Real estate investments are soaring quickly.
Twenty-eight percent of investors have said that real estate is the next king, and is the best kind of investment to make.
And what is the best way to invest in real estate? Through rental homes.
You might already be thinking that real estate values constantly fluctuate, but what makes real estate investment better than other physical property investments is that they’re always worth something, while other investments can drop all the way to zero.
Of course, as with any investment, there are a few drawbacks.
The first drawback is the huge investment required to get a house, but the truth is that it’s only the initial investment that requires a significant one-time payment. Then, add in annual maintenance like fixing leaks, and dealing with unruly tenants.
So, is it really worth it to invest in real estate as your retirement income?
Keep reading and find out!
why it could be a smart move:
1. The more investments, the better
If you’re already investing in stocks and bonds, you’re in volatile waters. That’s because these sectors have a higher chance of falling. Sure, you might have invested in a lot of stocks, hoping that when one stock falls, the others don’t. But, having diverse investments (meaning not just stocks) reduces the risk of losing loads of money all at once.
While real estate is still tied to the market, just like any other investment, you can expect steady growth over time. Property value and rent won’t take huge leaps like stocks and bonds do, but at least you’re in an area of security.
2. You’ll get to charge rent and have steady income
Probably the main reason why you’re looking for a source of income is to take care of your needs after retirement. Investing in real estate enables you to collect monthly income and eventually, this will accumulate into a higher amount. You won’t see it at first because you’ll have to cover our mortgage and other expenses, such as insurance, taxes, and homeowner fees.
But, if you rent our the home, you should expect a stream of constant income.
Why it could be a bad idea
Let’s take a look at some of the cons of investing in real estate as your retirement plan.
1. Unwanted surprises
The air conditioning system breaking, the roof leaking, pipes bursting, termites infesting…
Owning a property is never an easy job. While you may leave the responsibilities to your renter, there are still lots of responsibilities on your plate, and that includes home repairs. Even if you’re not living there, you’re still responsible for maintaining and fixing the home you invested in.
2. Will someone even rent your place?
Finding a tenant is one of the biggest challenges when investing in a rental home. Most tenants have lots of requirements and requests, and they’ll negotiate as hard as possible to get the best deal on their end. In addition, you have to process their applications, run background checks, and more, which can definitely be time-consuming. Unless you get a tenant sent from heaven, then you’ll have to deal with tenant issues every now and then.
“I listed the home for 3 months before I could even get a decent offer,” said Jessica Simmons, Administrative Assistant at Assignmenthelper, who had to place her home in the U.S. for rent when she had to move to Australia. “It’s definitely a task you can’t do
without a real estate agent to help you out.”
3. It’s still your expense
Even with rentals, you’re still in charge of paying for mortgage, taxes and insurance.
So you’re never really free from it.
Some things to consider before investing in real estate
If you decide to invest in a rental home, be prepared to do the following:
- Have a backup emergency fund just in case your rental home isn’t doing the best. You should save as much as the highest deductible amount from your insurance policy.
- Different states have different laws in regard to rental homes. Be sure to do your research especially now that you’re becoming a landlord.
- Have at least 20% of the property’s cost as down payment.
What if it’s not for you?
Maybe the responsibilities of being a landlord are too much for you. Thankfully, you can still make real estate part of your retirement plan b investing in REITs or Real Estate Investment Trusts.
REITs work like stock trading. They are funds invested in a variety of real estate, both residential and commercial properties. The investment isn’t as huge as a direct real estate investment, but it will generate a decent amount of cash flow enough to keep you
on your feet for a long time.
ABOUT THE AUTHOR
Lucy Benton is a marketing specialist, business consultant and helps people to turn their dreams into the profitable business. Now she is writing for marketing and business resources. Also Lucy has her own blog Prowritingpartner.com where you can check her last publications. If you’re interested in working with her, you can find Lucy on Twitter.