Wall Street isn’t the only road to retirement. Some prefer an investment with a bit more curb appeal: real estate is their 401(k).
These retirees say they feel more secure building a nest egg that has walls, doors and kitchens. Though many people count on the stock market to fund their future life, real-estate retirees prefer the steady rental income and tax breaks of being landlords. Some enjoy rehabilitating properties.
A 10th of households in the U.S. with someone 65 or older earned rental income in 2022, compared with 7% of households of people under 65, according to an analysis of Federal Reserve data by Boston College’s Center for Retirement Research.
Holding real estate does mean work in retirement. Rental units sometimes sit vacant. Urgent repairs and tenants who miss payments or cause damage bring headaches. From property taxes to insurance, the costs of owning property are also rising.
“If you’re a landlord, it can be difficult to feel like you’re truly retired,” said Daniel Johnson, a financial planner in Winston-Salem, N.C., who specializes in retirees with multiple real-estate holdings.
Real-estate retirees say the rewards outweigh the risks. Many who are retiring on real estate today benefited from decades of home price appreciation and locked in low mortgage rates.
Bottfeld said he feels safer with real estate than stocks. Real estate is also a good inflation hedge, said Bottfeld, who has raised rents in recent years to keep up with rising homeownership costs.
He currently has 14 units in seven buildings, including three rentals on the San Diego property he shares with his husband, Brent Butler, 60. He pays property managers from 6% to 10% of the rent to find and vet tenants and perform maintenance.
“I could be making a lot more money if I were managing them myself,” he said. “But I don’t want to be bothered.”
Bottfeld estimates he has home equity of $8 million, net of mortgages. He has mortgages on four properties with fixed interest rates of around 3.5%.
Another $4.8 million sits in stocks and other investments, including three-month to 12-month bridge loans to house flippers that pay 8% to 15%. To protect against default, he takes liens on borrowers’ properties.
On average each month, Bottfeld said he earns about $20,000 in rents, $8,000 from bridge loans, and $3,200 in Social Security.
He and Butler have monthly expenses of about $10,000, not including business expenses, such as the mortgages. They rise around 5 a.m., go to the gym, and take their dog, Biscuit, on walks. Bottfeld often meets friends for lunch. The couple is taking a Danube River cruise this summer.
“I’m a saver and am very frugal,” Bottfeld said. “But at some point you realize you are going to have enough.”
