Why You Should Put Your Retirement Money in Real Estate
After retiring, some people look for a property they can flip, or a house they can renovate for quickly selling in a rising market. Many people also acquire a real estate property (apartments, duplexes of office spaces) for generating continuous income. Real estate has proven a wonderful asset when you are retired. You may not need to make a profit immediately to make the purchase worthwhile, particularly if you are secure financially.
Retirees should focus on properties that generate positive cash flow of no less than 6% (beyond costs) and should be ready to hold and buy. Perhaps the most crucial way of using your retirement money is to buy a place near your existing home. This will allow you to keep tabs on your real estate investment.
How You Can Go About It
Along with owning a home and including it in your retirement nest egg, here are some of the trendiest ways to buy real estate directly or indirectly:
Direct Ownership:
- Flipping houses that involves fixing or repairing houses and selling them at a profit
- Owning a property to rent out
- Owning commercial real estate for renting to business tenants
Indirect Ownership:
- Investing in a mutual fund or holding a share in REIT (real estate investment trust)
- Acquiring a stake in real estate
- Owning privately-held or publicly-traded debt on real estate
- Commercial mortgage-backed bonds
Real Estate ROI
Even though there’s no fixed rule on how much of your retirement money you should invest in real estate, advisors recommend investing 5% to 10% of your savings is a good strategy. Permanent returns on a real estate investment should be 3% to 6% a year on average. When you own property directly, the risk of losing money is lower.
Real estate is a fairly easy business to comprehend and pursue as compared to investing in stocks. Easy maintenance, good location, rental and property growth are the factors that make it a valuable asset, unlike stocks where you have to deal with several variables, including politics, industry growth, management credibility, tax policies, inventory turns and margin analysis. No wonder we observe a large number of first generation immigrants building wealth on property.
Even though real estate requires constant maintenance, rental income has been one of the best passive methods of getting steady profits. However, this does mean you have to spend the time and effort necessary to find the right tenant to rent out your property to.
As a property owner, you can expect to collect returns for at least a year before you might start looking for the next tenant. This rental income is also completely or partially guarded by non-cash depreciation, thanks to the government.
If you do not want to keep asking people to pay up, you can hire a property management company that takes care of everything. Of course, the cash flow from the property should be sufficient enough to pay the fee for this process.
Any piece of real estate, big or small, is a valuable asset to pass on to your heirs. We have all heard of a friend who inherited a home from his parents or a grandparent that was originally bought for $10,000 but is now worth hundreds of thousands of dollars. Many people who jump on the real estate bandwagon without understanding how it works risk losing their retirement money. There is a right kind of investment for every retired individual for gaining maximum profits.