How Real Estate Can Boost Your Income in Retirement

Opinion/Review by Stephen Brown

In this economy, working out a long term strategy for retirement can never begin too soon. Traditionally many people looked to stocks and bonds to hold capital. REIT’s are only one aspect of getting money out of real estate long term. Many high net worth retirees own rental properties and second or third homes as a portfolio diversification. Many of these investments might require “hands on” investing or can be managed by professional property services.

Generally speaking, both residential and commercial real estate investing at either end of the scale looks healthy right now. Many people see REIT investments as being better than stocks or bonds for higher returns. The one thing to always consider is “what goes up must come down”. Meaning if you buy into real estate for the long term and expect a moderate profit you may be better off.

The younger investor tend to be are more attracted to the “fix and home flipping model” you hear advertised in the news and the cable channels. This can be a high yield investment but only if you really know what you are doing. And as far as retirement, you will not want to be flipping houses in your golden years!

Below is a news article from MONEY outlining the specific merits of real estate investment trusts (REIT) for retirement funds.

How Real Estate Can Boost Your Income in Retirement - TIME/Money

Kim Clark @ Money_Collage

High demand over the past year for the traditionally lofty yields on ­real estate investment trusts—the trusts are required to pay out 90% of their profits—has led to spectacular returns. Among the most popular REIT funds, for example, iShares Real Estate Fifty ETF and longtime MONEY 50 member Cohen & Steers Realty both gained more than 27% in 2014.

That’s led many analysts, such as Brad Thomas, editor of The Intelligent REIT Investor newsletter, to urge investors to be very picky about where they put new money. One pocket of opportunity now, he says, can be found in health care REITs, which specialize in leasing space to nursing homes, hospitals, and other medical facilities and will profit from the aging of the population. While their high P/Es may be off-putting—some are selling at more than 40 times earnings—a better way to assess REITs is to look at their funds from operations, or FFO. Whereas reported earnings treat depreciation on real estate holdings as an expense that lowers results, FFO adds depreciation back, which more accurately reflects the value of a trust’s property. Using that metric, health care ­REITs look relatively inexpensive, trading at 14.5 times FFO, compared with the industry’s average of 15.5.

How Real Estate Can Boost Your Income in Retirement

REITs have been hot for a while. But there's still a corner of the market that has room for growth.

Read More: How Real Estate Can Boost Your Income in Retirement - Time@Money_Collage


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