The Urgent Need for Pre-Retirement Passive Income

Americans are facing an urgent, but often overlooked need for passive income. Some have put this thought off until retirement. The big problem is that most never know when, and how soon they are really going to need it.

The Desperate Need for Passive Income

Via the Harvard Business Review professor Robert C. Merton has echoed the warning of a pending global retirement crisis. Specifically Merton says that income is the biggest challenge facing Americans in retirement. A big nest egg might sound great, but it will rapidly disappear, unless it is throwing off cash flow returns. Unfortunately experts like Merton point out that the entire investment and retirement saving system completely fails to help individuals and families target income goals for later in life. They focus on the wrong goals; defined contributions, not defined benefits.

Retirement Saving Statistics

  • Only the top 10% of Americans have $250,000 or more saved for retirement
  • The average 401k balance is around $90,000
  • Around half of Americans have no savings at all

Even for the wealthy with $1M saved, withdrawing $100k per year would completely deplete their funds within 10 years. Yet, more and more Americans need to be prepared for a 30 plus year retirement.

Kiplinger and Bankrate.com IRA Minimum Required Distribution calculators show that the average 70.5 year old, with a $90,000 balance may have to begin withdrawing just over $3,000 per month. That’s just $250 per month. Meanwhile the balance is decreasing.

You Never Know When You’ll Need It

Despite the fact that many Americans say they will just work until 70 or older in order to pay their way, the data shows most are retiring far earlier than planned. And they are not doing it because they believe they are financially prepared. This can be due to layoffs, health problems, or simply age. He Transamerica Center for Retirement Studies’ Survey of American Retirees says the median retirement age is actually 62. These factors that force individuals into early retirement can also bring big expenses themselves; depleting any savings a lot faster than expected. Some statistics show the average retirement account balance plunging around 50% within a few years of retirement age.

3 Current Challenges to Earning Passive Investment Income

  1. Rising living expenses which prevent savings
  2. A new era of zero or negative investment returns on stocks and bonds
  3. A recession forecast for 2016

Finding Income Solutions Pre-Retirement

The bottom line is that individuals need to setup and secure passive income streams in advance of retirement. Having a reliable stream of passive income coming in now means that you’ll be ready for retirement at any time. Every year that you don’t retire you can use that surplus income to expand investments and grow income streams, or spend it.

CDs and investing in mortgage debt are examples of income producing investments. Yet, one which may be far more advantageous in the years ahead is mobile home park investing. It doesn’t require great credit, substantial startup capital, or full time hands on management. Yet these investments can throw off cash every month, while providing extra tax breaks.

Take a look at this asset class and find out if it is a good match for you…

The New Housing Bubble and Your Retirement Plan

Are we in a new real estate bubble? What are billionaire moguls selling and holding now? How will it impact your retirement plan?

New questions and concerns are being raised about the US real estate market. Is another bubble or correction possibly on the horizon? How are leading investors reacting? What strain might this put on current retirement savings and expectations? What smart moves should individuals be making now in order to protect themselves?

What Kind of Bubbly is the Real Estate Market in for in 2016?

The National Association of Realtors had forecast a year worth breaking out the glasses and bubbly for. An even better year than 2015, and a return to ‘normal’. New data suggests the hangover from that party may come sooner rather than later.

Although the facts are disputed by PropertyShark; the Financial Times proclaims that New York City’s property market began crumbling last year. FT states that NYC luxury real estate sales fell 27% year over year in 2015. A new report from FMA Data states that the “Orlando Affordability Index topped 177% in January 2016, meaning housing costs are almost double what the median income earner can afford.” This report, and statistics from The Real Deal also show that Miami Beach home inventory has swollen to 24.6 months. 6 months of inventory reflects a balanced market. New records have been set in NYC, with a Manhattan penthouse selling to a hedge fund major for almost $100M. He says it is a speculative investment he hopes to flip in the future.

Of course not all markets have reached these new highs. RealtyTrac reports that New York City as a whole is facing a 300%+ spike in foreclosure auctions, and bank repossessions in early 2016. Over 50k Detroit homes were slated for foreclosure auction for past due properties this year.

Stock market declines and uncertainty in the economy is driving even more capital to real estate. So while some markets still appear to offer great value, analysts can fairly argue that some niches of the market have already peaked.

What Sam Zell is Selling, and Holding

All real estate is local, and different types of real estate assets move on different cycles. So what are the savviest investors buying, holding, and selling?

According to The Wall Street Journal billionaire real estate investor Sam Zell made a deal to sell off 23,000 apartments for $5.4B in the third quarter of 2015. The Denver Business Journal notes that Zell arrange to sell off $1.4B of metro Denver apartments in early 2016; more than 25% of the sales volume of the whole market in 2015.

Note that Zell is also credited with one of the largest single sell off deals ever, right before the last bubble burst. He unloaded a $39B portfolio of office properties to Blackstone, just before most of them ended up tanking in value.

Interestingly the one most consistent area of growth for Sam Zell, and one he has held onto for years, through multiple cycles is manufactured housing parks. He owns hundreds of them.

What a New Housing Slowdown Would Mean for Americans

Firstly; those approaching retirement should consider that a new decline or at least a stall in higher end housing prices and sales in top metros could negatively impact plans for retirement. During slower period home equity lines of credit can be frozen and reeled in by lenders. It may be tougher to sell. Hopes for tapping equity with a reverse mortgage as a form of pension may be cramped.

Recently we’ve seen many investors and home buyers buying at prices which only make sense as Airbnb short term rentals at incredibly high prices. Some of that activity may dry up in a leaner economic period. It is also worth noting that some cities are banning short term rentals or are using permits to minimize them to 30% of less of local housing stock. The move recently hit one Minnesota neighborhood hard where 78% of the properties were rentals.

Then there is the impact on REITs and real estate stocks. The Street recently reported that Real Estate would be given its own sector in the S&P 500 later in 2016. Some analysts speculate this was aimed at propping up the index during a forecast recessionary period. However, higher interest rates, and a slowdown in condos, apartment buildings, office, and single family rental homes could drag down the performance and trading prices of these publicly traded, and highly volatile investments.

The Need for Affordable Housing

The pressure from all the above is only going to increase the demand for affordable housing. Mortgage lending is still tight, and rents have been spiraling upwards to a point where Zillow reports the average income required to rent an apartment in many cities is several times minimum wage.

One of Sam Zell’s keys to success is “supply and demand.” Those that control the supply of affordable housing are going to find substantial demand for their product. Taking a page out of Zell’s playbook, manufactured or ‘mobile’ home parks could be one of the most prized assets, and most desirable property types ahead.

In comparison to other housing types there are not many manufactured home parks. Yet, the need for living in them can only grow. Owning one of these properties could be key to empowering individuals to continue to generate income in lean times, preserve and grow their wealth, and possibly even secure affordable or essentially free housing for themselves, and their loved ones.

Summary

A new housing bubble and correction may happen this year, or several years from now. When it happens it will hurt the retirement plans of millions of Americans. It will likely hurt their stock portfolios, and many of their real estate investments, while cramping the ability to leverage existing home equity. The opposite may be true for mobile home park owners. These investments ought to flourish ahead. Right now interest rates are low, seller financing may be available on these properties, and many are ripe for increasing rents and profitability. This could provide exactly what many need to maintain their lifestyles, and stay on track to a comfortable retirement.

Rent Roll Sample

Attached is a sample spreadsheet that you can use as a rent roll for your next Mobile Home Park investment.

Create similar columns (and adjust as necessary) in your favorite spreadsheet program, including Microsoft Excel or Google Sheets.

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Sample Magnet

Here is a sample of a magnet given to Mobile Home Park residents by a new owner.

Feel free to use this as a template to create your own magnet when you invest in your next Mobile Home Park.

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New Owner Welcome Letter

Here is a sample of a letter we would send to tenants as the new owners of a Mobile Home Park.

July, 8th 2016

Dear Residents,

This is a letter of introduction regarding the purchase of ——– Mobile Home Park.

——– will be taking over the operations of the park as of ———-.

We plan on keeping the park in good repair and improving on areas we feel are necessary as well as needed. We encourage anyone with yards or homes in the state of disrepair to begin working on them as soon as possible.

We are not raising rents at this time. But, we do ask that you help to conserve water usage. If excessive water is used tenants will be responsible to share in the water expenses.

We have a strict policy as far as the payment of rent and upkeep of your lots. If your rent is not paid on time, there will be a late charge of $50.00 enforced and you will be subject to eviction. If you do not keep your lot clean and maintained, we will do so for you at a minimum charge of $25 per occurrence.

Thank you.

Sincerely,
——–.

Please Make Rent Checks

——–.
address
address

We will accept only checks or money orders.

Sample Postcard

When you’re trying to find a Mobile Home Park to buy, sometimes direct mail to existing Mobile Home Park owners is a great way to get in front of an owner who might be thinking of selling.

Here is a sample postcard that you can customize and use in your direct mail campaign.

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