“For certain people within 7-10 years of retirement, adding real estate to create passive income makes sense. Just be sure you have a well-thought-out game plan before you wade in.” Eric Coons
The closer many of us get to retiring, the more we desire investment alternatives that can help ease some of the sting caused by rising inflation, low interest rates, and market fluctuations. The possibility of outliving your money once you no longer draw a regular paycheck is a greater risk than ever before. Pre-retirees and retirees, even those with pension plans, realize that outpacing inflation is critical if they want to have a decent lifestyle in retirement.
Our economically and socially challenging times have produced some interesting strategies for creating retirement income. These strategies include buying small to mid-sized cash-flowing businesses, investing in cryptocurrency, or creating passive income through real estate. Many retirees look for solid alternative investments that don’t correlate to the stock market, especially those afraid of losing money that they don’t have time to recoup.
Could creating passive income from real estate be a solution?
For people within 7-10 years from retirement and are long-term thinkers, real estate can be an excellent addition to their retirement and income portfolios. Real estate investments get certain tax advantages that other investments don’t, such as the ability to grow your equity tax-free until the property sells. In larger projects, such as commercial buildings, cost segregation studies can significantly increase tax savings. Real estate is a hard asset which means that there is always some money in the land and the buildings. Stocks can fall to zero, but real estate does not. Real estate also has a lower barrier to participation than many other alternate investments.
However, as many landlords will attest, owning multifamily buildings or rental houses outright is anything but passive. Even if you can afford to turn the day-to-day operations over to a professional property manager, you may still be more involved than you would like. If you want genuinely passive income from real estate, you might look into real estate investment trusts (REITS) or syndications.
Syndications are an efficient way for real investors to pool their cash and purchase larger multifamily or other commercial buildings than they’d typically be able to do independently. When you invest in a syndication, you share ownership and profits with very little day-to-day involvement. The most difficult part of participating in a syndication is the due diligence you must do before committing to the project.
REITS are companies that invest in cash-flowing real estate. Investors buy shares of a REIT, effectively adding the REIT’s real estate holdings to their portfolios. Like syndications, REITs allow investors to own real estate passively, without the need to deal with tenants, toilets, termites, and the other issues that come with being a landlord.
Depending on your unique situation, real estate investing may or may not be ideal for you to create more income when you retire. If you have a short time horizon or little tolerance for risk, it’s wise to do some research on the pros and cons of passive real estate investing. Also, be sure to sit down with your trusted income and retirement specialist, CPA, or other financial professionals to discuss your options for adding streams of passive income to improve your retirement success.