Can Investment Real Estate Fund Your Retirement?
The road to financial security in retirement requires strategic planning and sound decisions. In an era where traditional retirement funding options like pensions and Social Security face uncertainties, many pre-retirees are exploring alternative paths. One such possibility is funding retirement through real estate investing. But can investment real estate really fund your retirement?
Investment real estate can be an attractive alternative or addition to traditional investment routes, such as stocks and bonds. It offers potential advantages but also disadvantages. The decision to invest in real estate should be made carefully, considering its complexities and risks.
Potential Advantages of Owning Investment Real Estate
Stable income: Real estate investments, particularly rental properties, can provide a consistent income stream, which is particularly beneficial during retirement.
Appreciation: Over time, property values tend to increase, which can lead to significant profit when selling.
Diversification: Real estate can serve as a tool for portfolio diversification, potentially reducing investment risk.
Potential Disadvantages of Owning Investment Real Estate
Maintenance and unexpected costs: Real estate properties require ongoing maintenance and occasional substantial repairs. These expenses can be unpredictable and may disrupt your financial planning.
Market volatility: Real estate markets can be as volatile as the stock market, and property values can depreciate, leading to losses.
Liquidity: Unlike stocks and bonds, real estate is not easily convertible to cash. If you need access to funds quickly, this could pose a problem.
Taxes and regulations: Real estate is subject to property taxes, and the sale can result in capital gains tax. Additionally, landlords must comply with numerous regulations.
How Does Real Estate Compare to the Stock Market?
When deciding between investment real estate and the stock market, you’ll want to consider after-tax returns and expenses. Real estate can offer tax advantages such as depreciation deductions and the potential for tax-free exchanges. However, it comes with expenses such as property taxes, insurance, and maintenance.
On the other hand, stocks generally have lower transaction costs but can be subject to significant capital gains taxes.
Historically, the stock market has provided higher long-term returns compared with real estate. However, the stock market can also be more volatile, presenting higher short-term risk.
Aligning Real Estate Investment with Your Retirement Goals
Understanding the role real estate can play in your retirement strategy depends largely on your financial situation and retirement goals. Consider your income needs during retirement, your desire (or lack thereof) to actively manage properties, and how real estate investment aligns with your other investments.
You might find it helpful to work with a fiduciary financial advisor. An advisor can help create a customized retirement strategy that incorporates real estate as part of your overall financial situation. And because they are a fiduciary, their advice is required to be in your best interest.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was generated using artificial intelligence (ChatGPT) and edited by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Roseville and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.