investment properties on autopilot, making it easier to generate a decent amount of rental income for retirement with little effort,” added Barone.
If an aspiring investor is worried about the costs of purchasing a property to generate passive income, Barone noted there are plenty of creative ways to rent out property without investing in or owning extra traditional single-family and multi-family homes.
Try House Hacking
House hacking involves renting out a portion of the home you live in, typically extra bedrooms, Barone explained, though it can also take the form of buying a condo or small apartment building.
“This allows you to begin collecting rent without needing to make an initial investment if you already own a home,” said Barone. “Alternatively, house hacking can help you afford a mortgage if you can’t afford it yourself. Collecting rent from tenants will help you pay down the mortgage and build equity faster.”
Also consider house hacking with a twist, where you can get creative by renting out other parts of your home such as garages, attics, storage or parking spaces. Barone said, “This is helpful if you don’t want to have other people living in your home but don’t mind them storing their things there.”
Try the Built-For-Rent Market
Another rising investment trend Barone suggested is the built-for-rent market, where you purchase a home or a portion of a home from a builder or property investment firm that specifically purchases properties for rental purposes only and handles all aspects of property management, including finding tenants.
“You earn income similar to the way you would earn it from investing in the stock market, except that the return on investment is typically higher and more stable,” he added.
Invest in Multi-Space Rentals
Another option is to invest in multi-space rentals such as salons, storage units, parking lots/garages and even mailboxes, according to Barone.
He said, “These rentals usually generate less income per unit than a house or an apartment, but it’s easier to own more units and the rent collected for each can add up to a nice sum of money each month.”
Whichever approach you take, from the simple to the aggressive, the sooner you start investing in real estate, the more likely you are to have a comfortable stream of income in retirement.
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This article originally appeared on GOBankingRates.com: Could Rental Income Be the Secret to a Comfortable Retirement? Experts Explain