Here’s The Impact Of Rental Income On Your Retirement (Case Study)

[@Growing-Our-Retirement]

It’s a pretty complex question. If you sell a piece of property you take a huge hit. Subtract some fix up costs, 6% real estate commission, 20% capital gains tax on the gain and any depreciation. Then take off the mortgage payoff if any. What you have left might be 30-50% less asset value. Then reinvest that in the stock market. If you have good property that is cash flowing the middle ground might be to hire a manager. They really do almost all the work and you don’t need to be on alert 24/7. They also then to be more aggressive raising rents and keeping up on maintenance. Real estate is a great diversification tool as well. Rents and property values then to go up over time. This is a big help for people looking at 20-40 years in retirement. The assumption that the stock market will go up 8% per year on average may in fact not happen. Good video. The reason I don’t use an advisor is they don’t typically understand real estate or the self employed business owner. Much more complicated!

[@andreww2319]

I retired just before turning 54 from international banking - I am 61 now. I now have 7 duplexes or triplexes in a small city in northern Wisconsin. I have owned SFH and small apartment buildings. My rentals pay plus an annuity pay all my living expenses. I self manage, can repair and rehab if needed and have been through the learning curve. Mostly the rest of my investments are through IRA's in equities. I have some leverage on the RE portfolio that costs me 3.5% however the total portfolio appreciation has been 12% p.a. over the past 5 years. (This is outside of the cash on cash return that I withdraw). I qualify for Real Estate Professional filing status. My capital gains can be rolled via 1031's and ultimately basis will be stepped up to my heirs. (All my holdings are in a revocable living trust). I travel extensively and spend winters in Texas. If done correctly RE is a very dynamic way to strengthen a retirement portfolio.

[@GotGracexxxxx]

1. When calculating return from real estate, on top of cash flow and appreciation, don’t forget depreciation and tenant mortgage payoff. 2. You don’t have to space out real estate sales, if you are reinvesting with a 1031 exchange. 3. There are classes of real estate that don’t deal with the three T’s (tenants, termites, toilets). There’s triple-net commercial, self-storage; RE syndications with a GP component. (You can also hire property management.) 4. Death basis step up is generational wealth that makes capital gains tax and depreciation recapture disappear.

[@gtman4588]

One other componnent to consider in the "Hassle" column of real estate ownership is the unknown with insurance coverage/premiums especially in California. Just this year, insurance premiums for properties that I own went up 2-3 times (not percent). This uncertainty is likely to continue for the next several years and does have a significant inpact on profits, especially when you are only able to raise rents annully by 4-6 percent (which does nothing to meaningfully address the 2-3 times insurance costs).

[@palebiss1646]

Consider this if you're wondering why I would take money out of my retirement to purchase real estate: My 401(k) has produced an average annual return of 4.2% over the last 20 years, while my IRA has created an average return of 3.49%. When everything is taken into account, my possible return on real estate investment is very different from my retirement funds.

[@FreemanJameZ]

The crazy thing is that with all of those savings thanks to my consultant ( *Leah* *Foster* *Alderman* ) I could literally buy a property every year, lower my tax situation even more, and keep earning more money-but it's also possible that it could put me in a position where I can make millions of dollars in the future. I can tell you right now that it works for me. I have 13 houses that are actually making me $65,000 more a year.

[@palebiss1646]

You will benefit tax-wise from your investment in the nation's infrastructure because your income is increasing and the majority of people are not in your situation at the moment. I looked into your adviser and found that they have a great deal of experience.

[@CoreyLloydo]

A multimillionaire essentially puts himself in your position through your certified coach, saying, "Hey, if I were you, I wanted to increase my income but I also wanted to lower my taxes."

[@whatthefud]

Just had to tear off and replace 2 roofs. Have 10 properties. This makes me question the hassle component. It also wiped out 2 years of profits from these properties. Ugh. However, they have appreciated well over time so when we sell is when we’ll enjoy for retirement

[@Coast_to_Coast]

Yes! Rentals! So powerful!

[@markb8515]

Thanks Ari for another very informative video!

[@jaycox1836]

Opportunities for additional content: 1. Total Return was mentioned, but not that appreciation is taxed at capital gains rates, versus rental income is "ordinary" 2. Use of depreciation to reduce the amount of rental income that is taxable 3. If I use depreciation to reduce tax on rental income, does that reduce MAGI and thus IRMAA How does depreciation impact its tax efficiency versus other income sources?

[@jaycox1836]

And I'll 1031 into other properties to keep the depreciation train going

[@7SideWays]

ROH is real. Hassles can be limited investing time into the learning curve RE requires, but even after retiting 2 decades 'early', still have some scars.

[@ducheau100]

You say the stock market is volatile, yes but rental income is also very volatile. Wait to you get hit with a big expenses like I have, or even small repairs add up. Stuff goes wrong all the time. At least with the stock market you have the freedom to move around. I find there is more risk with tenants.

[@nandojuace]

Start early with diversified investments in stocks, bonds, and real estate. Maximize contributions to tax-advantaged accounts like 401(k)s and IRAs. Regularly review and adjust your strategy to ensure security...

[@ManNomad]

For my plan B when I retire at 63 next year I have about 800k in home equity. If I sell the house, what do I do to avoid huge capital gains? Should I purchase rental properties as well as downsize? What other options?

[@BestG2024]

How do you pull money from the portfolio at 55 without penalties? Or is that figured in?

[@Jupe367]

I think if you plan to retire, having a rental income can be an advantage but the headache of dealing with maintenance and securing the longevity of a renter can be a hassle Unless the rental property is new and no maintenance is needed. Ari, how long is the waiting list? .

[@Coast_to_Coast]

Do you have an advisor that specializes in people who want to retire early with real estate?

[@liveandretireusa]

While I don't have a specific advisor to recommend, I can provide you with some general advice and resources that can help you in your goal to retire early with real estate investments. ### Steps to Retire Early with Real Estate 1. **Educate Yourself**: Gain a solid understanding of real estate investment. Books like "Rich Dad Poor Dad" by Robert Kiyosaki and "The Millionaire Real Estate Investor" by Gary Keller are great starting points. 2. **Set Clear Goals**: Define your financial goals and retirement age. Calculate how much passive income you'll need to cover your expenses and live comfortably. 3. **Create a Budget and Save**: Start by saving a significant portion of your income. This will serve as the initial capital for your real estate investments. 4. **Research Markets**: Identify real estate markets with strong growth potential. Look for areas with job growth, population growth, and other economic indicators. 5. **Build a Team**: Surround yourself with professionals, including a real estate agent, mortgage broker, real estate attorney, and property manager. 6. **Start Small**: Begin with single-family homes or small multi-family properties. These are generally easier to manage and finance. 7. **Financing**: Explore different financing options. Consider leveraging your investments by taking out mortgages, but be mindful of the risks involved. 8. **Cash Flow Analysis**: Always perform thorough cash flow analysis before purchasing a property. Ensure that the rental income will cover all expenses and provide a profit. 9. **Diversify**: Don't put all your eggs in one basket. Diversify your real estate investments across different property types and locations. 10. **Scale Up**: As you gain experience and confidence, gradually scale up your investments. Consider larger multi-family properties, commercial real estate, or even real estate development. ### Useful Resources - **BiggerPockets**: A popular online community and resource hub for real estate investors. They offer forums, podcasts, blogs, and educational materials. - **Local Real Estate Investment Clubs**: Joining a local club can provide networking opportunities and access to experienced investors. - **Financial Advisors**: Look for financial advisors who specialize in real estate investments. They can provide personalized advice based on your financial situation and goals. ### Inspirational Story Consider the story of Chad Carson, a real estate investor who retired in his 30s by building a portfolio of rental properties. He emphasizes the importance of starting small, staying persistent, and continuously educating yourself. His journey is detailed in his book "Retire Early with Real Estate." If you need more specific guidance or have particular questions, feel free to ask!

[@MidlifeCrisisManagement]

this is a good summary of rental income pros & cons, Ari. prefer to invest in selectively chosen REITs in a Roth IRA instead. rentals can be the absolute biggest pain-in-the-a$$ investments. between the expenses, tax complications, and all of the tenant challenges, the stress and risks aren't for me. REIT dividend snowballing and price appreciation into tax-free retirement income with near-zero stress is priceless.

[@7SideWays]

ROH is real. Hassles can be limited investing time into the learning curve RE requires, but even after retiting 2 decades 'early', still have some scars.