Even though I’m contributing money to an IRA on a monthly basis, and even investing in some dividend stocks in my individual investing account, I’ve always felt like real estate could be a better investment option for retirement income.

The idea started with a family member who’s doing just that: relying on a portfolio of rental properties and one small business for retirement income. This relative also has plenty of money in savings but hardly anything in the stock market.

He’s quickly approaching retirement age now and he doesn’t have a financial care in the world because he doesn’t have to think about where his income will come from. He’s already set for a comfortable life and I want that for my own retirement too.

Does it make sense to heavily rely on rental properties for retirement income?

A Portfolio of Rental Properties for Retirement

Houses are cheap to buy where I live. You can easily purchase rental properties for $80,000 – $100,000 where I live that easily rent out for $800 – $1,200 a month. And that’s just what my relative has done.

Over the past few decades he’s amassed six rental properties that rent for an average of $900 each month. These homes are now all paid off, so the only expense he has to cover are property taxes, insurance, maintenance and repairs, and of course the occasional vacant month.

As a conservative estimate, let’s say he brings in $500 per month per property after expenses. That’s $3,000 per month in rental income from investments he made years ago. The total purchase prices of these houses are collectively $360,000.

Even if he didn’t want to manage these rental properties for the rest of his life, he could hire a management company for 10% of the rent received. It will still netting him a good profit and he could live anywhere in the world. Or, he could sell the rentals whenever he feels like he could fetch a good price and reinvest the proceeds in something else, or cash out.

Either way he’s making out pretty good when it comes to securing himself income during retirement.

Is Relying Solely on Rental Properties a Good Strategy?

I know the common advice is to not put all of your eggs in one basket – and I agree. But isn’t spreading out your risk through several rental properties meeting this rule? You’re still putting money in the same type of investment (real estate property), but you’re spreading out the risk of not having income from one property alone.

Sure, there are things that can go seriously wrong with rental properties, like a horrible tenant, vacancies, leaky roofs, and a myriad of other problems. But there are also plenty of things that go wrong with the stock market.

The truth is, you just never know. That’s why people always say it’s important to create multiple types of portfolios, with rental properties as one of them.

While I’m not trying to dissuade anyone from investing in the stock market (after all that’s what I’m doing), I do think it’s nice to stop every once in a while, reassess your financial goals, and look at other vehicles that drive you to where you need to be.

Are you thinking of using rental properties for retirement income? What’s your plan for having enough income to retire comfortably?

Tagged as: Housing, Investing, Shopping Smart

Editor’s Note: I’ve begun tracking my assets through Personal Capital. I’m only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it’s much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it’s free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.