A rental property for retirement income: Is it worth it?

Tenants, anyone?

When pondering how to produce an income in retirement, people tend to fixate on stocks, bonds and mutual funds. Rarely mentioned is one other option: becoming a landlord.

Many people rule out the possibility because they don’t want to spend their golden years dealing with rowdy renters and peeling paint. But, under the right circumstances, it may pay to reconsider.

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Richard Ballenthin, a retired Lutheran clergyman, sold his house a year and a half ago and bought a small commercial building in Durham, Ont., about 45 minutes south of Owen Sound. Today, at 71, he lives in a spacious apartment in the building and rents out two small retail spaces. He figures the move has boosted his retirement income by about 40 per cent.

“This can work well for someone who is prepared to downsize and has been debating a move to a condo or apartment,” he says. “It has certainly worked out far better than I ever expected.”

To find out whether a similar move may make sense for you, it’s important to have a realistic view of the pros and cons of property investment.

At its best, a rental property can throw off cash, much like an annuity, guaranteeing you a lifelong source of income. Better yet, the amount of that income will tend to rise with inflation since rents usually go up in tandem with prices.

The downside? Owning a rental property can leave you exposed to a downturn in the local economy. Go a few months without a tenant and the financial pain can be severe.

The only thing worse than having no tenant is having a bad tenant. If an occupant is particularly unruly, you may be forced to go to court to evict him.

Even with a good tenant, you have to be prepared for the regular grind of maintenance work. Especially as you enter your seventies, you may not want to shovel snow or fix clogged toilets.

For all those reasons, most seniors who want to derive income from the property market should look first at real estate investment trusts, or REITs. Buy units in a REIT and you receive regular payouts from a diversified, professionally managed portfolio of properties, without the hassles of actually dealing with tenants yourself.

But don’t automatically dismiss the notion of buying a rental property yourself. It all comes down to the specifics of the situation.

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