One of the first real estate investing tips we want to make you aware of is in the timing of your decisions. Beware of investing too much in real estate later on in life because it can become a job you weren’t planning on having in retirement. While real estate investments may provide portfolio diversification and returns in retirement, there are risks that must be considered as well. Having enough reserve cash is crucial to cover unexpected expenses if the water heater, washing machine, or dish washer goes. Certain unforeseen expenses need to be a part of your overall real estate investing strategy when it comes to you and your retirement.
Simply put, real estate can be a timely and costly investment. Among other things, it’s important to understand how to avoid investment losses and steer clear of potential tax drawbacks related to your real estate investment. Another important tip is to understand how “cap rates” can be used to evaluate your rental real estate holdings.
Capitalization rates are the rate of returns on your real estate holdings based on the income your property may generate. This ratio can help you track whether or not your performance is improving over time. Higher capitalization rates are better, and good real estate investments should experience an increase in net operating income (NOI) as property value increases. For example, if a property is bought for $1 million with a NOI of $70,000, the capitalization rate would be 7%, meaning that 7% of the value of your property is being earned as profit. However, if the market value increases to $2 million without a change in NOI, the cap rate is reduced to 3.5%.
Real estate is yet another aspect of your overall retirement investing strategy. Therefore, it is highly recommended that you work with your trusted financial professional when making a decision about using real estate as in investment in retirement. For your complimentary investment management guide, Click HERE and be sure to schedule your no cost, no obligation financial review.