Retiring From Rental Properties

Since the recent recession during which a lot of hard workers lost a huge chunk of their 401Ks, many middle-aged couples have turned to rental properties to fund their retirement. Good idea or bad? We’ll know for sure in 25 to 30 years when thousands of rental property owners head toward retirement. There are no experts who can predict what’s going to happen when thousands of rental properties all hit the market at once. It’s an event we’ve never had happen before.

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Whether you’re retiring this year or not for 30 years, the principles remain the same. When it’s time to retire, what do you do with your rental properties? You have few options to choose from. Every person is different, every rental property portfolio is different, and, of course, every decision will be different. We’re not going to suggest which option you choose. You must choose the path you’re going to follow, commit yourself to it, and not look back.

If you own lots of rental properties, your first option would be to hold onto them. Experts call this continued income or recurring income. If your rental properties earn $100,000 per month net, you’re probably not worried about retirement. That check from the property management company every month will be a welcome sight. Since you’re retiring, you probably want to think about creating a will, if you haven’t already done so. The rental properties can be left to your spouse or other family member. The monthly income will continue to roll in even if you’re no longer in the picture. In this case, doing nothing is your best option. Just continue to receive the rental income every month.

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If you’ve acquired a lot of rental properties over the years, it might be difficult selling them all at once. If you live in a fairly small city and own 10 different rental properties, there might not be too many local buyers with the cash you’d want to sell the entire portfolio. It might be a good time to consider offering seller financing. You know your properties better than anyone. You know exactly how much a buyer would earn each month. Make the buyer an offer he or she can’t refuse. If your rental properties are worth $1,000,000 and generate $50,000 per month net profit, you might want to consider offering the buyer a deal requiring a 10% cash down payment plus $40,000 per month payment toward the principal.  That would give you $100,000 cash immediately and $40,000 per month coming in for the next 25 years or so.

The option most middle-aged rental property owners are counting on is the cash out. From the above example, you would receive $1,000,000 from the sale of the properties, whether there were one buyer or 10. You just want the cash value of your properties so you can sail into the sunset of your golden retirement. Cashing out is an incredible dream, but it’s doubtful thousands of rental property owners are all going to be able to unload their portfolios when the current generation decides to retire. It would be the same as thousands of stock owners all trying to sell the same company’s stock at the same time. The price of the stock would drop like a rock, and no one would be able to sell at full price. We could be wrong on this, and let’s hope so. Let’s hope when you get ready to retire and sell off your entire portfolio of rental properties that there are multiple buyers eagerly waiting to snatch them up.


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