Will you be relying on real estate investment income during your retirement? Make sure you don’t make these 3 mistakes!
If the thought of retirement has been swirling in your mind, you understand that time does truly fly! If you’re an active investor in real estate, you probably have experienced some winning and losing investments. Making mistakes in real estate investing is common and, of course, that’s how we learn. But as you approach retirement age, you will want to minimize your mistakes, or at least ensure that your mistakes don’t jeopardize your retirement dreams. In this spirit, I’d like to share below, 3 common MISTAKES TO AVOID:
1. Focus solely on appreciation (at the expense of income).
Owning a property that produces good income is a must. Income is a more predictable and reliable source of wealth building than investing for appreciation. It is possible to have both good rental income and long-term appreciation. But first make sure that your investment property produces excellent rental income for your price point. Think of all the things you can do with that extra income! Retire sooner and richer! Diversify into other investments (stocks, bonds, mutual funds, fixed income, etc.)! Pay off whatever debts you have! Or, if nothing else, simply roam the earth!!
2. Jump on the bandwagon for the next hot investment area.
You might remember back about 15 years ago (Rich Dad Poor Dad times) when people were investing in those inexpensive markets (Phoenix, Las Vegas, Sacramento, etc.) with the promise that their money would double, triple or more? Sure, some people did OK, but the harsh reality is that the majority of those investors didn’t. Market value dropped by 30% to 50% (or more) in some of these areas, leading many borrowers to go underwater. They were forced to sell at a discount or ended up foreclosing. If you’re close to retirement, be sure to learn from their mistakes and avoid making these same mistakes by jumping on that bandwagon.
3. Assume you’re going to live forever.
Of the three, this last point is probably the most critical. There are two common mistakes that people close to retirement make; they borrow as if they will live far longer than they actually will. First, is over leveraging (borrowing) when purchasing a property. Remember – the goal of a retired investor should be to reduce their debt and increase cash flow. For this reason, older investors must put a larger down payment when purchasing property so they can receive better cash flow. Second has to do with the dangers of borrowing when you are retired. Of course, there is nothing wrong with borrowing when you are retired, but if you have a choice, it is better for you to get a loan when you are working. This is because most lenders will charge a higher rate on a mortgage for retirees. Why? It’s because lenders see having no income as an added risk even you have significant asset.
To summarize, if you’re close to retirement, you must be more cautious. Why? Because you have less time to recover from mistakes. I sincerely hope that being mindful of the three common mistakes above will help you thrive in your retirement!!
SIFF Investment Services provides unbiased, fee-based real estate consulting to disrupt outdated real estate models. By supplying clients with objective, unbiased information, we shift the power to the real estate investor to make informed decisions. We are not realtors or agents. Our role is to educate and empower clients by objectively outlining all options. Our fee-only structure allows us to put client interests first. By taking an unbiased, consultative approach, SIFF aims to help clients prosper through wise real estate investments.
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