Everyone has their reasons for investing in real estate but investing for retirement is by far the most common. That’s for good reason, too – real estate is widely regarded as the best way to build passive wealth!
But an effective retirement investing strategy isn’t one-size-fits-all. Depending on your goals and starting point, things are going to look a little different.
Here’s what you need to know:
Why Passive Real Estate Works for Retirement
Before we get into strategic considerations, we should establish why real estate is such a prized strategy for building retirement wealth. It comes down to a combination of these factors:
- Income-generation. Rental properties generate monthly income. That income increases drastically once the mortgage balance is paid. It’s also passive, meaning you can work or enjoy retirement and still enjoy consistent cash flow.
- Your net worth grows with the number of assets you hold. Real estate investors leverage bank lending to minimize the amount of their own money put into the investment. Then rental income is used to pay down the mortgage. This maximizes your equity!
- A hedge against inflation. We’ve seen how the ebb and flow of the economy can devastate traditional retirement accounts. Whether inflation or recession, the best way to grow and maintain wealth is through real estate. Its value grows with and often exceeds inflation rates. Because we’re dealing with essential assets, there will always be demand, too!
6 Considerations About Retirement-Focused Real Estate
Consider: When should you start investing?
Where real estate is concerned, the earlier the better. You want as much lead time as possible because this allows your property values and equity to maximize come retirement. Ideally, too, you’ll have paid off outstanding debts before you retire. That way, you can enjoy passive income in its entirety. With that said, it’s never too late. Invest when you can do so effectively and responsibly, regardless of how close or far retirement may be.
Consider: Where should you invest?
Where you invest makes all the difference in the world. Looking ahead to the future, we can’t know what any given market will look like by the time you retire. But a pattern of stability, economic diversification, population and market growth, and real estate demand will set the stage for success. Pick your market and your properties very carefully.
Consider: Should you use an SDIRA to invest?
The structure of your investments matters. Using an SDIRA contains both income and expenses related to your investments in one account. These accounts allow you to invest tax-deferred and are designed to be utilized for retirement. But unlike a traditional retirement account, your real estate investments in an SDIRA will continue to generate income for as long as you hold them. Instead of watching your retirement account dwindle, you’ll be earning income without the work!
Consider: Are you prepared for the risks and recurring expenses?
No investment is without risk, because without risk there’s no reward! When you’re investing for retirement, you need to consider what you’re willing to invest – and by extension, what you’re willing to lose. The reality is this: there will be recurring expenses, unexpected risks, and other issues to contend with. A great property management team minimizes these, but you’ve still got to prepare yourself!
Consider: What's your risk tolerance?
How much risk are you willing to take on? This can determine where you invest, how quickly you scale, which services you rely on, and which strategies you employ. Risk tolerance varies from person to person, so discuss your goals, including your comfort level, with your portfolio advisor. They help you mitigate risk while maximizing results.
Consider: What's your plan for your portfolio?
No one makes a dream retirement from a single rental property. Investors must scale their portfolios to compound their passive income. The frequency of these property acquisitions comes down to your overarching investment goals as well as your risk tolerance. Sit down with your advisor to determine an appropriate plan for portfolio growth based on these factors, plus the resources at your disposal. Once you get into a rhythm, you won’t be able to stop!
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