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Working Real Estate Investing Into Your Retirement Strategy

Source: Nathan Miller Forbes Councils Member Founder and CEO of Rentec Direct, property management software for real estate professionals.

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If you haven’t considered your strategy for retirement lately, it might be time to do so. A startling one-third of Americans have less than $1,000 saved for retirement when the safest general recommendation is 10 times your final salary. When planning for retirement, there are many investing approaches and saving strategies you can implement. Real estate, though one of the most powerful sectors, is often overlooked in typical retirement portfolio planning.

The Pros Of Investing In Real Estate 

• Real estate provides the opportunity to earn passive income — both to save for your retirement and to continue earning after your retirement. If you aren’t occupying your property, don’t own multiple properties or you choose to invest in rental properties, you can collect rental income on a monthly basis. Hiring a property manager to take care of the day-to-day for you will make this a truly passive, hands-off investment.

• Real estate reliably appreciates at a similar (sometimes higher) rate compared with other common retirement assets, and you can reinvest the passive income. If you need more money to invest, you can borrow against your current holdings.

• Purchasing a property and paying it off is an excellent way to help save for retirement, and adding more real estate to your portfolio can rapidly increase your savings. It’s likely that your home is your most valuable asset, and owning your home is an opportunity to use your equity to generate retirement income.

• Compared to other assets, real estate can be less volatile and more resilient to changes in the marketplace. This means your portfolio will see more consistent, reliable earnings and savings.

• There can be significant tax benefits to owning real estate and rental properties.

• A diversified portfolio that collects income from a variety of sources will be the most stable, even in times of economic uncertainty.

The Challenges Of Real Estate Investing

• Purchasing a property you intend to use as a rental property can take significant upfront capital. Managing a rental property can be time-consuming and requires unplanned expenses, and you will also have to deal with vacancies on occasion. Hiring a property manager can be a great asset, but this fee can also cut into your profits.

• Investing in certain types of real estate — like commercial properties or vacation rentals — can be extremely profitable but also more complicated and ensues higher risk.

• Buying a property with the intention to flip and sell also involves a set of risks to consider. Without the right assets, knowledge and skills, you may actually lose money on these investments.

• You may plan to sell or liquidate your real estate investments prior to or during your retirement, but the selling process can be difficult to predict. You don’t know what state the market will be in when you decide to sell, and you may end up waiting longer than planned or selling your property for less than you had planned.

• Real estate can be complicated to pass on in a will compared with other assets, and it’s nearly impossible to divide between multiple persons.

Investing in real estate isn’t for everyone and depends greatly on your lifestyle, current assets, financial goals and interests. It is important to consider the potential challenges and decide if this is the best path for you. The upsides of real estate investing can be remarkable, and real estate could prove to be one of the best assets you add to your retirement portfolio.

Before you choose to invest, take the time to arm yourself with the knowledge and skills required to be successful in real estate. Assess your experience and current financial situation to determine the best investment opportunities for your goals.

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