The Real Estate Retirement Plan: How Many Properties Do You Need?

By Ray Reuter

It starts with: “What do I want to be when I grow up?” We’ve all pondered that question and some of us still do. But what comes next?

Easy – you grow up, you find a job or start a career, and the next question comes: “When can I quit working?!” It doesn’t matter how old you are right now, odds are retirement has crossed your mind at some point. Maybe in passing, maybe in-depth?

But what does your retirement look like? How do you achieve it? Are you a business owner? Then start looking into First Choice Business Brokers of Richmond to see if you’ll be able to sell your business when the time comes. Do you work in an office job? Then you’ll need to start thinking about budgeting and savings. Are you a real estate investor? Then you’ll need to figure out how many properties you’ll need to see you through retirement. Retirement means you’ve got no income so you need to be ready for it.

If you’re like most people, the answer to the first question is easy: “I want enough money to retire comfortably and I’d like to pass along some wealth to my family.? Those are wonderful goals, ones that I share. However, I often find that most folks don’t really know how much they need to retire comfortably OR how they’ll achieve it. There are often expenses that many people don’t fully consider, such as funeral expenses. If you have been thinking about this by researching these Batesville caskets for sale, for example, then you will know how expensive a funeral can be. You should bear this in mind when budgeting for your funeral if you don’t wish to leave your family with a huge financial burden.

If you plan to use real estate as an investment vehicle to retire on, start building your real estate investing foundation today with the Authentic Canadian Real Estate program.

Are you putting money away every month? Do you have a pension or do you plan to rely on one? Are you getting pension advice by joslin rhodes or just winging it? Is the government going to take care of you? Will you ever be able to quit working?

OK Ray, I get it, so what’s your point?

Well, I get this question a lot: How many properties would I need to own to build my own retirement fund? Which brings me to Your Personal Real Estate Retirement Plan.

How much real estate do you need to buy today to live comfortably tomorrow without relying on the government?

First, lets go over some quick assumptions:

1) Income – Don’t know what kind of income you need? Let’s look at what Ontario teachers get (considered a solid pension fund). If a teacher retires tomorrow and makes an average of $85,000 a year in their best five years and has 30 years of service, their annual pensionable earnings will be 60% of that average – meaning $51,000 per year upon retirement (www.otpp.com) so $51K is our goal for future income.

2) Inflation – “But that’s $51K in the future – how can I compare this with real estate? Easy! Real estate over the long-term is whats called an inflation adjusted asset, meaning that it rises with inflation. Nice! This allows us to work in today’s dollars since we know that both rents and property values go up over the long-term, at least matching inflation. We’ll match inflation, nothing more, nothing less. So even though your income 25 years from now will be greater, we’re assuming the buying power will be the same as in 2014.

3) Break Even – We will assume that your real estate investment will simply break even and that you hold it for a standard 25 year mortgage length. No positive cash flow.

?But what if I don’t have 25 years until retirement? What if I want to retire sooner?

You can always adjust the model to account for your desired timelines – but let’s use this as a starting point.

4) Investment property – Keeping it generic, we’ll assume you’re buying a standard up/down duplex for $300,000 in Anytown, Canada.

I have previously reviewed a purchase of a similar property showing a net annual income after expenses (taxes, property management, insurance, vacancy, repairs, bookkeeping, etc.) of $15,375 [this excludes your mortgage payment because after 25 years, your tenants will have paid off your mortgage].

So with a purchase price of $300,000 today, you would receive an income of $15,375 from this property annually 25 years from now (and we’ve assumed break even for the first 25 years).

Now for the magic.

How many properties do you need to buy to meet or beat that $51,000 annual pension?

$51,000 / $15,375 = 3.31 properties

Call it four properties and you’ve created a $61,500 per year retirement income. You might be shocked that it’s not 50 or 100 properties.

But with only four average performing properties that break even, and a long-term strategy to support it, you’ve built a healthy retirement income. Now, let’s not forget one huge point, yes, you’ve created the income you need to match a pension, but you’re also left with four $300,000 properties free and clear.

Assuming no increase in value over 25 years, your properties are still worth $300,000 each, which means you are sitting on $960,000 of equity [4 x ($300,000 x 20% down payment) Theyve been paid off!

Assuming no price increase and no income increase, youve created over $61,500 in annual income AND $960,000 in equity that is all yours. Sell one and get some cash, keep the other three and leave them to family or sell them all and travel the world or buy more than four properties and really grow your wealth!

When it comes to retirement, sure, you can Compare Discounted Life Insurance Quotes to save a bit of money while also providing for your family after your death, but if you don’t have enough money to begin with, you’re not going to be able to get very far so this is why planning ahead is so important. Lets recap the original goals:
1) To have enough income to retire comfortably (no government reliance) check!
2) Wealth (the property value) to pass along to your family double check!

I don’t claim that real estate is always easy, but it is definitely simple. Why leave your future in someone else’s hands? Discover how you can create your own retirement portfolio today.

Learn the steps to begin your real estate investing career at the Authentic Canadian Real Estate program!

{{cta(‘3f7cbac4-3e46-464b-b958-0829e2cbcfe0′,’justifycenter’)}}