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"Investing for Retirement Savings with Multifamily Rental Properties"


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You obviously have many options regarding investing for retirement savings, and you should strive to utilize as many of them as possible. One option you should definitely consider is 2-4 unit multi family investment properties.


WHY IT MAKES SENSE


  • Like real estate, saving for retirement is a long-term investment, making it ideal for any savings purpose, including to fund college.
  • Thanks to the power of leverage, you control 100% of an appreciating asset that requires only a small upfront capital investment, perhaps even a zero down option. You can't do this with stocks.
  • Thanks to the power of free equity, each property is like having an investment retirement savings account that somebody (your tenant) pays into every month on your behalf, yet asks for nothing in return. You can’t do this with stocks.
  • When you retire, you can sell your properties for a profit, or keep them for the monthly rental property income they generate.
  • You can involve your kids or grandkids in the management of your properties, thus providing them with invaluable learning experiences.


REAL ESTATE: ONE PIECE OF THE RETIREMENT PUZZLE


I must say that diversification is always important and usually necessary, so it is unlikely that your "retirement investment fund" will ever be 100% real estate. Nor should it be. However, it should definitely be part of your retirement portfolio. Exactly how much, though, is highly dependent on your personal situation.

For example, my real estate agent owns 16 small multifamily rental properties, and these properties will indeed comprise the bulk (I'll guess 80%) of his retirement investment fund. For him, this makes sense because:

  • He does not have access to an employer-sponsored 401K plan
  • He is an expert in the field
  • He sees the best real estate deals before the general public
  • The nature of his job is such that it is easy for him to come and go from the office to tend to his landlord responsibilities.

Although my agent's strategy works for him, it clearly would never work for me because:

  • Managing 16 properties seems like a ton of work (I've only ever owned half that many at any given point in time).
  • I do invest in an employer-sponsored 401K
  • I do not have any special access to the good deals
  • My job does not let me come and go as I please.

So again, the degree to which investing in retirement via real estate makes sense depends on your personal situation. However, we can make some generalities.

For example, real estate could represent a larger-than-average portion (let’s say 50% or more) of your retirement investment fund if:

  • You are self-employed
  • You have some advantage in the market (like being a real estate agent)
  • You start out with a large amount of investment capital

Similarly, real estate should represent a smaller portion (let's say 20% or less) of your retirement fund if:

  • You have access to a generous employee-sponsored 401K
  • You are not willing to learn the business by getting your hands dirty
  • You’re off to a late start in terms of investing for retirement


HOW TO GET STARTED




Hey, I thought you’d never ask! Here's a blueprint to investigate this option and ultimately get started.

  • Thoroughly research all the options available for investing in retirement: stocks, mutual funds, bonds, commodities, options, currencies, absentee-owned businesses, etc.
  • Assess your situation to realistically determine how much time you can devote to your rental properties.
  • Decide what percentage of your retirement fund should consist of real estate, and set a goal to achieve it.
  • Break your overall goal into manageable chunks. For example, if you think you’ll need 10 properties, set a goal to buy 1 per year (or whatever you feel is achievable).
  • Consult with your accountant and property attorney
  • Form a real estate LLC to (eventually) hold your properties
  • Make contact with a few insurance providers, property mortgage lenders, and title companies
  • Read every page on this site...twice
  • Find a real estate agent and dive-in. Click here for a 5-step framework to actually begin "pounding the pavement."
  • Secure funds for the down payment: HELOC, cash, 401K investing, etc.

To sum up, investing for retirement by buying 2-4-unit rental properties is an excellent strategy for building retirement savings, but make sure you only bite off what you can chew.



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4 Responses to Investing for Retirement Savings with Multifamily Rental Properties

  1. JJ says:

    Fantastic advice! I never really considered investment property to fund retirement savings but it makes total sense. Where else can you invest in something for only 20% down and have it practically guaranteed to appreciate in value? Brilliant!

  2. retired says:

    What a fabulous idea! I never even considered using real estate as a sort of retirement savings fund. It’s like a retirement fund that you never have to directly contribute to, as the tenants pay it. Brilliant!

  3. Davie says:

    Well, I’m not sold on this as a viable method. It is hard to be a landlord. That’s all I know…not sure it’s worth it.

  4. chelsea says:

    This is good stuff on retirement savings. I always wondered if real estate would be a good way to save for this and it seems as though it is!

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