Real estate investing for retirement

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Hawaiishrimp
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Real estate investing for retirement

Post by Hawaiishrimp »

Hi there,
I have put together a 3 funds portfolio already. However, I want to ask, in addition, should I put a certain % of money into real estate (buying rental properties)? From a total return of investment perspective, does real estate perform better than index funds? I do realize I'd be taking on additional risk, but I have been doing pretty well in the past in buying my own homes and a few local condos.

Thanks in advance for the advice.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
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jfn111
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Re: Real estate investing for retirement

Post by jfn111 »

It all depends on if you want to be a landlord or not. Plenty of people make good money with rentals and others will tell you it's a job and why would you want another job in retirement? Both are right.
TRC
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Re: Real estate investing for retirement

Post by TRC »

Speaking from experience, being a landlord is a job.
livesoft
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Re: Real estate investing for retirement

Post by livesoft »

We've seen a couple of threads where retirees want to unload their real estate investments because it is too much work for a retiree.

I suggest that Bogleheads.org act as a broker and collect a commission for connecting retirees who want to get into the real estate business and retirees who want to get out of the business.
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Hawaiishrimp
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Re: Real estate investing for retirement

Post by Hawaiishrimp »

I am currently a landlord and it's pretty trouble-free for the last 5+ years. I am good on that.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
BV3273
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Re: Real estate investing for retirement

Post by BV3273 »

Why not just invest in a REIT?
joebh
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Re: Real estate investing for retirement

Post by joebh »

Hawaiishrimp wrote:I have put together a 3 funds portfolio already. However, I want to ask, in addition, should I put a certain % of money into real estate (buying rental properties)? From a total return of investment perspective, does real estate perform better than index funds? I do realize I'd be taking on additional risk, but I have been doing pretty well in the past in buying my own homes and a few local condos.
Purchasing a home, and purchasing real estate for investing/rental are two very different things. Being good at one doesn't mean you will be good at the other.

Those who do a very good job at being a landlord can get returns that beat index funds. Those who aren't good at it won't beat the returns of index funds.

And as others have said, you are taking on a new (additional?) job by becoming a landlord - that's not at all like purchasing index funds. You are comparing apples and broken plumbing.

Have you considered REITs instead?
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Re: Real estate investing for retirement

Post by abuss368 »

BV3273 wrote:Why not just invest in a REIT?
We have invested in both U.S. and International REITs for a while and are happy with the results and simplicity. The growing cash flow stream from dividends will help fund retirement one day.
John C. Bogle: “Simplicity is the master key to financial success."
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arcticpineapplecorp.
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Re: Real estate investing for retirement

Post by arcticpineapplecorp. »

I prefer passive investments to actively managed investments. As others have suggested a publicly traded REIT index fund (pick Vanguard) is a passive investment, as opposed to owning and actively managing real estate with tenants, etc.

One thing to consider is that you should have a backup plan for managing your real estate if you go that route. You'd hate to become incapacitated in some way and find yourself losing income, not making repairs, filling vacancies, being able to evict as necessary, etc. A property management company may have to be involved at some point as your human capital decreases over time (and a property management's involvement will reduce your profits accordingly). Something to consider. It happened to someone I know. And the result was actually court appointed guardianship and ultimately bankruptcy. Other funds in passive investments were fine but the guardian did not want to manage the number of properties involved and merely dissolved them through bankruptcy. There were many losses to be had. This wouldn't have occurred if this person had invested in a REIT instead, I'm sure of it. Temporary losses, yes but not the permanent ones he experienced.
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Bogle_Feet
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Re: Real estate investing for retirement

Post by Bogle_Feet »

Hawaiishrimp wrote:From a total return of investment perspective, does real estate perform better than index funds? I do realize I'd be taking on additional risk, but I have been doing pretty well in the past in buying my own homes and a few local condos.
Enjoy paying higher taxes on that real estate.
https://blog.wealthfront.com/tax-effici ... investing/
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Re: Real estate investing for retirement

Post by john94549 »

OK where do I start? My wife and I bought our condo in Maui in 1990. It has zoomed both down and up in value. One thing which has remained constant, however, is that we have never, ever, paid a penny in tax on the gross rentals. Never. While the condo throws off a healthy positive cash flow, the depreciation wipes it all out.

Wrap your arms around IRS Form 8582 and the concept of retirement. Keep your MAGI under $150K (remember, Social Security doesn't count), you're home free. Just love the negative on Form 1040, line 17. For the present, we still get a major tax break. As we plan to leave the condo in our estate, the kids will get a step-up in basis* and nobody will ever pay a dime in tax, while we get a "negative" on Line 17, year-in-year out. That's "real estate investing for retirement".

*Depreciation re-capture applies only when you sell. If you keep the property in your estate, there is a step-up in basis, and the tax man gets stiffed. All that depreciation you took goes "poof".
Last edited by john94549 on Sat Apr 02, 2016 11:38 pm, edited 1 time in total.
FlamingoTime
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Re: Real estate investing for retirement

Post by FlamingoTime »

We retired two years ago and purchased a nearby rental property in the same desirable over 55 community that we live in. We are renting it out long term so we aren't constantly turning it over monthly which is also very popular here. The close proximity makes it easy to manage and renting to retired folks is less stressful.

We plan to keep it until we start social security, then sell it, which will boost our nest egg. The home is in good shape and requires little attention from us and gives us a little income monthly for now.
john94549
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Re: Real estate investing for retirement

Post by john94549 »

FlamingoTime, you seem to have nailed it. You might want to check out Form 8582, however. Feel free to PM me.
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abuss368
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Re: Real estate investing for retirement

Post by abuss368 »

Bogle_Feet wrote: Enjoy paying higher taxes on that real estate.
https://blog.wealthfront.com/tax-effici ... investing/
I have read that article a while ago and passed. We hold REITs (both U.S. and International) and they will provide a growing stream of cash flows from dividends to fund retirement.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Real estate investing for retirement

Post by magneto »

A 'Well Balanced Portfolio' will IMHO have exposure to all four main income producing asset classes (stocks/bonds/cash/real estate). It is not so much about opimisation as diversification and hence safety.
The allocated percentages are where difficult questions arise!

Whether or not the hassle of being a landlord is tolerable can be tested by starting with a single small property. Yields in any event are generally higher on the smaller properties.

One thing to think about is the illiquid nature of the investment, cannot be sold with the click of a mouse!

Our experience is that substantial cash reserves are necessary as the flow of unexpected expenses can be lumpy. This problem diminishes as more properties are added!

We also are in retirement and appreciate the real income flow (rising with inflation).

Good Luck
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abuss368
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Re: Real estate investing for retirement

Post by abuss368 »

magneto wrote:A 'Well Balanced Portfolio' will IMHO have exposure to all four main income producing asset classes (stocks/bonds/cash/real estate). It is not so much about opimisation as diversification and hence safety.
The allocated percentages are where difficult questions arise!

Whether or not the hassle of being a landlord is tolerable can be tested by starting with a single small property. Yields in any event are generally higher on the smaller properties.

One thing to think about is the illiquid nature of the investment, cannot be sold with the click of a mouse!

Our experience is that substantial cash reserves are necessary as the flow of unexpected expenses can be lumpy. This problem diminishes as more properties are added!

We also are in retirement and appreciate the real income flow (rising with inflation).

Good Luck
Well said. In many of my posts I have always referred to what I consider the four main asset classes - stocks, bonds, real estate, and cash. An investor can accomplish this very simply by owning total market funds such as Total Stock and Total International Stock, Total Bond & Total International Bond, U.S. REITs and International REITs, and cash in the bank.

* Now I expect the next few responses to be the classic debate between REITs and direct real estate investment. Ralph Block, author of the excellent book "Investing in REITs" noted three ways to invest in Real Estate: 1) Direct rental properties, 2) Limited Partnership units with other investors, and 3) REITS. He noted that this is a difficult asset class as all three options have merits in terms of positives and negatives.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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