Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

7 Retirement Real Estate Investing FAQs

Written by JD Esajian

We’ve all heard the worst-case scenarios: pensions and Social Security benefits are on less-than-solid financial footing, and they may not provide the steady retirement income needed for your golden years.

You might even be considering an alternative approach to retirement income and thinking about devising a retirement real estate investing strategy to give you solid streams of passive income — and avoid the roller-coaster of 401(k) plans which may or may not provide the financial foundation you need later in life.

But you might also be wondering what exactly retirement real estate investing looks like? What are the pros and cons? And how can investors develop an effective strategy to prepare for retirement, especially when it comes to finances?

Here are seven retirement real estate investing FAQs to give you a primer to this often lucrative (though somewhat intimidating) form of passive income generation.

Retirement Real Estate Investing Made Simple

Retirement investments

What the heck is retirement real estate investing?

Retirement real estate investing is simply the process by which you accumulate real estate assets (in the form of rental properties) for the purpose of providing streams of passive income — mostly through rent paid by tenants — during your retirement years.

How does this approach differ from typical real estate investing?

While real estate investing as a wealth-building strategy on the whole focuses on different areas of cash generation — such as wholesaling, rehabbing, and the acquisition of rental properties — real estate investing in a retirement context usually is centered on just one branch of this technique: the accumulation of buy-and-hold rental properties that bring in consistent cash flow (without having to expend any additional effort).

Which type of real estate is a good fit for retirement investing?

A better question is what type of real estate is not a good fit for retirement investing. To which we would humbly say we can’t think of one.

Contrary to what many people think, who start retirement investing with real estate, single-family homes are not the only way to build passive income wealth for retirement. Other types of real estate, such as commercial properties, retail, multi-family, and apartments, make for an awesome addition to your passive income portfolio.

The key, as with all areas of investing, is to diversify your assets and ensure you keep an eye on all the areas of your financial operation.

What makes real estate such a powerful retirement investing strategy?

Aside from the expected passive income cashflow — which we’ll tackle in just a moment — there are three key advantages that retirement real estate investing has over other investing strategies, such as investing in the stock market or building up the coffers of your 401(k).

  • There are huge tax advantages with owning rental properties, including the cost of repairs, depreciation, interest and travel. If set up properly, your real estate investing business can help reduce your tax liability — and save you many of the needless fees that accompany many other forms of generating income for retirement, such as investing in the stock market or contributing to a 401(k).
  • Pay off the mortgage of your rental property — with other people’s money! Namely the rent paid by a tenant. The patient real estate investor realizes if they plan accordingly, and let simple compound interest take over, that they can (over the course of a few years) acquire a powerful passive income stream, with little or no money out-of-pocket.
  • As assets go, real estate generally appreciates in value. Now this isn’t to guarantee that real estate you purchase will positively increase in value. There are always fluctuations in market value. But if you choose a good location, and invest in a solid property with potential, then you’re more than likely to not only see an increase in cash flow, but also net worth.

How much can one expect to make from retirement investments?

Well, there is a short answer: it depends.

Determining how much you can expect to receive in passive income disbursements from a rental will depend on numerous factors, including the location and condition of the property — as well as other market factors.

But as a general rule, if a rental property is paid off — and you allow for repairs, depreciation, taxes, property management, and vacancy rates — you can generally assume that each rental unit will provide you approximately $400/month – $1000/month in retirement passive income.

How is somebody supposed to live in retirement on $200/month?

There are two key things to keep in mind about passive income retirement investing from a real estate perspective:

  • That $400/month approximation is based on a per rental unit basis, not per property. Meaning if you have a commercial property or apartment complex you own, with multiple units, then you have potential for much more than $400/month in passive income.
  • The goal is to acquire a portfolio of rental properties that provide retirement income that in the aggregate will help you reach your retirement income goals. This not only keeps you diversified financially, but helps make the goal much more attainable.

What’s the best way to get started with retirement investing in real estate?

There is a simple answer: develop your knowledge and skill set as a real estate investing entrepreneur. When you’re ready, and you feel you have the requisite resources, dip your toe in the water.

Though there’s no guarantee with any type of investing — and that includes the acquisition of buy-and-hold rental properties — if you’re able to find a property that is in a good school district, offers enough land for future renovations and will help you generate a positive cash flow of six percent, you might have the foundation of an ROI positive deal.

But this requires you know the area you’re investing in — and all the elements required for a successful retirement real estate investing deal. However, if you stick with it — and remain patient until your abilities match your ambition — realizing your dream of steady, predictable income might be closer than you think.