Is Real Estate a Good Retirement Investment?

This is a challenging question. Anyone considering investment opportunities for retirement of otherwise should always consult both a professional in the field of either real estate or securities as well as a tax professional.

Real estate can be an excellent investment vehicle for retirees as well as just about anyone in a position to buy property. For retirees or those looking beyond now to the retirement years, it has both pros and cons and both sides should be analyzed before investing.

Over the years I have been both a Realtor® and a financial adviser. I have always been surprised by the number of people that think real estate is a safe investment. Let's be clear, real estate as an owner occupied property is almost always a good thing. But venturing into investment real estate is a whole different animal. Real Estate is neither safe, nor is it stronger as a long term cash investment than many other vehicles. In my 2010 book, 'Don't Panic' I have a chapter dedicated to debunking some common myths about the security and investment value of real estate.

Some might think, "Geez, you're a Realtor®, you should be all in on real estate." I am all in on real estate, but I am also all in on truth and having my clients go in 'eyes wide open'. Historically, real estate has appreciated in value at a rate of about 6.5% annually. Blue chip large cap stocks average about 8%. As a cash investment the large caps are going to perform better and have less risk. There is a bit more short term volatility with the large cap stocks, but that is tempered by better liquidity. For long term investing large cap stocks are almost a buy and forget deal. Maybe a quarterly review and portfolio rebalance, but really not a lot of "work." real estate will keep you busy and can nickle and dime the checkbook with repairs, maintenance, etc.

The biggest advantage to real estate as an investment has much less to do with market gains and much more to do with leverage. Investment real estate is a high value asset that can be easily acquired with only 20% down. Even the richest people in the world can only leverage half of their stock portfolio, but real estate can leveraged to 80% pretty easily. Only the wealthiest among us can afford to buy stocks and other market securities in the $300,000 plus range, yet ordinary Americans, can often by investment properties in the $300k range.

The ability to take 50,000 in cash and leverage an asset worth $250k is the real power of real estate. Typically real estate values grow faster than the rate of interest on the purchase loan. But an investor is getting an average 6.5% rate of return on a $250,000 asset with only $50,000 invested. This is where real estate is king. The property is generating income in the form of rent while enjoying a modest growth in appreciation over time. The one-two punch of real estate is hard to beat when leveraging it with loans, however even as a cash investment, real estate is still solid. The issue with rental properties is much more complex than most people want to deal with, especially in their retirement years. One can always have a professional manage the properties but then that erodes the profit. Real estate is a busy activity for investors, but those that choose it rarely are disappointed.

For retirees or those looking ahead to retirement, real estate has some additional advantages. At age 62, reverse mortgages become an available option, and in some cases investment real estate can be converted to IRA funds. These are complicated systems that should always be discussed with proper professionals before action is taken. A reverse mortgage allows a qualifying senior the opportunity to draw the equity out of their primary residence as cash income for the rest of their lives. This is in effect an real estate annuity. With rates over the last several years being so low, this has been a solid tool for seniors. However rates may reach a point in the future where the reverse mortgage loses appeal.

People in their late 30s to early 40's willing to carry a few rental properties may find themselves in an excellent position upon retirement. Check with your trusted pros and see how you might fare with a real estate portfolio as you prepare for retirement. 

Happy New Year

We are skating to the finish in 2016 and for those of us nearing retirement, it's about to inch a bit closer. This is a time of year for contemplation and reflection. Are you ready for retirement? Have you met with a qualified professional to evaluate your retirement needs? Have you planned which part of Washington State is bets for you? Ah ha, see what I did there?

Winter time is a good time actually to look at the Pacific Northwest. Anyone who comes here in the summer will immediately decide they want to live here. The wintertime however is when those coming from southern locales have to decide is it too cold east of the Cascades and is it too wet and gloomy on the west side?

Some retirees will have the dual arrangement, living here in the Northwest during the summer months and then making like a goose and heading south for the winter.

Whatever may be your plans, planning is required, else you truly have no plan. Qualified financial planners can help you determine how best to prepare with the resource you have. During this end of year reflection one is well advised to evaluate the status of the retirement plan.

Happy New Year!

Over 55 Communities are a Hot Commodity These Days

Perhaps it is the retiring Baby Boomer generation's large numbers, or maybe just a lack of available housing in retirement communities. It could be either or both but in any case, we are seeing a tremendous and robust market for these types of properties. Whether it is senior living in manufactured housing or golf course living the properties are not staying on the market very long.

Southwest Washington is a great place to retire and the hordes of retirees are snatching up our real estate. Over the last year I have written about many opportunities here in the region for retirees. Below are a few links to some of the articles about specific areas to retire in Southwest Washington.

• Fairway Village
• Goldendale
• Washington Coast
• Orchard Hills
• Senior Living on a Budget

Clark County,Washington has the ability to provide a great retirement home across every economic class. Whether you are a snow-bird or a full-timer Washington's distinct but mild, four seasons are hard to beat.

Read up and find out why Washington State is the best place to retire.

Will You Have Enough to Retire?

This blog talks allot about the joys of retiring to the wonderful state of Washington. But will you have enough to retire at all? Their are alarming reports that nearly half of all middle income earners will retire poor. This makes the low taxation of retirees in Washington less of an advantage.

Retirees should consider value opportunities if their retirement is going to rely heavy on Social Security and part time work. Washington State does offer some great values at the coast and even in close to the metro area here in Vancouver. Check out my beach information here.

The general rule has been that you need about 20 times your annual income at age 62 in order to maintain your lifestyle throughout retirement. Most middle income earners don't have even one year's income in their retirement account.

Many will choose to work longer, maybe until they are 70 years old. Yikes that may or may not work out. Planning for retirement is very important. I wrote a book about finance and I am not adequately prepared for my own retirement which in theory looms menacingly close to the now.

Downsizing your current home before you retire could be a great way to stockpile money for your actual retirement. If you are 50 years old and already in the empty nest mode, perhaps a major home downsize now is in order. The real estate market is showing a resurgence locally in that "big move up" house market. This could be an opportunity to take advantage if you already live locally or if these conditions exist where you live now.

Washington State is a great place to retire, but you still have to be prepared. Check out my book "Don't Panic" on Amazon.com.