Calculating retirement income from rental properties

Calculating retirement incomefrom rental properties
Whether you have a 401k or other retirement plan, income from a rental property can make your later years more enjoyable.
After finding one in your price range, the next step is calculating its cash flow. That means determining what your annual expenses will be and deducting them from the rent. The balance is your cash flow.
Depreciation sounds like an expense, but it is generally a tax advantage. On a $125,000 property, for example, the depreciation over 27 and one-half years comes to $3,636 per year. This is a tax deduction.
In the early years of your mortgage, interest will reduce earnings on the property so you won’t have much of a profit. During this time, the depreciation comes in handy to reduce taxable income from other sources. In later years, it will reduce the amount of tax you pay on rental profits.
When you retire, you can use monthly rental income for normal expenses and travel.
Or you can sell the property and have a lump sum to use for something you always dreamed of, like a luxury RV in which to tour the country. In years to come, your property could double in value.
Some things to consider when looking for a rental property:
* Good location. Today, rents are rising and will continue to rise in stable neighborhoods. The location should be not too distant from where you live now.
* You can often buy a duplex for not much more than a single family home, and rents will be higher.
* Find a building that’s not too old so it will comply with building, zoning, and fire codes. And it will have lower maintenance costs. Have it inspected.
* Have your real estate agent tip you off to a building with an out-of-town owner who is eager to sell. Sometimes such owners will take a two- or five-year contract for deed, which means a very small down payment.