Baby Boomers: Downsize Into a Duplex Today

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Baby Boomers: Downsize Into a Duplex Today

duplex for retirement

There’s about to be a whole bunch of baby boomers retiring. Statistics say that too many of them have low savings that won’t be able to keep up with their medical expenses and overall inflation.

If you’re a baby boomer that’s concerned with helping your retirement savings last a long time, you should consider buying a multi-unit rental property such as a duplex, triplex, or quad.


Because this kind of property is a great option to help bolster retirement savings. It’s capable of generating a passive income stream – making it perfect for retirement.

That said, a lot goes into buying a rental property, and most people have a few questions that they’re interested in asking before they make such an investment. We tried to address some of those questions here to make your buying decision easier.

How can I buy a rental property for retirement?

Contrary to popular belief, buying rental property doesn’t have to be difficult or confusing. While some larger properties do require unique investment strategies, smaller properties are often much easier to purchase.

The easiest kind of investment property to purchase is one that you intend to owner-occupy – at least for a year. Duplexes, triplexes, and four-plexes offer some of the best opportunities because they can usually be financed similarly to how a single-family home is financed (at least for owner-occupiers). They can even be purchased with low down payments of 3.5 – 5% depending on the financing options you have available.

Is rental property hard to buy?

Larger rental properties can be hard to buy due to the complications that go along with the purchase of them. Smaller properties, however, aren’t nearly as difficult to purchase.

In fact, it’s easy to purchase a duplex, triplex, or four-plex. Just ensure that you partner with an industry expert as your real estate agent so that you can ensure you get the best possible deal that will set you up with a strong cash flow.

How can I benefit from a rental property in retirement and have it be hassle-free?

Rental properties offer all sorts of benefits to retirees if they’re smart investments. The right kind of property can produce a passive income stream that supports a retiree’s lifestyle. For those that owner-occupy, this passive income stream can also be utilized to cover much of the cost of living.

One great example is a duplex. Imagine paying roughly the same amount for a duplex as you would for a single-family home, except in this case, you have a tenant on the other side of the property that’s helping to pay down the mortgage.

In cases like these, many duplex owners have the cost of their mortgage completely covered by rental income.

For those that don’t choose to live in the duplex, the two sides together are often able to generate a sizable profit.

Should I use my retirement savings to buy a rental property?

First of all, we want to stress this:

Don’t do anything rash without first consulting professional investment and retirement specialists.

There are certainly risks that come along with buying a rental property, and they should be carefully considered.

However, it is true that rental properties are worth considering for retirement. After all, they can produce great passive income that’s tax-advantaged and typically secure.

What are the risks of rental property as an investment?

Like with any investment, there are definitely a variety of risks that go along with purchasing rental properties. One of the biggest risks is that you, as an owner, can potentially get stuck with vacancies that cost thousands.

In Minneapolis, vacancy rates are at significant lows right now, and it’s also known that rental property is relatively economy-proof. People might stop buying property when the economy crashes, but they probably won’t stop renting.

That said, there’s always a risk that a vacancy could leave someone high and dry. Similarly, it’s important to note that unexpected repairs may be needed and this could set owners back. Because of this, it’s important to have a fund at the ready for any repair costs that may come along.

Is real estate a good investment for retirees?

It’s hard to say what the best investment is for retirees. By nature, investing in anything is essentially unreliable and should be considered with care. Everyone’s situation is just a little bit different, but in many cases, it’s prudent to invest in rental property.

The reason is because rental property is more economy proof than most investments. Unlike investing on Wall Street, rental property investors don’t have to sit around wringing their hands worrying about the economy. In almost any market, there are bound to be renters out there.

In addition to this, the cash flow that rental properties produce is tax-advantaged as passive income.

What happens to my investment property when I need to move into a senior-living facility?

When it’s time to move on from your investment property, you’re not necessarily forced to sell. Some property owners do choose to move out and sell because they’re able to utilize rental income to “overpay” their mortgage and set themselves up with additional equity in their property.

However, that’s not the only option available. It may also be smart to work with a property management company that can help you to continue on in enjoying passive income. Perhaps that income stream can even be applied towards the cost of your retirement home.

What are the different types of rental properties a retiree should consider?

There are essentially five different kinds of rental properties that retirees should consider investing in: single-families, duplexes, triplexes, four-plexes, and apartments.

What’s the best type of investment property for a retiree? We think either duplexes or triplexes are best to invest in. They offer low complexity, high return investment opportunities. Best of all, there are fewer big-dog investors to fight with (cons are that owner-occupants are making it harder).

What different scenarios are possible that would help a retiree?

There are a variety of different ways for a retiree to get involved in owning investment property. Each of these options requires a varying level of commitment that’s necessary to make the investment worthwhile.

  1. Buy the Property Outright and Live Elsewhere
  2. Buy the Property Outright and Live in it as an Owner-Occupier
  3. Finance the Property and Owner-Occupy
  4. Owner-Occupy in Retirement
  5. Owner-Occupy for a Year, then Move Out (To Meet FHA Lending Requirements)
  6. Owner-Occupy and Leave When You Need Assisted Living Options
  7. Owner-Occupy and Transform the Property Into a Senior-Living Space
  8. Finance it as an Investment and Live Elsewhere
  9. Buy it and Plan on it Being an Assisted Living Friendly Home

What are the different ways to pay for an investment rental property for retirement?

  1. Straight Cash (Unqualified Money [Not in an IRA])
  2. Depreciation, Cost Segregations and Expense Deductions Go Against This Income
  3. Passive Income as Well – Not Subject to FICA Social Security or Medicare Taxes
  4. Is Subject to Income Tax, State and Federal
  5. Depreciation Must Either be Recaptured as a Capital Gain or You Must 1031 Exchange (Which Involves a Bunch of Messing Around)
  6. Qualified Money in a Checkbook IRA
  7. IRA Money
  8. Not a Good Idea Because it Takes a Passive Income Asset and Makes it Subject to Ordinary Income Rates…
  9. Lose Depreciation Benefits
  10. Roth IRA Money
  11. Roth can be Usable – It’s Tax-Free! (But You Still Lose the Benefits of Depreciation)

Qualified accounts are ONLY good to get capital. You’re taking an already tax-advantaged asset and putting it into another qualified tax wrapper… you’re double dipping and losing some tax benefits.

Should I own the property as an individual or under a corporate banner?

If you’re thinking of protecting your personal assets by setting up a company to manage your rental portfolio (an LLC, S-Corp, or C-Corp) then you should know that utilizing an S-Corp or C-Corp will make you liable to lose a lot of the amazing tax benefits you had the opportunity to get in the first place.

Because of this, it’s best to own rental property as an LLC or individual in most cases.

How much income might I earn in retirement from my investment property?

It’s hard to say how much income could be earned in retirement from a single rental property because every scenario is so different. As a general rule, it’s best to look for properties that receive 1% of the property’s total value in rent each month.

So if you’re buying a duplex for $200,000, you should hope to get $2,000 in rent each month from both of the sides combined.

In scenarios like these (depending on how you’ve financed) you can expect a healthy profit from your property each month – the exact amount will vary significantly.

Why Owner-Occupying a Duplex Might be Perfect for Retirees

duplex for retirement

Single-family properties are liabilities, but multifamily turns liabilities into income-producing assets – they can be utilized to earn amazing profits.

By owning a duplex, you’re likely making it easier to vacation, easier to leave for the winter, and easier to live in general.

Now that’s not to say there aren’t a whole bunch of baby boomers that did the right thing and invested over the last 40 years, but there are definitely some people that are going to need to be careful as they enter their retirement years.

But it’s not too late to change a potential reality. That’s where a duplex, triplex or other multi-unit rental property can really come into play.

Keeping Expenses Low in Retirement

One of the hardest things to do in retirement is to keep your living expenses low so that you do not have to have a high withdrawal rate coming from your Nastec.

Think about how much income you need to live every year, then subtract how much you’ll have from Social Security, pensions, and any other income. From that number, you’ll find out how large the gap is. Your withdrawal rate is the amount that you need to use from your savings every year divided by your overall nest egg.

For a long time people have said that if you withdraw about 4 1/2% of your overall nest egg each year, you should not have major problems and run out of money. That has been a rule for some time, and this isn’t the article to discuss whether you should be withdrawing more or less. The bottom line is that you don’t want to withdraw too high of a percentage of your Nastec because it will cause your withdrawal to outpace your earnings, and you run the risk of running out of money.

Rental properties can be a perfect solution to supplement some of that income, and baby boomers are in the perfect position to capitalize on the amazing rental markets that exist.

How can buying rental and investment properties help with your retirement? By keeping your living expenses low.

Here’s one potential scenario a baby boomer could consider:

  1. Selling their current home to capture equity.
  2. Buying a duplex, triplex, or four-plex with their equity to create a positive cash flow.
  3. Living with options.

Selling a Home With Equity In It

Baby boomers that have owned their homes for quite some time should have a considerable amount of equity in it. Even if you took out a 30-year mortgage and have refinanced a couple times, the way the inventory situation is at the moment, you’re going to be able to get a ton of money for your home. There are simply not enough homes on the market – which, admittedly, is something you’ll have to deal with when it’s time to buy a multi-unit property.

But the idea here is that the market is definitely not in a decline, so it’s highly unlikely to be a bad time to sell your property.

If you have a house that is too large for you, don’t wait too long before you decide to cash in your equity and start the downsizing process.

Why do we think it’s a really good time for baby boomers to sell their houses? Because there is an interesting thing happening at the moment.

We believe that the demand for housing is extremely high because the baby boomers have not started to liquidate their housing assets, and the millennial generation’s demand has increased.

There are a ton of millennials and a ton of baby boomers trying to have homes right now, which means there are simply not enough. Not only that, but many developers have been cautious this time around since so many of them took it in the teeth during the downturn of 2008 to 2011.

While new construction might be up, many investors and developers have been hesitant to take land and transform it into developments. This just means we’ve seen a more cautious amount of new development as compared to the white-hot nonsense we saw when lending was much looser.

So interest rates are still relatively low, new developments have been slower, we have baby boomers holding onto their homes, and a giant millennial generation starting to have kids and wanting homes. That just means that there are two massive population groups vying for the same inventory, but this low inventory situation will probably change when baby boomer start to be physically unable to take care of themselves, let alone their giant suburban homes.

A Coming Inventory Boom?

When baby boomers start to reach the age of 70, a larger portion of that population will be unable to take care of large homes, and many of them will need different forms of “slow go” type living. This doesn’t mean that they are too old to do anything, but it does mean that they might not want to be tracking their vacuum cleaner up and down different levels of steps, and they might want to start spending the winters in Arizona or Florida rather than sticking around in their homes here in the frozen tundra of Minnesota.

When baby boomers start to sell their homes, inventory will rise. That will drive prices down.

Sure, those that come after the millennial generation will also start to put a demand on the existing inventory, and the American population will grow – but baby boomers should realize that in the next 15 years, there is going to be a massive swing of the population that will act in unison.

When this large population – the baby boomers – all decide to move in unison out of their homes that they raised their families in, it will have an effect on pricing.

We are not saying that pricing is going to decline in a big way, but we are saying there is going to be a wave of fluctuation in the future because there’s just a ton of baby boomers.

So how does a duplex, triplex, four-plex, or multi-unit rental property help so much in this effort?

If baby boomers get ahead of the curb and sell their homes in order to purchase a property that will serve as an asset, they’re going to be able to cashflow really well.

If baby boomers put down a significant down payment on a rental property, particularly a multi-unit rental property as an investment, they’re likely to be able to create positive cash flow.

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