Passive Income?

[LFC911]

My wife and I have ~$200k in equity in our home and I'm trying to convince her we need some rental properties in retirement for passive income along with other benefits (i.e. taxes, depreciation, etc...). I'm 57 and she's 61. Her concerns are well be over there all the time fixing stuff and/or get a bad renter. I am pretty handy and if i can't fix something, i have firefighter friends with side hustles that can.

A couple of friends of mine that are self employed have done this for quite a while and have multiple properties and have no regrets.

We haven't had the money until now to even consider it. What are your thoughts/advice on the subject? Anyone in similar positions? Are there any other opportunities you would throw out to consider?

 

[grfox92]

Make sure the debt to income ratio is generous. Hire a reputable property management company who runs background checks to handle everything. Collect the checks.

Or do your own background and financial checks and have a handy man ready on call to handle anything that comes up.

Sent from my SM-S931U using Tapatalk

 

[svivian]

You would be doing something like a HELOC to pull the equity. Make sure you do your research on the market to make sure you're covering your costs while having a healthy margin.

Your rate on the HELOC is going to be around the 6.75-7.25% range plus the additional loan for purchase of the property(if needed). Then add taxes and insurance and youll be tight on your rental income vs rental costs.

Rentals have made a lot sense for me when I upgraded homes. I got the benefit of living in it for 2 years or more, in the event I sold for capital gains purposes, but I also got into the investment at lower cost and a low fixed rate on the mortgage.

People are asking a premium for houses, id be looking for a fixer if you have the time and skills to make it worthwhile.

Just my .02

Edit to add:

For other ideas, ive been looking hard at buying vacant land conveniently located near newer subdivisions, to start some storage. Id buy the lot, fence it, put a ton of road base down and start with trailer, rv and boat storage to start the income. Once the land was paid for, I would look at building actual storage units if the need was great enough to justify the cost. Have an online service to sign up and register. Have automatic payments setup to collect income. And you're spreading out your tenants so that if you lose some you don't lose all of your income until its filled again.

youll have to jump through some hoops to get it zoned commercial, which will also increase your taxes on the property, but I think the potential is alot higher for stable income.

 

[CorbLand]

If you plan to do the work fixing things yourself, it’s not passive income.

 

[iamthenick]

Ive noticed with interest rates and home prices being what they are that this ship has sailed.
You can do it but its not nearly as good as it used to be

 

[LFC911]

If you plan to do the work fixing things yourself, it’s not passive income.

sweat equity lol

 

[AKBC]

There is no way that I would use my home as collateral (or take out a HELOC) for buying rental properties, especially if I had no experience as a landlord.

 

[CorbLand]

sweat equity lol

If that’s what your going for, flipping a house would probably be a better idea.

If you enjoy fixing things and that’s what you want to do in retirement, have at it. Me personally, the only way I would get a rental is if I could hand it off to a management company. Even then, it’s not truly passive, just way less effort.

I would really question if the risk is worth the reward at your age though. Real estate takes time to pay off, and let’s be honest, your on the back side of that game at your age. Whoever you leave it to would probably see the most benefit.

Not saying don’t do it.

 

[Dawg In Montana]

Are you pulling the money for a down payment out of the $200k house equity, or how are you going to pay for it?

 

[Hondo]

Rental property is not what I consider a passive income investment unless it is in the form of something like a REIT ETF.

Consider all the possible things that could go wrong such as maintenance, weather damage, insurance issues, property tax issues, tenant issues, market issues, etc. and the time and money involved before pulling the trigger. All the bad things are unlikely to happen but some are likely to happen.

I've had mixed experiences as have most landlords. These days we have cows instead of tenants. Best wishes to you.

 

[LFC911]

I would really question if the risk is worth the reward at your age though. Real estate takes time to pay off, and let’s be honest, your on the back side of that game at your age. Whoever you leave it to would probably see the most benefit.

Not saying don’t do it.

Legacy is also part of it...my son is 27 and has an IT degree and a good job about to move out of the nest. Another thought is for him to get an FHA loan and live in it for a year, fix it up, rent it out and move onto the next one. Snow ball it that way. We can help him out on the cash flow and then we can avoid the HELOC. Ultimately he's getting it all anyways.

 

[LFC911]

Are you pulling the money for a down payment out of the $200k house equity, or how are you going to pay for it?

Heloc would probably be the option and the rent would need to cover.

 

[LFC911]

I've had mixed experiences as have most landlords. These days we have cows instead of tenants. Best wishes to you.

I have talked to my farming nephews about feeding cattle for me, paying for their services then selling quarters/halves taken to butchers locally but not sure if there is enough margin in there to go that route.

 

[Conrad101st]

Why would you pull equity from a house???

That is simply increasing your debt load under a very uncertain market.

When interest rates were 3.125% maybe, but not now.

But I’m very conservative.

 

[svivian]

I have talked to my farming nephews about feeding cattle for me, paying for their services then selling quarters/halves taken to butchers locally but not sure if there is enough margin in there to go that route.

Cattle prices are at record highs right now, I would not want to get into the cattle game right now.

 

[RockAndSage]

A couple of friends of mine that are self employed have done this for quite a while and have multiple properties and have no regrets.

The housing market is declining, and could very well get slammed in the next year, as we're pretty much at the top of an everything-bubble. I'd personally sit on it until this market correction hits, and between now and then become an absolute master on the subject through research, study, and learning as much as possible from your friends' direct experiences.

 

[IowaNative]

What is stopping you from just investing in S&P500 and just living off the growth?

Or REIT/ High Dividend funds and living off what those pay?

I would never (spelled "NEVER EVER"") put my house as collateral to do something I had never done before.

I totally get the passive income thing, but I have always told myself if anything can be started "truly passive" for under 100k, every private equity group would have their paws in it for any major market.

For what I believe your looking for, look into what skills you have, and can those be freelanced at a time that's convenient for you. It doesn't make sense to be on a timeline for a major project if your retired, but to a small company or group that can wait until you do it on your timeline, they could get a little discount for their wait and you get income when it's convenient for you.

Also, make sure whatever it is to protect yourself via LLC or Corp to ensure you don't capsize the ship you have created the last 40 years.

 

[Hydra6]

Buy dividend paying stocks and get dividends for passive income - you can buy REITs if real estate appeals to you.

 

[Wrench]

Location and politics is important. We sold our rental when the corksucker governor made it illegal to evict for non payment. I was not interested in being on the hook with zero recourse. Looking back, I lost out on at least an extra 100k.....but it was worth it.

 

[LFC911]

What is stopping you from just investing in S&P500 and just living off the growth?

Also, make sure whatever it is to protect yourself via LLC or Corp to ensure you don't capsize the ship you have created the last 40 years.

We are, we have $1.7M in 401k/IRA's, just very little cash and i was just looking for some way to put that equity to work for us. We have good jobs, great credit and rental property seemed like something i could handle in my spare time. Just thinking out loud and open to suggestions.