“Retire Rich,” that’s what the cover said. I picked up a copy of the magazine and sat down to read. There was all sorts of information on how anyone can reach their retirement goals. It gave special emphasis to the fact that people are living longer, and so their money that they save up needs to last longer. It got me to thinking.
Real estate is quite possibly the best way to make your money last a lifetime. Especially rental real estate that you own outright. The reason is that people will always need a place to live, a place to do business, and a place to stay while traveling. The money you make from rental properties will keep pace with inflation, (if it’s being managed correctly) and indefinitely produce income.
So how much do you need? What should your retirement goal be? Most people pick a total net worth figure to shoot for: $300,000 or $1,000,000 or whatever they think will be enough. That’s fine, but it may be more useful to think about your goal in terms of real estate units. Here’s one way of setting a goal for a real estate retirement.
First, decide what you want per month for the duration of your retirement. $4,000, $9,000, $20,000, or whatever seems good to you.
Second, make a low estimate of what you could net per unit if you owned rental real estate. Lets say apartments go for $500 a month in your area. Lets also say that $100 a month per unit is what you could expect to put aside for taxes, repairs, and other expenses. If that were the case, you’d net $400.
Third, find out how many units you need to make that goal. If you think you could live well in the area you want to live for $4,000 a month, you would only need 10 units.
Fourth, figure in some kind of a buffer. Your properties will not always have 100% occupancy. Add as many units as you think necessary to make your estimate “safe”.
Take that number and write it down. That is your goal. You want X units producing X dollars per month. How much the property is worth doesn’t matter as much as the continuing income it can produce for you.
Review your goal periodically and see if you are getting closer to it, and if it still reflects your retirement desires.
Putting your goals in a different perspective can mean a world of difference in your investment strategy.