Young or old, we’ve all thought about retirement. Some of us dread the idea, while others cannot wait to live out their best years. No matter how we feel about retirement, one needs to be financially ready to live a comfortable life when the time comes. One popular financial strategy is investing in real estate for retirement. If that’s what you’re planning, continue reading this blog for our guide.
Is Real Estate a Good Investment for Retirement?
The short answer is: yes.
The more detailed answer is: yes because for one, real estate investing provides tax benefits. It’s a physical income producing asset that will allow you to capitalize on appreciation, and it can be a source of steady passive retirement income. What else does one need for the golden years?
How to Invest in Real Estate for Retirement
There are a few things to keep in mind when considering investing in real estate for retirement. Below is our step by step guide to help you plan accordingly.
Related: Retire Early With Real Estate in 4 Simple Steps
1. Lay out your retirement plan
What real estate investing strategy will you opt for? Will you have any other sources of income? How much money do you want to be generating per month? And what will the real estate market look like by the time you retire? These are all questions to consider when investing in real estate for retirement. As with any other endeavor, planning lays the groundwork and tactics you need to use to achieve your real estate goals. So before you do anything, get out your notepad and answer the above questions.
2. Improve your knowledge, do your research
Once you’ve laid out an initial plan, it’s time to (quite literally) hit the books. This is the bulk of your work for investing in real estate for retirement. When it comes to research, this is what you need to tackle:
- Real estate market analysis – this is, as the name suggests, an analysis of the real estate market you select. Say you’re investing in Seattle real estate; you need to learn about the city’s demographics, overall economic outlook, job growth, migration patterns, among other factors. Learn more by reading this.
- Comparative market analysis (CMA) – the process of evaluating an investment property in relation to similar, or comparable properties. When doing this, consider factors like location, size of the property, nearby amenities, square footage, and the year built. To conduct a comparative market analysis, you can use Mashvisor. Our investment property calculator allows you to access real estate comp data, in addition to other useful information such as expected rental income, cost breakdowns, and where you can achieve a high return on investment (ROI). Learn more about our product.
- Other real estate knowledge – if you’re just starting out in real estate, you may need to go back to the basics. Learn about what real estate is, how to become a successful real estate investor, real estate strategies you can follow, among other things. There are a plethora of both online and offline resources for beginner and expert investors. Use your time to look through real estate books, real estate podcasts, online real estate classes, as well as real estate blogs such as Mashvisor.
Related: How to Research Real Estate Markets
3. Choose a location and an investment property
Based on your research, you should be able to select a location to invest in. Choosing a location is critical when it comes to real estate investing. Your choice will depend on your budget and market trends. One important factor to consider is where you’ll be living when you retire. But when investing in real estate for retirement, it’s more convenient to invest in-state. However, if you want to invest out of state, that’s still doable.
What should you expect in rental income?
Your expected rental income for retirement depends on where you invest and your rental strategy. According to Mashvisor data, a traditional (long-term) rental property generates around $2,021 /month in the Houston real estate market while an Airbnb rental property brings in $2,118 /month. In San Francisco on the other hand, the average for traditional property rentals is $4,321 whereas the average Airbnb rental property amounts to about $4,926. Depending on which US city you choose, you can expect varying rates for rental income.
These numbers can also greatly differ between one neighborhood and the next in the same city. So don’t forget to also conduct neighborhood research. You want to ensure that you’re putting your money into a good neighborhood. Learn how to conduct neighborhood analysis.
Once you know which neighborhood (or neighborhoods) make for a great place to invest in real estate, you can start your investment property search. To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
4. Finance your investment property
While you’re searching for a suitable investment property for sale, you need to find a way to finance it. If you have enough savings for a down payment (or the entire property), this step is easier for you. The alternatives are considering partnering with other real estate investors or taking out a loan from the bank. If you decide to opt for the latter, make sure to begin paying it off as soon as you can so by the time you retire, you can use your income for needed personal spending.
5. Diversify your investments
If you are able to, invest in different types of real estate investments, or consider buying multiple rental properties. When people think of investing in real estate for retirement, they usually think of buy and hold rental properties that generate steady passive income. But you could also invest in Airbnb rental properties, multi-family properties, or wholesale properties.
This all depends on the retirement plan that you’ve laid out initially and your goals for investing in real estate for retirement. If we were to recommend one retirement investing strategy over others, it would be long term rental properties. This is because they’re guaranteed to produce stable income, provided they’re occupied year-round.
Investing in Real Estate for Retirement – When Should You Start?
It’s never too early to start investing in real estate for retirement. And the timeline can vary from one person to another. Retiring early at 45 is different from retiring at 65; but if you’re already considering real estate as a retirement investment, there’s no set start date. The earlier you start, the more time you’ll have to research, gain experience, and save money. Whatever you decide to do, make sure to start somewhere, and happy retirement!
Related: Real Estate: The Best Retirement Investment Strategy