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The Role of Real Estate in Your Retirement Plan

Updated on July 12th, 2023
Investing in Real Estate for Retirement

Diversifying your investments is the key to building a stable retirement portfolio. To diversify your investment portfolio even further, consider mutual funds instead of stocks, as well as bonds and real estate.

But, if you can manage its unique requirements over the long term, real estate, and rental property in particular, can be a lucrative addition to your retirement portfolio.

Why Real Estate Should Be in Your Retirement Plan

If you’re still on the fence about adding real estate to your retirement portfolio, let’s explain its benefits.

You’ll have a steady, ongoing income.

For retirement income, you usually decide on a withdrawal rate when you invest in paper assets, such as stocks, currencies, bonds, money market funds, and mutual funds. To put it differently, the amount of your portfolio that you feel comfortable selling annually in order to survive.

Those familiar with the “4% Rule” know what withdrawal rates are. If not, this suggests that you should be able to retire for at least 30 years if you sell off 4% of your initial retirement portfolio each year. The more you sell off stocks and bonds, though, the smaller your net worth becomes.

But, let’s say that you own a rental property. This income is consistent over time. The best part is that you do not have to sell rental properties to generate income. As a matter of fact, selling your rental property is no different than slaughtering the golden goose.

There is no doubt that stocks pay dividends, which is equivalent to rental income from equities. However, dividends are a relatively small portion of a typical stock’s return, with the vast majority of returns coming from price appreciation. As a result, stocks are more of a growth investment than an income investment.

It is possible to force appreciation.

It is possible to force real estate to appreciate, unlike stocks and bonds. Strange as it may sound, it’s possible.

For starters, real estate naturally appreciates over time. In general, real estate appreciates between 3% and 5% a year without you doing anything except maintaining it. Renovations or repairs can increase appreciation, however.

You have to keep in mind that not all renovations increase the value of your house. So, to find out the best (most valuable) renovations to make for your home, speak with a licensed appraiser or real estate agent.

Additionally, you won’t get a dollar-for-dollar return on your investment. The return on investment for some renovations can be as high as 80% to 90% though.

Moreover, renovations do not have to be major. Sure, you can add more value to your home by adding a room or finishing the basement than by simply renovating the exterior. However, even minor renovations can have a profound effect on the value of a home.

Provides long-term security.

Investing in real estate is a long-term strategy. This means you can hold onto it for a number of years until it appreciates.

While waiting for your property’s value to rise, you can rent out your property to earn monthly income. For instance, renting out a spare bedroom on Airbnb.

Diversifies your portfolio.

Diversification is another advantage of investing in real estate. Compared to other major asset classes, real estate has a low – and sometimes negative – correlation. Therefore, real estate can reduce portfolio volatility and provide a higher return per unit of risk when added to a diversified portfolio.

There are tax benefits for you.

Tax write-offs are available to real estate investors just like to any other business owner. Even though it’s an investment, when you rent a home out, you are running a business. More specifically, you are the landlord.

In many cases, you can write off these expenses as the business owner:

  • Interest paid on the mortgage
  • Loan origination points
  • Costs associated with maintenance
  • Depreciation — spread out over 27.5 years
  • Real estate taxes
  • Homeowner’s insurance
  • HOA dues

If you are unsure whether you can deduct expenses, speak with your tax advisor. Know, however, that real estate investing has tax benefits. For comparison’s sake ,it is only possible to write off capital losses on stocks and bonds when you sell them for less than you paid for them.

An opportunity to build capital.

Real estate investing’s biggest goal? Increasing your cash, aka building capital.

Your capital will increase when you sell a property whose value has increased. In order to reap the benefits of a rising market, however, you must invest in the right properties.

Can use real estate as a leverage.

Leverage is a method of increasing an investment’s potential return by utilizing various financial instruments, like debt. With a 20% down payment on a mortgage, for example, you can buy a house with 100% ownership. As a tangible asset that can be used as collateral, real estate is easily financed.

It can be as passive or active as you want.

“A lot of people hear the word rental property and think of work,” writes real estate investor Liz Brumer-Smith in the Motley Fool. “It’s true; there is a lot of active management that goes into owning rental property.” Fortunately, you don’t have to do it yourself.

“If you’re looking to kick back and relax in your retirement years and have no desire to talk or work with a tenant on a property, you can hire a property manager to do the heavy lifting for you,” she explains. “Property managers will handle everything, from showing the property, screening tenants, collecting rent and safety deposits, and coordinating repairs on the property for a small monthly fee.”

“On the other hand, if you’re looking for some part-time work to keep you busy during retirement, managing a rental property can help you stay busy,” Brumer-Smith adds. “It’s just important you learn the most effective steps to managing a rental property from screening tenants, advertising a property for rent, accepting online rental payments, bookkeeping best practices, and making sure to set aside money for future repairs.”

The ability to control returns and mitigate risks.

It is impossible to determine how a stock will perform after you buy it. In other words, there is no way you can influence a company’s management decisions — unless you are a major shareholder. It is only possible to buy or sell stocks.

With rental properties, however, you are in control of your returns. For example:

  • Renovating the property will boost the asking rent and force equity.
  • In order to place only the most reliable renters in your property, you can screen all rental applications.
  • Proactive management of your property can help you identify property issues as soon as possible.
  • Buying rent default insurance will protect you against the unlikely risk of a defaulted tenant.

As a retirement income source, real estate investing offers an unparalleled advantage due to the ability to control returns and mitigate risks.

A hedge against inflation.

Real estate has the ability to hedge inflation because the demand for real estate is positively correlated with GDP growth. In an expanding economy, rents increase as real estate becomes more in demand. As a result, capital values increase.

Since real estate passes on some the inflationary pressure to tenants and incorporates some of it into capital appreciation, it tends to maintain the buying power of capital.

You can invest in real estate using your IRA or 401(k).

“While you’re not able to spend the funds in retirement accounts before 59.9, at least not without significant penalties, you can roll those funds into self-directed IRAs or 401(k) plans and use them to invest in real estate and other alternative assets,” Patrick Grimes writes in Forbes.

“Additionally, while these plans allow the option to become a DIY landlord and spend the golden years dealing with tenants, toilets and trash, they also open up a wide range of completely passive real estate investment options through private equity firms that provide the same advantages as direct ownership without the headache.”

Real estate can be passed down to your heirs.

When it comes to leaving a legacy, real estate can be even better than cash.

Why? You will not only leave your heirs an income-producing asset, but also an asset that will appreciate over time. Therefore, they have the option of keeping the property and continuing the legacy, or selling it and generating profits.

Ways to Invest in Real Estate for Wealth and Retirement

Ready to invest in real estate? Here are some suggestions on how to get the ball rolling.

Invest in your own property.

When it comes to security, there is nothing better than staying at home — especially if you intend to stay put for an extended period of time. In fact, as of 2022, almost 80% of senior citizens own their own homes.

In addition to paying down your mortgage debt, owning a home also allows you to build equity. Clearly, both of these strategies are attractive for retirement investments. It is also possible to rent out rooms or move into a smaller rental property and rent out the rest of your house as well

If you’re not able to live in one place at the moment, think about investing in a multi-family house or a commercial building. While other people pay your rent each month, some of your mortgage principal can be paid off.

Owning multiple properties may require somewhat more upfront capital than single-family homes. However, it often has tax benefits and increases growth potential.

Real Estate Investment Trusts (REITs).

“The purpose of real estate investment trusts, or REITs, is to pool investors’ funds to buy and fund income-producing properties. Commercial properties like office buildings, apartment complexes, or hotel buildings are owned by REITs,” explains Jeff Rose, founder of Good Financial Cents. “Through stock investments in those companies, you can invest in real estate without owning any of the actual properties.”

“There are many reasons why REITs appeal to investors,” he adds. “The first benefit is that, since you do not own the properties, you do not have to maintain them.” Generally, REITs pay higher interest rates than other kinds of investments. “The reason for this is that companies are required to distribute 90% of their taxable income to their investors as dividends.”

In addition, when you invest in REITs, you can reinvest the income you earn so that your investment (and income) will grow even further.

“Investments in REITs can be made through major brokerage firms (i.e. the New York Stock Exchange or NASDAQ), or through non-traded REITs,” says Rose. “You might want to stick to publicly traded REITs if you are new to the concept because they are more liquid and easier to sell than non-traded REITs.”

“REITs may require a significant amount of money from investors if they’re considering buying real estate properties,” he states. “For example, the minimum investment for many REIT companies ranges anywhere from $1,000 to $25,000.”

You can buy, renovate, and flip.

“Love It or List It” and “Fixer Upper” are just a few of the popular TV shows demonstrating how to buy, fix, and resell houses successfully.

But, for those unfamialir, in wholesale real estate investing, flipping is the act of purchasing a property, not for use, but to sell for profit.

It is certainly possible to make money by flipping houses. But, you can also lose money if you don’t have the right assets, skills, or knowledge. Depending on the situation, you may need some financial expertise, real estate knowledge, and home improvement skills in order to successfully flip a property.

Invest in a vacation rental property.

When investing, passive income-generating properties are the best types. By doing so, you avoid having to manage the property 24/7/365. In fact, approximately 72.5% of US rental properties are owned by individual investors.

US Rental Properties Landscape

This criteria applies perfectly to vacation rental properties. The rental payments will offset the costs of ownership, allowing you to earn additional income. Airbnb is also an option if you don’t want to deal with tenants or maintenance issues

To ensure that your vacation rental property will be profitable for you and any tenants, make sure you choose a property with a strong market and demand for rentals.

Rent out a property for a long period of time.

If you prefer long-term tenants as opposed to the occasional Airbnb guests, you’ll need to do the following.

  • Locate the right property. You need to find a location that is growing and has good rental income potential whether you’re buying a house or an apartment building.
  • Calculate the ROI (Return on Investment). The number of bedrooms, the price per square foot, etc., all impact the calculation of the ROI for your property, but one aspect remains constant; the monthly rent should cover all expenses plus some more each month in order to make it a worthwhile investment.
  • Make sure you rent to a tenant who pays on time every month. You might find this difficult if you haven’t done such a thing before. You might want to hire a property management company to assist with moving tenants in and out of the house or apartment building, managing repairs, and resolving any other problems that might arise.

Purchase commercial property.

Investing in commercial property has been suggested to be more profitable than investing in residential property, according to experts. A multi-tenant building can have more risk, be more complex, and require a greater financial investment.

Alternatively, you can purchase a piece of commercial property for your own business.

The real value of your retirement business can often be in the real estate itself, whether it’s a beachside rum shack, a bed and breakfast, a golf pro shop, or a bookstore in your hometown.

Real estate is the most expensive expense of most brick-and-mortar businesses. In other words, owning the property may increase your long-term financial security and monthly income over the long run.

Invest in a multifamily dwelling and live in one unit while renting out the others.

It is important to consider a few things when purchasing a multi-family residence.

  • A unit can be rented out while you live in another. As you live in your own home, you can earn passive income by collecting rent payments from tenants.
  • It is also possible to buy a multi-family home and rent all units, leaving your own empty until it is rented. During this time, you’ll need another source of income to cover your mortgage, as well as give back some of the money when renters move out.


In recent years, crowdfunding has become a popular form of raising funds for new business ventures. For the uninitiated, a particular project is financed by a lot of individuals investing small amounts. As a result, a crowdfunding concept is becoming increasingly popular among real estate investors because of its low cost and low risk.

Imagine you want to invest in residential rentals and think the ideal property is a ten-unit building, but you are nowhere near the assets to do so. You can participate in such ventures through crowdfunding – without having to make a large capital investment or maintain the property yourself.

To get started, you can use passive income apps like Fundrise.

“With Fundrise, you can build wealth with real estate investment portfolios that are carefully selected and proactively managed,” notes Rose. “It’s one of the best apps to help you get financially independent.”

“Fundrise lets you invest in large real estate projects without owning the entire property,” he adds. “If you want to diversify your portfolio and not have all your money tied up in one investment, you can invest a little bit in several projects.”

Another option is HappyNest.

“As an alternative to Fundrise, HappyNest also offers real estate investments. Investing in commercial real estate with HappyNest REITs costs only $10, so you don’t need to save up for a down payment,” Rose adds.

Comparing Real Estate With Other Investments

There are pros and cons to every investment. Here’s a comparison of real estate and other popular investments.

Real Estate Vs. Stocks

Stocks are more volatile than real estate, whose value rises and falls rapidly. Real estate, however, is less liquid than stocks. In other words, selling stocks and accessing your money is easier than selling real estate.

Real Estate Vs. Bonds

Investments in bonds are generally safer than other investments. The majority of the time, investing in them will not cause you to lose money. They tend to make smaller gains, however. While investing in real estate can yield higher returns, you also run a greater risk of losing money.

Real Estate Vs. CDs

Bonds and CDs are both similar investments. It is rare for these investments to lose money, so they are among the safest investments. Like bonds, however, you may earn lower gains than you would in real estate.

Real Estate Vs. Mutual Funds

An investment in mutual funds should be considered a long-term one. Mutual fund investments are generally expected to increase in value over time, though this isn’t a guarantee. Investing in mutual funds is easier than in real estate, just as it is with stocks. While mutual fund investments can lose value during economic downturns, real estate investments can provide a hedge.

The Challenges Of Investing In Real Estate

There are some challenges and risks associated with investing in real estate, despite the potential for a large payout.

It’s not guaranteed.

Investing in property does not guarantee profits or appreciation. In addition to the economy, housing demand, and local events, many factors determine what happens.

However, real estate almost always recovers from its losses. As such, you should make a profit if you stick with it long-term.

Real estate isn’t liquid.

In terms of liquid investments, real estate does not qualify. To get your money back, you must sell the property you invested in (or part of it) once you own a single-family home, apartment, or commercial property.

Stocks and bonds, on the other hand, are much more liquid investments. That means you can easily access your money by selling stocks.

Capital is required to start.

In order to get started with real estate investing, you’ll also need a lot of money. After all, it’s not cheap to buy and rent a home or commercial property. If you wish to purchase one of these properties, you might need to apply for a mortgage loan.

There is usually a much lower starting capital requirement for investing in mutual funds, CDs, and stocks.

You won’t make a profit right away.

Real estate investments don’t usually produce profits quickly. It is possible for you to charge rent to tenants in commercial or residential properties. In most cases, though, these payments cover only your mortgage or other investment property maintenance costs.

Property investors make their money when they sell their properties for more than they bought them for. Normally, a property’s value will increase over several years before you reach that goal.

It’s all about location.

The location of a property is crucial when investing in it. The value of your property won’t increase if it’s not in a rising-priced community. The right investment property in the right location will require a lot of research on your part.

Being a landlord is exhausting and time-consuming.

Buying and holding real estate, for example, will enable you to make money by renting it out. However, being a landlord requires a certain type of person. After all, you’re responsible for maintaining the property and dealing with tenants.

So, it’s a good idea to hire a property management company if you’re not comfortable being a landlord.


How does retirement real estate investing work?

Retirement real estate investing simply refers to the process of accumulating real estate assets, such as rental properties, in order to provide streams of passive income in retirement. During retirement, most of this income comes from tenants paying rent to you.

Compared to typical real estate investing, how does this approach differ?

In general, real estate investing emphasizes a variety of cash-generation strategies, such as wholesaling, rehabbing, and acquiring rental properties. However, real estate investments are usually limited to one of these methods as a retirement strategy.

Essentially, this involves accumulating buy-and-hold rental properties that generates a consistent cash flow without spending any extra time or resources.

For retirement investing, what type of real estate is best?

People often think that single-family homes are the only way to build passive income wealth during retirement, which is not true. Your passive income portfolio can also include commercial, retail, multi-family, and apartment properties.

When investing, diversification is key, and you should keep track of all aspects of your finances.

Why is real estate such a powerful retirement investment?

Along with the passive income cash flow expected from retirement real estate investments, there are three key advantages that retirement real estate investing has over other investment strategies, such as stock market investing or building a 401(k).

  • Owning rental properties can provide significant tax benefits, including depreciation, interest, and repair costs. Real estate investing can reduce your tax liability, and you can avoid many of the unnecessary fees associated with investing in stocks or contributing to 401(k) plans.
  • Using other people’s money, you can pay off the rental property’s mortgage. In other words, the rent that a tenant pays. In a few years, a patient real estate investor can acquire a powerful passive income stream with little to no money out of pocket if they plan accordingly and let compound interest take over.
  • The value of real estate generally increases over time. Real estate will not automatically increase in value when you buy it. A market’s value is always subject to fluctuations. Investing in a solid property with potential will increase your cash flow and net worth if you choose a good location.

What is the average return on retirement investments?

In a nutshell, it depends.

The amount of passive income you can expect from a rental property depends on numerous factors, including the property’s location and condition.

Nevertheless, the S&P 500 Index indicates that residential real estate returns in the United States average 10.6% per year. The average ROI for commercial real estate is 9.5 percent, compared to 11.8 percent for REITs. Additionally, ROI can vary depending on the type of property, so one might see a different result for a multi-family home than for a single-family house.

John Rampton

John Rampton

John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

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