Where is your retirement money? How do you feel about its potential performance over the next 20-40 years? Allow me to make the case for a residential real estate retirement plan. You can buy two condos, one house, or a duplex right now, for around $500,000. With a reasonable down payment, which you may be able to get from your current retirement plan, you could arrange for the properties to be cash flow positive or break even depending on area and property quality. In 30 years, the properties would be free and clear, giving you a huge chunk of equity and a good deal of cash flow.

Let’s look at an example. Take for example a condo for $250,000. A 25% down payment yields a monthly mortgage of $1,064. Add in $260 per month of property taxes and $350 in HOA dues, along with $100 for insurance and various expenses, you have a monthly expense of $1,774. Let’s say it’s reasonable to rent this unit out for $1,750, so you are essentially break even. And, you are paying down $200 per month of principal in the first year. Monthly allocation to principal in a mortgage payment slowly increases over time. Over time, rents go up, your mortgage is fixed and your income goes up.

Fast forward 30 years. Your property is paid off, so you have no mortgage. In today’s dollars, you would be profiting $1,000 per month off of this one property, and you would have $250,000 in equity to fall back on. I think for most of us, thats a much better retirement, or supplement to a retirement than other investments can offer.

2 Comments