Adding Real Estate to Your Retirement Plans

Consider investing in real estate as a way to diversify your retirement savings. Property investments have advantages and disadvantages, along with different options to consider.

A retirement plan that includes real estate might include:

  • Selling your home.
  • Owning a rental property.
  • Purchasing and selling property.
  • Contributing to a real estate fund.

You can learn more about real estate retirement plans by reading on.

You can sell your home to help fund your retirement.

You might consider selling your current home if you have paid off the mortgage in retirement. Proceeds from the sale could be invested to generate future returns or used to fund part of your retirement lifestyle. Reduce your living expenses by renting or buying a smaller place that requires less maintenance.

Research the real estate market both where you live now and in the new location before listing your home for sale. Depending on the new home’s location, downsizing square footage may still cost the same, according to Ross Cohen, a financial advisor . Relocating to a cheaper area may result in lower housing costs.

To support your retirement lifestyle, you may need other sources of income even if you sell your home. Funds could come from accounts such as an IRA, an annuity, or a pension. 

Retirement Income Can Be Generated Through Rental Properties

In retirement, you can earn money by owning a second property in your city or a popular vacation spot. If you buy an apartment, you can rent it to tenants and collect rent monthly. In the mountains, you could buy a cabin to use as a getaway and rent it out when not in use.

There is typically a large initial investment required for rental property, and making a down payment and taking out a mortgage might be the best way to pay for the place. Self-directed IRAs (SDIRAs) can be used to invest in real estate, but various requirements exist. You must pay cash from the SDIRA and also use the SDIRA to pay for all expenses related to owning the property. Additionally, you can’t stay or vacation at the property purchase through a SDIRA.

Consider whether the rental income generated by the property will be sufficient to cover the expenses. It may be difficult for you to sell your property in an emergency and receive cash if you own and rent a property. A low market price in a certain area could mean you don’t get the best price even if you sell.

Multi-property buying and selling

When housing prices are expected to rise, you might consider purchasing multiple homes to sell them later for a higher price. Renting out several properties could also be an option for you. You may be able to fund retirement by building a real estate portfolio as your income increases.

Although owning properties may increase your retirement funds, finding and acquiring them takes time, and some may need repairs. Time commitment is typically much greater for this type of investment than for others. It may be possible to reduce some of the stress associated with managing multiple properties by hiring a property manager, but the cost will cut your profits.

Contribute to an investment fund for real estate

You might consider contributing to a real estate fund instead of purchasing, renting, or selling the property yourself. There are a lot of ETFs and other vehicles that provide real estate exposure. 

With these arrangements, you can invest in real estate without owning a home. Therefore, you won’t have to manage a property or collect rent, and your investments will be more liquid. Risks associated with the fund include the possibility of its value declining.