Using Starter Homes to Retire

The day has come. You’ve decided to build your forever home. You’re beyond excited for your new adventure; the beautiful kitchen, open floor plan, spacious master bedroom and don’t forget the master bathroom. It’s going to be beautiful.

Now, there’s just one more decision to make. What are you going to do with your current home? You had originally planned to sell it, but perhaps that does not make the most financial sense. A look at how the wealthy earn their money shows real estate as the 3rd largest segment of wealth generation among the richest Americans. True, one single family house will not put you on the Forbes list of the richest people, but it can significantly bolster your retirement savings. Here’s how.

Let’s use an example scenario where you purchased your home 10 years ago in West Des Moines for $150,000 with a 30 year mortgage at 5.87%. These were the averages in 2005. In the last 10 years, your home has appreciated $36,500 to an average home price of $186,500. You could sell this house to help pay for your new home or you could become a landlord and use your tenant’s monthly payments to pay off the mortgage and pocket the additional funds as extra income.

Currently, the average home in West Des Moines is renting for $1400 per month. After deducting mortgage, taxes, insurance, reserves for maintenance and vacancies you could be left with about $100 per month. It’s not much, but consider the property appreciation after a couple of decades. If homes continue to appreciate at 2.4% (see the average increase from 2005 – 2015), in 20 years your starter home will be worth just over $258,000. If you wait another 10 years, the same home could be worth $294,500, plus you would have been collecting almost $800 each month since the mortgage was paid off, not including any rent increases.

This could add an additional $108,000 – $245,500 to your retirement account!

Of course there are things to take into consideration. For instance you will need to qualify for a mortgage on your new home while still maintaining your prior residence. The rental income will be a nice addition to your monthly income, but cannot be used to qualify for a mortgage until after 2 years of having the rental. Plus, the numbers above are based on local averages so it’s recommended you consult your financial planner, accountant, and real estate agent to confirm your specific numbers to make sure they work in your favor.

Once you decide to become a landlord you will also need to manage your property. The most important aspect of property management is choosing the right tenant. Use tenant screening software and verify all of the information on the rental application including previous rental history and current employment. Good tenants will take care of your asset, communicate with you when maintenance issues arise, and pay rent on time.

If you want to minimize your time investment even further, using online rent payment software to collect the rent each month will free you up from your recurring property management tasks. This would automate your rental income and speed up your monthly collection times. Offering online rent payments has been shown to increase tenant satisfaction leading to more lease renewals and less vacancy time. Today’s real estate technology can make being a first time landlord easier than ever.

Your dream home is being built by the experienced team at Drake Homes. Now, you just need to decide if holding on to your previous home and becoming a landlord makes sense for you. There are 108,000-245,500 reasons why it might be.


Deanna Bennett – RentMonitorDeanna Bennett is the co-founder of RentMonitor, a leading online rent payment software. Headquartered in Des Moines, RentMonitor works with landlords, real estate investors, property management companies and HOA’s to automate their rent collection online.

In addition to processing both residential and commercial rent payments, RentMonitor can run tenant background checks, send rent receipts, add customized late fees for rent and track maintenance requests for real estate portfolios of any size.