6 smart ways to invest your retirement money
5. Rental real estate
With rental real estate investments, retirees have the potential to get cash flows that are likely to increase along with inflation. Due to the tax treatment of real estate investments — property owners must take a non-cash depreciation charge over time — some of that income can even come through as tax-deferred.
There are risks and costs involved, however. You’ll need a fairly decent nest egg to get started as a landlord, as many lenders require at least a 25% down payment for investment real estate. In addition, you’ll need to pay the mortgage, taxes, insurance, maintenance, and repairs whether or not the real estate is rented.
Further, owning one or more rentals may be a job in and of itself, thanks to the need to find and replace tenants and respond to their service calls. Of course, you could always hire a management company to handle those duties for you, but as a small landlord, you’d likely give up a substantial portion of your revenue for doing so.
An alternative to directly owning real estate is to invest in publicly traded real estate investment trusts (REITs). Those are companies that specialize in owning and operating rental real estate. They’re required to pay out at least 90% of their income in the form of dividends, and many pay out even more than that.
Like any investment, real estate — whether owned directly or through REITs — involves financial risk, including the risk of loss of value. Still, over time, rents could potentially provide retirees an income stream that has a decent chance of growing in line with inflation over time as rents rise.
ALSO READ: The Best Way to Invest in Real Estate
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