Today, 50 is the new 60. Retiring at 50 is doable if you utilize the correct tools to build your money. Your investments must work as hard as you do to secure you in the golden years. People use the stock market as one of their financial alternatives. However, owing to its instability and complexity, many prefer to diversify their money. Real estate investments in India are a reliable choice for a retirement-oriented portfolio. So, yes, you can retire early with real estate investments in India.
What springs to mind when you consider retirement? Vacations, time spent with loved ones, or even life by the sea? However, reality may be completely different. Max Life Insurance India Retirement Index Study reports that 9 out of 10 urban Indians are concerned that their retirement funds may not endure. Why are we unable to save enough money? Procrastination is the primary cause. Immediate priorities like paying for education sometimes take precedence over retirement planning. So, if you do not want to spend your senior years worrying about running out of money, it is critical to start proactively creating a retirement plan. But, where can you better invest your money? Real estate investment.
Many individuals avoid real estate investments because they feel unstable or need a massive initial commitment. Assetmonk, for example, can help you invest in the top commercial real estate properties for as little as Rs. 10 lacs. Fractional ownership also provides accessible real estate investment options. When addressed carefully, real estate may help you develop wealth and passive income for your retirement years while also safeguarding your investments from market instability. Historically, real estate investments have been an inflation hedge, protecting against a reduction in the buying power of the rupee. Prices in locations may plummet over years or decades. However, most investors who see this pattern will sell their homes before losing money.
The golden years of retirement demand a safe income generation and real estate investments best work to protect your retirement interests and aspirations. Real estate offers myriad options to invest in, and the tax regimes like GST have always encouraged new entrants into the market. It is one of the safest ways to build your income if your moves are strategic enough.
If you plan for a secure retirement through investment, then real estate has its best to offer you, as it can generate steady passive income while retaining the property.
But Why Real Estate Investment For Retirement Plan?
“Is real estate a good investment for retirement” is a question we all have pondered.
- A Safer Haven for Investors: Real estate investment is safe when you go for more extended periods of investment. You might see a few downward trends during your investment journey due to the market dynamics. But the investments scale up to even higher values, once the recovery stage kicks in. Also, compared to the volatile market instruments like Stocks that may sweep your earnings overnight, Real estate investments prove to be less risky. While the market falls, real estate investment is backed by a physical asset that appreciates with time protecting your interests. Hence, real estate investment can be an excellent plan for retirement to protect the entire savings of your lifetime. It ensures a favorable outcome for long-term investment.
- Opportunity to Mitigate the Risk: Real estate provides you with umpteen options for investing. If you have a diverse investment portfolio, you are resilient to market fluctuations. Investing in multiple properties is a good idea if you plan for retirement as it reduces the risks. This ensures a smooth cash flow at all times. It also reduces the intensity of the losses by counterbalancing the underperformed asset with a high-performing asset’s returns. This makes it a more retirement-oriented investment.
- Protection Against Inflation: Inflation is an economic phenomenon during which the living costs increase drastically. It could be a challenging phase from the retirement perspective. But some investments work well and shield you from downfalls like inflation and recession. If you own a property and rent it out, inflation drives higher income. Because the increase in living costs escalates your earnings through rental returns, this, in turn, balances your expenditure hedging against the inflation.
- Highly Elastic Industry – Levels the Setbacks and Rises Higher: Any fall in the real estate prices is interim. All you must do is wait for the right time to come. The real estate gets back to the original order; in fact, higher order in a short period after the setbacks. This certifies it as an option for retirement investment as any losses are only intermittent.
- Capital Appreciation fetches you Higher Returns: The property’s worth increases over time due to capital appreciation. This, in turn, attracts lucrative returns that help you keep up with the expenditure, growing with time. If you wish to sell your property to meet any unforeseen retirement life requirements, you would be entitled to higher margins of profit.
- Tax Rebates are Add-Ons to the Returns: Real estate buyers can avail the tax benefits during the purchase of a property through loans by claiming a tax rebate. If you buy a property through a home loan, you can claim the tax rebate on the principal amount up to Rs.1 Lakh per annum, and interest paid can be claimed up to Rs.2 Lakhs per annum. If you hold a joint property, both the investors can claim a tax rebate up to Rs.2 Lakhs interest. This helps in acquiring a more significant property that brings in proportionate returns. The higher returns ensure a safer retirement life and also help you get along with the increasing expenditures.
Investment Options for Retirement Planning
The following are some of the investment options that work best for retirement.
- Buy and Hold Properties: Also called rental properties, buy and hold properties generate regular income and reduce the potential risks. Let us see how they work best for the retirement portfolio. The property value appreciates with time, and you can earn a steady income retaining the property. The escalating worth of property drives a higher rental income, compensating for the increasing living costs. Besides, post-retirement costs are always a hazy picture. So, your investment must see that your demands are met, and rental properties are the ones you can trust. Buy and hold properties are a good option as they need less skill and are static concerning the process. You have the least to worry about the trends, as residential properties are a utility resource that can never go off-trend. Therefore, you can start with this type of investment at any time for retirement. As a word of caution, you should be aware of the maintenance or repair costs that you should bear. While it could be a little hectic for the old, hiring a property manager shall help you handle the works like collecting the rents and repairing them. Investing through online platforms like Assetmonk can make it hassle-free, as they offer you pre and post-purchase asset management facilities.
- Commercial Properties: Commercial properties are used exclusively for business-related purposes, and you require a large amount of capital to invest in these kinds of properties. They also have higher returns as they have attractive leasing rates. The tenure for the rental is too high, which reduces the potential losses. If you plan for retirement investment, then commercial properties seem to be a viable option when you invest at a young age. They generate a steady passive income for longer durations through lease agreements. If you are trying your hands on real estate in your career’s late stages, commercial properties are not smooth to handle. Any fall in the market trends affects your investment adversely. Also, doing away with the mortgage and leveraging by retirement can make it a risk-free earning process. Hence, investing early in commercial properties is advisable. The rental income for commercial assets fluctuates between 5% and 12%. Commercial real estate, if owned, might be a very successful source of revenue for the foreseeable future. One way to create a guaranteed revenue stream is to own a CRE property and lease it to established enterprises for rental income. Because rents climb every year, this keeps you ahead of inflation. The return on investment for commercial property is also between 6 and 12 percent.
- REIT: Real Estate Investment Trusts are one of the safe options to invest in. REIT is a company that buys property from the shares of investors. REITs pay you the earnings in the form of dividends when you buy their shares. It ensures your profit as the company invests in diverse investments. You earn as both dividends and through investment value appreciation. REITs prove to be beneficial for retirement because it involves minimal risks. It also ensures stable and regular cash flow which is the criterion for retirement investment.
- Real Estate Crowdfunding: Real estate crowdfunding is when a group of investors pool their capital to invest in a real estate project. These individuals may provide financial assistance for existing or future real estate businesses by contributing to a pool of cash obtained from others with similar interests. Such possibilities might take the form of residential or commercial holdings. They can involve either the construction of new housing, retail, or office space or a share in an existing holding. Crowdfunding allows you to participate in a real estate investment venture without paying extra money or dealing with the hassle of owning and managing the property yourself.
- Fractional Ownership of CRE: We are no stranger to“You need a huge budget to be able to invest in a commercial property valued at Rs 350 crores”. That statement would have held decades ago. But, that is no longer the case now all, thanks to fractional ownership. You can now invest in the 350 crores commercial space with a minimum of Rs. 10 lacs. Numerous investors pool their funds to purchase a high-end office property. The investors or co-owners split the expenditures and earnings connected with the property. Rental revenue gets provided to investors equivalent to the quantity invested in real estate. The capital gain on the sale is also distributed proportionally to the investors. Co-owners of the property also enjoy rental returns starting from 6% to 10% each year. Thus, fractional ownership is a fantastic option for retirees seeking a steady rental income. Industry experts state that fractional ownership is a low-risk, high-return investment in any retirement plan. Senior citizens can invest up to 25% of their assets in fractional ownership to create continuous rental income and capital gains.
But should you rely only on real estate rental income to fund your retirement?
One of the most attractive sources of passive income is rental income. Rental income is generated by investing in real estate and leasing it out for a living. It, however, will not be enough to pay for your post-retirement needs. For various reasons, having a backup source of income aside from rental income from real estate assets is critical.
One should have a separate rental income during retirement to offset the risks and uncertainties of ordinary life. It also aids in keeping up with inflation. It also aids in the development of a sizable corpus for a comfortable post-retirement life.
Rather than depending on rental income from real estate investments to fund your post-retirement expenses, you might invest in other options. You can invest in fixed deposits, mutual funds, the national pension system (NPS), dividend investing, and the Senior Citizen Savings Scheme (SCSS). Thus, generating extra money for retirement from sources other than renting can heavily improve your life. Your additional funds can also assist in mitigating the risk of unanticipated costs and uncertainties. Having a backup source of income has various advantages, including minimizing the financial risk of relying solely on one source of income. Even if it is not realistic in a month or two, the small number of extra bucks you make each month may help you save in the long term.
Real estate investments have traditionally provided investors with a sense of security by allowing them to possess something concrete. However, it is quickly becoming a viable choice for diversifying investments, creating new income streams, and securing the future. Yet, just like any investment, real estate is not without danger, albeit with a lesser risk component than most other possibilities.
Real estate can be a great savior from the dwindling opportunities for and post-retirement that the present-day market offers. The changing trends of the markets are bringing novel investment approaches like fractional ownership and crowdfunding. This proves the industry’s potential to adapt and go further making real estate a wise choice for retirement investment.
What are you waiting for? Fasten your belts and gear up to build your portfolio today for a happy retirement! If you are a beginner or one looking to expand your portfolio, Assetmonk is a platform in the field of real estate that helps you bag the best deals on your investment. We offer our services throughout the process of purchasing—the diverse properties listed on the platform range from residential to co-living and condos. For more details, click here!
Real Estate for Retirement FAQ’s:
Yes, real is a good option for post-retirement. But, there are certain aspects to be taken care of. Real estate for retirement is a long-term investment, and it has always been an excellent option for long-term investment.
Real estate offers abundant strategies and types of investments. Hence, investing in multiple options reduces the risks. Risk diversification protects against market fluctuations. There are a few long term investment strategies that are not as volatile as other market instruments. Hence, it ensures a favourable outcome for retirement investments and produces a stable and regular income.
The rental properties are good for retirement because they generate regular and steady passive income.
The safe investment options for retirement are residential and REITs investments, government bonds that ensure profits.