As you read this, you likely think one of three things:<\/p>\n\n\n\n
- \n
- I\u2019ve got my retirement accounts, and I\u2019ve followed all of the expert advice for saving. I should be fine\u2026right?<\/li>\n\n\n\n
- I have retirement accounts, but they aren\u2019t growing like I\u2019d hoped. What can I do to supplement them?<\/li>\n\n\n\n
- I keep meaning to plan for retirement, but something always seems to come up, and saving for retirement has yet to go as hoped.<\/li>\n<\/ol>\n\n\n\n
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.<\/p>\n\n\n\n
Overcoming Hesitations About Entering the Real Estate Market<\/h2>\n\n\n\n
So why would you choose real estate investing for your retirement strategy, and why now? <\/p>\n\n\n\n
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. <\/p>\n\n\n\n
It can be overwhelming. How does anyone know when to enter the market, and how do you find a savvy investment?<\/p>\n\n\n\n
The truth of the matter is, do you pay a mortgage or rent?<\/p>\n\n\n\n
If you do, we have news for you. You are already in the real estate game; you are just on the wrong side.<\/p>\n\n\n\n
That’s how basic it is. <\/p>\n\n\n\n
There are more and more people moving to this country every single year. And those people need a place to live.<\/p>\n\n\n\n
And do you know what else? People are living longer.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
More people needing homes while people are living in their homes longer than ever before creates a genuine supply and demand problem. <\/p>\n\n\n\n
![\"\"](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/Artboard-8-1024x538.jpg\")
<\/figure>\n\n\n\nIf 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?! <\/p>\n\n\n\n
There have been some creative solutions. Tiny home communities are sprouting up everywhere. More and more people are building casitas in their backyards \u2013 to the extent that some cities<\/a> are getting involved to protect this affordable housing option.<\/p>\n\n\n\n
Those options are all well and good\u2026 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.<\/p>\n\n\n\n
When to Enter the Real Estate Market<\/h3>\n\n\n\n
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. <\/p>\n\n\n\n
And wages aren’t keeping up with that inflation rate. <\/p>\n\n\n\n
Many have sat on the sidelines waiting for a \u201creal estate\u201d crash only to find that there has been a slow in housing prices, but there hasn\u2019t been a crash.<\/p>\n\n\n\n
And the historical housing price increase trend isn\u2019t going to end now.<\/p>\n\n\n\n
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\u2019s not possible, the next best answer is now. Today.<\/p>\n\n\n\n
There are so many people sitting around waiting for the perfect moment. But hear this and hear it clearly – there is no perfect moment.<\/p>\n\n\n\n
![\"\"](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/Artboard-9-1024x538.jpg\")
<\/figure>\n\n\n\nThe second best moment is now because real estate will go up in value. And even when it doesn\u2019t go up as much or as fast as you want, real estate is a hard asset and that means it always has value.<\/p>\n\n\n\n
If you wait until next year, you will only wish you had bought a year ago.<\/p>\n\n\n\n
But still, you hesitate because mortgage interests are high. Did you know that the average interest rate in 2000 was just over 8%<\/a>? 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. <\/p>\n\n\n\n
Later, we will discuss various funding options, but keep this in mind. You can\u2019t 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.<\/p>\n\n\n\n
Finding the Money<\/h3>\n\n\n\n
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. <\/p>\n\n\n\n
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!<\/p>\n\n\n\n
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?<\/p>\n\n\n\n
The faster way is to use other people’s money (OPM) to get it done. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
No rich relative to borrow from? No problem. <\/p>\n\n\n\n
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<\/em> money to get started, you won\u2019t need as much as you may think.<\/p>\n\n\n\n
Why Retire with Real Estate?<\/h2>\n\n\n\n
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? <\/p>\n\n\n\n
We continue to see extended periods of time where inflation significantly outpaces wage increases<\/a>. And so, saving your way to retirement is not really a valid option. <\/p>\n\n\n\n
Let’s just do a quick calculation<\/a>. Let\u2019s 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\u2019s 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!<\/p>\n\n\n\n
That\u2019s not small change. <\/p>\n\n\n\n
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? <\/p>\n\n\n\n
Inflation will continue. We may experience short-term recessions over the years, but let\u2019s face it: the long-term cost of living trend will not decrease. And if it does, well, that\u2019s a whole other concern. <\/p>\n\n\n\n
So what\u2019s the answer? How can the average person find their way to a comfortable retirement? <\/p>\n\n\n\n
One way is to retire with rental income. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Building a retirement portfolio of rental houses producing passive monthly income is absolutely doable. <\/p>\n\n\n\n
Four Pillars of Real Estate Overview<\/h2>\n\n\n\n
There are four cornerstones of real estate investing. They are:<\/p>\n\n\n\n
- \n
- Wholesaling<\/li>\n\n\n\n
- Fix and Flips<\/li>\n\n\n\n
- Long-term Rentals (Landlording) <\/li>\n\n\n\n
- Short-term rentals (AirBnB or VRBO)<\/li>\n<\/ul>\n\n\n\n
These are the fundamental sources of real estate investment income opportunities.<\/p>\n\n\n\n
The first two, wholesaling and flipping, are great linear income. <\/p>\n\n\n\n
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. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
As people approach retirement, linear income becomes less enticing. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
![\"4](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/vestor-pro-freedom.jpeg\")
<\/figure>\n\n\n\nFor 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<\/a> training. <\/p>\n\n\n\n
Long-Term Rentals Explained<\/h2>\n\n\n\n
Long-term rentals typically generate a passive income between two hundred and five hundred dollars a month.<\/p>\n\n\n\n
It\u2019s not a staggering amount, but remember the ten houses we discussed earlier? Now, the math is getting closer, but there\u2019s still something missing here to make this work.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Read on.<\/p>\n\n\n\n
Purchase the house with other people’s money. <\/h3>\n\n\n\n
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:<\/p>\n\n\n\n
Home Equity Line of Credit (HELOC)<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Personal Loan<\/strong><\/p>\n\n\n\n
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\u2019t be holding onto this loan for long, so don\u2019t worry too much about the interest rate.<\/p>\n\n\n\n
Seller Financing<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Self-Directed IRA or 401(k)<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Hard Money Loans<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Private Money Loans<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
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. <\/p>\n\n\n\n
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. <\/p>\n\n\n\n
Renovate the house to rent. <\/h3>\n\n\n\n
Renovating a rental means simply making it a clean, safe place to live.<\/p>\n\n\n\n
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. <\/p>\n\n\n\n
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\u2019t need the expensive upgrades and fancy features you may personally enjoy; it just needs to be clean, safe, and functional.<\/p>\n\n\n\n
Turn it over to a property management company.<\/h3>\n\n\n\n
Once the house is renovated, turn it over to a property management company. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
A good property management company will screen tenants, write leases, collect rent, schedule repairs, and deal with unfortunate instances when a tenant doesn\u2019t pay and must be evicted. <\/p>\n\n\n\n
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. <\/p>\n\n\n\n
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? <\/p>\n\n\n\n
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:<\/p>\n\n\n\n
- \n
- Do they do background or credit checks on prospective tenants?<\/li>\n\n\n\n
- What happens if a tenant doesn\u2019t pay rent?<\/li>\n\n\n\n
- 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\u2019t 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.)<\/li>\n\n\n\n
- How are repairs handled? <\/li>\n\n\n\n
- Do they do property inspections?<\/li>\n\n\n\n
- 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?<\/li>\n<\/ol>\n\n\n\n
Just like with any step in this process, do your homework. But a good property management company is worth its weight in gold.<\/p>\n\n\n\n
Do a cash-out refi on the property.<\/h3>\n\n\n\n
This step is where you begin to snowball your retirement rental portfolio \u2013 by doing a cash-out refinance. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
You have instant equity in the rental property because you found a motivated seller and made minor repairs. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
This timeline is possible because you aren\u2019t doing a massive renovation! We keep saying this because so many new investors get caught up on this. <\/p>\n\n\n\n
Now, here\u2019s the real money-making part of rental investments. This is how those ten properties are enough to finance your retirement:<\/p>\n\n\n\n
Rental properties are like an IRA\u2026 but better!<\/strong><\/p>\n\n\n\n
![\"\"](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/Artboard-4-1-1024x538.jpg\")
<\/figure>\n\n\n\nEven 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.<\/p>\n\n\n\n
That equity sits there, growing like an IRA.<\/p>\n\n\n\n
But here\u2019s what\u2019s different from a traditional IRA: you never have to put any of your own money in this IRA. <\/p>\n\n\n\n
You are using other people\u2019s money to fund your own retirement! How awesome is that?!<\/p>\n\n\n\n
Short-Term Rentals<\/h2>\n\n\n\n
Now, let\u2019s talk about short-term rentals. <\/p>\n\n\n\n
As we mentioned above, long-term rentals, on average, bring in between two and five hundred dollars a month in cash flow. <\/p>\n\n\n\n
With short-term rentals, you could be looking at a thousand dollars per month in cash flow per house.<\/p>\n\n\n\n
Significantly higher returns!<\/p>\n\n\n\n
And you still have that equity accumulating in the property, effectively functioning like an IRA.<\/p>\n\n\n\n
But, with more gains does come more work. <\/p>\n\n\n\n
With a short-term rental, you will do all the same things as long-term rentals (use other people\u2019s 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.<\/p>\n\n\n\n
Pro-tip:<\/em> Make sure that the quality of your furnishings is commensurate with the rent you hope to charge. For example, don\u2019t 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\u2019t need to shop at Pottery Barn to furnish the house. <\/p>\n\n\n\n
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.<\/p>\n\n\n\n
But here’s the cool thing. Short-term rentals do not need to be in vacation destinations. <\/p>\n\n\n\n
![\"\"](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/Artboard-5-1-1024x538.jpg\")
<\/a><\/figure>\n\n\n\nThey can be, but they don\u2019t 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.<\/p>\n\n\n\n
No one says, let\u2019s go to Omaha for vacation this year! <\/p>\n\n\n\n
But people do go there for holidays and weddings and funerals and to visit family members. <\/p>\n\n\n\n
It is a big misconception that short-term rentals must be in vacation destinations. <\/p>\n\n\n\n
![\"You](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/million-air-bnb-blueprint.jpeg\")
<\/figure>\n\n\n\n![\"Living](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/long-term-rental.jpeg\")
<\/figure>\n\n\n\n![\"Discover](\"https:\/\/homeflippingworkshop.com\/wp-content\/uploads\/2023\/10\/million-air-bnb-blueprint-2.jpeg\")
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