The Latest Retirement Strategy: Become A Landlord

With interest rates at historic low levels, an adequate retirement-income stream has become difficult or expensive to secure. Increasingly, baby boomers say they will count on rental income to fill gaps.

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With interest rates at historic lows, creating an adequate retirement income stream has become difficult and expensive. But here’s an interesting development: Increasingly, baby boomers say they will count on rental income to fill a role traditionally reserved for things like fixed annuities and bank CDs, according to a Coldwell Banker Real Estate survey out today.

Nearly nine in 10 Coldwell agents have at least one boomer client who owns or expects to own an investment property, according to the survey. That’s a big number, though it may be a little misleading because we don’t know how many boomer clients each agent has or how many clients expressed this view. Others have estimated that about 6% of working Americans expect to have rental income in retirement.

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Boomers have always loved real estate; they were the first generation en masse to take on extensive and repeated remodeling to reflect their life stages. The recent housing bust notwithstanding, home ownership has also helped this generation build a nest egg.

Now it appears that boomers are set on making housing part of the answer to their income needs in retirement. Is that smart? The same low interest rates that make fixed annuities expensive and bank CDs inadequate also make borrowing to buy a property more affordable. And of course real estate prices have come way down. Here’s what has to say about rental income in retirement:

“If you’re willing to take the plunge, rental properties offer a rare opportunity to generate extra cash in post-work life. Indeed, a well-located unit in a middle-class neighborhood can produce an extra $200 to $1,000 per month after expenses.”

But income property is not right for everyone. A dead-beat tenant can ruin your budget, and there are upkeep expenses, and bookkeeping and tax headaches. Still, Jim Gillespie, CEO of Coldwell Banker Real Estate, says in a statement, “Our survey clearly indicates that those boomers who are financially secure are actively seeking to buy their retirement home, or a second home, and they are taking advantage of the value available in today’s market.”

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Younger boomers (ages 47-55) are far more likely than older boomers (56-64) to be interested in buying a second home. Across the board, boomers have put their housing plans on hold because of the weak economy, the survey shows. But the generation that popularized real estate as an accessory seems determined to also popularize real estate as an annuity.