How Investing in Real Estate Can Turbocharge One’s Retirement Income
It’s not unusual to have financial worries concerning one’s retirement nest egg especially with such unstable economy and concerns like healthcare expenses, changes to Social Security that could reduce benefits, and other life situations.
So how does one boost their nest egg aside from the typical stocks and bonds? Would real estate do the job?
There are a number of real estate plays that can boost your retirement income. They include, but are not limited to:
- Real estate investment trusts
- Rental-property purchases
- Shares in crowdfunding ventures that redo houses, or
- Buy commercial property
But while these are great opportunities, remember that there are also risks, and as an investor, you must be willing to keep your money tied up and weather Real Estate dips as they do happen.
The median price of single-family homes hit $318,000 in the first quarter of 2018, up from $257,400 in the first quarter of 2007, overcoming the losses homeowners suffered in the Great Recession, according to Bureau of Census data.
Yet after about 9 straight years of real estate gains, there are mounting concerns that residential real estate is nearing another bubble, and the national average does not reflect a rise everywhere.
Here is an overview of the most common ways real estate can boost your retirement income:
- Tapping equity in your home
The most straightforward way to fund retirement with real estate is to tap equity in a home that is all or mostly paid for. Downsizing means selling the current home to buy a cheaper one and pocketing the difference. Moving might also reduce property tax, maintenance and utility costs. For a couple filing a joint return, up to $500,000 in gains on a home sale are free of federal tax.
Publicly traded real estate investment trusts (REITS) are like mutual funds that own commercial, residential or industrial property, or mortgage securities, instead of stocks and bonds. They pass to investors rental income, gains from properties that are sold, or payments received on loans in mortgage-backed securities.
- Direct ownership
Many advocates swear that owning investment property — a business, residential building or vacation rental — is the way to go. At the modest end, it could involve renting out a spare bedroom on Airbnb or buying a vacation rental or long-term rental. At the other extreme it could be the purchase of an apartment building.
In recent years a number of firms have started to offer investors chances to buy shares in specific real estate ventures, such as flipping individual homes or fixing up business space through crowdfunding platforms like Groundfloor, with a minimum investment of $10, or RealtyShares, with minimums as low as $5,000, depending on the project.
The investor can select from among a list of properties vetted by the investment firm, with estimated income and capital gains disclosed on the website but not guaranteed. It is an alternative to finding an investment property yourself, and the investor need only buy a small share of an individual project, making it possible to spread your money among various projects to reduce risk.