Retirement income: become a landlord in your golden years

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Most people look forward to their retirement years, with this period of life perfect for slowing down and enjoying what life has to offer. Make no mistake though, retirement can also be a stressful time full of financial worries and anxiety. Rather than the security of a regular paycheck, you have to deal with limited pensions, diminishing savings, and depressing household budgets. 

Luckily, there is a way to generate regular income without going back to work.

Becoming a landlord in your golden years is one of the best ways to generate a solid stream of income without back-breaking labor. While there are lots of challenges associated with this path, in many ways, buying and running an investment property seems tailor-made for people of retirement age. You may even be able to rent out your existing property, which is a great option for retirees who are asset rich but income poor.

Whether you're looking to buy a new investment condo or downsize and rent your family home, let's take a look at the pros and cons of becoming a landlord and see whether it's a good option for you.

Landlord trends later in life

Despite the possibility to become a landlord later in life, few older people take advantage of this fantastic opportunity. According to a recent survey of 6,000 landlords in the US, there is a significant gap in ownership rates between age groups when it comes to rental properties. Fewer than 10% of landlords are of retirement age, a number that's much lower than the percentage of property owners.

Seniors are increasingly getting involved with the short-term rental market, however, with Airbnb and other accommodation services providing more opportunities than ever before. According to Airbnb statistics, there has been a massive 107% increase in the number of senior hosts over 60 since 2017. This is the fastest-growing demographic, with over 200,000 senior hosts and over 120,000 senior women hosts currently listed on the website.

This trend is likely to influence long-term rental figures over time, with long-term leases typically involving less profit but also requiring much less work. Renting out a condo or house is ideal for older landlords, with the stability and low maintenance schedule of a long lease often desired over a high-frequency short-term lease.  

Rental trends in the US and Canada

According to a recent study from UCLA’s Anderson School of Management, single-family rental homes in large US cities have generated average returns of 9% since the 1980s. This outstanding rate is similar to stock market returns. While the condo market has performed even better in some cities and time periods, returns are generally less consistent and more dependent on factors such as location and wider market forces.

The entire rental market in the US is worth roughly $2.3 trillion, with 27% of residents currently renting. The huge scope of this market provides a number of fantastic opportunities for older residents who want to get in on the action. While there is a significant difference in returns between American cities and property types, population growth and rising property prices are likely to fuel the rental market for some time.

The situation in Canada is even more advantageous, with condos and apartments seeing tremendous growth. According to Statistics Canada, there have been double-digit increases in rents for 12 of the 24 cities covered. For example, rents for one-bedroom apartments in Toronto jumped 10.2% over the past year to an average of $2,270, with Vancouver rents up 4.5% to $2,080, and Montreal rents jumping 11.1% to $1,500. With many would-be homebuyers currently priced out of the housing market, condos and apartments are likely to see increased rental demand.  

Owner-occupiers vs landlords - challenges and opportunities

If you're thinking about becoming a landlord, it's important to have realistic expectations. While many US and Canadian residents have owned property at some point during their lives, the difference between acting as a resident and a landlord can never be underestimated. While landlords have an opportunity to generate income and secure their financial future, they also have to deal with a number of responsibilities and potential risks.

  • Property residents have the ability to generate capital through long-term appreciation. As an owner-occupier, you pay the mortgage and have somewhere stable to live while your property asset (hopefully) grows in value.

  • Property landlords have the ability to generate capital through long-term appreciation, and also through short-term rental income. As a landlord, you pay the mortgage and receive rental income from tenants while you (normally) pay to live somewhere else.

While the difference between an owner-occupier and a landlord might seem obvious, there are some not-so-obvious implications. While you can make money as a landlord, whether or not it makes financial sense depends on the amount of rental income you generate compared to your mortgage, and the amount of rental income you generate compared to the cost of living elsewhere.  

Retirees who own their property outright are at a significant advantage, with all income generated from rent going towards living costs rather than monthly mortgage payments. However, anyone can benefit from becoming a landlord when certain conditions are met.

Houses vs condos

If you're thinking about becoming a landlord, and don't own a viable property, you will need to decide between buying a condo or buying a house. There are pros and cons associated with each approach, with your city and neighborhood having a significant effect on your decision. 

While single-family homes generally appreciated at a faster rate than condos, this is not the only factor to consider when it comes to the rental market.

Condos are an increasingly popular option in some cities, especially with young people and other demographics who are more likely to rent. While you can always take advantage of this market by purchasing an entire apartment building, most people don't have access to this kind of money. Buying an individual condo and renting it out can prove advantageous. 

Condos are ideal for people who want to appeal to a certain demographic and generate a reliable source of rental income.

  • Many modern condo buildings are located in trendy inner-city locations, which helps to drive demand and increase rental prices. 

  • The addition of amenities also helps to drive demand, with most new condo buildings including multiple amenities that cater to a specific demographic.

  • While condo fees are payable each month, even this can be beneficial for older landlords who don't want to waste time performing maintenance.  

Benefits of becoming a landlord

Becoming a landlord offers numerous financial advantages, both on a short-term and a long-term basis. While this way of life can be stressful and is certainly not for everyone, having the ability to build capital over time while also receiving a rental income can be a fantastic opportunity.

Regular cash flow

Having the ability to generate regular cash flow is the primary reason that people become a landlord. While rental prices and growth rates vary by location, with a little homework, you can get a pretty good idea of which markets are moving and which ones are already oversaturated. 

In many cases, it's ideal to be ahead of the curve and look for properties before they hit the mainstream market. That way, you can go in, make improvements, and then raise rents in accordance with demand. 

Like all business decisions, you need to find your market and give them what they're looking for.

When it comes to the rental market, it's important to look into the local factors that determine rental rates and how they influence desirability, including employment, wages, and infrastructure. While you don't need to accurately forecast the next trendy neighborhood with total certainty, you can get a rough idea of why certain areas are desirable and how these factors are likely to influence your rental income. 

Things that are important to renters include accessibility, local transportation, proximity to universities, and proximity to eating and entertainment venues.  

Long term appreciation

While most people become landlords in order to generate regular income, the end goal of every property transaction is long-term growth. While appreciation has been a long-term feature of the housing market for decades, it's still very easy to make a bad decision. Rental demand and property appreciation often go hand in hand, although there are some situations when you will need to make a choice. 

For example, while buying a run-down unit in an upcoming area may be a good long-term move, you may have trouble finding quality tenants in the meantime.  

While you don't have to be a real estate expert to make money as a property owner, it helps if you have a basic understanding of the economic forces driving the market. Often, it's enough to analyze location-based figures for property growth rates, time on market figures, construction rates, and auction clearance rates. 

By comparing long-term moves with short-term patterns, you can get some pretty good clues as to what is moving and what's staying still. Anything that gives you a rough idea of supply and demand will prove useful, especially when it comes to overheated neighborhoods and the condo market in general.  

Cons of becoming a landlord

Becoming a landlord is not all good news, especially if you don't like hard work. While generating regular income from your own property seems fantastic, and it is, there are costs involved and maintenance to be performed. Finding tenants can also be tricky, as can long-term tenants and financial management.

Finding tenants

Running a successful rental property depends greatly on your ability to attract and keep quality tenants. Finding the ideal tenants for your property is much easier in some markets than it is in others, which is why it's so important to look into location factors and appeal to specific demographic groups. 

Marketing a property and screening tenants can be time-consuming, which is why so many people choose to work with a realtor or property manager.

Even when you find the right tenants, you need to answer to them when something goes wrong, ensure rent payments, and possibly deal with the consequences of evictions and potential legal challenges. Many landlords don't want to deal with these issues themselves and are more than happy to pay a commission to a realtor or tenant management company.

Property management

In order to make a rental property work, you need to look closely at the age and condition of the roof, windows, plumbing, and anything else that can eat into your income stream. You should keep enough funds in reserve to cover surprise repairs and capital expenses and hold two months' rent in reserve to cover turnover costs between tenants. 

Regular property management is one of the main reasons that retirees don't become landlords.

Maintenance costs can be time consuming and expensive, which is why so many people choose to invest in condos. While paying monthly condo fees is not everyone's idea of fun, you can avoid the stress, surprise repair bills, and wasted time that go hand in hand with property maintenance. Along with maintenance, owning a rental property also comes with a number of financial responsibilities. 

Whether it's property taxes, insurance, or condo fees, it's important to balance your books and charge enough rent to cover your expenses.

When it's done right, becoming a landlord can be a lucrative addition to your retirement portfolio. Whether you own a property or you want to buy a condo in an area with high demand, becoming a landlord can be a great way to generate a regular source of income and build equity for the future of your family.