Is Real Estate A Good Investment For Retirement


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Is Real Estate a Good Investment For Your Retirement?

If youre reading this, you likely know that there is enormous value for investors in property investing. Real estate, particularly in multifamily and commercial properties, offers some of the highest ROI. But doing so takes a large investment of funds. What many prospective investors dont know is they may have those resources in their IRA and/or 401K. There are ways to use either of these to invest in multifamily and commercial properties.

With the stock market at record highs, many investors are looking to buy an investment property as a way of diversifying their portfolios. But with real estate also at record highs, it has created a dilemma for some investors: should they be saving for and investing in real estate, or should they stay the course and continue maxing out their retirement accounts?

Most people dont realize that it isnt an either-or situation.

In fact, it is possible to use both your 401k and individual retirement accounts to invest in real estate. And contrary to popular belief, it is possible to do so without suffering from steep withdrawal penalties.

There are some key differences between how to invest with either an IRA or 401k, which well cover in this article. This guide is intended to be an investors go-to resource for learning about how to leverage their retirement plans to buy an investment property, including the pros and cons of using this approach and alternative investment strategies to consider.

Real Estate Bubbles And How Toavoid Them

Idont need to remind you about how bad 2008 was for most of America.

Housingbubbles are bad, and we want to avoid them at all costs. At no point in time,for any reason, should your housing costs be over 30% of your structuredmonthly income.

If you currently own a home that youre renting out to tenants, this rule applies.

The mortgage on that home andthe mortgage of your home, combined, should not exceed 30% of your income. This will help protect you against a market backlash.

Ideally,youll want to have a savings account in place as well, and save the income youmake from your rental property to save for renovations or fixing problems withrental properties so you arent draining your personal income.

Onaverage, people pay between 50% and 70% of their gross monthly income onhousing. Thats one of the worst things you could possibly do. Keep this costlow to avoid another bubble or collapse.

Why Is Real Estate A Good Investment For Retirement Tax Benefits

Making money in real estate investing is great, but whats even greater is having tax deductions! Property investors will have to pay property taxes, but there are certain tax benefits and mortgage interest deductions provided to them. For example, the rental income which the rental property generates is tax-free. Furthermore, besides mortgage interests, the investment property taxes, operation expenses, and insurance are all tax deductible as well.

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Exactly how much a real estate investor can deduct depends on his/her rental income. Regardless, no one can deny the positive impact that tax deductions will ultimately have on a real estate investors wealth and the amount of money he/she will save, whether for retirement or career purposes, which is another reason for why is real estate a good investment for retirement.

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Creating A Tax Shelter

Rental real estate also offers several tax advantages, including depreciation, which can help offset some of your taxable income. Depreciation is the act of deducting a portion of the property’s value each year to reflect general wear and tear over time. Of course, depreciation is eventually recaptured on your taxes when you sell the property, but if you plan to hold the rental for the long haul, it’s a helpful way to reduce your annual tax burden.

You can also take deductions relating to the management or ownership of the property, including rental repairs and improvements, management fees, property insurance, and more. These deductions help reduce the amount of cash flow you receive, making $300 a month look like $150 a month or less when it comes to taxable income. If an extensive repair like fixing the roof comes up, this can significantly reduce your tax burden for the year.

What Are The Pros Of Investing In Your Pension

Working Real Estate Investing Into Your Retirement Strategy ...

A pension is basically a long-term investments plan with tax relief. Getting tax relief on pensions means some of your money that would have gone to the government as tax goes into your pension instead. Most pensions today are defined contribution schemes . Both, however, enjoy the same tax advantages, making them more efficient investment vehicles than any other mainstream product.

As you save into a pension pot, it builds up compound interest over a period of many years. The earlier you start investing in a pension, the more youll benefit, as the interest itself earns more interest and the whole pot grows faster.

If you have a self-invested personal pension you can take more control over the types of investments you include in it. You can even invest in property via your SIPP, so its not an either-or question about pension or property you can invest in one using the other.

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Senior Living Reits: Good For Your Portfolio

Should senior living REITs be a part of your portfolio? A REIT, or real estate investment trust, is a company that owns, or finances, income-producing real estate.

Like mutual funds, REITs provide everyday investors with dividend-based income and long-term capital appreciation. Diversified or specialty REITs might hold different property types in a portfolio, ranging from apartment complexes to retail centers, to infrastructure such as cell towers or energy pipelines. Unlike real estate proper, your investment in REITs are liquid, with shares you trade like stocks on an exchange.

REITs must pay more than 90% of their taxable income as dividends to shareholders, who then pay income taxes on those dividends. Doing so allows them to forgo corporate income taxes.

REITs allow investors to target industry trends. In the early 2010s, urban growth outpaced suburban growth for the first time since the 1920s. With a parallel boom in online shopping, REITs strictly or heavily exposed to malls presented greater risk to investors. An aging population, however, can present opportunities for investors looking to capitalize on changing demographics. Increased demand for senior living properties could forecast growth for senior living REITs.

Why Is Real Estate A Good Investment For Retirement Passive Income

The first and most basic answer to why is real estate a good investment for retirement is that it allows you to generate a steady passive income for your golden years. Property investors receive passive income in the form of monthly rent which they collect from tenants renting their investment property.

This steady rental income is a real estate investors best friend when it comes to retirement plans not only does it help in paying mortgage payment and becoming debt-free, but it also makes life much more lucrative. If a real estate investor makes smart investment decisions, he/she can live on this rental income and retire completely, which is why is real estate a good investment.

Related: How Can You Generate Passive Income in Real Estate Investing?

Keep in mind, however, that at the beginning of your real estate investing career, you wont be seeing a lot of this money. When you buy the rental property, youll have to finance it with a mortgage . Therefore, part of your monthly rental income will have to cover your mortgage payments. In addition, a real estate investor has to pay for things like property taxes and insurance, not to mention other expenses such as costs of repairs and maintenance.

Therefore, passive income is a huge incentive and part of why is real estate a good investment for retirement, but a real estate investor has to be patient with the process.

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Retire Early With Real Estate

When you talk about retiring early with real estate, the default answer for many is, Ill pay off the house. A common second answer is, I can borrow against my home equity if I need the money. The best answer would be, Thats how I pay for my early retirement. Real estate is often viewed as an effective way to hedge against market volatility. The best way to retire early with real estate is by investing in rental properties as they generate passive income.

Ways To Invest In Real Estate For Retirement

How To Start Retirement Investing In Real Estate?

Lets get real about investing in real estate for retirement.

Investing of any kind can be complicated at any point in your life. However, investing in or near retirement can be especially arduous. At retirement you need your assets to be relatively free of risk while keeping pace with inflation. In many cases, you need your assets to provide income. And, you want to minimize taxes and costs.

And it is not something you can afford to get wrong. Most of us need the money we have accumulated over our lifetimes to fund our golden years.

So, is real estate a good investment at this stage in your life? It all depends. What are your interests? What kind of money do you have to invest? What are your financial goals? What kind of lifestyle considerations might come into play?

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Build An Emergency Fund

No matter what type of retirement plan you go with, emergencies can happen. When you put extra money toward an emergency savings fund, you have enough money to cover small, unexpected expenses.

If you invest in real estate, emergency expenses can pop up all the time. For instance, emergency maintenance costs, appliance upgrades, and occasional vacancies.

Estimate Other Sources Of Income

Will you have other sources of income when you retire? Or will rental properties be your only source?

Other sources could include:

  • Social security pension
  • Employer pensions
  • Stock dividends
  • Interest from personal loans or crowdfunding sites like Lending Club.
  • Annuities

I tend to heavily concentrate in one sector . I do like Warren Buffett says and put my eggs in one basket and watch them very closely! But I plan to continue diversifying over time. So, an estimate of other income sources makes sense.

And if real estate investing is only a small part of your overall retirement plan, this is where you incorporate the other income streams from your portfolio. Mixing and balancing those will take some thinking and perhaps some professional advice. But real estate can be the solid and steady source of income at the core of your plan.

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Rental Income Retirement Strategy

A second viable strategy is retirement through rental income. There are many ways to make passive income in real estate. One of them is direct income from rentals. Rental income retirement strategy is best option for retiring early with real estate. Once the income surpasses the expenditures, then you are on the winning side. In this strategy you’d be buying detached single family homes to rent out. You receive a higher rate of return on these properties than duplexes or triplexes. The properties are easier to sell if you want to get out of it.

We recommend single family homes over owning condos because condo home owner association rules could limit how the property is used including as a rental unit. Another issue is the boom and bust cycle of condos. While you could find a condo at a deep discount during a bust, the lower limit of rent you could charge is set by the surrounding apartments. If you buy at the peak, your return on the investment is lower while the rent you charge is still determined by what surrounding apartments go for. The only potential benefits to condos are the elimination of yard work and the occasional ability to get a bulk discount for buying several properties.

Positives/negatives To The Leveraged Rental Retirement Portfolio

#IamRealEstate Real estate investing is a get way to secure your ...


  • You locked in low-interest, long-term debt secured by quality rental properties. This is a GREAT inflation hedge.
  • In addition to cash flow, you will also receive growth from amortization of loans
  • You have the potential for price and rent appreciation since you bought these in a solid location, which could send your returns off the chart in the future.


  • 28 properties to care for as an asset manager and/or property manager. Without strong systems, this could be a hassle.
  • Financing for 28 properties at those attractive terms could be challenging .
  • The next Great Depression could expose the entire portfolio to a risk of loss. Would you have cash reserves to survive if rents crater by 25% or even 50%? Few investors could survive that, which is something to think about even if the chances are very small.

This example, like all case studies, has more details we could discuss and debate. But I hope it illustrates one possible type of retirement rental portfolio.

Now lets look at one without debt.

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Real Estate Is Improvable

One of the most unique and attractive advantages of real estate is that it is improvable. Because real estate is a tangible asset made of wood, brick, concrete, and glass, you can improve the value of any property with some “elbow grease” and “sweat equity”. Whether the repairs are structural or cosmetic, do it yourself or hire someone, the principle is the same. You can make your real estate worth more by improving it.

Getting The Balance Right

Investing is all about balance. Ideally, you want to have a diverse set of assets that can help smooth out the economic bumps in the road. Many people approaching retirement will have a family home, a super balance, and perhaps a share portfolio of some sort.

An investment property can help to further diversify your assets, and comes with a number of potential benefits including:

  • A regular source of income. Rental income can provide you with a monthly top-up to your super / Age Pension.
  • Tax incentives. Depreciation can help offset some of the costs involved in an investment property.
  • Potential property value gains: Australias property prices have increased dramatically over the past decade.

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Is Real Estate Really That Good Of An Investment For Retirement

Retirement real estate investing can be extremely beneficial, if you do it right.

With every type of investing, there are right and wrong ways to approach them.

If you think about it, the most expensive investment that most people will make throughout their lives is purchasing their own home. Real estate is big, if you play your cards right.


  • 4 Invest Better Every Day
  • What Are The Pros Of Property Investment

    Real Estate and Retirement | Is it a good asset to have in your portfolio?

    When it comes to picking an investment most likely to grow over the years, property has long been seen as a good choice. The UK property market has been famously bullish, despite the occasion slump typically lasting a few years. And as property values have continued to soar over recent decades, some investors have indeed capitalised on the trend of building property portfolios worth hundreds of thousands of pounds.

    In addition, the demand for buy-to-let properties remains high and, because demand outstrips supply, property investment can offer a huge opportunity. Along with rental income, the potential increase in value of the property over time can deliver a sizeable profit when you come to sell.

    The combination of rental yields and capital growth means you have both immediate income and the potential for long-term profit. You also have the option to sell the property at any point and invest the money in other ways. Those are the main advantages of this kind of investment though property isnt without its drawbacks too.

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    Why Use Real Estate For Retirement

    Based on the pros and cons above, its clear to see that real estate investing can provide higher returns and more advantages. However, that doesnt make stock investments a bad decision. Instead, real estate investors might want to consider both if theyre looking to retire early.

    Many people use real estate for retirement funding because it offers steady financial growth and more predictability. Additionally, your investment property can appreciate over time, which ultimately increases the value of the property.

    Once youve gone over which investment strategy you are most interested in, youll want to set financial goals. While your goals may be entirely personal, here are some tips for setting and achieving financial goals.

    Rental Incomes Are Rising:

    From the graph, we can see that asking rents have steadily risen over the years.

    Rental properties provide a stable amount of rental income that increases over the years.

    And with the uncertainty of the stock and bond markets, rental income is yet another source of monthly income, diversifying your wealth and exposure to any one market.

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    What Are The Requirements To Buy A Property With A 401k

    Whereas IRAs can be used to invest directly in real estate, tax laws prohibit people from using their 401k to invest directly in real estate. That said, there are still ways to purchase investment property by leveraging your 401k.

    There are a few ways to do this.

    The first way to invest in real estate using your 401k is by taking out a loan against it. Most plans will allow you to do so, so its important to check with your plan administrator before pursuing this route. Assuming its allowed, you are typically able to borrow half of the value of your 401k account, up to $50,000. The loan must be structured as a bona fide non-recourse loan, which is a type of loan that is secured by collateral in this case, it will usually be the rental property being purchased. This way, if the borrower defaults, the issuer of the loan can seize the collateral but cannot seek any additional compensation, even if the collateral does not cover the full value of the defaulted amount.

    Most plans require you to repay the loan in full within five years, and youll be required to pay interest on that loan . That said, the interest payments are made back to the retirement account, so you are essentially just paying that interest back to yourself.

    If the loan is not repaid by the deadline, the loan will be treated and taxed as though it was an early distribution resulting in a 10% penalty as well as income taxes owed based on your tax bracket.

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