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Why Do So Few Retirees Own Income Properties?


[Updated: Jun 22, 2020 ] Jun 20, 2020 by Maurie Backman
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Retirement is often regarded as a period when life is cheaper, but that's not always the case. Rising healthcare costs, long-term care, and an endless stream of days to fill can leave seniors spending more money than anticipated. As such, it's imperative that retirees line up multiple income sources to avoid financial hardships.

Surprisingly though, income properties aren't a popular choice in that regard. In a recent survey by the Society of Actuaries, only 3% of retirees say they own or plan to own a rental property that will serve as a major source of income. By contrast, 64% of retirees cite Social Security as a major income source while 16% point to IRAs and 12% think they'll get income from a taxable investment or bank account.

Now the reality is that owning a rental property in retirement -- or at any age, really -- does come with some risk. But should seniors really be shying away from real estate when it's a solid investment for their golden years?

Why retirees may be hesitant to own income properties

Though there's no such thing as a risk-free investment, the risks associated with owning property may be higher than seniors care to bear. For one thing, owning property means having to maintain it and repair it when things break. Even after a home is paid off, upkeep alone could easily cost thousands of dollars a year, and when we throw in property taxes and insurance, it's easy to see why seniors might prefer a basic income-generating portfolio of stocks and bonds instead.

Let's also not gloss over the fact that regular maintenance may be a lot for seniors from a physical standpoint. Even the handiest of people can lose mobility as they age, and with that goes the ability to keep a home in good shape. Outsourcing help is of course an option, but it's an expensive one that can eat away at profits.

Furthermore, there's more liquidity risk with owning a home than there is with amassing a collection of stocks and bonds. Homes are harder to sell, and there's a lot more work involved -- and seniors may not want to make the commitment.

So are seniors smart to largely stay away from income properties? Not necessarily. The reality is that income properties actually offer multiple wealth streams -- they can be sold at a higher price than they're purchased at, they can be used to generate traditional rental income, and they can serve as seasonal rentals, which can be particularly lucrative in the right neck of the woods. Plus, income properties can serve as a hedge against stock market volatility. Seniors who own property can leave their investment accounts and retirement plans alone when values are down if they have steady incoming cash from a tenant.

Of course, there's no right or wrong answer when it comes to using an income property as a notable retirement income source. It's a smart move for some seniors, but it's not for everyone, and that's OK. But it could pay for seniors with the means to purchase property to be open-minded about the idea of owning a rental home. It's a great way to diversify and generate wealth that could make for a very comfortable retirement from start to finish.

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