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Retirement is the golden period of life when you get to enjoy the bunce that you have earned all your life. But the crux is whether your earnings are high enough to meet your expenses?
The changing bank market and the medical trends may not match your hard-earned returns. You may have to pursue better investment options as you cannot compromise on your retirement investments.
Real estate has the best in store for you. With novel strategic approaches like fractional ownership, Real Estate has spread its wings of accessibility to investors with small ticket sizes. You can make real estate as part of retirement portfolio and invest in rental properties to earn a steady passive income. Also, rental properties offer the most when it comes to the retirement portfolio. Investing in a home is more than just a roof over your head as it undeniably provides a sense of security along with the investment corner as a rental property.
What makes Rental Properties a Better Retirement Plan?
Ongoing income no Loss of Assets
With a rental property, you can earn a steady passive income at regular intervals without having to sell the assets, unlike in stocks and bonds. You are backed by a physical asset that generates the rental income.
Rental properties are at the top priority for a retirement portfolio because they produce income holding the property intact. This ensures that you are not exhausted with the funds at any point in time. The property comes to your rescue in emergencies; you can liquidate the asset or go for mortgaging the property.
Predictable Returns Before Investing
When you vest your resources, you need not cross your fingers like that of investing in Stocks. You get to know where your income stands by looking at the existing market trends.
You certainly can estimate the rental income and improve it following specific tactics. You can refer to our blog Top 10 ways to increase your rental property returns for the hacks.
The rental property provides you with room for enhancing the returns, unlike other volatile market instruments like stocks and bonds, where selling them off is the only option if you do not like the returns.
Though the returns from rents vary with the market trends, you can still arrive at a realistic estimate considering the maintenance, repairs, and vacancies. Predictability increases the credibility of the rental asset, which is the prime motive of the retirement portfolio. You do not want the uncertainty in the investment post-retirement, and rental properties have the least to offer you in terms of uncertainties.
Using Rental Income to Leverage your Portfolio
You can consider the rental property loan to expand your portfolio. When you borrow a rental property loan, you leverage tenants’ money to build your portfolio as you repay your loan through the rents. It helps you bag a property without any significant cash flow from your hands.
When you repay your loan through the first property’s rents, the second property on which you have invested generates the income. Once your loan is exhausted, you earn through both the properties skyrocketing your returns.
Expanding your portfolio strengthens your retirement portfolio as your expenses increase with time. You get to balance your expenditure even with no source of active income.
Hedge against Inflation
If you invest in bonds, they generate returns after a specific period called maturity, which reduces in value due to inflation. For instance, you have invested in bonds that create a 3% interest income. If inflation moves to 2%, then the net income would be 1% only.
On the other hand, inflation works for rental property. The cost of living increases due to inflation, making the situation only better for the rental property owner. Rents also pace up with inflation increasing the cash flow into your account, helping you meet your expenses during inflation.
The rental properties work reasonably well to support you during inflation. The increasing prices of the assets and commodities lead to the falling demand. But the rental property is a utility asset as it provides shelter to people. So, rental properties seem to be resilient to any extreme changes in the markets. It is proven by the recent report from Knight Frank, which stated that the rental housing sector remained stable in strategic locations like Bengaluru and Hyderabad despite the obvious challenges posed by the pandemic.
Investing in properties with stable performance lifts your chances of returns that can serve you during your golden period of life – retirement.
Capital Appreciation and Tax Benefits
As it is said, Landlords become rich in their sleep due to capital appreciation. The property appreciates with time, increasing your investment by multiple times without much of your interference in it. During retirement, it helps you deal with any unforeseen situations like medical expenses.
Owning a property comes with a sack of responsibilities like repair, maintenance, and taxes. But you still have a corner to enjoy as the standard deduction from the rental income of 30% is not taxable. You can claim this deduction even if you do not incur any costs. So, you can save this part of the rental income from being taxed.
As an owner, you can deduct the municipal taxes that you pay for the property retaining your rental income from being taxed. It helps you save some amount of money, which proves helpful during the absence of an active income source, especially retirement.
As every coin has two sides, the rental property also has a downside. The dishonest tenants are an obstacle to your regular flow. The repairs and maintenance costs also drain a part of your returns. With the passing time, the property needs renovation, and the maintenance costs increase with time. Nevermind, you can get the disadvantages in your stride as the new Model Tenancy Law framed the rules and regulations to build the owners’ and tenants’ trust making the rental property a better choice for retirement.
The rental property gets to the grip with retirement issues like provisioning steady income at regular intervals, meeting untoward expenses, growth of the investment with time and etcetera. It boosts the retirement portfolio with the advantages discussed above to make the golden period glitter.
Invest right away for your retirement. It is not as strenuous as it was. There are online platforms that work on your behalf and put forth the best deals for you. Assetmonk is an innovative platform for real estate investment with a high IRR of up to 21%. We offer asset management services pre and post-purchase, easing your task. We have three products, Growth, Growth Plus, and Yield, to meet every investor’s demands.
Rental Properties for Retirement FAQ’s:
Is Rental Income a sound Retirement Strategy?
Yes. Rental income is the best retirement strategy. It gives a steady income regularly.
How investing in rental property is beneficial for retirement?
Investing in rental property provides you with a steady passive income, and the capital appreciates with time. It is also a credible investment, unlike volatile stocks.
What are the disadvantages of rental property, and how can they be addressed?
A dishonest tenant who does not pay dues, and the maintenance and repair costs increase with time. These disadvantages can be avoided with proper planning, and hiring a property manager who shall look into the matters reduces your burden.
Are rental properties stable assets?
Though every asset is subjected to market risks, rental properties enjoy the advantages of being the population’s essential utility. Hence, they do not get to the end of the market.
