It’s a scenario many investors who are five or 10 years away from retirement age can relate to: Worries that savings will fall short and looking for a way to boost retirement income, but how? Read on to see how real estate investment offers an attractive alternative to traditional stocks, bonds and mutual funds.
“Real estate can be a great asset class and diversification tool”, Lenox Advisors Vice President Jeffrey Feinstein told CNBC earlier this month. “Among all the private investment opportunities, real estate typically outperforms other asset classes and is usually less volatile”.
Finding the Best Real Estate Investments
Real estate investing can take many forms – from REIT’s and raw land to rental income from apartment buildings and vacation homes in top tourism destinations. But what’s the best option when you’re looking for additional retirement income? Since many real estate investment options require holding the property for four to 10 years before you can sell and benefit from appreciation, it means buyers won’t have immediate access to their capital at all times, so rental properties are a better choice if more immediate return on investment is required.
REIT's vs Direct Ownership & Downsizing
Publicly traded real estate investment trusts (REIT's) are similar to mutual funds, but instead of owning stocks and bonds, they own commercial, residential, industrial property or mortgage securities. Some REIT's pass rental income on to investors, as well as gains from properties sold and payments received on loans in mortgage-backed securities. Although steady dividend income is the main attraction, REIT's can produce capital gains and – unlike rental income from vacation homes and apartment buildings – REIT's prices can fall when rising interest rates make older investments less desirable, so these investments are best for investors who can afford to wait out the downturns and are diversified in other types of real estate investments, stocks and bonds.
Unlike direct ownership, REIT's are traded like stocks and bonds so are also easy to buy and sell, which is their main advantage over owning some type of investment property directly. Also, keep in mind that interest payments come quarterly, but REIT's are not very good investments for long-term growth because share prices typically don’t rise quickly.
“Directly owning investment property – a business, residential building or vacation rental – is the way to go”, wrote CNBC. “The best way to magnify real estate returns to boost your retirement is the use of income-oriented real estate and leverage”.
According to Mark Painter, founder of EverGuide Financial Group, good properties will pay at least six percent annually, with rents and/or other income exceeding the cost of the mortgage, maintenance and taxes. To put this in perspective, luxury condos and vacation home rentals in Mexico’s Riviera Maya are paying 8-14 percent return on investment.
Earning Retirement Income with Vacation Home Rentals
One of the keys to success with real estate investing is to select income producing investment properties in a highly sought-after locale, such as a popular vacation destination or an area experiencing rapid growth. To get the best return on investment, buyers should cast a wide net and evaluate a variety of rental properties situated in top real estate markets worldwide, focusing on income producing real estate that is professionally managed.
“Real estate is all about location, location, location, and if you can find a property that has good cash flow – at least six percent – then buying an individual property is the best bet and can help you weather any pitfalls that may face real estate investment as a whole”, Painter told CNBC.
Vacation home rentals offer one of the best real estate investment options for buyers seeing immediate (and ongoing) rental income for retirement… Provided of course that you invest in a top destination! For example, Mexico’s Riviera Maya has been experiencing tourism demand that outpaces supply of luxury condos and vacation homes year after year, creating incredible opportunities for investors who want easy access to the best beaches in the world and countless unforgettable adventure activities.
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Read Mexico Real Estate Investing is Making International Headlines to learn more about one of today’s best real estate investment opportunities!