Adding Real Estate Investment to Your Retirement Portfolio

Retirement is something that many people are anxious about because it often leaves them in a financially delicate position. In a bid to secure a more stable future, it’s not uncommon for retirees to head into the real estate market.

In this article, we’ll be highlighting everything you need to know before getting started in real estate investment. Read until the end to find out the benefits, the drawbacks, and the ways you can add real estate to your retirement portfolio.

Benefits of adding real estate to your portfolio

Smiling senior couple calculate expenses or planning budget together, reading notification letter with good news from bank, retired family husband and wife paying bills online on laptop

Investors stand to gain several benefits when they put their money in real estate. Here are the ways having a bit of real estate in your portfolio can make your retirement more comfortable.

Passive income

Real estate is an excellent source of passive income because you don’t have to monitor it every day like a 9 – 5. Once you purchase REITs or find suitable tenants to take up your units, you can simply wait for your rent or dividends to roll in monthly. If you’re a landlord and you want a genuinely hands-off investment, you can hire a property manager to oversee tenant complaints and the day-to-day maintenance of your apartment.

Depending on the size of your portfolio, the passive income you earn can afford you a decent retirement. Or at the very least be a substantial addition to your social security benefits. The fact that it’s also a steady income stream helps.

Tax advantages

Owning real estate comes with certain tax benefits, particularly if you own rental property. There are a couple of expenses the IRS legally allows you to write off, such as:

The interest you pay on your mortgage or credit cards you use to purchase rental-related goods and services.

Insurance costs in the form of premiums to protect your property from fire, theft, and other mishaps.

The salary you pay to employees or contractors that work on your rental property.

Remember to keep a record of all these expenses so you can justify your deductions or issue a claim.

Tip: If you’re planning to move after retiring, you can save up to $250,000 or more. This provision falls under the home sale exclusion law that exempts homeowners from paying capital gains tax if they’ve lived in their current home for more than two years.

House appreciation

Another reason to add real estate to your portfolio is its high tendency to grow. It’s an asset in a market that is significantly stable and tends to increase in value, mitigating the effects of inflation. That means if you decide to sell off your property in the future, you’ll make a tidy profit.

However, you must note that house appreciation, though likely, is not a guarantee. Some homes depreciate due to their declining physical structure, neighborhood, and economic state.

Drawbacks of adding Real estate to your portfolio

Senior man and woman meeting medical adviser for health insurance at home. Old couple planning their investments with financial advisor after retirement at home. Aged couple consulting with insurance agent while sitting together with prospectus at home.

Like other investment opportunities, real estate has its own set of drawbacks that might make investors wary. Here are some of them:

Managing tenants

One of the most challenging parts of being a landlord is managing tenants. The occasional complaint call is inevitable, and as the property owner, you’ll have to oversee the repair most times, even if that means taking it out of your tenant’s security deposit. Moreso, some renters can be difficult. They might be a nuisance to their neighbors or carelessly cause more damage than necessary to your apartment.

But you can always curb the excesses of a problematic tenant with a thorough screening process.

Property taxes and other expenses

Besides managing tenants, property taxes and other expenses can be significant deterrents to owning rental property. The former is a mandatory levy of jurisdictions tax on property owners. While it varies from one place to another and one property type to the next, it might not be a nuisance. But sometimes, the fees might be so exorbitant that you could run at a loss when you combine them with your ongoing expenses.

How to invest in real estate during retirement 

After weighing the pros and cons of adding real estate to your portfolio, your next question might be how to go about it. Well, here are four ways you can invest in real estate during retirement:

Lease out your rental property 

Investing in rental properties is by far one of the most common ways to get into real estate. After financing the purchase of a house in a prime location, you can find tenants willing to reside there in exchange for a fee. Minus the effort and money that goes into the maintenance, you can expect a decent and stable return in the form of rent.

Invest in REITs

Another investment option is to put your money in REITs. Short for real estate investment trust, they’re like owning shares of a company that invests in several real estate projects. Unlike being a landlord, owning REITs is completely hands-off, and investors are more like silent partners. And you earn profits in the form of dividends.

REITs are a common option for retirees because they’re low risk and low maintenance.

Do a house flip 

You might already be familiar with the term flipping houses. For clarity’s sake, it means purchasing a home to make some cosmetic changes and selling it to the next owner for a profit. You might see some adventurous shows where they take on the daring task of flipping a house in a couple of weeks. But realistically, it takes about three to six months to flip a house, depending on the amount of work it needs.

Of course, investing in real estate isn’t limited to these three. But they are the most common, as well as the best option for your retirement portfolio.

Conclusion

Real estate is a competent and reliable investment option to add to your retirement portfolio. As long as you’re aware of the benefits and drawbacks that come with it, you can make an informed decision.

If you find that you don’t have the blood for managing tenants and budgeting expenses, you can always work with Bay Property Management Group, a qualified company to help manage the day-to-day operations of your rental property. Or invest in other real estate options.

This is a Sponsored Feature

Retirement is something that many people are anxious about because it often leaves them in a financially delicate position. In a bid to secure a more stable future, it’s not uncommon for retirees to head into the real estate market.

In this article, we’ll be highlighting everything you need to know before getting started in real estate investment. Read until the end to find out the benefits, the drawbacks, and the ways you can add real estate to your retirement portfolio.

Benefits of adding real estate to your portfolio

Smiling senior couple calculate expenses or planning budget together, reading notification letter with good news from bank, retired family husband and wife paying bills online on laptop

Investors stand to gain several benefits when they put their money in real estate. Here are the ways having a bit of real estate in your portfolio can make your retirement more comfortable.

Passive income

Real estate is an excellent source of passive income because you don’t have to monitor it every day like a 9 – 5. Once you purchase REITs or find suitable tenants to take up your units, you can simply wait for your rent or dividends to roll in monthly. If you’re a landlord and you want a genuinely hands-off investment, you can hire a property manager to oversee tenant complaints and the day-to-day maintenance of your apartment.

Depending on the size of your portfolio, the passive income you earn can afford you a decent retirement. Or at the very least be a substantial addition to your social security benefits. The fact that it’s also a steady income stream helps.

Tax advantages

Owning real estate comes with certain tax benefits, particularly if you own rental property. There are a couple of expenses the IRS legally allows you to write off, such as:

The interest you pay on your mortgage or credit cards you use to purchase rental-related goods and services.

Insurance costs in the form of premiums to protect your property from fire, theft, and other mishaps.

The salary you pay to employees or contractors that work on your rental property.

Remember to keep a record of all these expenses so you can justify your deductions or issue a claim.

Tip: If you’re planning to move after retiring, you can save up to $250,000 or more. This provision falls under the home sale exclusion law that exempts homeowners from paying capital gains tax if they’ve lived in their current home for more than two years.

House appreciation

Another reason to add real estate to your portfolio is its high tendency to grow. It’s an asset in a market that is significantly stable and tends to increase in value, mitigating the effects of inflation. That means if you decide to sell off your property in the future, you’ll make a tidy profit.

However, you must note that house appreciation, though likely, is not a guarantee. Some homes depreciate due to their declining physical structure, neighborhood, and economic state.

Drawbacks of adding Real estate to your portfolio

Senior man and woman meeting medical adviser for health insurance at home. Old couple planning their investments with financial advisor after retirement at home. Aged couple consulting with insurance agent while sitting together with prospectus at home.

Like other investment opportunities, real estate has its own set of drawbacks that might make investors wary. Here are some of them:

Managing tenants

One of the most challenging parts of being a landlord is managing tenants. The occasional complaint call is inevitable, and as the property owner, you’ll have to oversee the repair most times, even if that means taking it out of your tenant’s security deposit. Moreso, some renters can be difficult. They might be a nuisance to their neighbors or carelessly cause more damage than necessary to your apartment.

But you can always curb the excesses of a problematic tenant with a thorough screening process.

Property taxes and other expenses

Besides managing tenants, property taxes and other expenses can be significant deterrents to owning rental property. The former is a mandatory levy of jurisdictions tax on property owners. While it varies from one place to another and one property type to the next, it might not be a nuisance. But sometimes, the fees might be so exorbitant that you could run at a loss when you combine them with your ongoing expenses.

How to invest in real estate during retirement 

After weighing the pros and cons of adding real estate to your portfolio, your next question might be how to go about it. Well, here are four ways you can invest in real estate during retirement:

Lease out your rental property 

Investing in rental properties is by far one of the most common ways to get into real estate. After financing the purchase of a house in a prime location, you can find tenants willing to reside there in exchange for a fee. Minus the effort and money that goes into the maintenance, you can expect a decent and stable return in the form of rent.

Invest in REITs

Another investment option is to put your money in REITs. Short for real estate investment trust, they’re like owning shares of a company that invests in several real estate projects. Unlike being a landlord, owning REITs is completely hands-off, and investors are more like silent partners. And you earn profits in the form of dividends.

REITs are a common option for retirees because they’re low risk and low maintenance.

Do a house flip 

You might already be familiar with the term flipping houses. For clarity’s sake, it means purchasing a home to make some cosmetic changes and selling it to the next owner for a profit. You might see some adventurous shows where they take on the daring task of flipping a house in a couple of weeks. But realistically, it takes about three to six months to flip a house, depending on the amount of work it needs.

Of course, investing in real estate isn’t limited to these three. But they are the most common, as well as the best option for your retirement portfolio.

Conclusion

Real estate is a competent and reliable investment option to add to your retirement portfolio. As long as you’re aware of the benefits and drawbacks that come with it, you can make an informed decision.

If you find that you don’t have the blood for managing tenants and budgeting expenses, you can always work with Bay Property Management Group, a qualified company to help manage the day-to-day operations of your rental property. Or invest in other real estate options.

This is a Sponsored Feature