Investing when planning for or nearing retirement requires a different approach than investing at a different stage of life. As a younger person, you can afford to put your money in high-risk investments that may be largely untested. But when building for retirement, the investments you choose should be stable, proven, and profitable.
Assets that generate a constant flow of cash throughout retirement are preferred. For the utmost peace of mind, the assets shouldn’t be overly sensitive to inflation or subject to sudden price dips.
Lastly, if the asset is something that will always be in demand because people need it, it can help you create a retirement portfolio that is more secure than most.
The one asset class that has the above qualities is real estate investing. Real estate investing is excellent for retirement because it is a hedge against inflation. The prices of homes move slowly and so they are relatively stable. Houses will always be needed by people and a real estate investment will generate passive income while your principal remains intact.
Incorporating real estate into your retirement strategy is a recommended way to make it more resilient. Regardless of whether you know a lot or little about managing an investment property, this is something you can do. That’s because real estate investing is broad and there is at least one property investment method that will be a perfect match for you.
Investing in real estate for retirement; what you should know
There are several criteria to use when deciding the specific property investment strategy to use; how much capital you have, how much you know about houses, and whether you want this to be an active or passive investment. But, before you settle on the best property investment strategy for your retirement plan, here are a few things to know.
The Good
- Real estate serves as a store of value: The money you invest as a down payment on a house and your mortgage payments are ways of saving money. You can get that money back with returns when you sell the home.
- A stable investment: Real estate is a lot less volatile than stocks and it has the potential to appreciate at the same or even a higher rate than stocks. Owning several properties is a great way to diversify your investment portfolio.
- Source of passive income: Probably the best thing about real estate is that you can draw significant income from the home without depleting your capital.
- Buy with leverage: You only need 20% of the purchase price of a home to acquire it. But once you do, you can earn income on the property as if you paid 100% of its sales price.
- Various options for financing a home: You can buy one property and after paying part of the mortgage, use that property to finance the purchase of another property.
The Challenges
- Marketing your apartment to great tenants: Making a success of a property investment requires skilled marketing and competition for tenants is fierce.
- Vacancies and bad tenants: The earning potentials of real estate may be impaired by a lack of tenants or the presence of tenants who don’t pay their rent.
- Upfront cost: To buy an investment property, you may be required to pay 20% of the cost of the home, which can be a lot of money.
- Operational difficulties: Houses need to be looked after and the strain of keeping the home in the best condition may be too much for some retired folks.
- Not easy to liquidate: Finding a buyer for a home is not always straightforward. It may take time and the process can be difficult.
Ways to Invest in Real Estate
Despite these challenges, real estate investing is still a good option to add to your retirement strategy. The difficulties inherent in owning properties should not be viewed as deterrents. They should guide your choice of real estate investing method.
Here is a list of the possible ways you can use real estate investing to shore up your retirement strategy:
- Use a Real Estate Investment Trust (REIT): An REIT lets you invest in properties without the hassle of searching for the right house, finding tenants, and managing the home.
- Fix-and-flip properties: With this method, you do not have to deal with tenants. You simply find and buy a dilapidated home at a low price, renovate it, and sell it for profit.
- Rental properties: This is the traditional real estate investment route. But the difficulty of managing tenants and a rental property can be lessened by hiring a property manager.
- Commercial rental properties: The tenants in these types of properties are businesses. Commercial properties offer better returns than residential properties but they cost more.
- Real estate crowdfunding: This is a relatively new way of investing in real estate. It allows several investors to pool resources to buy properties they would not be able to afford individually.
What is the best real estate investment strategy for you? To ensure that you are looking at all the factors when making that decision, you should talk to a retirement planner with expertise in real estate investments.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
