Will the "Good Life" be Ready When You Are?
The Life of Riley was a TV show from the 50’s, starring William Bendix, but the title’s origin came from an expression meaning that a person was living the “good life.” Most people envision themselves living the good life by retirement but don’t really have a plan to get there.
There’s a rough rule of thumb used to estimate how much net worth a person would need by the time they retire in order to generate a certain income. The target annual income is divided by a safe, conservative yield to determine the investible assets needed.
A person who wanted $100,000 annual income generated from a 5% investment would need investible assets of $2,000,000. If a person had $500,000 now, they would need to accumulate $1.5 million more by the time they retire. If retirement is estimated to be 15 years away, they would need to save about $100,000 each year until retirement.
It is a sobering example that could be depressing without a plan. It might be easy to say, “I should have started sooner” which may be true but there is still hope. One viable strategy might be to accumulate rental property and allow the tenant to retire the debt for you.
The equity in each property will grow from the amortization of the loan each time a payment is made. It also grows as the property increases in value due to appreciation.
Single family homes as rentals offer an investor the opportunity to meet retirement and financial goals for the following reasons:
- The ability to borrow large loan-to-value mortgages
- Interest rate can be fixed
- Can borrow for long terms (easily up to 30 years)
- Appreciable Asset
- Significant tax advantages
- Reasonable control not offered by alternative investments
Be ready for the good life when it’s ready for you! If you want to explore investment property, we’re here to help!