Retirement today looks a lot different than it did twenty years ago. Where the population in the past planned on living off social security, today’s retirees need to focus on alternative methods. Retirees of the future will need to be even more diversified as the state of the economy remains in flux.
Options for Retirement Income
Many options exist for creating a cash flow in retirement. A 401K, Roth IRA or other retirement investment account are all excellent places to place some of your money. However, retirement savings can not be the only source of an income stream.
Real estate may be a viable option for many individuals and couples. Whether you plan to use your own home and the equity in it or you decide to purchase rental properties, using real estate as a source of income will take planning.
When is the Best Time to Get Started with Real Estate?
Ideally you will start investing in real estate as soon as you buy your first home. Ensuring that the equity in your home increases over the years can be done a number of ways. Buying a less desirable home and fixing it up is one way to increase the equity. Paying off a mortgage in 15 years rather than 30 is another great option. But even if you have waited a while to start with real estate, you still have time to use it to your benefit.
What are My Options within Real Estate?
Once you have equity in your home you have many options.
- You can sell your home and use that equity to invest in another home or in stocks, bonds and other cash investments.
- You can downsize into a smaller home and fund your retirement with the money remaining from the sale.
- You can use a reverse mortgage to fund retirement with the equity in the home.
The key, however is not to rely on the equity solely. The housing market could bottom out again or it could remain stagnant. The risk in relying on the equity may not be too big of a risk if you are working on a shorter time frame.
Are Rental Properties a Wise Investment?
Purchasing multiple homes and renting them out may be an excellent way to create a positive cash flow for retirement. A great way to start out is to buy a home and rent it out at market rate. If you have done your research and purchased a home with a mortgage payment near the market rate for rent, you can use that to pay off the mortgage and when it is paid off, that rent becomes positive cash flow.
Many people are using duplexes and triplexes as a way to invest in real estate. While living in one half, they are cutting their living expenses in half and then investing the difference. This is an excellent option as well.
Whether you want to get into the real estate business by becoming a landlord or by focusing on one property, the choice is up to you. The more time you have to focus on real estate, the better the investment will be. It remains to be seen if this will change in the next 10 to 20 years, but it appears that investing in real estate is a wise decision for funding retirement.
Add Real Estate to Your Retirement Mix
As with any other type of investment, it is usually unwise to go “all in” with one specific investment. You shouldn’t bet your retirement on a single company’s stock and you shouldn’t rely on your ability to sell your house to fund your retirement. Real estate can certainly be a way of forced savings over the years, and you can definitely trade down into a smaller home when you retire, but as with any investment there are risks you should be aware of.