Investing in real estate for retirement
Investing in real estate for retirement can be complicated at any point in your life. However, investing in or near retirement can be especially arduous. At retirement, you need your assets to be relatively free of risk while keeping pace with inflation. In many cases, you need your assets to provide income. And, you want to minimize taxes and costs. And it is not something you can afford to get wrong. Most of us need the money we have accumulated over our lifetimes to fund our golden years. So, is real estate a good investment at this stage in your life? It all depends. What are your interests? What kind of money do you have to invest? What are your financial goals? What kind of lifestyle considerations might come into play?
The Key Benefit of Real Estate Investment for Retirement
Real estate is an asset class with high returns. It also usually offers a hedge against inflation. Since real estate has historically been inversely correlated with conventional assets, it can be a good way to diversify your investments away from the stock market.
Let’s take a look at eight ways to invest in real estate for retirement:
Own Your Own Home
For most people, their home is their most valuable asset — worth more than their savings.
However, this asset is not always thought of as a way to help fund retirement.
There are so many different ways to utilize your home equity to generate retirement income or hedge against unknown risks — from downsizing to leveraging equity to fund a long term care need and more
Buy, Improve and Flip
“Flip or Flop,” “Love It or List It” and “Fixer Upper” are just a few of the many popular TV shows that showcase the ins and outs of buying, fixing and reselling houses for a profit.
Flipping, also called wholesale real estate investing, is when you purchase a property not to use, but with the intention of selling it for a financial gain.
Flipping can certainly be a profitable venture. It can also be a very good way to lose money, especially if you don’t have the right assets, skills, and know-how. You need real estate knowledge, home improvement skills, access to cash, some financial expertise and maybe a bit of luck to successfully flip properties.
Purchase Residential Property and Rent it Out to Long Term Renters
This is what most people think of when they think of real estate investing — buying a property and renting it out.
The trick is that you need to consistently have tenants who are willing to pay enough for you to cover any mortgage you have on the property plus: insurance, taxes, and maintenance.
The most important aspects to consider are property location and market rental rates.
- Opportunity for above-average returns on your investment. Rental property can perform much better than investing in the stock market.
- Cash flow in the form of the monthly rent.
- A hard asset: Real estate almost always has value and usually appreciates over time.
- There can be significant tax benefits to owning a rental property. Talk with an advisor, but you should be able to deduct interest, taxes, insurance, and other property expenses and usually deduct losses against other income.
- Managing a rental property can be time-consuming and stressful. You need to be capable of taking care of problems with the home and deal with your tenant’s ability to pay and any vacancies that might occur.
- It requires significant upfront capital to purchase a rental property.
You can also plan to sell or liquidate the asset at some point in the future.
Purchase Commercial Property and Rent it Out
Experts suggest that owning commercial property can be more profitable than residential real estate. However, it can also have more risk, be more complicated (juggling multiple tenants) and require a bigger cash outlay.
Purchase Commercial Property and Run Your Own Business
Who has dreamed of retiring to an island and running a little grass shack bar in the sand? (It’s not really just me is it?)
Whether you have ideas about a beachside rum shack, a bed and breakfast in Ireland, a fishing shop in Belize, a bookstore in your home town or some other retirement business, the real value of your venture can often be in the real estate itself.
The biggest expense of most brick and mortar businesses is the real estate. So, owning the property could increase your long term wealth and monthly income.
Hotel Room Investment
Hotel room investment is surely becoming the best new strategy for rental investors looking for a secure cashflow & guaranteed capital gains. The hotel industry is booming. The total retail value of the global hotel industry is set to cross USD 500 Billion in 2018. The total revenue of the hotel industry in the USA alone should touch $200 Billion in 2018. In the UK, It’s worth over £40bn annually, with around 45,000 hotels and over 730,000 hotel rooms.
Tourism added £121.bn to the UK’s economy in 2014 and is expected to grow at an annual average rate of 3.8% by 2025. Tourists will need somewhere to stay, so it’s safe to say the industry will be thriving for the foreseeable future.
One of the main selling points of hotel room investments for many investors is the low entry point. A typical opportunity usually starts from around $100,000 USD. It can be more affordable than a buy-to-let property, and you don’t need a mortgage to pay for your investment. Great news if you have bad credit, or would struggle to get a mortgage.
What do I get for my money when I invest in a hotel room?
When you invest in a hotel room, your property is registered to you on the Land Registry. The room is yours, and you start earning an income from day one by leasing the use of the room to the hotel. You receive your income on a recurring basis, most often on a monthly basis.
You can even stay in your room now and then by booking a stay as you usually would. Though remember, you’re buying an investment, not a timeshare.
What’s the difference between a hotel room and a buy-to-let investment?
Lower entry point and the lack of a mortgage aside, one of the main differences is how you make your money. A residential investment property is great if you’d like to high achieve capital growth, but you need to get in at the right time. If you’re looking for a monthly income, then a hotel room investment with a guaranteed rental yield will be a better option.
It could also be a good idea to balance your portfolio with both hotel room investments and residential property. This would ensure you get the best of both worlds. Speak to your Property Consultant to see if this can work for you.
Ready to Model a Real Estate Investment as Part of Your Retirement Plan?
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