Beware of Dangers of Real Estate Investment in Retirement
A diversified portfolio is fundamental to any retirement fund. We've all heard the cliché about not putting all your eggs in one basket, and like most good clichés, it's true. But all the baskets in the world don't do much good if they're not well-woven.
A well-rounded IRA features investment in cash, stocks, bonds, and mutual funds—the old standbys of saving for retirement. But as investors have gotten more and more creative in their attempts to diversify, you can find claims to precious metals, cryptocurrency, and promissory notes as well.
Another common use of the IRA is as a lender. IRAs can lend to various businesses and pursuits, but many people see real estate as a wise investment because, as another cliché goes, no one is making any more of it. Please make no mistake: real estate can be a smart and lucrative investment that not only generates revenue for retirement but can yield a property that your family may continue to enjoy after its income days are over. But all investments carry risk, and real estate is no exception. Before you close on a property, consider some of the dangers of investing in real estate for retirement.
Property Management – Is That for You?
Owning real estate is not like owning bonds: you do not just stand idly and wait for income. With the responsibilities that accompany maintaining a property and finding ideal tenants, the so-called "passive income" of real estate investment is not so passive after all. You and your IRA can outsource much of the day-to-day management to an outside firm, but that comes at a cost that may make the entire investment more trouble than it is worth. If you do not have the desire to be a hands-on landlord or wish to part with money to hire a manager, directly investing in real estate may not be for you.
Foreclosing on Borrowers
Perhaps you don't want to deal with ownership and management of a rental property yourself and would prefer to lend money to someone who does. With modest interest, these loans can be a great way to build on an investment fund that has matured enough to issue such loans. But when the economy takes a turn for the worst, landlords feel the pain as their tenants cannot keep up with rent. That means landlords can't keep up with their bills, either.
If you have a loan out that has gone unpaid, your only choice may be to foreclose on the property. Foreclosure is a difficult and unpleasant procedure that costs your IRA money and leaves you with the deed to the foreclosed property, which you may have no interest in managing or paying for and whose market value will be difficult to recoup straight out of foreclosure.
This is also a problem in the United Kingdom, according to Ruban Selvanayagam of Property Solvers.
Remember also that foreclosure, or property repossession as it's called here in the U.K., will result in a damaged credit rating which can take several years to repair.
Disaster Can Devastate Property
Even if you do everything right, an act of God can wipe out all your hard work—a good example is New Orleans, which is no stranger to devastating weather. Even with insurance, you may not be able to recoup the loss of a rental property, making Mother Nature herself one of the biggest dangers of investing in real estate for retirement.
When planning for retirement, the goal is to grow your assets while at the same time maintaining stability in your portfolio. Real estate could be part of an overall retirement plan. It is always wise to speak with a qualified retirement advisor who can make professional recommendations based on your comfort for risk vs. reward.
Some people fail to consider the consequences of long-term health care on their income and assets. The costs of extended health care services can easily drain your savings and adversely impact your lifestyle and legacy.
A balanced retirement plan should include a plan for the financial costs and burdens that come with aging. Since you will see changes in your health, body, and mind over time, being prepared for the high costs that come with long-term care will safeguard assets and ease stress and anxiety on your family.
Selling Your Property or Reverse Mortgages
If you have a home that you must sell quickly, many organizations will purchase your home, often 'as is' with the ability to close quickly. For example, in Arizona, people can get cash for homes - Cash for Homes Arizona.
Reverse mortgages are also an option if you have substantial equity in your home. The tax-free money you get - that you do not have to pay back - can fund retirement, Long-Term Care Insurance, or even pay for in-home care so a person can stay in their home. Click here to learn more about reverse mortgages.
Real Estate Investment Starts with Finding the Right Property
If you're interested in venturing into real estate investment experts suggest finding a property near where you live to start - especially if you plan on providing maintenance yourself. Even if you outsource this, the ability to drive by the property can give you extra peace of mind as you venture into real estate investment.