There are many paths to building the wealth needed for a comfortable retirement, and it’s not necessary to choose just one. In fact, it’s probably not advisable.
Diversification is a key principle in investing. Stocks and bonds and other fixed investments should be an important part of your retirement strategies, to varying degrees over time, as should real estate.
Real estate investing is a vast realm unto itself, offering the opportunity to be as practical or third-party as you like, from fixing a flip to saving years of income from properties you don’t even own.
Here are six investment areas, broad inspirations to consider as you form your own picture of an affordable, comfortable retirement. Choose well and get them right, and you may find that your retirement date comes sooner than you might have expected.
your own home
For most homeowners, their home is their biggest investment. Downsizing this empty nest is a tried and true technique that millions of people have used to fund their retirement. Of course, how much it helps depends on how much it’s worth, and that depends on the price increase over the years.
Home prices have risen at a record pace over the past two years, but the story was already there. For example, recent research from Better Mortgage found that median home prices rose 43% in the 1970s. And from 1950 to 2020, price growth was about 326%. Prices are high now but there is potential for them to go even higher and you could benefit nicely if you choose well and to some extent lucky.
Turn the house over
Flipping houses has become a cultural phenomenon, the subject of many blogs and reality TV shows. How much you make depends on how much work you can do yourself, how much you can sell and – most importantly – how much you have spent on the place.
Soaring home prices and record-low foreclosure rates have made it harder to find bargains, especially in the country’s hottest real estate markets, but there’s still money to be made. In its latest US Home Flipping Report, ATTOM Data Solutions, a major provider of home numbers, says nearly 6% of all single-family home and condo sales in the third quarter of 2021 were flips. They said the return on investment averaged about 32% compared to the original purchase price, resulting in a typical profit of about $68,500.
Short term rental
Airbnb and Vrbo and the like are relatively new developments but there are millions of success stories of real estate owners making money from their houses, condos, yurts and yachts.,
The appeal of these platforms is that they handle the bookings and billing for these properties, but you still have to do the maintenance and housekeeping yourself – or pay someone else to do it – and the regulatory and legal environment for these types of rentals can be problematic , depending on where you operate.
Long term rental
There are many ways to own rental properties, including buying a home or condo outright and owning it as a landlord, or affiliating with others in a real estate investment group (REIG).
If you choose outright ownership, remember that you must decide how actively you want to manage the property, including collecting rent and maintaining it. Naturally, the more you do yourself, the more you’ll get from your investment as you watch its value increase over the years as you near retirement.
Real Estate Investment Trusts (REITs)
REITs own and manage portfolios of high-yield real estate. They are required by tax law to return at least 90% of their taxable income to shareholders and about 225 of them are publicly traded. There are also non-traded REITs.
REITs typically specialize in a particular type of real estate — industrial, retail, and residential, for example — and they can be very rewarding both as long-term pre-retirement investments and as sources of residual income after retirement. REITs have developed in a similar way to that in the past S&P500 and outperforms small-cap stocks by significant stretches.
Crowdfunding is another relatively recent development in real estate investing. There are a number of online platforms that allow you to invest in either fractional ownership of individual standing and development properties or in non-traded REITs. Minimum investments can range from hundreds to hundreds of thousands of dollars.
Many platforms advertise heavily online, touting attractive returns that could accelerate your retirement. Do your due diligence. Keep in mind that they’re not as liquid as buying publicly traded REITs or other real estate-related stocks, but that could be a good thing if you really want to buy and hold and grow the egg in your nest over time.
Real estate index, ETF and mutual funds
There are hundreds of opportunities to invest in real estate through the public markets. One of the biggest examples is the $42 billion Vanguard Real Estate Index Fund ETFan exchange traded fund that invests in a weighted collection of REITs.
There are dozens of other iterations on this theme, including funds that invest in a variety of real estate-related assets, including REITs, other real estate companies, and securities backed by such investments, just for starters.
Time is money: real estate investing can help you maximize both on the road to retirement
One of the tenets of successful real estate investing is that finding cheap property is great, but finding a great location is even better. This also applies to old-age provision.
If you choose wisely where you put your money – then add some and let it grow while only weeding out and harvesting when you need it – you should be well positioned when it’s time to stop working.