Should You Be Investing in Real Estate for Retirement?

When you invest in real estate or anything else for that matter, the final aim is to have a comfortable lifestyle. Whether you’re only working for yourself or you also want to ensure a good future for your loved ones, this is what it boils down to. 

While no one kind of investment is absolutely secure, seasoned investors prefer to have a varied investment portfolio. This gives a little buffer in case of any loss. However, it’s usually agreed upon that real estate is one of the best investments for the long term if one can afford it. This is especially in case we want to go for a retirement investment. 

The Importance of Retirement Investments

If we aren’t already doing so, we should be saving up for our retirement phase. While our youth and even middle age might be quite active, there's no telling what the future holds. Some elderly folks might still be able to work and make a living, but we can’t guarantee the same for anyone. When it comes to our golden years, we should have a nest egg, something to fall back upon in case of unemployment, inability to work, and illness. 

At retirement, we want our assets to be as risk-free as possible while also keeping up with inflation rates. In most cases, people also want their investment assets to provide them a somewhat steady income stream. The taxes plus costs will stay there, but retirees would want to minimize those as well. 

So, does real estate cut it as an effective retirement investment? The short answer is that if absolutely can, provided that we do it right. You need the skill, courage, initiation, and experience to build up a solid portfolio of real estate investments. 

If you’re just starting out in the world of real estate or are thinking about investing for your retirement, plunge ahead! Here are some of the strategies to get you off the ground. 

Investing in Real Estate for Retirement: Some Key Tips to Get Started

Everyone has to start somewhere, so don’t be worried if you’re just starting with real estate investment for your retirement. The tips below will help you out: 

1. Aim to Own a Home

Even if you’re not a real estate investor, owning your own home is a great safeguard. Most people’s homes are their most expensive and valuable asset. Even their lifelong savings might not accumulate to the ever-increasing value of a house or even an apartment. 

Many may not realize this, but there are a lot of ways to use that home equity for generating retirement income. If not that, you can use it as a buffer against unpredictable risks; downsizing, leveraging equity, funding care for the long term, and so on. 

2. Consider Beginning Your Investment in REITs 

Real Estate Investment Trusts are investments that you make in several properties or other assets in real estate. Think of them as similar to mutual funds, but there are properties in place of company stocks. 

These trusts are in a special tax status, which means that they have to pay a minimum of 90 percent of income in the form of dividends. You can find several kinds of REITS out there, some with high risks and some that are more stable. The high risk ones include mortgage investment, while the stable ones are equity REITs. The latter are investments for actual properties. 

So, how effective and promising are REITs as real estate investment for your retirement? There’s no one answer, so let’s have a look at the various pros and cons before making a final decision. 

Pros of Investing in REITs

• The dividends from REITS will enable retirees to have an actual income.
• It’s daily easy to start investing with REITs; it’s almost the same as buying a fund or company stock.
• You get the perks of investing in real estate, but minus the hassle of all the paperwork and other requirements to actually buy a whole property.
• There’s also no need to put even more money and effort into maintaining the property
• With the diversification of REITs, we also get a diluted risk. We don’t have to limit ourselves to a few units or just one property. With REITs, we can diversify our wealth and put something into multiple properties. 
• REITs are also very liquid, which means that you can cash them in fairly quickly if and when you need the money.

Cons of Investing in REITs

• The main downside of investing in REITs is that the taxes are quite huge and might cut into the dividends.
• The dividends will also have a tax like ordinary income does, so you’re essentially increasing your total income tax.
• With REITs paying out so much of the profits, this means that your money isn’t reinvented in anything. The income you get might steadily increase slightly over time, but the real estate market is usually not liable to a growth explosion.
• REITs are not for an investor who wants to be in the thick of things; you don’t have much control over the assets.

3. Purchase, Enhance, Flip, Repeat

Flipping homes is a major business in the United States now. It’s a hand-on investment method that can make your livelihood along with allowing you to save up a tidy amount for retirement. There are several TV shows such as ‘Fixer Upper’ and ‘Flip or Flop’ that show us the nuances of buying a home in disrepair and then getting to work on it. 

After the enhancements, repairs, renovations, and whatever else you need to do, the point is to resell the home at a tidy profit to yourself. This way, you get some property at a bargain price, have the fun of transforming a living space, and then can sell that dream home to someone who will pay top dollar for it. 

When you do it right and love the work, flipping can be one of the most profitable ventures for your retirement investments. However, keep in mind that these projects could also be money down the drain if one doesn’t have the proper skills, knowledge, intuition, assets, and good contacts. 

To put it bluntly, flipping is something you do when you already have a decent amount of cash on hand. Not only do you have to buy a whole property and its right, but you have to pay for everything that goes into it. Licensing fees, contractor fees, wages, and so much more goes into flipping a property. 

You also require knowledge and experience in the field of real estate or have the means to hire a reliable professional. Home improvement skills, a bit of talent with interior design, and financial expertise--add a bit of luck, and flipping homes could make your golden years very comfortable. 

4. Buy up Residential Property and Get Long Term Tenants

The usual notion of real estate investment is just this; getting a property and renting it out. You collect the rent, manage any issues, and everyone’s happy as long as that cycle continues. The rental rates go up with inflation and other factors; you might do a few upgrades to increase the value of your property, and the appreciation is even more of a safety net. 

However, there is a trick to getting a lucrative return for your intent in rental property. If you do plan on renting out, keep in mind that you should look for tenants that are willing and able to pay enough. ‘Enough’ here means that the rent covers the mortgage payments, maintenance costs, taxes, and insurance as well. In addition to this, you should ideally have some profit left over for daily expenses, reinvesting into another area, or just saving up. 

When you’re buying property with the intention of renting, the most essential factors include their rental rates in the market and the location of the property. Even so, there are some pros and cons to this investment option. Let’s get into some of these now: 

Pros of renting out residential property 

• The most tempting advantage has to do with the returns you get. Rental property can give a much better performance than any investments in stock.
• You get a somewhat steady cash flow (as long as you have tenants).
• The property is a hard type of asset, which means that it has its own value and is likely to appreciate as time goes by.
• Ownership of a rental property can bring you some very decent tax benefits. Consult a reliable advisor about this aspect and see whether you can deduct property expenses, interest, insurance fees, taxes, and even losses from the rest of the income you earn. This could result in a much lower income tax than before. 

Cons of renting out residential property 

• The main reason why one may not choose to rent out property is that it’s quite a stressful and potentially time-consuming job. You either have to be ready to tackle issues with the property or spend money on a property manager. 
• Managing your rental property can be a stressful, time-consuming venture. You have to deal with the maintenance issues (unless stated otherwise in the contract), keep your tenants happy, and also be prepared for non-payments or late payments.
• Any vacancies in your property will cost you money without any income stream to balance it out. 
• You need a certain amount of capital upfront to even think about purchasing any rental property. There is the option of taking loans, but it’s another risk on your head. 

The factors above will be influential in your decision to buy rental poetry for your retirement investment. Make sure to consider all the pros and cons while you’re thinking: “is buying a manufactured home a good investment?”

What about renting out commercial property?

The matter of buying commercial property and renting out is certainly a considerable one. Some real estate excerpts even suggest that investing in commercial property this way might end up giving even more returns than with conventional residential property.

While this might be true, the commercial property way will also require a larger cash outlay, give you more risk, and have you dealing with multiple tenants at once. All of these factors will end up making things very complicated, so make sure you have the experience and skill it takes to deal with everything. 

6. Enhance Knowledge in Real Estate

As with any kind of profession, real estate investment requires some knowledge of the field. You should be aware of the ups and downs of the market and know how to do the research before making a decision. Invest some time and cash first, take some courses, and perhaps even look around for a mentor to guide you along the way. 

With some experience and networking along with proper study of real estate, you can make a profession out of such investments. This will then allow you to relax a bit and enjoy loads of free time. When it’s time for retirement, you’ll know that there’s income coming into your account and taking care of your needs. It’s essential to invest years of hard work and patience beforehand, but the outcome is well worth it. 

If you’re confused about where to start, look around for seminars, workshops, or courses on investing in real estate. For an even most cost effective and lasting method, go for books written by experts in real estate. Read the reviews, gauge which book is probably one of the best, and order it after checking for discounts. 

The Takeaway