The Best Way to Invest in Real Estate for Retirement

Your retirement portfolio can benefit from real estate investments for several reasons and in several ways.

Possessing an investment in real estate to generate income during retirement can be a valuable asset. There are numerous methods to incorporate real estate into a retirement portfolio. 

Here are several ways that real estate ownership can be incorporated into your current balance sheet and become a significant component of your retirement plans.

Supplemental income source

The most common method to include real estate in your retirement portfolio is to own rental property as a supplemental income source. Let’s examine the advantages and disadvantages of such an endeavor:

The advantages:

  • A steady, potentially expanding income stream
  • An activity to keep retirees occupied
  • Possible further tax benefits and deductions
  • Excellent diversification from stock and bond markets

The disadvantages:

  • People seldom account for all expenses, including insurance, taxes, maintenance, poor tenants, etc.
  • A substantial down payment or cash offer is typically necessary to generate positive monthly cash flow.
  • Current mortgage rates are higher than in recent years, making generating positive cash flow more difficult.
  • Potential liability resulting from an unplanned catastrophe

Vacation Rentals

There are numerous excellent opportunities in the short-term rental market. This adds the responsibility of marketing, generating favorable reviews and buzz, and the need for increased maintenance and vigilance. Like any modest business requiring additional effort, it will pay off in the end if done well. There are even websites devoted to assisting property owners in generating additional income.


There is more than one method to profit from real estate as an investment besides physically owning and maintaining the property. Consider REITs or Real Estate Investment Trusts, publicly traded real estate investments.

These also have their advantages and disadvantages:

The advantages:

  • Comparing stocks and bonds with equivalent credit quality, those with a greater income stream.
  • A simple method for accessing niche markets (e.g., facilities and data centers, housing, offices, medical communities, etc.).
  • Adequate diversification from other stock and bond categories

The disadvantages:

  • The principal value will fluctuate with the market.
  • Not own possessing a physical asset.

If you own publicly traded real estate, you should do so predominantly for income and not capital appreciation. Yes, it is possible to earn money over time, but you should view this transaction as a passive income play.

Private real estate investment trusts (REIT) are another alternative to consider. A private REIT will provide you with an investment experience that falls between real estate ownership and publicly traded real estate fund ownership. If you are interested in private REITs, you should work with your advisor to conduct research and keep the following in mind:

  • How does the liquidity of the fund operate?
  •  What time commitment do you have?
  • What fees to a sponsor and a property manager would pay for
  • Determine the nature of these costs and expenses.
  • What do they possess, and what do they intend to purchase?
  • Have they completed a “full cycle” before?
  • How did their funds perform during previous real estate downturns?

You will need to accept that you relinquish control over these decisions while mitigating the risk of making poor choices by relying on professionals.

Why You Should Think About Including Real Estate in Your Retirement Portfolio

Real estate investment can be a rewarding and wealth-building endeavor. The notion may be intimidating if you have never owned rental property. However, many seasoned real estate investors will tell you that although the first investment property may be the most challenging, it will only get simpler after that.

It is important to note that once you begin, you may encounter a problematic tenant. It is inevitable, and every landlord should be prepared for the occasional problem tenant. Don’t let a few negative experiences deter you from becoming a landlord.

The more you are willing to try, the more likely you will succeed. Any form of real estate success does not occur by chance. Make sure your financial planner and property and casualty insurance specialist are on the same page about preparing for worst-case scenarios. No matter whether you own real estate with after-tax money or diversify a portion of your retirement accounts into it to boost your income level, real estate can offer a number of potential benefits.