Retirement with property that could generate income - how to model?

[livingthedream99]

All

We thought we had a nice simple plan to stop working and enjoy traveling the world in the next few years.

Reach ~50, sell our SFH in VHOL city. Walk away with $7m split across taxable and non-taxable accounts including cash and 401k.
Spend $1.5m on a nice house on the West Coast, leaving $5.5m, which would fund a ~~$165k life ($195k - 15% tax allowance)

But we have found a really nice house in exactly the location we would like but it presents an interesting opportunity that we are not sure how to think about or model it.

House is $2m (So 500k over our original budget) - This would mean we would need to work ~12 months longer than first thought ($300k annual savings and $200k not spent) Which is OK for us.

But the house has 2 separate buildings. One main house that would rent long term for $5.5k pm and a secondary cottage (ADU) that would rent for $2k pm. We are thinking we could live in the smaller ADU for 5-10 years while we are not around as much traveling the world and rent out the main house. This would give us an additional ~$65k per year (minus some costs), assume it comes out at $50k pa.

Seems like a smart move (assuming we are OK being landlords) but not sure how to think about it financially. Does the rental income need to equal the $500k extra purchase price for this to make sense?

Thanks
More confused than ever :-)

[Chris Pascale]

Having owned rental property before, I wouldn't want to do it again, but only because I didn't like it as a part-time business.

[livingthedream99]

That’s a great point and the property would be in CA, so assume many landlord rules

[jj_k80]

     The general rule of thumb is half of your rent goes to costs.  This breaks out to 10% vacancy, 10% maintenance, 10% property management, and 10% taxes and insurance with 10% for any owner paid utilities and buffer fund.  So in other words you can count on 32.500 of the money as income.

     The expenses can be reduced drastically by self managing the property, doing your own maintenance, and very strict tenant screening.

 

[livingthedream99]

I am assuming we will manage some of it ourselves. In this specific instance voids don't come into play. We have assumed 25% of rent goes to costs