Key Takeaways
- Rising Trend: 10% of U.S. households with someone 65+ earned rental income in 2022.
- Financial Security: Real estate retirees often feel more secure than stock market investors.
- Challenges Exist: Vacancies, repairs, and rising costs are notable challenges for landlord retirees.
What Happened?
A growing number of retirees are turning to real estate instead of traditional 401(k) plans for their retirement income. According to Boston College’s Center for Retirement Research, 10% of U.S. households with someone aged 65 or older earned rental income in 2022, compared to just 7% of younger households.
This trend highlights a shift towards the perceived stability and tangible nature of real estate investments. Four retirees share their experiences, revealing the benefits and challenges of relying on rental income and property appreciation.
Why It Matters?
Real estate offers a stable income stream and significant tax breaks, making it an attractive option for retirees. Josh Bottfeld from San Diego earns about $20,000 monthly from his 14 units and has an additional $4.8 million in other investments. Sarah McLane from Nantucket and Stowe plans to net $250,000 annually from her rentals, while Bryan Haltermann in Augusta, Ga., enjoys federal and state tax credits for his historic property restorations.
Despite the appeal, real estate comes with challenges like vacancies, tenant issues, and rising costs. David Zach from Sierra Madre, Calif., cautions about the risks, having lost a property to foreclosure.
What’s Next?
Expect more retirees to explore real estate as a retirement strategy, given its potential for steady income and inflation hedging. Watch for trends in property management services as retirees like Bottfeld prefer paying 6-10% of rental income to avoid the hassle of managing properties themselves.
Rising property taxes and insurance costs could impact profitability, making it crucial to maintain low-interest mortgages. As interest rates and property prices rise, some, like Haltermann, might find new acquisitions less appealing. Investors should consider these factors when planning for retirement, weighing the tangible benefits of real estate against its inherent risks.
Retirees can enjoy financial security and lifestyle flexibility with a well-managed property portfolio, but the journey requires careful planning and management.
