In times of crisis, investing can be a tricky proposition. Choosing wisely can help you capitalize on opportunities, while the wrong choices can leave you with regrets.
At Addition Financial, we consider it our responsibility to help our members make smart investment decisions. A recent Business Insider article looked at the benefits of investing in real estate for retirement. Here are three investment strategies you may want to consider.
REITs
Real Estate Investment Trusts, or REITs, offer young investors a good way to get started investing in real estate. Because you’re buying into a trust, you don’t need to have the capital to buy a property on your own. Instead, you can invest what you want in return for a piece of the REIT pie.
REITs manage real estate investments that may include:
- Retirement homes
- Golf courses
- Self-storage units
- Apartment buildings
We like REITs as a retirement investment because they pay dividends. That means they will be a cash flow source for you now and in the future. You can even use the dividends you earn now to expand your investments and plan for an early retirement.
Real Estate Financial Technology
If your goal is to eventually buy properties of your own, then REITs may not provide enough experience and information to help you achieve your goal. The next step is to find investment opportunities that allow you to access detailed financial information about the properties you invest in.
One such opportunity is to put money into a real estate technology company that offers a chance to make money while learning about the properties themselves. These companies include:
Most of these have a $500 minimum buy-in. In return, you’ll be able to hand-pick your real estate investments, You can view details about the properties you invest in, including things such as the location and projected rate of return. These sites all charge management fees, with the average being about 1% of your investment.
Save to Buy Property
If you want real estate investments to be a cornerstone of your retirement strategy, there’s simply no substitute for saving and buying property on your own. Of course, that means you’ll need to make a substantial personal investment in the property.
To create reliable streams of income, you may want to consider shopping for multi-unit rental properties. These properties may be expensive, and as a result, it may take time to save enough for a down payment.
The upside of saving to buy rental properties is that they can provide income now and after you retire. The income you earn now can be put into new investments such as a Roth IRA or even a trust fund for your kids. Or, you can use it to save for a down payment on your next property!
When you buy your first property, it’s important to crunch the numbers. Make sure the property will earn enough income after your expenses to be a worthwhile investment. Your expenses include your:
- Mortgage payment
- Property taxes
- Insurance
- Utilities
- Routine maintenance
If you can charge enough rent to cover your expenses and make a profit, then buying one or more rental properties can be a great way to make money now and plan for your retirement.
Keep in mind that vacation rentals may be a good investment too, although the current situation with the COVID-19 pandemic has put travel plans on hold for many. This might not be the best time to buy rental properties in a big city, but it’s a good strategy to try once things return to normal.
With the stock market in a state of flux and financial uncertainty everywhere, investing in real estate is one of the smartest ways to plan for retirement and earn some extra money now.
Need help planning for your retirement? Click here to learn how Addition Financial can help.
Posted on Jun 24, 2020
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