Hi All,
I'm curious to understand what percentage of folks are pursuing income properties as part of their FI plans. We are considering it but to be honest this is mostly about diversification and not because we have a significant interest in running income properties.
Substitute financial independence instead of retirement if thats your goal. :)
I think often about liquidating my 1 rental property and putting all the aftertax proceeds into equities. Honestly, I can reasonably expect to earn a very similar return, even on an income basis (dividends/distributions), from a diversified equity portfolio.
However, and this is a big difference, the income from the property has different characteristics. The ability to leverage the asset at attractive borrowing rates, reinvest proceeds into equities or other stuff, and the location and possibility of moving back all play into my desire to keep it.
It does take a little work, with some repairs and maintenance on occasion, but I just have to coordinate that. For 1-1.5k per yr (roughly 1 mo rent), I'd consider having a property manager just so I don't really have to think about it much.
If I recall correctly, even when the equity markets dipped by 20%+ a few years back, rents didn't really decrease. In fact, 1-2 years later, as things were getting foreclosed, I bought in and rents have been steadily increasing since then. I actually regret paying off the mortgage early, as equities are up 30%+ since then, in addition to the property itself being up ~50%. If only I had stayed leveraged, could have seen 100%+ returns plus steady cash flow.
Oh well, can't predict the future, but even ignoring that, I've done generally well by owning it. If we hit a recession, I imagine demand to buy RE will decrease, but rental demand should hold steady or perhaps even increase in that area, leaving my income steady and allowing me to reinvest into depressed equities.
Overall, after some rambling, diversification is the biggest benefit. Assuming you buy appropriately and maintain when necessary, RE does provide real returns (greater than inflation) for most situations, and is reasonably liquid outside of major recessions. The biggest drawback is that it's not easy to buy in/out and transaction fees are high, so it's more of a 5+ yr thing (for the casual RE investor). Just be aware that there is a valid case for owning equities in REIT companies, which would be far more diversified than owning a single rental property, although that does prevent you from taking advantage of any particular local market inefficiency.