For many, retirement is a time for personal growth, which becomes the path to greater personal freedom.” – Robert Delamontagne
Each and almost every investor might think about how they can easily build a good portfolio in real estate investment. Many investors are also leading a vivid and comfortable lifestyle by developing a strong investment portfolio in the real estate sector. However, a few unfortunate investors have lost their bread and butter along with everything. Have you ever thought, why?
It will require lots of knowledge, practical skills, and courage to engage your money in a secure real estate investment option. One wrong decision can ruin your financial life and you may encounter heavy losses. So, proper skill and knowledge will help you to make some good decisions.
Similarly investing in or near retirement can be complicated too. At retirement, you would want to keep your assets out of any risk while fighting with inflation. During this time, you’ll want a fixed income from your assets, you’ll want to get rid of credit card bills by opting for credit card consolidation, pay off your mortgage payments on time, and reduce cost and taxes without any hassle.
So, would you go for a real estate investment option before or at your retirement? What are the benefits you can get by investing in such an option? What you should keep in mind before investing in real estate as a retiree?
Let’s find out the answers while discussing the investment option in a broader sense.
“Retirement, a time to do what you want to do, when you want to do it, where you want to do it, and how you want to do it.” – Catherine Pulsifer
The Benefits of Real Estate Investment as a Retirement Investing Strategy
If we look closely, investing in real estate has a few major benefits over other retirement investing strategies.
#1. Income-Oriented Investments
Most of the real estate investing options for retirement income are mainly income-oriented. Private notes and crowdfunding websites may also generate interest for investors.
On the other hand, REITs can generate a higher dividend yield than conventional stocks, bonds, or mutual funds. REITs generate returns from mortgages or income-producing properties. So, practically real estate investment can generate a decent retirement income compared to other investment options.
#2. Tax Advantages
Real estate investment comes with multiple tax benefits that can save you a lot in the long run. You are allowed to include a few expenses as deductibles such as – the cost of repairs, travel expenses, renovation expenses, management fees, home office expenses, any ownership-related expenses, and many paper expenses.
Investors can pay a lower capital gain tax rate on their profits, compared to their normal tax rate, if they sell properties owned by them for more than a year.
#3. Leverage
Another basic benefit of investing in real estate for retirement is that you can leverage other’s funds to buy the properties. This way you may avoid the risk of losing your nest egg upfront. While choosing the investment in fix-and-flip and rental properties, you may borrow up to 90% of the purchase price and 100% of the renovation expenses, if required.
#4. Passive Income Stream
Tenants will pay off the mortgage of your rental property. Being a patient real estate investor you may plan accordingly, and gain through compound interest. Soon, over a few years, you’ll get a powerful passive income stream, with little or no extra payment out of your pocket.
#5. Diversification of Funds
Diversification of funds is the most important factor of a safe investment portfolio.
If you invest all of your nest egg in one place such as stocks, then what will happen if the stock market crashes at the point of your retirement? The more you invest your nest egg inequities, the greater the risk you may have to take.
By investing in real estate, you can diversify your funds into a wide range of investment options. It will provide you an alternate source of income so that you don’t need to depend on any particular investment source.
#6. Value Appreciation
Rental properties normally increase or appreciate over long-term ownership. Apart from that, rent prices may also rise over time just like inflation. So if you have decided to invest in rental properties, you get more passive income if you don’t intend to sell the property soon.
Being an asset, real estate normally appreciates. But it is not guaranteed that the property you have purchased will increase in value. The chances will be much higher if you select a good location, and invest in a decent property with potential.
#7. Predictable Returns
Being an investor, you may predict returns on flips and rental properties. With enough experience, extensive research, a reasonable sense of accuracy, and hard work, you may predict the returns, the ongoing expenses, and the value after repairs.
For example – house flippers may easily predict the cost of renovation, the after-repair value (ARV), soft costs, and the possible flipping profit.
“Retirement is …. a time to experience a fulfilling life derived from many enjoyable and rewarding activities.” – Ernie J. Zelinski
Things to Do Before Investing in Real Estate as a Retiree
a) Grow Your Intuition
You should have an intuition about the locations which are yet to become popular, and which areas you should avoid. Depending upon the current political, social, and economic situation, property values may increase or decrease. Don’t buy a piece of property before knowing all the details about the area.
Related: 5 Emerging Real Estate Markets 2019 That You Need to Know About
b) Take Risks
There are several risks associated with real estate investments. You need to pay property taxes, and monthly mortgage payments if you own a rental house, even if the property is vacant and does not generate income.
Leverage is another good option to buy property using funds taken from others. But it does come with risk, as taking too much leverage can also be dangerous.
Buying a property for flip-and-sell takes guts too. The investment property you are buying might not sell as quickly as you predicted earlier. So, you might have to gather enough funds to make monthly mortgage payments until the property is sold. You might want to sell it at a lower price or retain it for the time being. You’ll be the one who is taking the risks.
c) Gather Knowledge
To achieve success in any profession, you must know what you are doing in the first place. Without having in-depth knowledge, you can’t be a pro on a subject.
If you are serious about real estate investment, you can grow your knowledge by reading books on real estate investing. Apart from that, you may consult with local realtors and home sellers to gather knowledge about home buying and selling. To find more about real estate investing, Google it well.
d) Boost Your Skills
Polish and boost your skills as much as possible. Use your skills to determine your first investments. You may follow these steps to sharpen your skills:
- Make multiple plans and strategies
- Analyze the real estate market
- Work with honesty and dedication
- Encourage referrals
- Build a network
- Educate yourself as much as possible
Endnotes
Real estate is an asset class with high returns. So, it is the best suitable investment option after you step into retirement. Since the option has inversely correlated with conventional assets, it’s a good way to diversify your investments away from the stock market.
This article has been contributed by Aiden White.