Saving money to fund a comfortable retirement is perhaps the biggest reason people invest. As such, finding the right balance between risk and investment return is key to a successful retirement savings strategy. Here are a few suggestions for ensuring you make the smartest possible decisions with your retirement savings:

Investing in Student Accommodation

Investing in student accommodation has both its pros and its cons but there is one truth part of investing in student accommodation that sits smack bang in the middle. Investing in student accommodation is a yield game. You won’t find your investment generating huge increases in capital gains growth, in fact, it may remain stagnant in its value, but you may see reliable and strong yield results. This can be a pro or a con depending on a variety of circumstances. However, there is a range of other benefits to student accommodation that may tip the scales towards making this a viable investment for you.

Investing in student accommodation has both its pros and its cons but there is one truth part of investing in student accommodation that sits smack bang in the middle. Investing in student accommodation is a yield game. You won’t find your investment generating huge increases in capital gains growth, in fact, it may remain stagnant in its value, but you may see reliable and strong yield results. This can be a pro or a con depending on a variety of circumstances. However, there is a range of other benefits to student accommodation that may tip the scales towards making this a viable investment for you.

Pro
Con
Student accommodation often results in a higher rental yield than renting to professionals. You may not be able to avoid management fees if they are contractually linked to the investment.
With Australian universities attracting high numbers of international students, there is a high demand for your property and less risk of being left without an income with your investment. You will often experience a high turnover of tenants, making it harder to stay on top of the reliability of any given tenant and how they treat your property.
With student-specific accommodation, you can often enjoy support from universities in finding tenants. You may not want to live in the investment, which means you may not be able to make the most of tax concessions for investors.
If it suits you, many properties provide management services, ensuring the upkeep of your investment. Whether this is bad or not, lower capital growth in student accommodation may mean that it works in your favor to pay it off quickly. This may be a con if it places financial pressure on you that goes beyond acceptable risk.
A high yield can be an attractive incentive for older, experienced investors to use as cash flow rather than selling and living on capital gains. There is a risk you may find it harder to communicate with international students who don’t have a strong grasp of English.
Students living close to university often don’t require, or can’t yet afford a car. This means you do not have to provide a car space. Holiday periods, which are extensive in the university calendar, may leave you without a source of income.

Although still high, PBSA investments will typically produce yields of around 7%. However, without guaranteed buy-back options, coupled with mostly off-plan builds and lower yield, it makes for a riskier investment option.

Student accommodation rental prices could also be affected by the wider property market, which could influence occupancy if rents become unaffordable. Hotels, on the other hand, are mostly used for short-term holiday or business rentals. That means customers are more likely to pay the stated room prices, high or low because they don’t have to make a long-term commitment. In turn, occupancy is likely to be consistently high if the hotel is ideally located to the required amenities (city centers, conference venues, cultural attractions, etc.).

The Growing Popularity Of Hotel Room Investments

The low risk/high return and low maintenance nature of hotel room investments mean that this alternative asset class has grown significantly in popularity over the last few years. This is evident through the comparable increase in investment activities.

According to research by Knight Frank, £5.5 billion were invested in the UK hotel market during 2017, representing a 44% increase from 2016.

PBSA, while still performing well, only saw £4 billion invested in comparison, representing a lower year-on-year increase of 25%.

Hotel investments also provide faster returns. It’s a running business and there is no need for refurbishments as rooms are maintained on a daily basis. Therefore, as soon as the full property price is paid, investors will start seeing returns.

Low risks/high yields and fast returns, compared to the higher risk of PBSA investments, including buying off-plan, market saturation in popular student cities and no guaranteed exit strategy once the rent assurance period is finished, means hotel investments are likely to take the title from PBSA investments as the top returning asset class in the future.

Hotel Room Investment

hotel room investmentInvesting in hotel rooms and resorts replicates the buy-to-let market very well, but with much shorter-term tenants. As it is part of a hotel, it is up to the hotel management team to advertise and fill the room, take care of the booking, collect the fee and clean the room, and as this is all part of the contract, there are no extra hidden fees to pay. Effectively, they do all the work and then pay you the money that you are owed.

Your monthly income from your hotel room investment is usually in the region and 7 percent or 9 percent and is guaranteed. Most hotel room investments last for around five years, and at the end of the agreed term, you can sell the room back to the hotel management team with capital growth of up to 15 percent. However, if you choose to sell before the end of the agreed term, you are unlikely to get back the full amount of your investment.

The obvious benefit of investing in a hotel room over a house is the cost. A lower point of entry means that you make a cash purchase that is the equivalent of the deposit you would pay on a property.

As the management team takes care of the day-to-day running of the hotel room, it is an easy investment from a work point of view. You are kept free of stress and can enjoy a yield that is often higher than that of many properties.

Many investors are likely to be worried about the periods in which the room is empty, but not only will this have been accounted for, the management team is likely to be incentivized by bonus payments to make sure the room is occupied as often as possible.

When your hotel room investment term nears its end, you do not need to worry about how long it will take to sell or how much you will get for it. As part of your contract, you will have a guaranteed capital growth as the hotel management company will be buying it back from you.

As a hotel room is considered a commercial investment, you can put it into a self-invested personal pension, unlike other buy-to-let properties. This will make all income and growth tax-free, providing a nice little nest egg for the future.

This is a fantastic way to get a short-term, hands-free hotel room investment that can offer guaranteed returns, so it’s easy to see why more people are now taking this route.

Click the link for more information about hotel room investments 

Rental Real Estate Investment

For rent sign outside a rental property used as a retirement investment.
Rental real estate can work in retirement – if you know what you are doing. 

Rental property can provide a stable source of income, but there will be maintenance requirements, and when you own real estate, you will inevitably incur unanticipated expenses. Before you buy rental property you need to calculate all the potential expenses you may incur over the expected time frame you plan to own the property. You also need to factor in vacancy rates—no property will be rented 100% of the time.

Investment property is a business, not a get-rich-quick proposition. For those with real estate experience, or those who want to put the time in to make it a business rental real estate can make a great retirement investment.

If you’re not sure where to start, consider reading books on real estate investing, talk to experienced investors, and join a real estate investment club.

Don’t go out and start investing in real estate without doing your homework. I’ve watched people jump on the real estate bandwagon simply because they knew a friend or neighbor who did very well with real estate. Your friend or neighbor may have knowledge or experience that you don’t have. Getting into an investment because someone else was successful with it is not the right reason to do it.

Use Retirement Income Funds

Retirement portfolio newspaper article.

 

Magazine page with words Retirement Portfolio under an image of a rising chart. Matt Abbe / Getty Images

Retirement income funds are a specialized type of mutual fund. They automatically allocate your money across a diversified portfolio of stocks and bonds, often by owning a selection of other mutual funds. The investments are managed with the goal of producing monthly income which is distributed to you. These funds are constructed to provide an all-in-one package that is designed to accomplish a particular objective.

Some funds have an objective of producing higher monthly income and may use some principal to meet their payout targets. Other funds have a lower monthly income amount combined with a goal of preserving principal.

With a retirement income fund, you retain control of your principal and can access your money at any time. Of course, if you do withdraw some of your principal, your future monthly income will subsequently go down..

Keep Some Safe Investments

Retirement

 

Keeping some safe investments reduces stress in retirement. 

You always want to keep a portion of your retirement investments in safe alternatives. The primary goal of any safe investment is to protect what you have rather than generate a high level of current income.

I recommend all retirees have some reserve account (an emergency fund). This account should not be included as an asset available to produce retirement income. It is there as a safety net; something to turn to for unforeseen expenses that may come up in retirement.

Also, if you are not sure what to do with your money, park it in a safe investment while you take the time to make an educated decision. Too many people rush to put their money into an investment because they feel like it should not be sitting in the bank for too long. They end up making a rash decision, which is never a good idea.

Making thoughtful, well-informed investment decisions takes time. While you are educating yourself or interviewing advisors it is perfectly okay to park your money somewhere safe. No reputable professional is going to pressure you into making a quick investment decision. If you’re feeling pressured you may not be dealing with someone who has your best interests in mind.

If you’ve made it to the end of this list, congratulations! Learn all you can, and remember, it makes the most sense to choose your retirement investments as part of an overall investment plan. Investments are best chosen to work together—not as individual solutions. All 10 options presented can be mixed and matched and used as part of a plan.

Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.