Using Real Estate To Retire
Most people look forward to a relaxing retirement, living a comfortable life in their dream home and traveling the world. Whether you have a retirement plan that will pay you a pension or are planning on living off of a fixed income, it might be time to consider investing in real estate to fund the life and retirement you have always imagined. Rather than limiting yourself to what you think is possible in retirement, why not blow your dreams and goals out of the water by living a life full of abundance and growth even after you leave your day job?
Let’s break down what can be accomplished through real estate for retirees, and why it is a great option to explore further.
Cash Flow Is King
Going into retirement and knowing that you will be living on a reduced or fixed income can be overwhelming, so many soon-to-be (and new) retirees often find themselves scrambling to find additional ways to increase their monthly cash flow. Some realize that their regular activities and expenses will not fit in their budget once their annual income drops.
Non-Real Estate Cash Flow Options
Maintaining consistent cash flow going into retirement is both an admirable and achievable goal. Many turn to treasury bills and stocks that pay dividends. Treasury bills can be an excellent option if you have substantial liquid capital that you do not need to access for a long period of time and are satisfied with a lower-than-average fixed rate of return.
For example, at the time of writing, the yield on a 10-year treasury bill is 0.78%. Treasury bills are attractive because your investment is guaranteed by the US government. Because you cannot lose your initial investment, the rate of return received is lower than a non-guaranteed investment.
Stocks that pay dividends are similar. However, in this case, the returns are typically going to be slightly higher in exchange for an increased level of risk. Though you will most likely receive a higher return on your money, you also have a higher likelihood of losing your initial investment since it is not guaranteed by the US government. When investing in stocks solely for dividends, it is recommended to invest in stocks with dividend yields in the 4-6% range, which is on the higher side of what is observed.
Why Real Estate Is Better:
The reason you need to look into investing in rental real estate for retiring is the steady cash flow it provides. For investors willing to track down excellent cash flowing deals across the country, it is not uncommon to have rental properties that cash flow $300 to $700 per month in a healthy rental market.
In bad times for the real estate market, this monthly cash flow number might be cut down to $150 to $300, but at the end of the day that is net positive cash flow that you would not have otherwise had in your bank account. Additionally, your property will increase in value through appreciation (therefore hedging your investment against inflation of currency).
If you are able to use clever investing strategies such as Buy, Rehab, Rent, Refinance, Repeat (BRRRR), seller financing, and house hacking, you can quickly grow your portfolio of rental properties with very little capital out of your own pocket. This low barrier to entry is not usually a huge issue for retirees, but it means that the capital they have saved up over their lifetime can go a lot further.
If you have 40 rental properties cash flowing $500 per month on average, that means you are bringing in approximately $20,000 each month. You can use that capital to either grow your rental portfolio even further or fund your lifestyle in retirement. This is a healthy amount of monthly cash flow that would provide a high quality of life in most places in the world, but it is only an example.
Once they begin investing in real estate, many retirees fall in love with it. They then snowball their portfolio into hundreds of units that they can leave behind as part of their legacy. Others find that they only need four or five investment properties in addition to their other sources of income to live their lifestyle comfortably. They also realize that they are more than happy to acquire a handful of properties that are then maintained by a property manager.
Forty rental properties may sound like a lot of properties to own, but it is achievable for those dedicated to putting their time and energy into the pursuit of portfolio growth. The ability to increase monthly cash flow to cover living expenses and fund an exciting retirement is a huge reason that retirees should seriously consider investing in real estate.
Risky Business? No Thanks!
One often overlooked reason that is particularly relevant to retirees when it comes to investing in real estate over other options such as the stock market is preservation of wealth. Although the real estate market does have its cyclical ups and downs just like the stock market, real estate is still a hard asset. It is not as liquid as stocks — meaning it cannot be converted to cash or a cash equivalent as quickly — but if there is a crash in the market, it will still be there and be worth something.
While stocks can go down to zero value, a rental property will always have value to someone. The housing market is often directly inverse to the stock market, so even if you are invested in the stock market, investing in real estate is a great way to diversify your portfolio and spread your risk out as much as possible.
Real estate is special in the sense that there is a finite amount of it that can exist since it is not imaginary or digital and more land/real estate is not being made. There are no two identical pieces of real estate anywhere in the world. Although you can build two identical homes on two lots that are geographically close to one another, they still aren’t identical due to their difference in physical location. One will be worth more than the other eventually, whether due to proximity to amenities, property condition, water or minerals under the ground, or any other factors that come into play over time.
It is a fascinating concept to consider and something to be cognizant of when determining the best place to put your capital. The timeless tip of investing in what people will always need typically holds true: shelter, food, and water will always be in demand. Whoever has any of these goods and is able to provide them to others will always have a market for them. There is no time like the present for getting into real estate investing — demand for real estate will only increase over time.
Many of the world’s wealthiest individuals choose real estate as a means of wealth preservation for this exact reason. The money that’s spent on or invested in things like startup companies, vehicles, stocks, and timeshares can decrease in value to the point when it is worth next to nothing. High-net-worth individuals understand the benefits that real estate provides when you are seeking to preserve the value of your capital over a long period of time.
There are additional advantages to investing in real estate, such as having the ability to write off property depreciation on your taxes as well as any interest paid on notes if a loan is taken out on the property. When viewed in the long term, the lack of volatility in the real estate market compared to other investment options makes it a clear winner for those looking to preserve their wealth and not risk losing everything if a catastrophic market collapse were to occur.
Leaving Behind a Legacy
Our previous point of wealth preservation is a perfect segue into the third reason why you should look into investing in real estate to fund your retirement. Building up a portfolio of real estate investments to fund your retirement not only benefits you but also generations of your family to come (should you decide to leave it behind for your family). Another great option is placing your real estate into a trust that continues to benefit your family.
Whether you are an early retiree at 35 or you worked up until the day you turned 75 and are just now thinking about what you are going to leave behind for your loved ones, it is never too late to begin investing in something like real estate. Due to its consistent upward trend in the long run and ability to throw off cash flow that can be used to send grandkids to college and help with medical bills or any number of expenses that arise, real estate allows you to leave behind a great legacy.
It benefits you in your retirement by covering your expenses and hopefully funding the lifestyle of your dreams. When you pass it on to your heirs, it will provide them with a way to potentially relieve financial burden and get them one step closer to becoming financially independent. Of course, it will also provide them with one last reminder of the hard work you put in your whole life to get to the level of success you obtained.
Make Your Dream Retirement a Reality
Regardless of whether you have invested in real estate up until this point in your life, be sure to take a serious look at how it could change your retirement and fund the lifestyle you hope to have after your career. Its ability to produce cash flow, preserve capital, hedge against risk in other investments, and leave behind a legacy for those who come after you makes investing in real estate an excellent choice for those who are about to retire or who are happily retired now.