Depending on your plans, retirement can be something to look forward to or dread. However, with the proper knowledge, you can fund retirement through income properties and secure your financial future. This article highlights everything you need to know about buying rental properties for retirement income.
3 Reasons to Include Rentals in Retirement Plan
- It is a Low-Risk Venture
History has shown that real estate has one of the best track records as an investment option. Its returns might not climb as high as stock or index funds, but it also doesn’t crash abruptly. Hence, it is the more common option for investors with a low-risk appetite. However, sticking with less volatile alternatives would be best if you plan on retiring soon.
- It Guarantees Stable Income
With real estate, you can bank on your tenants paying the rent as long as your vacancies are filled. You can also quickly budget expenses like repairs, maintenance, and taxes. That makes it easier for you to plan and earn every month.
- It is a Hedge Against Inflation
One of the things all investors should be wary about is inflation. A rise in prices is one of the easiest ways to erode wealth, and you should strive for opportunities that protect you. Real estate is an excellent option for that. Since rental prices adjust with the economy, landlords can always stay one step ahead of inflation. In fact, rental properties tend to appreciate and become worth more in the future after considering inflation.
Importance of Diversifying your Portfolio
- It Protects Your Assets
Diversification is one of the well-known methods to protect your assets. Even famous investors like Warren Buffett preach the gospel of putting your eggs in more than one basket. Diversification effectively protects your assets because it reduces your risk exposure.
For example, if all your money is in stocks, a hard bearish season could evaporate all your capital. On the other hand, if you expand your portfolio to include other assets like bonds, dividends, and real estate, you could earn profits when your stocks are down. If that sounds overwhelming to you, don’t worry. You can hire an accountant or financial advisor to keep track of your portfolio. Also, you can hire an expert to manage your real estate investment and free you of your landlord responsibilities.
- It Guarantees a Better Return
Besides protecting your assets, diversifying your portfolio can also guarantee you a better return. Using mathematical theories and years of historical data, experts say that a diversified portfolio less prone to volatility will see more favorable returns. In addition, proper diversification provides more risk adjustment against market fluctuations and could earn you more money. Thus, that can increase your peace of mind and reduce stress significantly.
Tips to Protect Investments
- Do Your Research
Research is essential to protect your investments. The biggest threat to your business or any capital venture you embark on is a lack of knowledge. In other words, you must be willing to take the necessary time to find the best strategies. For example, location is the vital foundation for the success of any rental property. It determines the value, how much rent you can charge, vacancy rates, taxes, and more. Thus, it would help to start your research by looking for the best cities to invest in real estate.
- Diversify Your Portfolio
As we highlighted earlier, it’s crucial to diversify your portfolio. It offers you more protection and improves your chances of earning a better return on your money. Many experts recommend purchasing non-correlating assets. In other words, buying a unit in New York and Chicago would still qualify as investing in real estate. In finance terms, these are correlating assets as they react to the same market condition. For instance, during the COVID-19 pandemic, the real estate sector hit. Instead, it would be best to try buying other asset classes like bonds, stocks, or other currencies. Since these equities react to a different market, you can spread the volatility of your portfolio.
- Invest in Dividends
Many investors often underestimate the amount of work managing a rental property requires. However, contrary to popular misconception, real estate is not a passive source of income unless you have someone driving it for you. Otherwise, it simply generates more stable revenue compared to other investment options.
However, if you’re not the hands-on type and already have your hand full, you can diversify to dividends. Dividends are one of the lesser-known ways to reduce risks and protect your investments. By purchasing the right paying stocks, you can enjoy a generous return while you sleep. Standard options you can invest in include mutual funds and REITs. Although investing in dividends offers less control than rental properties, it’s often an excellent option for retirees who don’t like the stress.
- Hire Help
Finally, if you want to keep your business running smoothly and investment profitable, you should hire help. As you age, you might find it more tedious to keep up with the physical demands of owning a rental property. However, that doesn’t mean you can’t enjoy the income.
If you want a more hands-off approach, you should consider hiring a professional property management company. These experts can maximize your rentals’ potential and steady your cash flow.
Thinking about retirement doesn’t have to make you worried and anxious. On the contrary, it can even become a time to look forward to with the right financial strategies. For example, if you want to secure your future, you should consider buying rental properties as a form of retirement income.
As we highlighted above, real estate offers investors a stable income against inflation. Besides, it’s also a low-risk venture, which means you’re unlikely to lose any money by investing. Of course, it would be in your best interest to still diversify your portfolio. This strategy can help you protect your assets and guarantee a better return.
Other ways to protect your investments include diligent research, buying dividends, and hiring help when needed. Allowing someone else to step in and manage your units can make daily operations smoother, maximizing the return on your investment. As a result, you can enjoy a more comfortable retirement.