How to Use Passive Real Estate to Fund Retirement

By abbasanwarinfo Last updated Nov 12, 2022

You could use real estate that brings in money on its own to help pay for your retirement. But owning or selling property comes with both benefits and risks. If you want to use real estate to help pay for your retirement, you should do some research and make a plan before you get started.

Rent your residence

When you retire, you can buy a duplex and live in one unit while renting out the other. This gives you a steady source of income, as long as the renter stays and pays every month. You will be in charge of keeping the place in good shape and running it. You could also make part of your home or other property into a separate apartment without building a multi-unit building.

People who are retired and have the main home and a vacation home could have other ways to make passive income. Shri Ganeshram, CEO and founder of Awning.com, a real estate brokerage for investors in the San Francisco Bay area, says, “Recently, we’ve seen more retirees doing short-term rentals and Airbnbs.” They could have two houses, one in the north and one in the south, for example. Ganeshram says, “During the off-season in each place, they rent out their home through Airbnb.” This gives them more than enough money to cover the costs of the home and pay for their travels and retirement.

Use an IRA that you control.
Most traditional IRAs and most Roth IRAs don’t let you invest in real estate. But if you open a self-directed IRA, you can invest in a wider range of assets, including real estate. A traditional or Roth IRA that you direct yourself can be set up so that you choose and manage your own investments. For the account, you’ll need a custodian, and there are often other fees.

If you know a lot about real estate and have a plan for investing, you could use a self-directed IRA to carry out your plan. “Using a self-directed IRA to invest in private real estate maximizes compounding because of tax benefits,” says David Scherer, co-founder of Origin Investments, a real estate investment firm in Chicago. “Investors send their gains back to their IRA and reinvest their profits tax-free, which makes the power of compounding and their balance grow exponentially.”

Invest in a real estate fund

Companies that own, finance, or manage properties are called real estate investment trusts. Individuals can purchase shares in the fund and then receive income from their investments.

Ryan Shuchman, an investment advisor representative and partner at Cornerstone Financial Services in Southfield, Michigan, says, “REITs, especially non-listed institutional funds, can be a good choice because they have less risk and a steady quarterly income.” “This income can generally range from 5% to 8% annually of the amount invested.”

Investing in a fund like a REIT could bring tax benefits as well. But there are some problems, like not having enough cash on hand. “Depending on the type of investment, you may have to wait up to a month or even longer if you want to take out your principal,” says Shuchman. Depending on the type of property, the returns can also be different. Different things could happen in office buildings, hospitals, or industrial areas.

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