Real Estate Investing for Retirement

Whether you are in the early stages of your career, the throes of your busiest years, or finally heading towards retirement, one thing that cuts through the daydreams of perpetual rest and relaxation at any stage is the anxiety surrounding financial planning. If questions like, “Have I saved enough for retirement?” “Am I financially stable enough for retirement?” or “How do I catch up on retirement planning?” lurk in your mind, we are excited to help put some of them at ease for you by talking about how real estate investing can help build your financial future at any age.

Believe it or not, real estate investing is an accessible, feasible way to bolster your income and help you save for retirement, no matter when you start. So how can real estate investing prepare you for retirement?

Financially planning for retirement through real estate can help you build an amazing, secure financial future and passive income streams to both save for retirement, and to use when you get there. Today we are looking at the ‘when’, ‘what’, and ‘why’ of real estate investing for retirement.

When Should You Start Real Estate Investing for Retirement?

Am I too old? Am I too young? There’s no right or wrong age to invest in real estate. The age at which you begin the journey of real estate investing will likely guide and shape the choices you make and the projects you take on, but it is accessible at any stage of life.

Be aware that, as with most forms of saving, starting earlier has more benefits, but some people even start real estate investing after entering retirement and it still works for them. The sooner you start investing, the sooner you will hit your financial freedom goals.

Real estate investing is especially accessible with the use of hard money. Working with a reputable hard money lender in your area can help you get started with growing your property portfolio with little money down, if you find the right property deal. Some, like FasterFunds Lending, will even help talk you through your financial preparedness so that you are clear on how you can enter this area of investing with retirement in mind, and have peace of mind.

If you are wondering about the ideal timeline for diversifying your income with real estate, consider what it is you are looking for. Some people just want to broaden their investments or prefer to not have everything in the stock market. If this is the case, you could even start before 30 with buying and having rentals. If buying a rental property is less appealing to you—maybe you are already close to or enjoying retirement and buying a property at a 30 year fix doesn’t seem practical—you might either want to adjust your financing options and pay for the property all in cash, or, the more short-term real estate investment options like flipping might be more up your alley.

Can I retire early by investing in real estate?

One question that is often asked about real estate as a strategy for retirement is, “Will investing in real estate allow me to retire early?” This depends on a handful of factors, some of which are beyond the scope of real estate investment, like family or health factors. However, you could certainly do some strategic planning to see if retiring early could be the case for you.

The appeal of investing in real estate is that you will have the return on your investment in your hand, whether through a one-and-done property sale, or incrementally over time through rent payments. When you are thinking about the timing of your retirement and if these sorts of investment could expedite the process, a few things to consider are:

  • How much do you need in order to live? Set your budget for retirement, and work backwards from there. Are you hoping to retire to a certain locale? Will you retire in a home you own or are in the process of owning, or will you be relocating to a new property yourself? Even if these things are likely to change, getting a ballpark on what your retirement living expenses will be will help you determine how intensely to approach real estate as an income stream.
  • What is the cash flow in your area? We highly recommend that if you decide to invest in real estate, you do so in your general or local area. Having a familiarity with the area you invest in will be crucial for both making sound financial decisions about the property, and being able to know what is going on during the construction process. When you know what other properties go for in your area, whether in house sales or in monthly rent, you can compare that number to what you’ve calculated your estimated retirement budget to be.

With these two figures in mind, you can then figure out what you would need to do in order to retire early. After you pull comps for your area, keep an eye on your area real estate market and talk with a trusted real estate expert. You can get a pretty accurate sense of what the regular cash flow of your rental would be once you have tenants. Therefore, you can get a pretty good idea of how many properties you’d need to acquire and when in order to hit your wealth targets.

Think about what each unit will bring in per month, and budget for repairs and maintenance on the property and the individual units. This can help you decide you need to buy and flip three houses a year for the next few years to be ready sooner, or, you might realize that the passive income from a single rental will be enough to expedite your savings.

You might decide to use the BRRRR method to scale your rental portfolio quickly to bring in many income streams, or you might be satisfied making a single sale and leaning more on your other streams of income. Ultimately, it is possible to use real estate investing to retire early; you can design your investment strategy around your financial and lifestyle goals, and work from there towards whatever timeline you choose.

What type of real estate investing is best for retirement?

When thinking about the timeline of retirement investment, the next question is usually “What type of investment do I need to make for that timeline to unfold how I hope it will?” Luckily, any additional income stream will bolster your retirement savings, so the answer to this question is: whatever type you’d like. When thinking about what type of real estate investment you are interested in, first think about what you are ready and able to take on.

If you are either younger with a particular interest in rehabbing, or you are older and seeking larger chunks of income, fix and flipping may be right for you. Perhaps you are playing the long game, or would rather have a less involved rehab experience. This is when scaling a rental portfolio would be of interest. You might have different strategies to employ depending on your age, experience, or the amount of extra time you have at the given stage of your life for a big side project.

Rental properties offer fairly predictable stability, as well as unique flexibility in comparison to other forms of income or investing. Investing in rental properties allows you the flexibility to add or reduce your portfolio as you might need. There is no limit to what you can earn through this investment stream. And rental properties also carry specific tax benefits as well. This facet of real estate investing is another reason real estate properties can benefit you in building wealth for retirement.

Why is real estate investing a good option for retirement planning?

By investing in real estate before retirement you add supplemental income that can enable you to be better prepared for retirement. If you really like it, you can even continue it into retirement as a passive income stream. On top of building a source of income, you may not be aware that your real estate investments can actually be a helpful resource come tax season.

You will want to talk to your trusted area real estate experts and your own financial advisers when it comes time for tax season. Depending on the type of real estate investment you have made, you can anticipate a few different things.

When you fix and flip a property, the income you make at the final sale of that property is liable for capital gains tax. Your profit from your flip will probably be taxed around %40. In this scenario, the entire property being sold is different to the IRS than the income earned through owning a rental property.

Since rental income is accumulated month to month, rather than all at once, and rental income doesn’t necessarily turn a profit monthly, it is not considered eligible for capital gains tax. Additionally, rental properties are considered by the IRS to be “depreciating assets,” even you if well-maintain them. Therefore, you can receive certain tax benefits with rentals that will alleviate your overall tax burden.

Sometimes real estate investors like to hold both types of properties, precisely because of how the tax benefits from rentals can help offset the capital gains from flipping. To begin learning bout tax issues surrounding real estate investments, we recommend starting with a resource like this video from Faster Freedom, which can guide you as you get started learning about this topic. If you’re interested in learning more about this, reach out to your CPA and make sure they understand the nature of investing in rental properties, so you get the right advice!

How do I learn about real estate investing with retirement in mind?

You can even prepare to prepare for retirement with real estate investing by starting your research now! Education is one of your greatest tools when it comes to finding financial freedom.

Have a conversation about your traditional investments with your financial adviser, and then find a trusted adviser in the real estate field to answer other specific investment questions. To learn more about real estate investing with retirement in mind, we recommend you join your local RIA and ask which strategy works out best for your retirement planning endgame. You can also dive deep into our local real estate education company Faster Freedom and the resources they offer.

If you are in the St. Louis area and interested in learning about real estate investing, our team at FasterFunds Lending is happy to offer our expertise and guidance! Not only do we love helping investors leverage hard money to meet their goals, together the FasterFunds Lending team has over 25 years of combined real estate investing experience. As investors ourselves, we know what this process is like and are here to walk with you through it every step of the way!

If thinking about using real estate investment as a path to financial freedom in retirement is giving you analysis paralysis, give our team a call. We are ready to guide you in taking appropriate steps towards your retirement. The sooner you prepare for your financial future the more stable it will be. You’re not too young, or too old, to start!