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Retirement Planning – Real Estate Investing

business paperwork on a table with a beach in the backgroundRespondents were asked about their leading retirement concerns during a survey of American workers of all age groups. A shocking 51% said they feared outliving their savings and investments. People feared their retirement funds would not last as long as they would live.

That is heartbreaking and alarming at the same time. Think about it; hundreds of thousands of decent folks who have spent the best part of their lives serving the American dream are going to spend their final years hoping and praying that death comes for them before their money runs out.

Why does this happen?

The reason is simple. The premise for the standard model of retirement planning used by most people is wrong. Most retirement plans are based on a person’s ability to build a nest egg that is large enough to last them throughout retirement. In other words, retirement is built on a store of depleting assets.

Following this plan, the person enters retirement with a specific amount of assets. Those assets are bound to deplete and eventually run out as the retiree spends to pay their bills. But what if you could build your retirement plan on a store of assets that continue to appreciate throughout retirement?

Incorporating real estate investing as a fundamental element of your retirement plan, rather than just a minor aspect of the overall strategy as commonly practiced. Real estate investing is a time-tested strategy to build a foundation for worry-free retirement. How do you invest in real estate to build a store of income-producing assets for your retirement years?

Real estate investing for retirement planning: what you should know to get started

aerial view of a neighborhood

Why real estate?

  • Unlike stocks, real estate does not have to be liquidated for the investor to earn an income from their assets.
  • Real estate sustainably produces income. Investors can increase that income by improving their property and raising the rent.
  • Real estate is less volatile than other assets; it is more resilient because it responds slowly to changes in the market.
  • Real estate investing gives investors more control because, unlike stocks, they can be directly involved in property management.

How much money do you need to invest in real estate?

That depends on how you choose to invest. You have two options: direct or indirect investment in real estate. Investing directly in properties is more tedious but also more profitable.

  • If you choose to buy real estate directly, you typically need to secure financing for the property. Mortgage lending guidelines require applicants to be employed. So, if you plan to finance a property, you must do it before retirement.
  • You must have at least 20% of the property’s value in cash to receive approval for your application. That is your down payment. Additionally, you will need cash for the closing costs. It usually ranges from 2% to 5% of the property’s value.

Real estate investing options for retirement planning

happy senior couple browsing their computer

One of the reasons to adopt real estate investing as a strategy for retirement planning is the range of real estate investment options:

  • Rental properties are location-dependent investments that require direct oversight. You may hire a property manager to market the property for you.
  • Real estate investment trusts (REITs) let you invest in a diversified portfolio of income-producing assets. REITs distribute the income from assets as dividends.
  • Real estate crowdfunding is an online platform that lets you invest in specific real estate projects with other investors. You own a part of the property without having to manage it.
  • Fix-and-flip involves buying rundown but viable properties and renovating them to sell them for immediate profit. It is lucrative but requires a lot of expertise.
  • Real estate ETFs (Exchange-traded funds) offer diversification across various real estate sectors: residential, commercial, and industrial properties.

How much could you earn, and how much time do you need?

Instead of asking how much you could earn, you should ask how much you need to earn to live comfortably in retirement. When you have decided on the amount, you can walk backward to create a real estate investment plan that will let you earn that money every year.

Ideally, you want to start investing in real estate early, but it is never too late.

Even if you are nearing retirement but feel as if you don’t have enough money to retire, real estate investing still offers a better way to earn significantly more income than those passive assets that are often recommended for retirement planning.

But how do you make real estate investing work for you, regardless of how close you are to retirement? You will need a financial planner with vast experience in real estate investing for retirement planning.

Working with a competent and trustworthy financial planner is vital because what you have read in this post is only a highly simplified explanation of how to get started investing in real estate as part of your retirement plan.

For a fuller understanding of how to build an effective strategy that reflects your specific needs and unique circumstances, you will want to speak to one of our financial advisers.

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