There are many ways to invest for retirement purposes. Most people are familiar with traditional methods of preparing for retirement, such as a 401(k), IRA or even a portfolio of stocks and bonds. However, not everybody considers the potential of investing in real estate as a retirement strategy.
Income vs. Appreciation
Investing in real estate can be a good option for those preparing for retirement because it can provide you with a money stream that is more or less passive. There are two ways in which real estate investment can earn you money. One way is through obtaining an income from collecting rent. Another method is through buying property at a low price and then selling it at a higher price when the market value appreciates.
Which strategy you choose will depend upon your financial circumstances and desired lifestyle. If you already have a large amount of money and capital saved up for retirement, you may have the option of being able to buy and sell property with the main goal of earning money from appreciation. However, if you happen to have less resources you may want to invest in real estate mainly for the purpose of providing you with rental income for your living expenses.
Collecting income from rent
Regardless of if your main goal is to earn income from rent or capitalize on appreciation, for some amount of time you will likely need to rent your property to a tenant. Even those looking for appreciation will want to rent the property while waiting for the market value to increase. Therefore, it is important that you understand what it means to be a landlord.
Make sure you study all that you can about real estate law from the point-of-view of being a landlord. Ensuring you are in compliance with the law will help you avoid legal issues with future tenants. Also, learn about the business side of being a landlord which includes how to find the best tenant, upkeep of the property, how to market the property and many other aspects you need to consider.
Capitalizing on appreciation
If your main goal is to buy and sell in order to capitalize on the increase in market value of the real estate, then you should familiarize yourself with the real estate transaction process. You should also keep close tabs on the local real estate market or wherever it is you are looking to buy. This will be necessary to find underpriced properties with strong potential to appreciate in the future. You may want to hire an experienced realtor who can guide you.
Consider your financial circumstances
At first it may not be apparent to you whether you should invest for rental income or appreciation. You may not even be sure if real estate is the right generational wealth strategy for your retirement goals. Hiring a professional wealth management advisor may help you better understand your options and how they may or may not work for your particular circumstances.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Be advised that investments in real estate and in REITs have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Real estate investments can be subject to different and greater risks than more diversified investments. Declines in value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments.