You may have heard that rental properties can be a great way to generate passive income. Rental properties can provide monthly cash flow, protect against inflation, and usually appreciate over the long term. Some retirees swear by rental properties instead of the usual stock and bond portfolio because they don’t have to stomach the volatile stock market swings. Owning rental properties can help fund your retirement, but being a landlord isn’t for everyone. Here’s how to tell if a retirement property is the right fit for you:

How long until you retire? A rental property can take a few years to generate a stable positive cash flow. Some locations are better than others, and you might be able to generate some income right away in some markets. However, it can be much more difficult in western states like California. The good thing about a rental is that it is an inflation hedge. Rent goes up and your mortgage payment remains the same. If you have five or more years before retirement, then it’s a good bet that a rental property can turn a profit in that time frame.

Do you have the funds? You need quite a bit of money to start investing in rental properties. Nowadays, banks generally require a 20 to 25 percent down payment on investment properties, and this is beyond the reach of many middle class investors. You will also need to pay the closing costs and save up plenty of money for maintenance and vacancies. If you don’t have a lump sum to invest at once, maybe a real estate investment trust (REIT) would be a better option.

Repair bills can be high. Can you pay $5,000 immediately for exterior paint or roof repair? A rental property inevitably will need costly repairs. One big repair can push you into negative territory for the year. Many new investors underestimate the repair bills and are surprised by these big items.

Poor liquidity. Rental properties are not liquid assets. If you need a large amount of cash, it will be difficult to get it quickly with rental properties. The housing market has long up and down cycles, and if you need to sell during a down cycle, you might have to settle for less than you’d like.

Do you have other types of investments? Do you have stocks, bonds, annuities, and other types of income-generating investments? It’s a good idea to be diversified. When one asset class is down, others might be up. While rental real estate can be a great investment, it’s also a good idea to invest in stocks and bonds. Income from dividend stocks and bonds can cushion the blow of vacancies and other problems.

Being a landlord isn’t for everyone. Rental properties can be a good way to generate income in retirement, but being a landlord isn’t for everyone. If you are young and have many years until you retire, then you should try your hand at rental properties. You’ll be able to figure out if being a landlord is the right move for you, and you will have a lot of time to turn the property cash flow to positive.

Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing, and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

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  • Thailand

    Thailand is establishing itself as a hub of <a href="http://www.huffingtonpost.com/2012/06/04/medical-tourism-health-tourism-medical-travel_n_1551217.html?1354900416" target="_blank">quality health care thanks to its growing medical tourism</a>. While access to internationally accredited affordable hospitals are especially important as one gets older, there are other more enjoyable parts of retiring in Thailand: <a href="http://news.yahoo.com/phuket-thailand-gets-more-appealing-194047404.html" target="_blank">great weather and a low cost of living</a>.

  • Panama

    The <a href="http://money.usnews.com/money/blogs/On-Retirement/2012/09/04/3-countries-that-welcome-foreign-retirees">steep discounts for seniors</a> (women 55 and up and men 60 and older) can't be beat in Panama, according to U.S. News and World Report. To qualify for lifetime pensioner status, you must have a regular pension of at least $1,000 a month. The benefits extend to everything from plane tickets to doctors appointments to hotel stays.

  • Austria

    Living in big European cities like Paris and London come with big ticket expenses. So why not try Austria's capital city of <a href="http://www.reuters.com/article/2012/12/04/uk-cities-quality-idUSLNE8B300Q20121204">Vienna, known for its high quality of living?</a> Vienna recently topped consulting firm Mercer's <a href="http://www.mercer.com/articles/quality-of-living-survey-report-2011">global survey </a>of best places for quality of life for the fourth year in a row. In addition, an annual bus pass costs only 1 euro a day, and the cost of a <a href="http://www.forbes.com/pictures/efik45eflel/austria-2/">one-bedroom apartment </a>is hundreds of dollars less than what it would cost you in Paris.

  • Italy

    Small towns in Italy are not only quaint -- they can also be home to an <http://www.aarp.org/home-garden/livable-communities/info-07-2010/best-places-retire-italy-le-marche.html">affordable retirement property</a> where you can enjoy beautiful vineyards, great food and temperate weather.

  • France

    Picturesque areas of the country, like the <a href="http://online.wsj.com/article/SB10000872396390444772804577623663711290588.html">Périgord region in southwest France</a>, are great for those retirees interested in a slower pace of life and days like this one described in the Wall Street Journal: <blockquote>We go to one bakery for bread and another for croissants. We shop at farmers' markets for fresh eggs, cheese and garden vegetables. Our neighborhood cafe welcomes us on winter evenings at the zinc bar, and on starry summer nights on the terrace on the square, which we share with tourists as the weather warms.</blockquote> Lovely, no?

  • Malaysia

    Malaysia has an excellent infrastructure, a large community of expats and a great social scene, according to InternationalLiving.com Asia Contributor Keith Hockton. The country is also incredibly hospitable to expats looking to call Malaysia home. A government program known as MM2H, or Malaysia My Second Home, offers a renewable 10-year-long social visit visa for eligible applicants.

  • Ireland

    The European banking crisis has thrown the real estate industry into disarray... which may be a boon for you if you'd like to retire there. Though U.S. News and World Report found that prices are all over the map, <a href="http://money.usnews.com/money/blogs/On-Retirement/2012/10/09/collapse-in-ireland-is-good-news-for-retirees">property prices in Ireland are about half of what they were pre-2008</a>. You can buy a 2,000-square-foot <a href="http://money.usnews.com/money/blogs/On-Retirement/2012/11/05/5-retirement-havens-in-europe-for-less-than-100000">modern one-bedroom home in Ireland </a>for just $64,000.

  • The Philippines

    The <a href="http://www.tourism.gov.ph/SitePages/Climate.aspx">average temperature in the Philippines</a> is 78 degrees! And in the last four years, <a href="http://www.nytimes.com/2012/05/11/greathomesanddestinations/a-retirement-haven-in-the-philippines.html">Manilla has become known as a great retirement community</a>, boasting an "American country living" feel, according to the New York Times. <em>Correction: A previous version of this slide stated that Manilla was far away from typhoons. This was incorrect and has since been updated.</em>

  • Belize

    <a href="http://www.aarp.org/home-garden/livable-communities/info-07-2010/best-places-retire-belize-corozal.html">Belize is a nature lover's dream</a>, with its natural wonders like caves, pyramids, white beaches, and clear blue seas housing coral reefs great for snorkeling. English is commonly spoken in this Central American country, making the transition easier for American retirees and expats.

  • Cambodia

    "Phnom Penh is an exciting frontier city, which has surprisingly good hole-in-the-wall bars, great restaurants and fantastic French colonial architecture," Keith Hockton of InternationalLiving.com reports. The country's incredibly <a href="http://www.huffingtonpost.com/2012/11/30/retire-abroad-southeast-asia_n_2162228.html?1354280948">low cost of living</a> can't be beat, either.

  • Guatemala

    In most parts of Guatemala one could live comfortably on between $1,000 and $1,500 a month. “<a href="http://www.huffingtonpost.com/2012/10/23/guatemala-retirement-better-than-costa-rica_n_1973454.html?utm_hp_ref=fifty&ir=Fifty">Guatemala offers an attractive option for retired people</a> for several reasons,” said Glenn Wilson, a real estate agent with Century 21 Casa Nova in Antigua, Guatemala. “Among them, in my experience, are affordability, quality of life, and short travel times to and from the United States.”

  • New Zealand

    The setting of so many fantasy movies could be your new dream home. Island living and all that sunshine lead to an incredible biodiversity you can explore at any one of the country's <a href="http://www.newzealand.com/us/feature/new-zealand-flora-and-fauna/">14 national parks or 34 marine reserves</a>. <em>Correction: An earlier version of theis slide said that the coldest it gets in New Zealand is 50-60º. This is actually the average winter high.</em>

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