Thoughts of retirement continually cross your mind.
Maybe it’s just around the corner, or maybe you are just entering the working world and are feeling bombarded and overwhelmed with information on investing for retirement and setting up IRAs and 401(k)s.
In a previous article, we discussed retiring early with real estate. This article aims to narrow our focus and discuss retiring with rental income.
As you read this, you likely think one of three things:
- I’ve got my retirement accounts, and I’ve followed all of the expert advice for saving. I should be fine…right?
- I have retirement accounts, but they aren’t growing like I’d hoped. What can I do to supplement them?
- I keep meaning to plan for retirement, but something always seems to come up, and saving for retirement has yet to go as hoped.
Well, you have come to the right place. No matter where you find yourself, you can retire with rental properties, and now is the perfect time to start.
Overcoming Hesitations About Entering the Real Estate Market
So why would you choose real estate investing for your retirement strategy, and why now?
You see it all over the news, and you see people that are doing it. And if you’re online, there are articles, reels, shorts, and ads galore all about real estate investing.
It can be overwhelming. How does anyone know when to enter the market, and how do you find a savvy investment?
The truth of the matter is, do you pay a mortgage or rent?
If you do, we have news for you. You are already in the real estate game; you are just on the wrong side.
That’s how basic it is.
There are more and more people moving to this country every single year. And those people need a place to live.
And do you know what else? People are living longer.
That means they’re not downsizing and selling their homes to new families as quickly as they used to. They are living in them and enjoying them longer than ever before.
More people needing homes while people are living in their homes longer than ever before creates a genuine supply and demand problem.
If you have followed real estate prices over the last few years, you may have wondered how the next generation will afford to buy a house. How does someone buy an entry-level house for over a quarter million dollars?!
There have been some creative solutions. Tiny home communities are sprouting up everywhere. More and more people are building casitas in their backyards – to the extent that some cities are getting involved to protect this affordable housing option.
Those options are all well and good… until you want to raise a family in your home. Then the desire for a little more space and a few more bedrooms will grow fast.
When to Enter the Real Estate Market
It is a true economic phenomenon that’s happening right now. Historically, housing prices double every ten years, but in some cases, they have doubled in just a few years.
And wages aren’t keeping up with that inflation rate.
Many have sat on the sidelines waiting for a “real estate” crash only to find that there has been a slow in housing prices, but there hasn’t been a crash.
And the historical housing price increase trend isn’t going to end now.
So, when is the best time to get into real estate? During a recession? After a recession? Nope. The correct answer is ten years ago. But as that’s not possible, the next best answer is now. Today.
There are so many people sitting around waiting for the perfect moment. But hear this and hear it clearly – there is no perfect moment.
The second best moment is now because real estate will go up in value. And even when it doesn’t go up as much or as fast as you want, real estate is a hard asset and that means it always has value.
If you wait until next year, you will only wish you had bought a year ago.
But still, you hesitate because mortgage interests are high. Did you know that the average interest rate in 2000 was just over 8%? Back in the early 1980s, rates were closing in on 20%! The last few years have warped our perspective on interest rates, but the truth is that rates go up and rates go down. They always will.
Later, we will discuss various funding options, but keep this in mind. You can’t go back and pay a lower price for a house, but you can go back and refinance your house when interest rates drop. So take the lower cost of the home now and then refinance your interest rate later.
Finding the Money
The traditional way to finance real estate is to save twenty percent for a down payment on a piece of property. But that’s the long way to get wealthy.
You are completely limited by your ability to save money. Maybe you can buy a house every year if you are in a really financially strong place. For many, it might look more like a house every two or three years or more!
If you purchase a house for $175,000, a twenty percent down payment is $35,000! And then you need money for closing costs and then funds to renovate the property. How can anyone find their way to retiring with rental property income with this method?
The faster way is to use other people’s money (OPM) to get it done.
When you use your own money, you immediately limit your growth, or maybe it stops before it ever even starts. When you use other people’s money, your growth is unlimited.
No rich relative to borrow from? No problem.
We will go into detail later in the article on just how to do this. But keep reading and know that while you need some money to get started, you won’t need as much as you may think.
Why Retire with Real Estate?
If you’re not thinking about retirement, you should be because it comes around for everyone. And it comes a lot faster than you expect. Many of us have wished we could slow time, but since that is a futile wish, the question is, how do we do more with the time we have?
We continue to see extended periods of time where inflation significantly outpaces wage increases. And so, saving your way to retirement is not really a valid option.
Let’s just do a quick calculation. Let’s figure that you need to retire on ten thousand dollars a month; how much do you need to save to achieve that monthly income? That will depend on the interest rate and how many years you expect to live past retirement, and that takes some guessing, but let’s say you are able to earn 5% interest, and you would like to plan for 30 years. You will need to save 1.9 million dollars!
That’s not small change.
Now ask yourself, is that even going to be enough? With current inflation trends, could you live on ten thousand dollars a month in ten or twenty years?
Inflation will continue. We may experience short-term recessions over the years, but let’s face it: the long-term cost of living trend will not decrease. And if it does, well, that’s a whole other concern.
So what’s the answer? How can the average person find their way to a comfortable retirement?
One way is to retire with rental income.
You can buy two houses every year for five years. Just two. Not fifty a year, not even twenty. Nope. A total of ten houses.
Building a retirement portfolio of rental houses producing passive monthly income is absolutely doable.
Four Pillars of Real Estate Overview
There are four cornerstones of real estate investing. They are:
- Fix and Flips
- Long-term Rentals (Landlording)
- Short-term rentals (AirBnB or VRBO)
These are the fundamental sources of real estate investment income opportunities.
The first two, wholesaling and flipping, are great linear income.
What’s linear income? Linear income means you do it once, and you get paid, and if you do it right, you get paid well, but you have to keep doing it repeatedly to get paid.
You might hit it big on your first fix and flip and make a profit of $100,000. Jackpot! But that $100,000 is far from the $1.9 million you need to retire comfortably.
As people approach retirement, linear income becomes less enticing.
But passive income, the income that you invest time and energy into upfront and then mostly sit back and collect a small, steady profit each month, is the type of income that allows you to retire with real estate income.
For the remainder of this article, we will focus on the last two pillars, but you can learn more about all four pillars in our comprehensive Freedom4 training.
Long-Term Rentals Explained
Long-term rentals typically generate a passive income between two hundred and five hundred dollars a month.
It’s not a staggering amount, but remember the ten houses we discussed earlier? Now, the math is getting closer, but there’s still something missing here to make this work.
If you purchase the traditional way, with your own money, it can be hard to make the math make sense. But there is a trick and a process to building your rental retirement income portfolio.
Purchase the house with other people’s money.
When it comes to building your portfolio of rentals for generating retirement income, considering alternative funding sources to purchase rental properties is a savvy and necessary move. Here are some creative avenues that allow you to leverage other people’s money to embark on your real estate journey:
Home Equity Line of Credit (HELOC)
If you own your current residence and have accrued equity, a HELOC may be an excellent avenue for you. A HELOC lets you access a line of credit based on the equity in your home. You can draw from it as needed to finance retirement rental property purchases. This provides flexibility and control over your investments, as you only pay interest on the amount you use.
If you have a good credit score, you may qualify for a personal loan to finance a rental property. While the interest rates may be higher than mortgage rates, personal loans offer speed and simplicity, making them an option worth exploring for smaller investment properties. You won’t be holding onto this loan for long, so don’t worry too much about the interest rate.
In some cases, motivated sellers (the sellers you are looking for to get a good deal) may be willing to finance the purchase of their property directly. This can eliminate the need for traditional mortgage lenders and provide room for negotiation on terms, making it an attractive option for both parties.
Self-Directed IRA or 401(k)
This one seems to be a well-kept secret, but everyone should know about it. If you have a self-directed IRA, it allows you to use your retirement funds to buy and manage rental properties. Even better, if an employer matches your retirement contribution when you leave their employment, transfer your retirement to a self-directed account. You effectively use your employer’s money to fund rental properties to grow your retirement account further. It’s a tax-efficient way to grow your retirement income through real estate investments.
Hard Money Loans
Hard money loans are typically short-term loans secured by the property you’re purchasing. They’re often used when you need quick financing; however, they come with higher interest rates and fees. These are a great option, but you will want to renovate and rent quickly to get out from under this loan.
Private Money Loans
These loans involve borrowing from individuals or private investors, often in exchange for a share of the rental income, profits, or a flat finance fee. They can provide more flexible terms and faster approval than traditional lenders.
Leveraging other people’s money to invest in rental properties is a powerful strategy to create passive income for retirement. By exploring these alternative funding sources, you can take significant steps toward building a profitable real estate portfolio much more quickly than using your own money.
Be sure to conduct thorough research and seek professional financial advice when considering these options to ensure they align with your financial goals and risk tolerance.
Renovate the house to rent.
Renovating a rental means simply making it a clean, safe place to live.
We will go into more specific detail on what renovating a rental property entails later in this article, but when purchasing and renovating a rental, you have to remember…this is not the house that you are going to live in.
This can be difficult for some individuals, but you have to mentally separate what you would look for and do in your own home from what needs to be done to make the house a profitable rental. It doesn’t need the expensive upgrades and fancy features you may personally enjoy; it just needs to be clean, safe, and functional.
Turn it over to a property management company.
Once the house is renovated, turn it over to a property management company.
It can be tempting to want to save the management fees and handle it on your own, but remember you are building a portfolio of ten houses, not one.
A good property management company will screen tenants, write leases, collect rent, schedule repairs, and deal with unfortunate instances when a tenant doesn’t pay and must be evicted.
Let the property management company handle the day-to-day operations of your rental so you can concentrate on finding and renovating the next property to add to your retirement rental portfolio.
And once you are retired, do you really want to deal with tenant issues daily? Or would you rather collect the income, build the equity, and let someone else deal with the work?
Be sure to do your research to find a property management company with positive reviews from both landlords and tenants. Different companies will have varying fee structures, so find the one that works best for you. Ask questions such as:
- Do they do background or credit checks on prospective tenants?
- What happens if a tenant doesn’t pay rent?
- When can you expect to receive your rent payment each month? (Pro tip: Just because the tenant pays on the 1st of the month doesn’t mean you will see the money that day. It takes time for the payment to be cleared and sent to you by the management company.)
- How are repairs handled?
- Do they do property inspections?
- If the tenant wants to buy the property in the future, does the management company have the right to act as a real estate agent?
Just like with any step in this process, do your homework. But a good property management company is worth its weight in gold.
Do a cash-out refi on the property.
This step is where you begin to snowball your retirement rental portfolio – by doing a cash-out refinance.
Once you have a tenant in place in your rental, go to a local bank, do a cash-out refinance on your leased rental, and pay back your investor.
What is a cash-out refi? It is a type of mortgage refinance that takes advantage of the equity in your property and gives you cash in exchange for taking on a larger mortgage. In other words, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.
You have instant equity in the rental property because you found a motivated seller and made minor repairs.
Remember, you used other people’s money to finance the original purchase. Now, pay back your original investor, eliminating any short-term high-interest rates, and use the remainder of your funds to find your next rental property.
The cash cycle time for a long-term rental investment is about two to three months. This means you’re going to use other people’s money to purchase your rental property, and by the time you renovate it and get a leased tenant in place, it should be about two or three months.
This timeline is possible because you aren’t doing a massive renovation! We keep saying this because so many new investors get caught up on this.
Now, here’s the real money-making part of rental investments. This is how those ten properties are enough to finance your retirement:
Rental properties are like an IRA… but better!
Even though you did a cash-out refi, you will continue to build equity in your rental property. (Remember, property values typically double every ten years.) And every time you make a mortgage payment, a payment which your tenant funds, that equity grows.
That equity sits there, growing like an IRA.
But here’s what’s different from a traditional IRA: you never have to put any of your own money in this IRA.
You are using other people’s money to fund your own retirement! How awesome is that?!
Now, let’s talk about short-term rentals.
As we mentioned above, long-term rentals, on average, bring in between two and five hundred dollars a month in cash flow.
With short-term rentals, you could be looking at a thousand dollars per month in cash flow per house.
Significantly higher returns!
And you still have that equity accumulating in the property, effectively functioning like an IRA.
But, with more gains does come more work.
With a short-term rental, you will do all the same things as long-term rentals (use other people’s money, renovate, use a property management company, and do a cash-out refi). But, with the short-term rental, you will need to furnish the house and list it on Airbnb and VRBO.
Pro-tip: Make sure that the quality of your furnishings is commensurate with the rent you hope to charge. For example, don’t expect to rent a house for $1,000 per night and go to Walmart to buy all your furnishings. On the other hand, if you have a less expensive rental, you don’t need to shop at Pottery Barn to furnish the house.
With a short-term rental, once the house is listed, guests begin to book reservations. Then the income starts coming in. There is a little more management because cleaning needs to be done between each booking, vacation rental guests tend to have more needs and requests than long-term tenants, and there may be additional maintenance needs for wear and tear.
But here’s the cool thing. Short-term rentals do not need to be in vacation destinations.
They can be, but they don’t have to be. So, while places like Los Angeles or Miami are great short-term rental locations, you may be surprised how much traction a short-term rental in a place like Omaha can get.
No one says, let’s go to Omaha for vacation this year!
But people do go there for holidays and weddings and funerals and to visit family members.
It is a big misconception that short-term rentals must be in vacation destinations.
There’s quite a bit more that goes into short-term rental properties than this article will cover. If short-term rentals for retirement income is an area you are eager to learn more about, you will love our Millionaire Airbnb course.
Finance and Tax Benefits
As mentioned earlier, it’s important to think of short-term and long-term rentals as a way to grow your IRA tax deferred. Remember, when you buy rental properties, you will have equity in the house, and that equity will grow.
But there are a few other financial aspects of your portfolio of retirement rental properties that you will want to keep in mind.
Cash flow is the lifeblood of any successful rental property investment, and understanding this financial concept is crucial for anyone looking to retire with rental income.
In basic terms, cash flow is the difference between the money you receive from a rental property and the expenses to maintain and operate it.
In terms of rental properties, cash flow can swing in two directions: positive or negative.
Positive Cash Flow
This is the golden standard that property investors aim for. When your rental property generates more income than the total of its operating expenses—mortgage, property management fees, maintenance costs, and the like—you’re in the realm of positive cash flow. This surplus serves as the passive income that allows investors to retire with rental properties.
Negative Cash Flow
On the flip side, negative cash flow occurs when your property’s expenses outweigh the rental income. This situation is not uncommon, especially for newer investors who may still be paying off a mortgage or dealing with unexpected repairs. While negative cash flow may seem concerning at first glance, it’s not necessarily a deal-breaker. If the property has strong appreciation potential or if you expect the market to shift in your favor, negative cash flow in the short term might be tolerable. Be sure to seek professional input before hanging on to a property with negative cash flow.
Calculating cash flow involves a simple arithmetic equation: subtract your total monthly expenses from the rental income.
Positive cash flow can provide financial stability and retirement freedom while allowing you to weather unexpected costs or even expand your real estate portfolio.
On the other hand, negative cash flow demands careful consideration and a strategic approach. It may prompt you to reevaluate your rental rates, seek cost-cutting measures, or explore ways to enhance the property’s value.
Ultimately, mastering the ebb and flow of cash in your rental property requires a keen eye for detail, financial wisdom, and a long-term perspective. Seek advice and coaching from seasoned investors. Learn from their experience, saving you from potentially highly costly mistakes.
Positive or negative, cash flow is a shifting metric that can impact your retirement journey. Keep a close eye on the numbers, adjust your strategy as needed, and let the principles of cash flow guide you toward a profitable and sustainable real estate investment portfolio.
Appreciation is the true asset in rental properties. Simply put, appreciation refers to the increase in the value of your rental property over time, your equity. Think of it as the slow but steady growth in the worth of your investment, much like how you expect your 401(k) to grow. While it may not always happen overnight, property appreciation is the key driver of long-term financial success in the world of buy-and-hold real estate.
There are two primary types of property appreciation: market appreciation and forced appreciation.
Market appreciation occurs when the overall real estate market in your area experiences an increase in property values. This is often influenced by factors like economic growth, population growth, and the desirability of the location. This appreciation predictably happens over time without any effort on the part of the property owner.
Forced appreciation, on the other hand, is within your control as a real estate investor. It involves making strategic improvements to the property, such as renovations and upgrades. These intentional actions can boost the property’s value and accelerate your return on investment. This is how fix and flips can be incredibly lucrative.
As you navigate the world of rental properties, appreciation can be a powerful ally in building a secure retirement.
One of the often-overlooked perks of investing in rental properties is the tax benefit tied to depreciation. Depreciation is like a magic wand for real estate investors, allowing them to deduct the cost of the property over its “useful life,” even though it may be appreciating in value. In simpler terms, it’s like getting a tax break for the wear and tear that occurs over time. This depreciation deduction can be a significant boost to your bottom line, helping you offset rental income and potentially reduce your overall tax liability. Win-win!
Here’s how it works: Suppose you buy a rental property for $200,000, and the IRS assigns a useful life of 27.5 years for residential rental property. You can then deduct a portion of the property’s cost each year as a depreciation expense on your tax return. This annual depreciation deduction can create a scenario where, on paper, you show a loss (thanks to depreciation) even if your property is generating positive cash flow. This paper loss can be used to offset other income, like your salary, potentially reducing the amount of income you are taxed on each year. It’s a legitimate and legal way to leverage the tax code to your advantage as a real estate investor, making your investment journey a bit more tax-friendly.
Debt reduction is a crucial consideration in the world of rental properties, whether you’re engaging in short-term or long-term rentals. Effectively managing your debt is key to turning your property into a lucrative asset. By paying down your mortgage or any loans associated with the property, you not only build equity but also decrease the liabilities on your rental property. This reduction in debt not only increases your property’s profitability over time but also allows for the opportunity to use that equity to finance another rental property purchase, exponentially increasing your retirement rental portfolio.
By focusing on debt reduction in both short-term and long-term rental scenarios, you’re not just managing your financial obligations; you’re actively shaping a path toward greater financial stability in retirement and building the opportunity for generational wealth, blessing your next generation.
How to Find, Fund, and Fix Rental Properties
We’ve covered why retiring with rental properties is a desirable goal, but how do you get started building your retirement rental portfolio so that you can retire on your terms with financial stability?
Or, if you have already started, how do you scale your retirement rental income to meet your financial requirements?
So, let’s dive into how to find, fund, and fix rental properties.
How are real estate investors buying houses low and selling high? How do you find those elusive “off-market” deals?
Number one – you won’t find them where most people look.
There is so much competition on the open market (using a realtor and looking on the MLS) that finding a good deal is nearly impossible.
But, there are highly motivated sellers in the off-market – people who need to sell but don’t want to deal with the hassle of a traditional listing. They aren’t interested in top-dollar, but they are motivated to sell the house and sell it quickly.
A motivated seller usually falls into one more more categories of the 10 D’s.
Any one of these will cause someone to have a piece of property they want or need to sell, and often, they must sell it quickly.
And the more of these categories they fall into, the faster they will need to sell.
So, your job as a savvy investor is to get creative and figure out how to reach these people before anyone else does. There are a number of ways to do that.
If you want to learn more about how to find off-market deals, consider attending the Home Flipping Workshop, where seasoned investors Glenn and Amber Schworm share all of the avenues that have worked for them and the invaluable tips and tricks they have learned over the years.
Once you find that sought-after off-market deal, you have to be able to fund it.
Earlier, we discussed the concept of using other people’s money to fund your rental property purchases. This doesn’t mean you don’t need to bring any money to the table; you will certainly need to bring some. But you don’t need to bring the traditional twenty percent down for a conventional bank loan.
There are at least fourteen different ways to fund your project, but we will touch on two financing options that you may not think about when figuring out how to finance your first rental property. (Once you’ve done your first, the cash-out refi becomes your strongest avenue to fund the next property.)
Private lending is simply borrowing money from family or friends. People you know who have extra funds in the bank or equity in their home, who know your character, trust you to repay them and would like to collect some interest on their money.
Depending on the person, they may be open to carrying a longer-term loan or want to be repaid quickly. Still, they have the means to loan you the money until a tenant is in place, allowing an easier path to bank financing and that all-important cash-out refi.
Cross-collateralization is a strategic financing technique that can be a game-changer for aspiring real estate investors looking to retire with rental income.
In simple terms, this method involves using the equity in one property, say your primary residence, to secure a loan for the purchase of another. Suppose you own a home with substantial equity and want to generate rental income for retirement. Instead of taking out a traditional mortgage or loan, you can leverage the equity in your existing property as collateral for the new loan.
The beauty of cross-collateralization lies in its ability to unlock opportunities that might otherwise be out of reach.
However, it is crucial to approach cross-collateralization with caution, understanding the potential risks (if you purchase a losing property, you are putting your current home at risk) and ensuring that the investment strategy aligns with your financial goals.
But, with careful planning and a clear understanding of the terms, cross-collateralization can be a powerful tool for entering the rental real estate market.
Fixing A Long Term Rental
The repairs and upgrades needed in a long-term rental property versus a short-term rental vastly differ, so we will address each separately.
First, let’s dive into the needed repairs for long-term rental properties, where tenants will be asked to sign 12 – 24-month leases.
We mentioned that the repairs needed to get your property ready to rent will be basic. The house needs to be safe, and it needs to be clean, but it doesn’t have to be fancy.
You can’t look at this as a house you would want to live in, but you don’t want to be a slum lord, either. Ask yourself, is it clean, and is it safe?
Is it safe?
Ensuring rental tenants’ safety and quality of living is paramount when preparing a property for occupancy. Here are several crucial areas that must be addressed before welcoming renters:
Electrical and Plumbing Issues
Before renting out a property, it’s imperative to conduct a thorough inspection of its electrical and plumbing systems. Look for issues like exposed wires, malfunctioning outlets, or leaky pipes. Any electrical problems pose safety hazards, and plumbing issues can lead to water damage and inconvenience for tenants. Addressing these concerns proactively not only ensures the safety of your tenants but also helps maintain the property’s integrity.
The condition of the roof is a critical factor in a rental property’s maintenance. Check for signs of wear and tear, missing shingles, or potential leaks. Addressing any roof issues promptly is essential to prevent water damage to the interior and to create a safe, dry living environment for tenants.
Broken or damaged windows not only compromise the security of the property but also affect its energy efficiency. Ensure that all windows are in good condition and can be securely locked. Replacing broken panes or weatherstripping can improve the property’s insulation, making it more comfortable and energy-efficient for tenants.
Heating and Cooling Systems
Proper heating and cooling are essential for tenant comfort and, in some areas with extreme temperatures, for health and safety. Verify that the heating and cooling systems are in good working order. Clean or replace air filters, and consider a professional inspection and servicing if necessary. A well-maintained HVAC system ensures a comfortable living environment year-round and reduces the risk of unexpected breakdowns.
Doors and Locks
Broken doors or faulty locks can compromise the security of the property. Inspect all entry doors and ensure they close and lock securely. Replacing or repairing any damaged doors and locks not only enhances safety but also provides peace of mind to tenants.
In addition to the major areas mentioned above, it’s essential to address other potential safety concerns. This includes checking for mold or mildew, especially in areas prone to moisture accumulation, like bathrooms. Install smoke and carbon monoxide detectors and ensure they are in working condition. Conduct a thorough pest inspection and take preventative measures if needed. Finally, ensure that all staircases, handrails, and walkways are in good repair to prevent accidents.
By addressing these key areas, property owners can create a safe and comfortable rental home for tenants while also maintaining the property’s value and minimizing future maintenance costs. Prioritizing these repairs and improvements is not only responsible but also a sound investment in the long-term success of a rental property.
Is it clean?
To transform a rental property into a space that feels fresh and clean without breaking the bank, there are several essential repairs and improvements to consider before listing your property for rent. A good property management company will likely recommend these same items. They may offer to take care of these repairs for you, but you can save money by tackling them yourself or by hiring your contractors.
A fresh coat of paint is one of the most effective ways to breathe new life into a rental property. Opt for neutral, light colors like soft grays, beige, or pale blues that can make the space feel brighter and more inviting. Painting the walls not only covers up scuffs and stains but also imparts a sense of cleanliness and freshness that’s appealing to potential tenants.
Generally, use flat paint on ceilings, eggshell or satin on walls, and sem-gloss on trim and doors.
Fixing Broken Fixtures
Repair any broken fixtures promptly. This includes leaky faucets, loose cabinet handles, replacing missing or cracked switch covers, and wobbly towel racks. These minor fixes might seem insignificant, but they can significantly improve the overall impression of the property and ensure that everything works smoothly.
Fixing Worn or Broken Flooring
Worn or damaged flooring can detract from the property’s appeal. Consider replacing worn-out carpets with easy-to-maintain laminate or vinyl flooring. These options are cost-effective and provide a clean, updated look that’s durable and attractive to renters.
If the kitchen cabinets are showing signs of wear and tear, a fresh coat of paint can work wonders. Stick to neutral tones like white, cream, or a light gray to brighten up the space. This can make the kitchen feel cleaner and more modern without the need for a complete renovation. The increase in rental value may offset the cost of this improvement.
Swapping out old, outdated hardware in the kitchen and bathroom can give these areas a subtle but impactful facelift. Choose modern, brushed nickel, matte black, or chrome hardware for a clean, contemporary look that won’t break the budget.
You will be amazed at how much visual impact new doorknobs and hinges will have on a space.
Addressing Lingering Odors
Lingering odors from previous smokers or pets can be a major turn-off for potential tenants. Start by thoroughly cleaning and deodorizing the property. Use odor-neutralizing products and consider repainting the walls to seal in any residual smells. Proper ventilation is also crucial in eliminating odors and maintaining a fresh atmosphere.
If you encounter especially tough-to-remove odors, renting an ozone generator and running it in the vacant space for a few days can help kill any living bacteria that may be causing odors.
If pet urine has penetrated the concrete or sub-floors, they will need to be treated with special enzyme chemicals to neutralize odors.
The exterior of the rental property is the first thing prospective tenants see. Simple improvements like trimming overgrown bushes, adding a fresh layer of mulch, and planting some inexpensive but attractive flowers can greatly enhance curb appeal.
Old screen doors should be removed or replaced. Any peeling paint should be scraped and repainted. While you are at it, you may consider adding a fresh coat of paint to the front door.
A well-maintained exterior creates a positive first impression and sets the stage for a clean and inviting living space.
Adding Expensive Flooring
While damaged or stained flooring or carpet emitting offensive odors should be replaced, if the flooring is clean or easily cleaned, it is generally not a financially savvy move to replace the flooring. Flooring that is a little outdated and not exactly what you would choose for your own home is perfectly acceptable for rental properties.
Rent a steam cleaner from your local home improvement store and give the carpet new life.
You can also rent machines to scrub tile or buff wood. Even hiring a professional to clean carpet or tile will save you significantly over replacing the flooring.
If the flooring is beyond saving, replace only the areas that must be replaced. It is not necessary to have consistent flooring throughout the entire house.
This is one area we recommend hiring a professional who can correctly install budget-friendly flooring in much less time than it takes an amateur.
Some property management companies will recommend that rentals not include any appliances. However, in a competitive market, including basic appliances can entice prospective renters. The caution with this is that if the appliance breaks, it will be your responsibility to have it quickly repaired or replaced.
If you choose to include appliances in your rental there is no need to go fancy or high-end. They only need to be clean and functional. Appliances to consider for your rental are a refrigerator, oven, dishwasher, washer, and dryer.
Appliances like microwave ovens and televisions tend to break more often and are easy for renters to purchase on their own.
Major Bathroom and Kitchen Updates.
Remodeling a kitchen or bathroom in a primary residence is a worthwhile investment, but in a rental property, it usually doesn’t give you a return on your investment.
Fixing broken cabinets, replacing leaky faucets, or replacing a stained toilet are worthwhile upgrades. You may also consider recoating a stained bathtub. It is much more affordable than replacing the tub itself but will present a clean space to prospective renters.
Laminate countertops may not be “in vogue,” but if they are clean, not chipped or stained, there is no reason to replace them unless your rental property is in a higher-end area that requires that level of amenity.
At the risk of being repetitive, when evaluating the kitchen and bathrooms in your new rental property, ask yourself if it is clean and safe, not is it beautiful and on-trend.
While broken or damaged windows must be replaced, upgrading functional windows purely for aesthetics or energy efficiency will not have a positive return on investment for a rental property.
Windows that are clean, free of cracks, and that easily open meet all of the requirements of a rental property.
Investing In Desired, But Not Standard, Features
Having a swimming pool in Phoenix or a fireplace in Montana is a strong way to attract homebuyers, but they’re not worth installing in a property you only plan to rent out. These amenities can also increase your maintenance and liability costs. If your rental does not have these extras, there is no reason to add them.
If your property has a pool, ensure all city code safety requirements are met, such as self-closing doors and raised door handles and latches.
Fixing A Short-Term Rental
Like a long-term rental, a short-term rental should be clean and safe, but depending on the clientele you are hoping to attract and the daily rent you are hoping to draw, you may need to invest a bit more into the upgrades to create a vacation oasis that beckons to travelers seeking an escape from their daily lives.
When preparing a house for short-term rentals on platforms like Airbnb or VRBO, certain essential repairs go beyond aesthetics; they are crucial for ensuring your guests’ comfort, safety, and satisfaction. Here are the key areas that must be addressed:
Start by focusing on the exterior of the property. When guests first arrive on the property, you don’t want them concerned that they are checking into the Bates Motel.
Repair any damaged or deteriorating siding, paint, or stucco. Ensure that the roof is in good condition without leaks or missing shingles. A well-maintained exterior enhances curb appeal and prevents potential water damage that could disrupt your guests’ stay.
The first impression of your property should be welcoming and relaxing, beckoning your guests to step onto the property and leaving all of their worries behind.
The condition of the flooring is paramount for short-term rentals. Address any worn-out carpets, damaged tiles, or creaky floorboards (unless you really are going for that Bates Motel theme).
Stained or worn carpet will keep guests from relaxing and feeling at home away from home and will likely lead to less-than-stellar reviews.
Replacing or refinishing the flooring not only improves the visual appeal but also contributes to a cleaner and more comfortable living environment for your guests.
Kitchen and Appliances
A well-equipped kitchen is a big draw for short-term rental guests. While some guests will prefer to eat out while on vacation, many renters choose a vacation rental home over a hotel room expressly for the purpose of being able to prepare their meals while on vacation. Many guests love to vacation and let their inner gourmet chef out.
Check that all appliances are in good working order and supply the kitchen with dishes, basic utensils, cookware, and dishware. A clean and organized kitchen, complete with thoughtful touches like coffee makers, blenders, and toaster ovens, can greatly enhance your guests’ stay. Don’t forget the bottle opener and the corkscrew to further enhance the vacation vibe of the house.
Bathrooms should be clean, functional, and up-to-date. Repair or replace any damaged fixtures, such as toilets, sinks, or showers. Consider installing a modern showerhead and updating fixtures for a spa-like experience. Upgrading bathroom amenities like lighting, mirrors, and vanities can significantly enhance the guest experience.
Ensure your bathrooms are not only sparkling clean but also well-stocked with essentials like towels, toiletries, and a hairdryer.
Furniture and Furnishings
Comfortable and functional furnishings are key to a positive guest experience. Invest in quality mattresses and pillows, and ensure all furniture is clean, comfortable, and in good repair. Consider the layout to maximize space and flow and provide ample storage options for your guests.
Windows and Doors
Windows and doors should be in perfect condition. Windows and doors that don’t open appropriately can be safety hazards, and squeaky doors are not conducive to a good night’s sleep. Repair any broken or malfunctioning windows and ensure they seal properly to prevent drafts and noise. Install secure locks on all entry doors to enhance safety and security.
Beyond the major areas, perform general maintenance tasks such as patching up holes or cracks in the walls, ceilings, and floors. Check for any plumbing issues like leaks or dripping faucets, which can lead to water damage. Ensure all electrical outlets and switches are functional and safe. Ensure all smoke at CO2 detectors are installed with fresh batteries. Regular maintenance tasks like these help prevent unexpected issues during your guests’ stay and demonstrate your commitment to their comfort.
By addressing these essential repairs and furnishings, you’ll create a welcoming and comfortable environment for your short-term rental guests. Not only will this boost your property’s appeal and garner positive reviews, but it will also help ensure the longevity and success of your rental venture by maintaining a high standard of quality and satisfaction for all guests.
When it comes to turning your short-term rental property into a delightful, sought-after haven, a touch of aesthetic magic can go a long way. Here are some whimsical yet practical upgrades that can enhance the charm and profitability of your rental space:
Theme It Out
Spruce up your rental with a dash of local charm. Consider investing in furniture pieces that reflect a unique style – beachy, southwestern, mountain lodge, or southern charm.
Does your location attract golfers? Employ a golf theme.
Near a downtown party scene? Theme it out for bachelorette parties.
Near a ski resort? You get the idea.
These playful touches can turn your rental into a memorable experience, attracting guests looking for a little extra personality in their stay.
IMAGE: Themed Airbnb
Statement Wall Art
Elevate your rental’s ambiance with eye-catching art pieces that tell a story. Whether it’s an abstract painting, a gallery wall of local art, or vibrant tapestries, well-placed artwork can transform a room and provide a talking point for your guests. A visually stimulating space is more likely to be shared on social media, garnering you some free publicity.
Cozy Outdoor Spaces
Don’t forget the outdoor areas! Create inviting outdoor spaces with cozy seating, cafe or fairy lights, and potted plants.
While an outdoor kitchen isn’t always necessary, a clean and functional grill will be enjoyed by many guests looking to unwind by throwing some steaks on the grill.
A charming patio or garden area can be a serene retreat for guests, boosting your property’s appeal, especially during the warmer seasons.
During the cooler seasons, guests will love an outdoor fire pit where they can enjoy a glass of wine or even roast some s’mores! There’s just something about dancing flames that erase worries and relax the soul.
Let there be light, but let it be dazzling! Unique lighting fixtures, like quirky pendant lamps or elegant chandeliers, can add a touch of whimsy to any room. Consider smart lighting options that allow guests to adjust the ambiance to suit their mood, from cozy, warm hues to vibrant, energetic tones.
Make life easier for your guests with tech-savvy upgrades. Smart thermostats, keyless entry systems, and entertainment hubs with streaming services can enhance the convenience and comfort of their stay. Plus, the “wow” factor of these tech amenities can lead to positive reviews and repeat bookings. One word of caution: ensure your tech-savvy upgrades are also user-friendly for the technically challenged guests. Making lights or TVs too hard to access will lead to frustrated calls from guests and not-so-positive reviews.
Remember, while these playful upgrades can be a worthwhile investment, it’s essential to strike a balance between whimsy and functionality. Keep your target audience in mind and ensure that these aesthetic enhancements don’t compromise the overall comfort and usability of your short-term rental property. With a sprinkle of creativity and a pinch of panache, you can create an unforgettable experience that keeps your guests coming back for more.
Hire It Out vs. Do It Yourself
When considering the repairs and renovations to your new property for your retirement rental portfolio, it can be overwhelming to decide which projects to take on yourself and which to hire out.
On the one hand, it can save a lot of money to do it on your own, but many of us have started a painting project thinking, “How hard can it be to paint a few walls?”. But after taping and priming, then painting the trim and cutting in the corners, you have the back-breaking work of painting the ceilings. Ugh.
What is the balance between saving the money and the time it will take you to do it yourself? If you are a handyman or woman who loves hands-on work, many improvements can be made yourself. If changing a lightbulb is the extent of your skills, you may want to contract most of the work. This varies for everyone, so evaluate your skills and needs and make the best call for you.
There are certain areas in which we strongly recommend using a licensed contractor.
Repairs that have anything to do with roofing, plumbing, electrical, or HVAC should always be done by a licensed contractor, as it will add a layer of liability protection should anything go wrong.
Dare to Dream
If retirement seems elusive, whether it is 40 years down the road or 10, retiring with rental income may be the solution you have been searching for.
While it certainly takes some ingenuity, effort, and probably some sweat equity, if you are willing to put in the work, the sweet reward of retiring with rental income is within your reach.
Engaging the advice of experts who have learned the ups and downs of real estate investing and can help you avoid common pitfalls will help ensure a path to retirement years blessed with financial freedom.
The 3-day Home Flipping Workshop is a small investment that will connect you with experienced professionals and extra knowledge and understanding to ensure your real-estate endeavors lead to success.
So don’t be afraid to dream and dream big. Then, take action to watch those dreams become your reality.