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Consider a San Diego Rental Property as a Retirement Income

Front View of a Single-Family ResidenceA lot of people say that saving for a retirement income is not easy. Nowadays, the major ways to save is through Individual Retirement Accounts (IRA’s) and 401K plans. These are beneficial saving tools. This is because the saved money is often deducted from your taxable income. Interest accrues without taxation until the withdrawal of funds. Setting these statements aside, have you considered a San Diego rental property as your source of retirement income?

Most people don’t consider purchasing a San Diego rental property as an added retirement income investment opportunity. If you purchase the right property with the proper management, then it can effortlessly become another viable retirement income source. By modifying investments, one can also diminish risks from stock market unpredictability with a more balanced portfolio.

Overall, an investment property like a three-bedroom single family residence demands a 20% down payment. But saving for the down payment is the greatest obstacle to conquer. You can read more about how you can use your IRA account to finance an investment property on our blog. Over time, a rental property can simply pay for itself coming from tenant rental payments to cover the mortgage and other costs. As the 3-decade mortgage ends, most of the rental income becomes an annuity to the owner. Eventually, the property value will have increased considerably.

Sample Scenario

Here is an example to further explain the point. To make things simple, this example doe not take the tax advantages of depreciation and operating cost deductions into account.

Assume that an investor purchases a median-priced existing home and puts 20% down on the home. This San Diego property’s rent is $1,379. According to RentRange, that said value is the median rent for a 3BR single-family residence. Then add the average maintenance costs, insurance, property management fees, and property tax expenses. Consequently, this investment would lose just $230 month for the first year. With the rising rental prices, the loss would transform into an income in just a few years. (All estimates follow the March 2017 online data sources.)

  • Median existing-home price in the USA (Source: YCharts 1Q17): $236,400
  • Down payment @ 20% : $47,280
  • Monthly median rent for 3BR single family residence (Source: RentRange): $1,379
  • Mortgage cost per month @ 5% interest (Source: YCharts ) : $1,015
  • Monthly maintenance and repairs @ 1% of home value (Source: Zillow): $197
  • Insurance (Source: Vale Penguin): $80
  • Management fees (Source: RPM estimate of average property management fees): $138
  • Property taxes (Source: WalletHub): $179
  • Monthly estimated cost: $1, 609
  • Monthly net loss/out-of-pocket expense: ($230)


The first year’s yearly out-of-pocket expense would be $2,760. But according to the Case-Schiller data from 1968–2009, the average growth in the value of the house would be 3.4% yearly ($8,037). So as time goes on, rents will grow. Because of that, the out-of-pocket expense would plummet each year.

Upon completion of the mortgage payment after 30 years, the net monthly retirement income would increase the mortgage amount of $1,015. Since rental rate growth paces with inflation, the actual monthly income will likely be considerably more.

Apart from the cash flow from the property after 3 decades, the property value will increase year by year. Assuming an average 3.4% property value increase during the next thirty years, the $236,400 house value will climb to $477,528. Upon conversion into an annuity with a 2% return above inflation, it would generate $2,500 in monthly retirement income for 3 decades.

Explained in this example, a rental property investment can basically pay for its own after paying the first down payment. From that point, it becomes a source of ongoing retirement income. The actual cash investment was $47,280, so the invested cash return will become ten times more. If sold in retirement, the property would have a payout of roughly half a million dollars.

Meanwhile, for IRA’s or 401K’s, they rarely deliver that amount of return. This is because the bank pays 80% of the initial property cost through the mortgage process. The loan funds serve as the leverage. Despite putting only 20% down, investors gain the entire benefit of housing price appreciation.

The main problem a property investor may say about a San Diego rental property as retirement income is the time and burdens that go along with it. If you partner with Realevate Specialists, you will never have to worry about these issues. We search and screen tenants, collect rents, manage maintenance, and handle the bookkeeping. This type of investment can be as simple and problem-free as an IRA or 401K. Most importantly, its advantages include the best returns, lessen risks from a balanced portfolio of investments, and tax benefits.

If you would like more information about our property management service, please contact us online or call our Mission Valley office at 858-997-2100 or our Temecula office at 951-461-0100 for more information.

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