Why I’m investing in real estate to fund my retirement – Business Insider

Posted: May 1, 2020 at 7:48 pm

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Everyone has a unique idea of what their ideal retirement should look like. I'm looking forward to a time when work is optional and I have a reliable cash flow coming from several sources. One important income source I plan to have for the future is real estate.

I've come across many wealthy and successful people in my life, and one place that I've seen success time and again is in real estate. I've known people who were secret real estate millionaires with a portfolio of rental houses and apartments.

Based on everything I've learned from them and my own experiences in real estate, here's my long-term plan for adding real estate to my retirement.

Many people start investing for the first time with a 401(k) plan or similar employer-sponsored retirement account at work. Employer and other investment accounts give you access to a wide range of stocks, ETFs, mutual funds, bonds, and other investments.

Because most people don't start out with enough cash to buy a multi-unit building but can afford to buy a stock or fund, REITs, real estate investment trusts, are a way to invest in real estate without buying the whole thing.

REITs are companies that manage real estate and are required to pay out a certain portion of profits as dividends. That makes them ideal for generating cash flow for retirement. Popular REITs include property management, self-storage, retirement homes, golf courses, and other real estate.

Simon Property Group and Public Storage are among the largest and most recognizable REITs. You can also buy REIT mutual funds and ETFs through fund managers like Vanguard, Schwab, Fidelity, BlackRock, State Street, and others. If you already have a brokerage account, you can quickly and easily buy an REIT today.

I have REITs in both my retirement and taxable investment accounts and plan to add more as my retirement accounts grow in the future.

Just last month, I took the next step in my real estate investment journey with Fundrise. I opened an account with a $1,000 starting investment to test the waters. While REIT investing is a great way to get exposure to a very diverse set of properties, they can feel very removed from the properties. Fundrise brings me one step closer.

Fundrise and other real estate financial technology companies allow you to invest in smaller real estate funds with more direct exposure to the end properties. For example, Simon Property Group owns more than 200 properties. Public Storage operates more than 2,000 locations. My investment at Fundrise went to about 25 properties owned by four different Fundrise funds, called eREITs.

I can log into my account and view details about each property including the location, type of investment, and projected return. While Fundrise takes out a management fee, average recent returns for the last six years have ranged from around 9% to 12%.

Assuming all goes well with my first $1,000, I plan to add more in the future. Funds here are focused on income, growth, balanced, or region-centric investments. You can start with $500. Fees are 1% per year.

To me, the Holy Grail of real estate investing is passive, buy-and-hold properties. Most people I've met with serious wealth own a portfolio of rental houses, apartments, condos, and even commercial properties. I'm personally most interested in residential multi-unit real estate.

But while I can buy shares of a REIT for under $100 and start with Fundrise at $500, it takes a lot more to get going with your own investment properties. However, if you have enough cash to buy individual properties and they are managed well, real estate can provide a predictable income stream that supports your family's needs. And, unlike a job, you don't have to show up every day to get paid.

My wife and I are saving up a down payment for our first rental property. Because these take tens of thousands of dollars to start, if not more, it may be awhile before we pull the trigger for the first time. But it's certainly a part of my retirement strategy.

In retirement, I'm looking forward to income from Social Security, my retirement fund investments, and real estate. But while Social Security has limited potential, there's no cap on what I can make from real estate and other investments.

If you play your cards right, you can even retire early with real estate. Because most people invest in real estate outside of their retirement accounts, they can start earning income from those properties right away.

For now, I'm in saving, investing, and building mode for my real estate portfolio. But it's a big part of my long-term retirement plans.

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Why I'm investing in real estate to fund my retirement - Business Insider

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May 1st, 2020 at 7:48 pm

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