How Many Rental Properties To Retire?

Have you ever asked how many rental properties to retire from? One of the best ways of earning passive income is through investing in real estate, but if this is done right, this can also act as a steady cash flow that can be bequeathed to your loved ones after you pass away.

How Many Rental Properties To Retire?

In the case of rental properties, investing in rental real estate for retirement means that you earn income from the properties, but you won’t need to pay for the expenses, as your tenants pay these instead. 

his begs the question, how many rental properties does one need to retire comfortably?

The answer isn’t straightforward for everybody, as everyone has a different picture of what their retirement will look like (Find out the stages of retirement here). 

Even so, we’ll cover the answer in this article, including things like how much passive income you should aim to earn, things to consider when obtaining passive earnings through rental real estate, and any potential expenses that you need to bear in mind. 

It’s Not A Straightforward Subject

You can estimate how many rental properties you might need to retire with several formulas, but these will vary with everyone depending on your aims and lifestyle.

There isn’t any single formula that can work out how many rental properties you might need, as well as the ideal portfolio you will need to retire with. 

Bear in mind that all of the advice given below needs to be considered alongside your present living situation, current market, where you live, and other significant factors.

Despite this, you can still estimate and get a rough idea of how many rental properties you should aim to own.

After you have worked this out, you can begin your journey and work at achieving your retirement objectives. 

The Calculations

To figure out how much rental income you’ll need to retire with, you will need to carry out calculations.

These formulas are:

  • Monthly total required for retirement ÷ cash flow for each rental property = how many rental properties that are required
  • Cash flow = Revenue – Expenses

In this case, your revenue source will mostly be from the rent that your tenants pay. Expenses are your mortgage, taxes, interest, home maintenance, and several other elements.

For example, say that once you retire, you will need to earn $9000 every month to maintain your present lifestyle. 

You then buy some rental properties, then work out that your average cash flow for each rental property is $500.

To work out how many properties you need to retire, you would divide $9000 by $500. 

$9,000 ÷ $500 = 18 assets

You will need to buy 18 properties to be on target for your retirement goals. However, you need to take other expenses into account along with this, like surprise events and renovations.

18 properties are also a lot to deal with, so landlord insurance would be another wise expense! 

Figuring Out Yearly Retirement Costs

To begin working out what your yearly retirement expenses might be is to look at your present spending situation.

Some of us have a rough idea of our yearly costs but aren’t sure about what the accurate amount is. 

You can track your spending habits through spreadsheets like Microsoft Excel or Google Sheets.

Various apps and websites are also available that can make this easier. 

Tracking your expenses can be a tricky process to start, but with practice, this will become easier over time.

You’ll also see how tracking your expenses helps give you a better picture of your financial situation, helping you make smarter financial goals and decisions as a result. 

Monthly Income Needed To Maintain A Lifestyle

Remember that different locations will produce different amounts of rental income. The cost of living and the price of properties also varies with each state.

How Many Rental Properties To Retire?

There isn’t going to be a single amount of rentals that you will need to retire with, so you will need to create a plan that’s tailored to your circumstances. 

You will need to work out the following:

  • Your living expenses
  • Monthly amount you will need to maintain these expenses, including savings
  • Rental income required to achieve this

After you’ve worked out how much money you need to earn every month, you can backpedal from this point to work out the number of rental properties needed to achieve this. 

Adapting Present Expenses For Retirement

Once you’ve worked out what your current spending habits are, you can start adapting these to work towards your retirement goals.

You will need to factor in inflation when doing this, as well as make allowances for earning cuts or extra expenses that you may incur. What might you spend money on before and while in retirement?

This stage is most likely the hardest part of this procedure, as you have to try and foresee what your financial status might be in the future, predicting as best as you can.

Make sure that you consider any possible expenses linked with the following:

  • Work(commute, etc.)
  • Holidays
  • Healthcare bills
  • Monthly food costs
  • Insurance
  • Cars and other vehicles
  • Leisure and hobbies

There might be other changes that you may not have control over, including:

  • Interest rate changes (increasing mortgage costs)
  • Tax rate changes
  • Surprise events

These will make it even harder to calculate an estimate. Despite this, do attempt to make on with the information that you can gather, including the factors that you can control.

Remember to give yourself some wiggle room, though this will depend on your final total. 

Which Rental Properties Should You Purchase

Now you need to think about the rentals that you might like to invest in. The following factors are important:

  • Property type
  • Location
  • Price
  • Rental earnings

It’s best to invest in rentals that have the greatest return. Compare the rental rates and expenses of properties within the US, then work out where the most profitable location is. 

When you work out your rental income, instead of using the present rate, use the yearly average rent rate of estates with comparable values.

This is because the rate might be affected by other factors like changing demand and the season. 

The Bottom Line

Keep in mind that the numbers calculated with the formulas above won’t be completely accurate.

Your retirement expenses might be more or less than expected, market conditions can change, or your calculated returns might vary. 

Despite this, the advice above can act as a good starting point to help you with your retirement goals.

At the very least, you will know the least amount of rental properties you might need to retire comfortably, so you will know what to aim for.

Andre Flowers
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