Can Residential Property Fund Your Retirement?

Fortuous • Apr 01, 2021

Thinking about retirement can be stressful. You need to plan for how long you think you’ll be retired, what lifestyle you’ll want to lead, and approximately how much you’ll pay to maintain your cost of living plus any additional expenses. There are a lot of unknowns and “what ifs” that you might not be able to anticipate, and many of them can affect your finances.

Many people ask whether residential property can fund a retirement. It can, but you have to be smart about it. As with any investment there are risks, and real estate costs money upfront, regardless of how much you ultimately make. So before you invest in residential property, you’ll need to think a few things through.

Here are some tips to getting the most out of a real estate investment to fund your retirement.

1. Understand your current financial state

There’s no point in deciding how beneficial real estate will be if you don’t have a clear picture of your current financial state and your goals. If you’re only two years from retirement, investing in real estate could be risky as you’ll have a low tolerance for losses and less time to reap the rewards. If you’re early in your career the value of the investment property will have time to grow. That said, there are always fluctuations in the market and a sudden drop in housing prices could affect your investment no matter how long you have it.

You’ll need to know what you can afford to pay right away, too. You’ll have to cover a down payment and property taxes. Additionally, if your property is a rental, you’ll still have to pay the mortgage even if you have no renters. Depending on how long you own the property you may have large bills to maintain the premises.

2. Know the area you want to buy in

Knowing where you want to buy is vital to a more stable investment. Even in market downturns, there will always be areas of a city that are in demand. Research the area and find out where housing prices are stable or increasing, where there are desirable features nearby—parks and schools, for example—and where people tend to want to live.

Buying without that information can result in investing in property in a less desirable area which will make renting the unit or selling it that much more difficult.

3. Know your strengths

There are a variety of ways to invest in residential property that can earn you an income if you know how to leverage them best. Buying with the purpose of renting something out and holding onto it for a long time can earn you money, as can purchasing land and flipping it quickly. You may know contractors (or be a contractor yourself) and find it convenient to purchase a rundown home in need of remodeling and then sell it when you’ve fixed it up. Each of these strategies has its benefits and drawbacks. Knowing which works best for you based on your financial profile and your talents will help you make the decision that’s best for you.

Final thoughts

Residential property can definitely help fund your retirement. The key is choosing a strategy that meets your needs and helps you attain your retirement goals. If you’re not sure about your financial needs in retirement or what your tolerance for losses are, talk to a financial planner who can answer your questions about retirement savings and help you develop the best solutions for you.

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