4 Tips for Using Rental Property for Retirement Income

How to use rental property to maximize your retirement income

You can add an extra income stream to your retirement portfolio with rental properties. You can retire sooner than you want to by purchasing a property or two as they will produce enough income to ensure that your retirement is a comfortable one. However, you need to ensure that your rental property has a positive and steady cash flow throughout your retirement.

The one thing you don't want is your rental property draining your retirement resources and causing your headaches. Therefore, we are sharing the four tips for using rental property for retirement income. Here is what you need to know:

1.Understand Your Financing Options

You need to understand that financing options have become stricter ever since the financial crisis. Now, even those with a steady work history and good financial credit can buy properties with a mortgage. However, the lending requirements for properties are stricter, and you need at least 30% or more as a down payment, which doesn't include the closing costs.

The best option for you would be to purchase a home as an owner-occupied property, and before you rent it out, you should live in it for a year. That will allow you to qualify for favorable terms, and you can also use that time to renovate the property.

2.Keep Money in Reserve

If you're a homeowner, you know that property maintenance costs are something you will need to deal with as time passes. Therefore, you must keep some money in reserve before you buy and rent out your property. You will need to account for costs such as a water heater going out or the roof needing repairs. You should have at least six months’ rental expenses kept in reserve, including insurance, maintenance, and taxes. That will ensure you can deal with any emergency easily.

3.Learn About the Tax Implications

You can gain some valuable tax benefits from rental properties. For instance, you can claim depreciation on your rental property, which will reduce your tax burden every year. That way, you can minimize your taxes, but you must remember that you will have to deal with depreciation expenses in the future.

In general, rental properties tend to function at a tax loss, and as a landlord, one of the main benefits you gain is that you can use these losses to deduct from your tax return. You need to meet some requirements, which is why you need to learn about the tax implications.

4.Select the Right Property

When selecting a rental property for retirement income, you need to ensure that you buy the right property. You won't benefit if the property isn't a profitable investment and either attracts bad tenants or is in the wrong school district due to the neighborhood.

When you're shopping for a rental property, you should consult with an experienced realtor who knows the best local rental properties. They will inform you about the best rental rates for properties in any local area and which parts of the town are more favorable for a rental property.