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Bankrate's 2008 Retirement Guide
Finding the funds
Sometimes, finding that extra bit of income can turn a retirement nightmare towards a happy ending.
Finding the funds
Rentals rock for retirement income

Some retirees have found the perfect second career: landlord.

At a time when stock investments are uncertain and many homes are not selling, some retirees and near-retirees are keeping their money in rental property and banking on a steady second income.

"Real estate can be a wonderful asset to have in retirement, because when you have tenants, you have money coming in every month and, if you don't have pensions, that's important," says Barbara Pietrowski, a Certified Financial Planner in Roanoke, Va.

Ups and downs of rental properties
Upside Downside
Generates cash flow each month
Income tax advantages
Income rises with inflation
Potential of capital appreciation
Monthly expenses largely stable
Leveraged investment
Fluctuating maintenance expenses
Potential for vacancy
Dealing with problem tenants
Cash flow not guaranteed
Poor liquidity

Just like any other aspect of real estate, the key to being a successful landlord is location, location, location.

A region where there are "a lot of plant closings" is probably not a good place to invest in rental property, says Ron Phipps, broker with Phipps Realty in Warwick, R.I. "If your goal is to generate income, you have to make sure the economics for the area are good," he says.

What you want, ideally, is a place where there's a strong demand for housing. For that reason, some retirees look for rental houses in college towns -- where they find a large pool of well-qualified potential tenants, Phipps says.

Along with the location, you want to look at the home itself. While not every property is ideally suited for producing a rental income, what can be considered a "good" prospect for a rental will change depending on the demand and demographics of the area.

If you've already bought the home and are leasing it successfully, relax. But if you're searching for a potential property and you haven't purchased it yet, a little advance research can make your new job easier.

For the most part, it's simply old-fashioned good sense, Phipps says. "Retirees just need to use the same basic rules of real estate," he says.

But that's only part of the story. Every area has its demographic quirks. In some places an abundance of retirees or college students may cancel out the need for good local public schools. Or a preference for a low-maintenance lifestyle could make small yards or condo-style homes a more popular option.

So start with the demographics. Who lives there, and what properties are renting? What's the vacancy rate for rental properties in the area? Local real estate agents can be a great source of information, Phipps says. And many offices have an agent who specializes in the rental market.

One landlord shops for three-bedroom ranch homes in college towns. "He rents out each bedroom for $500 a month" to students, Phipps says. But the landlord was savvy enough to first check the zoning and make sure it was legal.

-- Posted: Nov. 10, 2008
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