Many of you might be working a 9-5 full-time job but ever wonder what would happen to the finances once you retire? It is true that people tend to save money but how long can a saving sustain your living. The answer to this question is the main reason why it is recommended to own some form of real estate investment so that it can be utilized for some greater returns in the retirement period. Follow this guide to find out why exactly is real estate investment important for retirement and how you can start it today!
Why is Real Estate Investment Important for Retirement?
As a person retires, there’s no real way they are earning to sustain their life. Here’s when real estate gets pretty interesting and useful.
Money Every Month: A Reliable Way to Keep Getting Paid
Imagine you’re retired and not working anymore. You still need money to cover your bills, right? Real estate can help with that. If you own properties that other people live in, they pay you rent. This is like a regular paycheck that comes in every month. It’s a good addition to any retirement money you might have from things like pensions or social security.
For example, if you have a house that you rent out, you can earn around 4-7% of what the house is worth each year in rent. That’s some extra cash coming in!
If we consider Pakistan’s market, a property worth 1 crore can easily give you a rent of about 50,000 per month or 600,000 per year which isn’t really bad.
Protecting Your Money: Real Estate vs. Price Increases
Inflation is the silent erosion of purchasing power over time. Real estate, however, has historically proven to be an effective hedge against inflation. So, if you own property, its value usually goes up too. This helps you keep your money strong against inflation.
For instance, let’s say you have a property worth PKR 3,000,000. If it goes up in value by 3% every year, after 20 years, it could be worth PKR 5,450,000! That’s more money for you in the long run. You can choose to sell the property, invest in a business, or utilize the money elsewhere. Either case, it’s a really great idea to protect your money and sustain the post-retirement age.
Paying Less Taxes: Keeping More of Your Money
Taxes can take a big bite out of your income, but real estate has some neat tricks to help you pay less. When you own property, you can often deduct things like mortgage interest and property taxes from your taxes.
This means you’ll owe less money to the government, which leaves more money in your pocket. In Pakistan, for example, these deductions can save you thousands of rupees every year – that’s a nice bonus!
Mixing Up Your Money: Making it Safer
It’s a smart idea not to put all your money in one place. Imagine if that one thing goes down in value – you could lose a lot. That’s where real estate comes in. It’s a different way to invest your money, kind of like buying stocks or bonds.
By having real estate along with other investments, you lower your chances of losing everything if one thing doesn’t do well. Studies show that when you have a mix of different investments, including real estate, your overall risk is lower, and you might even make more money.
Leaving a Money Gift: Passing Down to Family
Now, think about what happens to your things after you’re not here anymore. Real estate can be a gift that keeps on giving. If you own property, you can leave it to your family when you pass away.
This can be a valuable gift that helps them out financially. Imagine if your family gets a house from you – it could be a great way to support them even when you’re gone.
How to Plan for Retirement with Real Estate?
After all the given benefits, it becomes quite obvious as to why real estate investment is important for your old age. However, it’s not possible to build anything overnight, especially a property. Therefore, we recommend following this plan so that real estate benefits you at retirement.
Step 1: Start saving from today
The journey to building a solid real estate portfolio for retirement starts with saving money consistently. Set up a dedicated savings account or investment fund where you contribute regularly. This initial pool of funds will serve as your starting point for purchasing property.
Step 2: Buy some property on installments and keep paying
Once you’ve saved up a sufficient down payment, consider purchasing a property through installment payments. This means you don’t need to pay the entire property price upfront; instead, you make regular payments over time. This approach allows you to secure ownership of the property while spreading out the financial burden. To follow this step effectively, research properties within your budget, evaluate the terms of installment plans, and choose a property that fits your investment strategy. It could be a residential property or commercial space. Make sure you understand the terms of the installment agreement, including interest rates, payment schedule, and any penalties for missed payments
Step 3: Try to sell the current property on profit and buy another one
As the value of your first property appreciates over time, you can consider selling it for a profit. This profit can be used as a down payment for a more valuable property, allowing you to upgrade your real estate holdings. Timing is key here – monitor the property market trends to sell when you can maximize your returns.
Research and identify properties with potential for significant appreciation, or consider properties in developing areas where property values are likely to increase. Once you sell your first property, the profit you’ve gained becomes a valuable asset that can be reinvested to acquire a larger or more profitable property.
Step 4: Repeat the process
This step involves repeating the cycle of buying, selling, and upgrading properties to enhance your real estate portfolio’s value. With each successful property sale, you’ll accumulate more funds to invest in higher-value properties, potentially increasing your rental income and capital appreciation.
Continuously educate yourself about real estate trends, market conditions, and investment strategies to make informed decisions. Stay mindful of tax implications, transaction costs, and potential risks associated with property investment.
By following these steps diligently, you’ll gradually build a portfolio of properties that can generate rental income, appreciate in value, and contribute significantly to your retirement plans.
In the journey towards a secure post-retirement life, real estate investment emerges as a beacon of financial stability. Its ability to generate consistent rental income, hedge against inflation, and provide a tangible asset base ensures a comfortable retirement. By identifying the potential of real estate, individuals can secure a diversified income source that stands the test of time. This will help to offer both peace of mind and a resilient financial foundation for the golden years ahead.