As we get older our priorities slowly start changing. We start thinking about retirement and how we want to spend the days that we have left. Many individuals feel that investing in real estate may be key to guarantee supplementary income to be able to sustain monthly bills and leisurely activities. In this article, we interviewed Paul Turovsky, a residential and commercial real estate agent with Emerald Realty International who discusses ways to approach real estate investing for retirement including but not limited to risk tolerance, types of real estate to consider and identifying locations where to invest in order to receive the greatest return on your investment.
Even though the real estate market is still adjusting to a post-COVID world, the benefits of residential and commercial real estate continue to be bountiful explains Paul Turovsky. Per Mr. Turovsky, real estate investing should be in everybody’s retirement strategy.
Real Estate and Retirement Go Hand-in-Hand
Mr. Turovsky says that his experience in real estate and investments in general supports the finding that individuals who have a retirement portfolio boasting a combination of real estate, stocks, and bonds will outperform other portfolios. For ultimate stability, individuals should focus on creating an investment strategy that contains:
- 50% real estate
- 30% stock
- 20% bonds
Alarmingly, the 2021 Transamerica Center for Retirement Studies Survey results showed only 15% of salaried individuals have real estate investments besides their primary home in their retirement plan. Despite the unfortunate statistic, Mr. Turovsky says that experts are quick to encourage the population to march forward with long-term real estate investments with the mantra, “it’s never too late to start.”
Risk Tolerance and Approach
Before any individual elects to investment in real estate, they must consider their tolerance to risk and how hands-off or how hands-on they wish to be. If an individual prefers to be hands-off and to only receive passive income, Mr. Turovsky says that the investor should focus on identifying real estate investment trusts or real estate investment groups within the targeted market. There are many different groups and these groups offer different classes of real estate. However, each group pools individual investors together to be able to purchase, maintain and cash-flow a variety of real estate. Any individual who invests in these types of organizations will not have to worry about finding the right deal, renovating or dealing with the day-to-day tasks. Rather, the investor places their capital with the group and then receives a passive income either monthly, quarterly or annually depending on the groups business model.
Some investors prefer to be hands-on with their investments. If you are one of those type of individuals, you need to determine what is important to you. Do you want to grow your money as quickly as possible? Do you want something that is a little more stable and receive steady income? Do you want to be involved in renovation or construction or day-to-day operations? These are all questions that an individual who would like to be hands-on in real estate needs to ask themselves.
Those investors that choose to grow their money as quickly as possible can try purchasing distressed homes, renovating them and then selling them for a profit. This strategy is called “flipping”. Flipping a home is not easy and requires an individual investor to be fully hands-on. While flipping isn’t a good retirement strategy for everyone, buying distressed properties can accelerate an investor’s returns quicker than a hands-off real estate portfolio, especially in highly sought areas.
Residential or Commercial Real Estate Investing for Retirement
Auction.com recommends that investors interested in purchasing real estate should consider investing in “what they know”. For most, investing in “what they know” means residential real estate like single-family homes and small multi-family apartment buildings that are under five units.
Paul Turovsky says “residential investing brings exorbitant opportunities for a real estate portfolio to appreciate in value, receive tax advantages and collect passive income.” However, dealing with tenants and maintaining a building isn’t everybody’s idea of a low-key retirement.
There is an exuberant amount of real estate types that individuals investing for retirement can take advantage of. One can consider commercial real estate like doctors’ offices, quick-service restaurants, warehouses, self-storage facilitates and many other alternatives. With these types of real estate assets, the tenants more than often are creditworthy and usually sign a NNN lease which is a lease where the tenant is responsible to pay for all the expenses of the property, including but not limited to real estate taxes, building insurance and maintenance. Investors prefer NNN leases because they remove some of the unknown financial risk related to commercial property.
While not the usual type of investment, experts have recently noted the constantly profitable benefits of investing in parking lots.These typically overlooked spaces aren’t just useful for the communities; they present a high yield for their investors. With almost no maintenance costs or effort and a variety of partnership opportunities, the sky is the limit for those with parking spaces in their portfolio.
The Hottest Real Estate Investment Areas for Retirement
Mr.Turovsky says “Location is absolutely one of the most important factors that can play a role in determining if you will receive the greatest return on your real estate investment.” There are so many different cities, states and neighborhoods to choose from but there are a few cities that are stand out:
According to Tampa Bay Times , Investors are buying Tampa Bay homes at record rate, creating steep competition. One in four houses that sold had an investor as he buyer. Tampa Bay’s share of investor purchases was even higher than the record breaking national average of 18 percent, ranking it as the seventh hottest metro area for investors nationwide. Flipping and renting out homes are both lucrative in this market.
Austin, Texas is an extremely hot market since many corporate companies are leaving their headquarters in Silicon Valley and relocating to Austin. According to the Urban Land Institute, Austin has the highest projected population growth over the next five years. There rental rates in the city are increasing at over 15% per year. Rental appreciation and year-round warm weather make Austin an ideal city to buy a residential investment property.
According to Forbes.com, Atlanta is considered an excellent market to purchase real estate investments. Per Zillow, the median household income in Atlanta increased by 3.28% year over year while house values improved by 5.78% in the previous year. The job growth rate is 4.99%, 10% higher than the national average. In addition, the unemployment rate is 2.2% which is 43% lower than the national average. The population of Atlanta has exploded in the last decade, growing by 13.54 percent, or 129 percent faster than the national average of 6%.
The city has a wide range of businesses, including biotechnology, finance, logistics, and advanced manufacturing. Atlanta has a fast-growing economy (8th in the United States) and offers many companies, including Fortune 500 firms.