Planning for Retirement with Real Estate

At what age should you begin to invest in real estate?

I recently helped a couple in their 80's buy their second real estate investment property. The home they presently own and live in was their first investment property.  Since I personally invest in real estate, this couple had been asking me for several years to assist them with real estate investments of their own. They were tired of watching their retirement funds slowly diminish...and felt real estate might be the answer for their financial  needs. When they initially approached me, I hesitated ...and counseled them to leave their money where it was...in mutual funds.  Hoping that the stock market would turn around, I waited until I could finally see that if we didn’t take action soon, the mutual fund would deteriorate even further.  The fund, which once held over $100,000 in assets, had now dwindled to less than $80,000.  We were in the middle of the stock market meltdown and we knew that their assets would continue to diminish as the months progressed. The stock market has been  a very difficult financial tool from which we recognize consistent gains and predictable cash returns.

We used the money in the mutual fund account to invest in a single family home, found a qualified resident, and they now receive $495.00 per month in new retirement cash income while retaining the newly purchased home as collateral for their retirement savings.  Based on their cash investment of $77,000, the income generated from their investment has created an additional $5,940 annually, which gives them a cash on cash return of 8%.   The additional cash which the couple receivesmonthly was the single greatest reason for their making the investment.  In addition to the new cash, they receive additional equity build-up in mortgage principle reduction as the renter pays their rent; tax savings from depreciation and interest; and appreciation of the property over time.  Right now their property mirrors the market trend and is under pressure to maintain its value. However, the rental unit continues to produce cash even if the market value of the home fluxuates.

I am sure it is obvious that the earlier you begin investing in real estate, the longer the time your investments will have to generate cash flow and to appreciate in value.  The very first real estate investment anyone should make is in the purchase of a primary residence.  College students can buy a duplex or a townhome and rent part of it out.  Newlyweds can invest in a property and begin to raise a family.  As the family grows and more room is needed, the first home can be sold or rented and a larger home can be purchased.  Along the way, with accrued savings and property appreciation, additional properties can be purchased.  Over time, real estate investments can generate $5,000, $10,000,  even $50,000 per month by the time retirement is reached.  Please don’t forget that real estate will continue to generate cash flow along the way, and as properties appreciate in value, lenders will loan cash against the new property values for other purchases needed by the family.  The Census Bureau has some interesting statistic on who owns investment real estate.   (Retirement Planner Spreadsheet).