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Investing in Real Estate for Retirement

Investing in Real Estate for Retirement: Retire With Real Estate

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This article is part of our guide on self-directed IRA multifamily real estate investing, available here.

Real estate investing is a great way to build wealth and secure a comfortable retirement.

While it is not without risks, owning property can provide a stable source of retirement income and potential appreciation in value over time. If you are considering investing in real estate for retirement, there are a few key things to consider.

Key Takeaways

  • Is a great invesment intrument for those who do not want to rely solely on traditional sources of income, such as Social Security or a pension, during retirement.
  • Investing in a real estate syndication is a great way to get exposure to real estate assets you most likely wouldn’t get access to as a single owner. Syndications are a great way to invest alongside specialized operators in a passive role, sharing in all the upside, cash flow, and tax advantages through direct ownership in the LLC that owns the property.
  • You can fund your investment in various ways, such as via cash, 401k, self-directed IRA, or your corporation.
  • Financial experts generally recommend saving at least 10-15% of your income for retirement, and potentially more if you want to retire earlier or have more ambitious retirement goals. Determining a healthy amount for you to live off of and then building in annual inflation increases into that number will help you understand it.

Is Real Estate a Good Investment for Retirement?

Real estate can be a good retirement investment for several reasons. First, it provides a tangible asset that you can use to generate income through rentals or other forms of passive income. This can be especially useful for those who do not want to rely solely on traditional sources of income, such as Social Security or a pension, during retirement.

In addition to providing a source of income, real estate historically appreciates over time. This means that the property you invest in may be worth more in the future than it is today, which can boost your retirement savings. 

While real estate values can fluctuate, owning property in a desirable location or in an area with strong economic growth can increase the likelihood of appreciation.

Investing in Real Estate for Retirement

There are several strategies you can consider when investing in real estate for retirement, and they are as follows:

  • Different ways to invest in real estate: Buying a property directly and owning it 100%, and managing the day-to-day operations is not the only way to purchase real estate. In fact, this is probably the least desirable way to grow a real estate portfolio, especially if you don’t have the time. Investing in a real estate syndication is a great way to get exposure to real estate assets you most likely wouldn’t get access to as a single owner. Syndications are a great way to invest alongside specialized operators in a passive role, sharing in all the upside, cash flow, and tax advantages through direct ownership in the LLC that owns the property.
  • Different ways to fund my investment: You can fund your investment in various ways, such as via cash, 401k, self-directed IRA, or your corporation.
  • Different asset classes to choose from: There are all kinds of real estate asset classes to choose from, such as single-family rentals, multifamily, office, retail, industrial, self-storage, and mobile homes, to name several. 
  • Different markets to choose from: Not every real estate market is equal for several reasons. Some factors that make a market more or less desirable are population migration trends, job diversity, local crime, landlord-friendly state/local municipality, median income growth, capitalization rates, and affordability, to name a few.
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How to Retire With Real Estate Earlier

If you are looking to retire with real estate earlier than the traditional retirement age, there are a few strategies you can consider. One option is to purchase a property that generates enough passive income to support your retirement needs. This could be through purchasing and actively managing your own rental property or portfolio of rental properties.

Another option is to invest in real estate development or flipping properties. This can be a riskier strategy, as it requires a significant upfront investment, and the project’s success depends on various factors, such as location, market conditions, and the quality of the property. 

The third and best option is to invest alongside an active operator who specializes in a specific asset class of real estate. The best way to do this is through investing in a multifamily real estate syndication as a passive limited partner. 

Being a limited partner means you have limited liability and don’t have any of the headaches of finding the property, putting together the financing, creating a business plan, executing the business plan, and actively managing the property’s day-to-day operations.

Retirement Plans for Real Estate Investors

If you are a real estate investor, it is crucial to have a retirement plan in place to ensure that you have the financial resources you need in retirement. This may include a combination of traditional retirement accounts, such as a 401(k) or IRA, and real estate investments.

It is also important to diversify your portfolio to minimize risk. This may mean investing in different asset classes of real estate and in various markets across the U.S.

How Much Do You Need to Retire?

The amount of money you need to retire will depend on several factors, including your retirement goals, the age at which you plan to retire, and your expected sources of income. Financial experts generally recommend saving at least 10-15% of your income for retirement, and potentially more if you want to retire earlier or have more ambitious retirement goals.

Determining a healthy amount for you to live off of and then building in annual inflation increases into that number will help you understand it. This exercise will help you determine how much passive income you need to generate from the property to meet your retirement needs.

How Should I fund my Real Estate Investments for Retirement?

There are several different ways to fund your real estate investments for retirement. 

One option is to use cash savings or investments to purchase a property outright. This can be a good strategy if you are very risk-averse, but it’s not necessarily a good way to take advantage of all the benefits of utilizing leverage, like borrowing depreciating dollars and getting a higher ROI on your cash.

Another option is to use your 401k or to self-direct your IRA into your real estate investment. You can use your self-directed IRA to fund the purchase of your outright real estate investments or even when you’re investing passively into a fund or a real estate syndication. Investing with an SDRIA is a great way to take advantage of the built-in tax advantages that come with the Roth IRA specifically.

Frequently Asked Questions About Retiring With Real Estate

Rentals are a great way to generate cash flow in retirement. They can sometimes be more operational intensive, but there are options to passively invest alongside other investors who operate larger rental properties like a multifamily apartment community.

Real estate is one of the safest investment instruments with the upside for strong appreciation to retiring earlier. Unlike the highly volatile stock market that’s speculative or bonds, which are a fixed return with no upside over and above the fixed return.

Investing in Real Estate for Retirement - Conclusion

It is essential to start planning your retirement goals and what you need to live off when that day comes. Real estate is a great investment to generate steady passive income, tax advantages, and capture value appreciation over time. 

Also, understanding the most advantageous way to fund those investments, like utilizing your self-directed Roth IRA to make tax-free withdrawals in retirement.

 If you’re interested in getting access to private value-add multifamily investment opportunities across the southeastern united states, join the investors club here at Willowdale Equity. 

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