Reading Time: 5 minutes Investing In Real Estate To Boost Your Retirement Savings
This is a collaborative post by Ellie Jo with tips on how to invest in real estate.
If you haven’t already, you need to start thinking about retirement. People always think that it’s a long way off so they don’t need to worry about it yet. But time flies and before you know it, retirement will be approaching and you will be panicking about how you are going to fund your lifestyle. The earlier you get started, the easier it will be because you will only need to make small contributions. Your money will also grow a lot more over the years, so you will be in a much stronger financial position when you do come to retire. No matter how old you are, you should start putting money aside for retirement if you are earning.
In most cases, people will use a retirement account like an IRA or an employer-sponsored 401K to start building their funds. These are both great options that have tax benefits, and in some cases, your employer will contribute as well so you can boost your savings even further. However, these are not your only options and it is a mistake to start your retirement savings plan without considering all of the different ways to invest in your future.
You can also make private investments with your savings to grow your money at a faster rate and give yourself financial stability in retirement. When most people think of investing, they think of stocks and shares. However, if you don’t really know what you are doing, this can be a big risk so you need to look for some alternatives.
Real estate investments are a great way to invest your money for retirement because they are likely to increase in value and they provide passive income if you rent the property out. But you do need to make sure that you are making sensible investments and looking at agent insight reports. If you think that real estate investment is a good option for your retirement savings, here are some important things to consider.
How to Invest in Real Estate to Save Money for Your Retirement
Owning Your Own Home
Most people don’t consider owning their own home an investment opportunity, but it can put you in a very good position. Some people decide to sell their home and rent during retirement, so they can use the surplus money. However, getting rid of that asset is not always a sensible choice. Your home can be used as a way to leverage equity if your savings are running short or you need to pay for medical care. You could also consider downsizing in later life, and that will give you a good cash injection to add to your retirement savings.
Buy Property Through A Self Directed IRA
A self-directed IRA is a retirement account that allows you to hold other investments within your retirement account, and this is often the best way to invest in real estate. The property will technically be owned by the IRA, not you, which does mean that you cannot stay in the property and it can only be used for investment purposes. However, it does mean that you get the normal tax benefits of an IRA and you have some protection because the investment is owned by an LLC rather than being a personal asset. As long as you follow the self directed IRA rules, this is one of the safest ways to invest in real estate for your retirement. All of the money pertaining to the property must go through the IRA account and not your personal accounts. That means that all rent is paid back into your retirement fund, and any maintenance costs come out of your retirement savings.
Real Estate Investment Trusts
Real estate investment trusts are another option that helps you to reduce the risks associated with real estate investments. Instead of investing in a single property, your money goes into a central fund, along with the money of other investors, and that is invested in multiple properties. It works in much the same way that a mutual fund would if you were investing in stocks. You do not need to deal with any of the day to day management of properties or finding tenants etc. All you need to do is invest your money and then collect your dividends. The risks are reduced because you are investing in a lot of different properties, and there is less work on your end. It’s a great way to provide yourself with regular income in retirement, and it’s very easy to set up. It is also much easier to sell your investment than it would be to sell a house.
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Flipping Houses
If you are looking for a short term investment to earn some quick cash, you should consider flipping houses. This involves buying a cheap property that needs some work, renovating it, and then selling it on for a profit. If you manage your renovation costs well and you select the right properties, you can make a large profit. However, you need to be prepared for a lot of work because you will need to oversee the renovations and then manage the sale of the property once it is done. It is important that you research the real estate markets before you buy because if you make a bad decision, you can lose a lot of money. If you are unsure, get in touch with local real estate agents or property developers and take their advice.
Vacation Homes
Vacation homes are a great option for retirees because you can use them to generate income and you can also use them yourself. If you pick a property in a destination that you love, you can rent it out most of the year and then when you want to go away, you have a cheap option for accommodation there already. You can usually charge higher rates for a vacation property than a standard residential rental, but you will have to work a bit harder to fill it all year round.
These are some of the best ways that you can invest in real estate to boost your retirement savings.
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Rachel is an Austin blogger, educator, mom, wife, young breast cancer survivor writing about health, saving money, and living a happy life in Austin, Texas.
Rachel has written for HuffPost and Hometalk and has been featured on KXAN, Studio 512, Fox 7 Austin, and CBS Austin.