How Many Rental Properties Do You Need Before Retire?
Everyone wants to retire someday, and they have different ways to achieve that. One of the most popular strategies is buying up properties to rent them later. In other words, becoming a landlord.
Being a landlord is a dream for many people. Perhaps because they think being a landlord is easy or they know exactly what to do to become a good landlord. Whatever the reason is being a landlord can be both easy and difficult. Just like with any other type of investment and job, being a landlord has its own pros and cons.
If you’re planning to retire by taking advantage of your rental properties, you need to plan your strategy carefully. In this article we’re going to talk about rental properties and how many do you need before you can retire.
There is no exact number of rental properties you need
Let’s state the obvious first: there is no exact number of rental properties that you need to own before you can retire comfortably. Every rental property is built differently: age, size, location, and purpose.
But there are general formulas that can help guide you toward your retirement based on your lifestyle and goals. At the same time, this means there is no perfect formula that you can use for your exact scenario.
When it comes to finding ways to retire using your rental properties, take everything as a tip. A tip that might work or not for you. There are simply too many things to consider such as your current location and circumstances, the market situation, demand and supply, and other relevant and important factors.
The general formula
There are many tools that you can find online to figure things out. Each tool or calculator may use a different formula. But when it comes to retiring as a result of rental income, you can use these simple formulas:
- Cash flow = income – Expenses
- The monthly amount you need for retirement ÷ The cash flow from each of your rental property = The number of rental properties you might need in the future
In these formulas, the source of your income will be mainly rent from your tenants. As for the expenses, those can be from vacancy, maintenance, mortgage, interest, taxes, and other important and relevant factors.
Calculating annual retirement expenses
Now, this is important. Before you can retire comfortably, you need to calculate your future expenses after retirement. You can do this by calculating your current spending levels. It can be an estimate of your annual expenses if you’re not sure about the exact numbers.
If you don’t have a budget plan yet, this is the time to start. A budget plan can help you track your weekly, monthly, and yearly expenses and your spending habits. By recording everything, you can simplify the whole process a lot.
You can create a budget plan on Excel spreadsheets, websites that can track your expenses, or apps or pieces of software that can do the same thing. Obviously, you’ll have to learn how to do this. But once you get the hang of it, the whole thing is going to be easy to do. And now we come to the next important question.
How much income do you need per month before you can retire?
Everyone has a different lifestyle. You need to be honest with yourself and ask this question yourself. Because your income may or may not be able to support it.
Location is also very important here, 8 rentals in a big city are going to generate higher income than 8 rentals in a rural area. But the cost of properties and the cost of living are going to be massively different as well.
So to start, you need to figure out:
- How much do you need per month to sustain your lifestyle after retirement
- What your living expenses are
- How much rental income you need to be able to retire
Conclusion
Being able to retire by entirely relying on your rental properties and income isn’t easy. But, if you can take care of all the basics, you can see the road all the way to retirement. Everything has to be well-managed and thought of, and I believe that you can do it.