Investing in Real Estate for Retirement Income

With an increasing number of people relying less on pensions and becoming more weary of 401ks and Roth IRAs, many are looking to real estate to fill in the gaps—especially in retirement. While there are many aspects to consider before you invest in real estate to ensure retirement security, there are considerable benefits and ways to maximize your investment. Read on to learn about some of the potential pitfalls as well as how you can invest in property for retirement.

Different Investment Strategies

The most common way for people to invest in real estate for retirement income has traditionally been residential leasing—essentially becoming a landlord. Another common way to invest in real estate would be buying homes in high-value areas and fixing them up to sell at a higher price, although this specific option would not provide long-term income. A third option is to invest in commercial properties, leasing them out to businesses as a commercial landlord. This option can be risky, as economic down-turns would mean both falling prices and an increased difficulty to fill your vacancies. Even in recessions, however, there is always a need for businesses to rent spaces. Overall, if you already have a retirement portfolio, it is not a bad idea to diversify—especially with something that can be income-producing and provide cash flow in retirement.

Things to Consider Before Investing

Before considering any real estate strategy for retirement investment, you do want to make sure that you already have both an emergency fund and other stock investments. This is important because even though the macro direction of real estate tends to be an increase, the micro can have ebbs and flows. Ultimately, the best way to view any investment property is not as something that will significantly jump in value, but as something that can provide a steady cash flow and slowly and steadily grow over time. Another potential cost-saving measure is the ability to purchase something like a quadplex or an apartment complex and live in one of the units while renting the rest out. This strategy removes one of the largest expenses anyone has to worry about in retirement—living expenses.

Managing Cash-Flow in Retirement

Retirement cash-flow specifically is why we mentioned the need for an emergency fund. You need to have money set aside to cover mortgages, insurance, taxes, maintenance, emergency repair fees, and potential gaps between tenants. These and other problems mean that if you are planning on using real estate investment income as your main means of providing for yourself in retirement, you need to budget both money and time for the possibility of repairs being needed. It takes time to schedule repairs, to find those who are looking for rentals, to screen them, and answer any questions.

While it is always an option to have a manager or a company do that work, it will decrease your overall profits—something you may be relying on in retirement. This is why it is important to look up any laws in your city and state, have money to put down, and prepare for emergencies. This is also why it is important to work with an experienced realtor to help you navigate these issues. The sooner you can start investing in a property, the sooner you can pay off the mortgage and start looking at something closer to a year-round positive cash flow.

Hopefully now you have a better idea on if purchasing an investment property is the right decision for you in retirement—or in life in general.

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