Mr. & Mrs. Retiree are comfortably retired.
- Their home is paid for.
- They have enough income to cover all their expense with a little left over.
- They have $300,000 cash in savings.
Their goals are
- To do some traveling.
- Leave their two children some inheritance.
- And not outlive their savings.
In theory, they could set aside $50,000 for emergencies and then withdraw 4% a year ($10,000) from their savings and not run out of money.
Problem is the plan may not leave much inheritance for the adult kids.
The Real Estate rent house solution
- They buy three rent houses for $75,000 each, paying cash.
(Or buy two houses for $125,000 each).
- They still have $50,000 to $75,000 in savings as a reserve.
- They rent each house for $750 a month . $9,000 a year.
($1,400 a month if they are $125,000 houses.)
- Professional property management cost 8% to 10% of the rent collected.
- Expenses for Taxes, insurance, repairs and property management come to about $3,700 a year.
- Net cash flow $5,300 (7% return) X 3 houses = $16,000 a year in income.
(The net on two $125,000 house plan is slight different)
Advantage of this plan:
- New income of $16,000 a year. (Spendable for their travel money goal.)
- The houses will increase in value over time and rent increases help keep up with inflation.
- They now have three houses plus their home to pass on to the children. (the inheritance goal)
- They have the travel money while keeping the savings intact in the form of houses and cash.
- A good attorney can set the ownership up to avoid probate.
- Vacancy could lower cash flow return in some years.
- Repairs could lower returns in some years.
- You might have to change management companies if they do a bad job.
- Buy paying cash for the houses they got rid of most of the risk.