Owning investment real estate to generate income during retirement can be a valuable addition to your portfolio. There are several ways to utilize real estate in your retirement portfolio. In this article, we explore several ways owning real estate could be incorporated into your current balance sheet and become a major part of your retirement plans.
We will break down the different options you have and list a few pros and cons as well:
Related: 5 Reasons Why Real Estate Is a Great Investment
The most common way to make real estate a contributing factor in your retirement portfolio is owning rental real estate as a supplemental income stream. Let’s break down the pros and cons of such an endeavor:
There are a lot of great opportunities in the short-term rental space. This does bring on the added responsibility of marketing, generating positive reviews and buzz, as well as an increased need for maintenance and attentiveness. Like any small business where some extra work is required—if done well, it will pay off in the end. We have several clients who have had a lot of success with short-term rentals. There are even websites dedicated to helping you generate supplemental income from your properties.
Related: 9 Ways to Invest in Real Estate for Retirement
Physically owning and maintaining real estate is not the only way to go about benefiting from real estate as an investment. You might want to consider publicly traded real estate investments (REITs or Real Estate Investment Trusts).
These also come with their own sets of pros and cons:
My personal recommendation is, if you own publicly traded real estate, make sure you own it primarily for the income, not for the principal appreciation. Yes, you could potentially make money over time, but you should think of this transaction as an income play.
Another option to consider is the private REIT space. A private REIT will give you an investing experience somewhere between owning real estate and owning a publicly traded real estate fund. If you’re interested in the private REIT space, you should work with your advisor to do some due diligence and keep in mind the following:
Owning rental real estate can be a rewarding and wealth-building experience. If you’ve never owned rental real estate before, the idea could be daunting. But many experienced real estate investors will tell you that while the first investment property may be the hardest, it will only get easier from there.
Once you begin, you may experience a bad tenant. It’s bound to happen, and every rental owner should be prepared for the occasional bad apple. Don’t let one or two bad experiences scare you from being a landlord.
The more you’re willing to roll up your sleeves and get involved, the more likely you’ll succeed—just like with anything else in life. Any type of success in real estate does not happen by accident. Make sure you’re working with your financial planner and your property and casualty specialist to account for potential worst-case scenarios.
Whether you’re physically owning it with after-tax dollars or diversifying a portion of your retirement accounts into publicly traded real to increase your existing portfolio’s level of income—there are certainly a lot of potential benefits that at least merit a conversation about how you can utilize real estate in your retirement portfolio.
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