Why older citizens seeking a more secure future should consider being an owner-occupant landlord.
Being an owner-occupant landlord means living in the property you own while renting out a part of it. The rental income helps pay for the costs of homeownership. You could rent a section of your house, or have an ADU (accessory dwelling unit) in the backyard. It can be a building with multiple apartments - (duplex, triplex, quad). Even renting extra parking spaces can bring in more income.
Have you accumulated the nest egg you need?
Many people find themselves approaching retirement with less in savings they they would like. At the same time, the costs of owning a home are soaring, and inflation eats away at whatever pension, savings or Social Security they do have.
The primary costs of owning a home include:
a mortgage
property taxes
property insurance (currently soaring in most parts of the country)
flood insurance
utilities
upkeep
Rental income can cover part or even all of those expenses - while keeping a roof over your head
Being an owner-occupant landlord supplements retirement income and can cover part or even all of the carrying costs of a home
Which costs of homeownership are out of your control?
Mortgages are usually fixed rate for 30 years and are about the only thing that is not going to go up.
Nationwide, home insurance is climbing at a rate in the double digits in many areas due to the changing climate and extreme weather events like hurricanes, hail and fires.
Property taxes are soaring as cities and municipalities struggle to keep up with climbing salaries for municipal workers.
Flood insurance is not part of property insurance and is rising as the costs of storm damages escalate and as storms become stronger.
While all those costs are climbing, Social Security, an important source of income for many older Americans, is not keeping pace with real inflation. The Social Security Administration calculates an annual rate increase, but it is consistently less than the real rate of inflation. If social security falls behind the real rate of inflation by 2% per year, then, compounded, that’s over 50% in 20 years.
As a homeowner, my mortgage is fixed for 30 years, but my property taxes went up 60% in the last four years and my insurance costs went up 40%. That amount to thousands of dollars annually in additional homeowner costs.
What a shift to being an owner-occupant landlord can mean.
For starters, it means I have downsized my living space. My kids are grown and I no longer need a 3,000 or 4,000 square foot house. The more house, the more it costs to insure, heat, cool and maintain. Empty bedrooms become a luxury.
Fact: As we get older, we can live smaller. In fact, as a senior citizen myself, I want to live smaller. My kids are grown. I’m divorced. It’s just me. Why would I need more than one or two bedrooms?
I can live very nicely in a 1,000 square foot condo, or one portion of a multi-family property.
The house I own now is 3,000 square feet - that is split into four apartments. I live in one unit (about 900 square feet) and the other apartments are two one-bedroom units of about 550 sq ft and one Airbnb in a studio. The rental income covers the mortgage, property taxes, insurance and utilities.
This type of ownership is not new. It’s been around for hundreds of years and has been a consistent source of wealth creation for many families and individuals. Incidentally, there is no age requirement to be an owner-occupant landlord. Many young people start off by buying a rental property and living in a small part while they rent out the rest of it. I didn’t start that way – but I wish I did!
Other benefits:
Socialization - There are social benefits to having neighbors and being a landlord can provide a sense of purpose - both essential for mental health. I advertised for, and found, tenants who were older professionals, like myself. Because they are in the same age bracket, their lifestyle is quieter than young adults. Owner-occupant landlords of 2-4 unit properties have more rights when it comes to choosing tenants and are exempt from parts of the Federal Housing laws.
Tax benefits - owning a multi-family house can provide many tax benefits, including partial depreciation, as well as the ability to write-off part of various expenses and capital improvements.
Walkability - many multi-family properties are located in urban or semi-urban areas. Here’s what the block I live on in Denver looks like: it’s a mix of single-family houses, tri-plex or 4-plex homes, as well as some small apartment buildings. My property is a 4-plex and I rent out two units mid to long term (more about this in a future article) and the third is a STR (short term rental) and the fourth unit is mine.
I live within a few blocks of supermarkets, coffee shops, a hardware store, restaurants and other essential services. Most days I leave my car in the garage and walk wherever I need to go. Its great exercise. A large park is just a short walk away. Less driving saves money.
Summary:
Housing costs go up yearly and income from rents can go up yearly as well, while a fixed 30 year mortgage does not. Positioning yourself as an owner-occupant landlord now, can save hundreds of thousands of dollars in the long run.
Some advantages of being an owner-occupant landlord include:
Lower cost of housing, because rental income will cover many expenses
Tax benefits
Close proximity to supermarkets and other services, leave the car in the garage and walk!
A sense of purpose and social interaction.
Future posts will include information on how to find the right property, how to manage it, how to advertise for tenants and more. Be sure to subscribe by signing up at the Contact button on the above right! Questions? Email me here and I’ll do my best to respond within 24-48 hours. Thanks for visiting!
(Please note that nothing in this article is intended to be financial or tax advice. Readers should consult a qualified tax or financial professional to evaluate the benefits in their own state and for their own situation.)