The Ultimate Retirement Cash Flow Portfolio
Ultimate Retirement Cash Flow – If you’re relying on Social Security to fund your retirement lifestyle, get ready to man the door at a big box store and still eat and live lean. The average monthly social security benefit is around $1,300, and you simply cannot find a way to fund a normal lifestyle, even if you don’t have rent or a mortgage. Savings and investments are necessary to fund even the most modest of retirement lifestyles.
Even if you are already in the “must save and invest” mindset, there is still the challenge of where to put your savings and how to invest for the best returns without unnecessary risk. Depending on your age, you may be feeling an urgency to get something going that will deliver a livable retirement income. The one and only consistently top-performing asset class to build cash flow for retirement is rental real estate.
The Rental Property Model
As with real estate as a whole, location is a major determinant of the type and price range of a rental home that will consistently rent for positive cash flow. Every market has its own characteristics, tenant demographics, and rental home types and price ranges. However, the basic criteria for the rental property model are that it be in an area with consistent rental demand and not an over-supply of rental units.
The rental home should have appreciation potential, and the investor should be able to purchase a ready-to-rent home for some discount to current market value. This locks in an equity profit at the closing table. It also lowers the amount invested and the mortgage payment if financed. This is important because the next major criteria is that the rental income exceeds the expenses of ownership and management by an acceptable amount of positive monthly cash flow. When a property meets these criteria, it is probably a good rental portfolio purchase.
The Rental Homes Portfolio for Retirement Cash Flow
The IRS allows self-directed retirement accounts to invest in real estate in IRA and 401k accounts. There are retirement custodian firms that specialize in real estate investments, while many of the larger custodial firms do not have self-directed account options.
Leverage is important in building a rental real estate portfolio for retirement cash flow. Using 20% down payment mortgages, the investor can control five times their cash investment in real estate value. As mortgage payments are made, and as it appreciates in value over time, the equity reaches a point where it can be used to fund the down payment to buy another rental property. This should be conservatively managed leverage, and other resources for more property purchases are preferred.
The investor who owns multiple moderate value rental homes can build a portfolio in ten to twenty years that will fund a very fine retirement lifestyle. Owning ten homes with $400/month in positive cash flow each provides $4,000/month in cash flow. You could do the same with a 5% return on $960,000 in other investments. However, you lose some very good tax advantages, and you are creating that $48,000/year with only 20% invested in those homes. If you’ve been buying homes at $200,000 each, your $40,000 down payment on each results in cash invested of only $400,000 for those ten homes.
Ultimate Retirement Cash Flow -There is not a better way to build up a retirement cash flow than rental real estate. Between the safer leverage than other investments and the tax advantages, there is not a better way to fund the retirement lifestyle you want.