Whether you want to retire early or simply want a retirement plan for the future, you have made it to the right place. Real estate investing will definitely guarantee you a secure and convenient retirement – if you put the effort in.
If you are considering real estate investing for retirement but are not sure about the how-tos, read through the following blog we have put together. We will help you understand the numerous advantages of real estate investment for retirement, and encourage you to take action and follow through.
Why is real estate investing for retirement a good idea?
So why is real estate investing for retirement a good idea? The single most important reason is that it will allow you to generate a regular income for your golden years. If you invest smartly in real estate, you can retire completely and live on your investment income for the period of retirement.
There are several advantages to real estate investment in general that make real estate investing for retirement even more attractive. You are probably familiar with tax advantages that come with rental property. Rental properties receive tax deductions on several expenses such as depreciation and insurance. Also, rental property expenses are tax deductible. These tax advantages will help increase your rental return.
Moreover, there is the possibility that your property will appreciate in value. However, do not count on it to because there is a possibility it will not, especially in today’s economy.
Why is real estate investing for retirement better than investing in stocks?
This is one of the longest ongoing debates. Which is better, investment in stocks or in a real estate property? In the case of retirement, investing in real estate is smarter. You will have more control when you have a physical asset. You decide what the rent is, who the tenants are, and whether or not to sell. You have less control with the stock market and stock investment. You will want to avoid any possible risks in retirement because this investment will be your only source of income and you cannot risk running out of money. Real estate investment for retirement is a more stable and predictable form of investment.
Related: 8 Reasons Why You Should Buy an Investment Property Instead of Stocks
How to Go About Real Estate Investing for Retirement
The very first thing you should do when considering real estate investing for retirement is to identify a set of realistic goals that you want to achieve. You will also need to create both short and long term plans for the coming years. Depending on when you decide to retire, your plans will vary in length and nature.
We always emphasize the importance of research when it comes to real estate investment. You will most likely choose to invest in the city you are retiring in. If so, your next step of research should be searching for an affordable and convenient property. Type in the name of the city or neighborhood you are interested in, and Mashvisor will provide you with property listings along with information on rental income, occupancy rates, cap rate, etc. in different neighborhoods. Use this information to help you in choosing the optimal investment whether traditional or Airbnb, or single-family or multi-family property.
By now you should have figured out your financial ability. Make financial plans and work the numbers. Does the investment make financial sense?
If you have not already, you need to start saving cash. Analyze cash flow, rental return, CoC return, cap rate, and other values. Mashvisor allows you to do so with the click of a button. This is especially helpful if you are looking at values for multiple properties.
You should also decide on how much income you want to be making and decide on the rent to charge. How many rental units would you need to buy to achieve your income goal? You may want to start small, with only a few property units to begin with, and then build towards more depending on how much income you want to be making per month.
One of your goals in real estate for retirement should be to have positive cash flows. After all, you cannot afford lose on a real estate investment for retirement.
Related: Financing a Rental Property: What’s The Best Way?
Single-Family versus Multi-Family Properties
In addition to the above, you need to decide whether you want to invest in a single-family property or a multi-family property. Single-family homes are usually easier to rent out and manage, but multi-family homes may help spread out vacancy rates. Consider the benefits and drawbacks of each and select which investment is best for you.
Related: Why You Should Invest in Single-Family Homes and Not Multi-Family Homes
Shortfalls and Concerns of Real Estate Investing for Retirement
You will likely face some drawbacks and when it comes to real estate investing for retirement. We identify a few to help you better manage them if they ever come up, and if possible, to avoid them in the first place.
If you are investing in real estate for retirement, you should know that you are in it for the long run. Properties are an illiquid asset, especially in today’s economy. It is rather difficult to consider flipping a property and/or reselling it. Make sure to commit to your investment and to try to keep it successful for as long as you can.
You also have the common landlord issues such as high vacancies, dealing with challenging tenants, and tending to tenant needs. This includes receiving a 3 AM call regarding a plumbing disaster, collecting rent from your tenants, choosing the right tenants, marketing your property, and all of the hassles of real estate.
You may consider consulting professionals such as real estate agents and/or hiring a property manager to help you in managing multiple properties. But bear in mind that the fees they charge will cut from your income. Weigh out the advantages against the costs and decide whether consulting a professional is worth it.