How to Use Real Estate in Your Retirement Portfolio

Owning investment real estate can be a valuable addition to your portfolio to generate income during retirement. There are many ways to use real estate in your retirement portfolio. In this article, we explore several ways Real estate ownership Can be incorporated into your current balance sheet and become a key part of your retirement plans.

We’ll break down the different options you have and list some pros and cons:

Related: 5 Reasons Why Real Estate is a Great Investment

Supplementary income stream

The most common way to make real estate a contributing factor to your retirement portfolio is to own rental real estate Supplementary income stream. Let’s break down the pros and cons of such an endeavor:

Pros:

• A steady, potentially growing stream of income

• Activities to keep you busy in retirement

• Potential additional tax benefits and deductions

• great Diversification From stocks and bonds

Cons:

• People rarely factor in all the costs like insurance, taxes, maintenance, bad tenants, etc.

• Generating positive monthly cash flow often requires a large down payment or cash offer.

• Mortgage rates are higher now than they have been in recent history, making it a little harder to achieve positive cash flow.

• Potential liability from unforeseen accidents

Short term rentals

There are many great opportunities in Short term rentals The space brings with it the added responsibility of marketing, generating positive reviews and buzz, as well as increasing the need for maintenance and vigilance. As with any small business there is some extra work required – if done well, it will pay off in the end. We have many clients who have had great success with short term rentals. There are also websites dedicated to helping you generate supplemental income from your properties.

Related: 9 Ways to Invest in Real Estate for Retirement

Publicly held real estate investments

Physically owning and maintaining real estate is not the only way to benefit from real estate as an investment. You can invest in publicly traded real estate investments (REITs or Real Estate Investment Trusts).

These also come with their own set of pros and cons:

Pros:

• Higher flow of income Vs. Stocks and bonds with similar credit quality

• An easy way to access specific structures (ie, targeting warehouses and data centers, housing, offices, medical communities, etc.)

• Proper diversification from other types of stocks and bonds

Cons:

My personal recommendation is that, if you own publicly traded real estate, make sure you own it primarily for income, not principal appreciation. Yes, you can potentially make money over time, but you should think of this transaction as an income play.

Real Estate Investment Trusts (REIT)

Another option to consider is the private REIT space. A private REIT will give you an investment experience somewhere between owning real estate and owning a publicly traded real estate fund. If you are interested in the private REIT space, you should work with your advisor and keep the following in mind:

• How does fund liquidity work? What is your time commitment?

• You are paying a fee to the sponsor and a Property manager – Not entirely different from what you would pay when owning other properties.

• Understand what these costs and fees look like.

• What do they own and what do they plan to buy?

• Have they successfully gone “full circle” before?

• How did their funds do during previous periods of real estate distress?

• Accept the fact that you are giving up control over these decisions but minimize the risk of making a bad decision by relying on professionals.

Related: What you should consider in your retirement portfolio

Owning rental real estate can be rewarding and rewarding Wealth building experience. If you’ve never owned rental real estate before, the idea can be daunting. But many experienced real estate investors will tell you that while the first investment property can be the hardest, it gets easier from there.

Once you start, 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 a bad experience or two scare you away from becoming a landlord.

The more willing you are to roll up your sleeves and get involved, the more likely you are to succeed — just like with anything else in life. of any kind Success in real estate Doesn’t happen by accident. Make sure you’re working with your financial planner and your property and casualty specialist to account for the worst possible scenarios.

Whether you’re physically owning it with after-tax dollars or diversifying a portion of your retirement account into publicly traded real estate to boost your current portfolio’s income levels—there are certainly plenty of potential benefits—at least how you think about it. worth talking about. You can use real estate in yourself Retirement portfolio.