Real Estate Q&A: Retirement Investments & Condo Insurance

Real estate investor and Zillow Blog contributor Leonard Baron answers questions from readers regarding buying, selling and investing. 

Rental properties vs. stock market

Hi Leonard — I will retire in the next few years with a little over $1 million. I fear the stock market at this time. Will property rentals be a good way for income in my retired years? If yes, is it better to buy the property with cash and have no debt and have rental income? Robert W., Buffalo, NY

Hi Robert — You’ve got some good questions and significant decisions herein, and you need some expert guidance.  A good fee-only certified financial analyst (CFA) or certified financial planner (CFP) should be able to walk you through options on what you can do with that million, and what income you can expect based on the risk you are willing to take with your portfolio. This will help you determine whether rental real estate, which generally has much higher risk than a well-diversified portfolio of stocks, should be part of your portfolio.

After an education from a financial adviser, if real estate is part of the plan, that’s where my guidance could help. So to your questions:

  • Will property rentals provide good retirement income? The answer is probably not. Most real estate investors who have cash flow properties bought them decades ago, and now they are starting to pay off. But in general, don’t expect cash flow for a long time.
  • Should I buy with cash instead of debt? Having a significant amount of money tied up in property during retirement is probably not a good idea. What if you need the money, your tenants stop paying rent, the property is destroyed or you need long-term care? Owning dirt won’t pay the bills! It’s much easier to obtain cash from liquid assets when in need.

By the way, congratulations on having over $1 million saved!

Condo insurance

Hi Professor — I bought a condo – with all cash – where the HOA insurance covers the structure and common areas. My insurance agent says I should get a policy for the interior of the unit. They’re not very expensive, so I’m going to do it. However, it’s going to be a rental property so I don’t own anything inside, so I don’t really see a need for it! Is this just another revenue generator for insurance companies with a product that isn’t really needed? Mike H., Portland, WA

Hi Mike — NO, NO and NO! Get a new insurance agent if yours can’t explain why you need an interior policy. I agree with you: Who cares about the interior property? The issue with condos, whether a personal residence or investment property, is liability.

Wait until you or your tenant causes a fire, smoke damage or a flood that damages nine of your neighbors’ units. The HOA is going to say it’s your problem, which it might very well be. Then your neighbors are all going to be coming after you for reimbursement for their losses.

Without an interior HO-6 condo policy with adequate liability insurance, it’s not going to be a pleasant experience.

Get that policy in place today.