The Role of Real Estate in Your Retirement Plan

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.

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.

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.

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.

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.

  • 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

An opportunity to build capital.

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

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.

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.

  • 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.

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.

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.

Real estate can be passed down to your heirs.

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

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.

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.”

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.

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.

  • 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.

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.

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.

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.

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.

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.

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.


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.

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.

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.