There’s an old adage that says a penny saved is a penny earned. However, it is a little more complicated that when it comes to saving for retirement.
When it comes to that daunting goal, it’s a bit more like a penny invested is a penny earned. And while those nearing retirement age often want their funds to be low risk, it’s important to keep investing. As inflation raises, if a serious illness or another emergency happens, low-risk, consistently yielding investments can keep you afloat.
That’s why more and older investors, those nearing or in retirement age, are turning to real estate to supplement their income. Ari Rastegar writes
“One of the most important goals for generating retirement income is lowering risk while protecting your invested capital,”
With research and thoughtfulness, older investors can protect what they have earned while allowing it to keep growing. If you play your cards right, an indeed, a well-located unit can earn you $200 to $1,000 per month, according to Bankrate.com. While you’re collecting rent, you’re paying off a property adds value to your investments.
In a recent study released by the RealtyTrac, an online database of foreclosed properties in the U.S., 30 percent of real estate investing is done by those 65 or older.
It’s all about diversification. And while that’s the magic word in investing, when it comes to retirement, diversification can boost a stretched income.
Interest rates are still relatively low across the nation, while rents continue to rise, making it the perfect time to consider adding a renter’s property to the portfolio. And they’ve proved a reliable investment over the years: The historic ROI (return on investment) is about 7 percent, according to Investopedia.com.
A single-family home or one bedroom condo is a safe bet if you’re nervous about taking on a rental property, according to “6 tips for investing in real estate.”
Keep it simple, sugar
Moreover, it does not have to be complicated. Some services will take care of the “hands-on” parts of the job — finding reliable and clean tenants, upkeep and maintenance, or three a.m. phone calls when a pipe breaks or the heat goes out.
In general, this type of services charge between 7 and 10 percent of your monthly rent, but this keeps the passive investment income, allowing you to focus on your other investments, your day job or retirement.
Moreover, while the unknown of the stock market can be scary, there are concrete things a property owner can do to boost its value, stuff like updates, repairs, and furnishings, states Forbes.com, which called investing in real estate the “Holy Grail for retirees.”
How to get started?
Here are a few things to keep in mind, according to Money.usnews.com.
- the most important thing is to do you research. Neighborhood, taxes, fees, other rental costs in the area, will all affect how much you can charge and whether you will make any money.
- Think about whom you want your renter to be: A young family? A college student? An older couple? These questions will inform where you buy property, what updates you do and even things like liability and renters insurance.
- Only pay what you can earn back in rent. A good rule of thumb is to buy a property for 12 times the amount of its annual rent, but with today’s market, you can often get that down to nine or 10 percent the annual rent.
- Buy local. When you know the neighborhood, it’s easier to research a property, do maintenance and keep an eye on it.
In a nutshell for those nearing or at retirement age, looking to expand their portfolio in a trustworthy and low-risk way, investing in real estate might be the answer. With a 7 percent historic return rate in a buyer’s market, maybe it’s time to do the research on your town. There might just be a two family duplex with your name on it.