Working Real Estate Investing into Your Retirement Strategy
One of the most important realizations you can come about your financial wellbeing is this: during your active work years, the money you earn is for meeting your current needs as well as your needs during retirement. When you see this, you start to understand why planning is the most vital aspect of getting ready for retirement.
To prepare for retirement, you should not only save a good portion of the money you are earning today, but you should also invest a sizable part of it. Successful investing is the bedrock of building a retirement plan that actually works. This means exploring a variety of investment options to find the safest and highest-performing ones.
In this regard, one of the best investments to include in your retirement strategy is real estate. Most people know they should own their own home as a central piece of their retirement plan. But to build a retirement plan that is robust enough to meet your needs and also withstand economic shocks, you need to do more than own your own home.
You should view real estate not just from the point of view of something that provides shelter and stability, but as a means of earning passive income throughout your retirement and even beyond. This article explains the reasons to make real estate part of your retirement strategy and how to get started.
The Benefits of Real Estate Investing
- Real estate has utility value
Real estate is a tangible asset with a high utility value. It is tied to a vital resource with limited supply: land. People will always need properties to live in or work from; therefore, as long as your property is located in the right place, you can always be sure of making money.
- Source of stable passive income
When planning for retirement, you want asset classes that don’t need you to directly manage them. You also want the asset to be able to produce income on a steady basis. Real estate does these two things. It is passive and you can earn substantial income from your property every single month.
- Real estate appreciates
Real estate will appreciate at the same rate, and sometimes at a higher rate, as the retirement assets, people commonly invest in. By adding real estate to your current retirement assets, you further diversify your holding without increasing your risks or the amount of work you have to do.
- Real estate is stable
Compared to stocks or other digital assets, real estate is very stable. Real estate prices are not as volatile as stock prices. But even when real estate prices crash, the asset remains valuable. That is because a fall in prices does not diminish the usefulness of a property as a place to live or work from.
- Access to incredible leverage
Real estate investing offers the kind of leverage that is not available with other asset classes. While a lender will not loan you money to invest in stocks, they will readily finance the purchase of a property. If you have 25% of the value of a property in cash, you can buy and control the property as if you paid for it 100%.
- Significant tax benefits
There are several tax benefits you get as the owner of investment real estate. Several of the day-to-day costs of running a rental property are tax-deductible. These tax benefits can add up significantly and tax benefits are one of the major ways savvy property investors earn unbelievable profits.
What to Know Before you Invest in Real Estate
The following are the challenges of real estate investing you should know about.
- You need substantial upfront capital to get started in real estate, usually 20 – 25% of the purchase price of the property.
- Becoming successful as a real estate investor takes time; there are a lot of things you need to learn. This is why it is important to start small.
- Commercial real estate can be extremely profitable but the process of buying them is more complicated. The risks are higher.
- Managing a rental property is so time-consuming that it qualifies as a job in itself. That’s why you are better off hiring a property manager.
Getting Started as a Real Estate Investor
There are two main approaches you can take to real estate investing: direct ownership or indirect ownership.
Direct Property Ownership Strategies
Direct ownership is the more traditional route of buying a property and renting it. You may also buy property to renovate and resell. Within the direct ownership model of real estate investing, you have lots of investment strategies to choose from, namely:
- Residential or commercial rental properties
- Buy and hold
- House flipping or live-in flip
- Buy, Rehab, Rent, Refinance, Repeat (BRRR)
Indirect Methods of Real Estate Investing
Indirect methods of real estate investing do not involve direct ownership of the property. With this model, you can put your money into various types of real estate investment vehicles, such as:
- Publicly traded Real estate Investment Trusts (REITS)
- Real Estate Investment Group (REIG)
- Crowdfunded real estate investing