Is Real Estate Ever a Wise Investment for Retirees?
By Dennis Miller, Editor, Money Forever
Investing in real estate has often been viewed as a solid strategy for building wealth. However, the landscape for retirees considering this option has shifted dramatically over the years, especially after the 2008 financial crisis. This article explores the viability of real estate investments for retirees, examining key considerations and offering insights from the author’s personal experiences.
In my earlier days, I often remarked, “I’ve probably made more money in real estate by accident than I have in the market on purpose.” For many years, purchasing quality properties was almost a guaranteed way to profit. However, everything changed in 2008, leading many to search for bargains following the market crash.
The real estate landscape underwent a seismic shift in 2008, with both commercial and residential markets suffering significant declines and yet to fully recover. Many homeowners witnessed their property values plummet by over 40%, subsequently impacting their overall net worth. During this time, the prevalence of bank short sales surged.
While opportunities for purchasing properties may be re-emerging, retirees and those nearing retirement find themselves in a different situation compared to when they bought their spacious homes. With children moved out, their needs have evolved. Moreover, older adults cannot afford to take significant risks or endure substantial investment losses if they wish to stay retired.
In a survey we conducted last fall about investment interests, real estate investing ranked among the top three topics, alongside annuities and income investments. We’ve explored both areas in previous articles, including here and here.
Considering the renewed interest in real estate investing, I would like to revisit the Money Forever Five-Point Balancing Test to evaluate its relevance to real estate investments. This test applies to all types of investments, not just stocks.
1. Is it a solid company or investment vehicle?
2. Does it provide good income?
3. Is there good opportunity for appreciation?
4. Does it protect against inflation?
5. Is it easily reversible?
While some real estate investments might meet all five criteria, retirees must exercise greater caution and selectivity.
Real Estate Doesn’t Always Meet All Five Criteria
When my wife Jo and I relocated to Fort Myers, Florida in 1985, the opening of a new airport facilitated access for larger jets to the region. The extension of I-75 further boosted the area’s popularity, resulting in a booming real estate market in southwestern Florida.
A close friend of mine organized partnerships to invest in properties. We pooled resources, with twenty of us contributing 5% each to acquire land, secure permits, and sell the properties to developers. We enjoyed successful returns on several investments.
However, one particular parcel, which I anticipated would yield the highest returns, has remained in our ownership for more than 20 years. We still bear the burden of property taxes and other associated costs. It’s almost comical now: we even pay a farmer to “rent” cattle to maintain our agricultural exemption on the property. Although it appeared to be a wise investment at age 52, I would not make the same choice today at 73. Why? Partnerships like these fail to provide regular income and lack liquidity, thus not meeting criteria 2 and 5 of our Five-Point Balancing Test.
We know several friends who used to buy homes and apartments, renovate them, and rent them out. Some would even sell them or convert properties into condominiums, doing quite well in the process.
However, these same friends have now shifted their focus to passive investments. They often remind me that being a landlord translates into managing your own small business. The time commitment involved in these investments is significant, making them far from passive.
Active landlords will attest to the extensive demands of the job—ranging from 3 a.m. emergency calls from the fire department to plumbing and electrical issues, not to mention the timely collection of rent. Retirees seek to maximize their money with as little hassle as possible, not to take on a full-time role.
Therefore, individuals nearing retirement or those already retired are likely better suited to investments that align with our Five-Point Balancing Test. This doesn’t imply that rental properties or real estate purchased for appreciation are completely ruled out. Yet, we should pursue real estate investments that are professionally managed and more liquid. In fact, we have recently added a real estate investment to our portfolio that meets all five criteria of our balancing test. Use this link to start a 90-day risk-free trial to Money Forever and gain insights into our real estate investment.
Ultimately, earning profits in real estate is as challenging as in the stock market. Achieving success requires significant effort, patience, and sometimes a bit of luck. Retirement is not the best time to chase “get rich quick” schemes.
Sincerely,
Dennis Miller
for Economic Prism
[Editor’s Note: Throughout his career, Dennis Miller has consulted for numerous Fortune 500 companies, training many executives in effective communication of their products’ value to customers. His extensive multinational clientele includes companies like GE, Mobil, Shell, Schlumberger, HP, IBM, Corning Glass, Eastman Kodak, AC Nielsen, and Johns-Manville. Partnering with analysts from Casey Research, he advises subscribers on how to fortify their retirement portfolios, ensuring a secure Money Forever. He has also published “The Reverse Mortgage Guide” to clarify what a reverse mortgage can and cannot achieve, helping readers determine if they might be suitable candidates for one. Click here to learn how to obtain this report for free.]
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