The fundamental need during retirement is that we have some source of income that helps us meet our financial needs during old age. The important thing is that this source should not dry up during our lifetime. Financial experts will tell you that it is crucial to start investing early in life and to diversify your portfolio, so that you have a good mix of investments that will stand you in good stead even during times of recession.
As a person who has spent most of his life in real estate, the one thing I have learned is that regardless of whether there is a recession that’s causing housing prices to plummet, this decline in real estate prices is always temporary and the market recovers sooner or later. After all, given that the world population is only increasing, the demand for housing will only rise.
So, if you ask me, there are multiple choices for retirement planning, but a good way to diversify your portfolio, while ensuring that you have an immovable asset for a rainy day, is to invest in real estate. This is because property investment does not rise and fall in correlation with the movement in stocks and bonds. In addition, the real estate market is not as volatile as most financial markets tend to be.
How Does Real Estate Help?
The first thing you should consider is the reason you are investing in real estate. For retirement planning, it is a good idea to invest in property that can give you rental income. This means that you need to look at single or multi-family homes or commercial property. The most direct benefit of investing in property is that you have a regular source of income in the form of rent. And, if you are worried that being landlord comes with its own share of challenges, you should know that hiring the services of a property management firm will take away all your worries.
If you have the stomach for it, USA has seen a rise in home flipping. Here, the investor buys property by assessing the profit that can be made with basic renovation and then selling the real estate within a short span of time. However, this is an effort and money intensive proposition, which might not be the best option for retirement.
Another way real estate can help during difficult times is to apply for reverse mortgage the home. This is one way to get regular income post retirement by allowing you to convert a part of the equity in your property into cash.
In addition, you are eligible for tax benefits on real estate ownership. This differs from state to state, so remember to find out about what tax deductions you will be able to apply for.
Factors to Consider When Investing in Retirement Property
Like in any other type of investment, there are some things that you need to keep in mind while choosing the property that you wish to invest in, such as:
- Your Budget: This is the first consideration because it will determine the kind of property you will be able to buy. Remember, you will need to put in a part of the total price as down payment from your own savings, while the rest can be financed through a loan. Again, if you are applying for a loan, you need to know the amount that you are eligible for and whether you will be able to repay the debt without adding too much burden to your monthly budget.
- Choose the Location: Once you have a budget in mind, the next thing is considering a location that is popular among renters. There is no point buying in a locality where your property will remain vacant for most of the year. Also, some people might not want to rent out their property to college students, which means they should avoid areas close to college campuses. Having said that, university towns like Knoxville, TN, actually offer a good source of regular rent via students.
- Potential Difficulties: Any type of property is likely to face problems from time to time. For instance, a tenant could default on rent, you could be stuck with high maintenance costs and more. As I mentioned earlier, it is useful to hire the services of skilled and experienced real estate professionals, who will not only help assess the property prior to purchase but also manage it for you, relieving you of all the stress of being a landlord. They will also follow up on rent and inspect the property regularly.
The bottom line is that real estate can be a great idea for retirement planning. However, before you jump into this arena, it is best to do your research and learn as much as you can.