How to invest in older age

Question

My husband and I have recently inherited 200K and are trying to decide the best way to invest this money for the future.  We are in a unique situation because I am 51 and my husband is 69.  Therefore, we realize our future investments need to potentially last longer than most.   We are thinking about investing in rental properties - possibly 3 - and allowing the rents to pay the mortgages with time, but realize we may not see money for years from that. Or would it be more wise to pay cash outright for one property, a  tri or a quadplex, to allow more of an immediate cash flow at our age?  Or should we invest in something other than real estate?

Jacob St. Martin · Answer

Hello Melissa, you are asking great questions! It is great that you are looking to invest in your future with this money. There is no one right path in real estate, and the best path for you will depend on your goals. I will address your last question first, I think real estate is the best wealth building tool that exists and you should definitely invest in real estate.

First, I would ask if you want to be active or passive in your investments? From your post it sounds like you are new to real estate. As a newbie if you want to be actively managing your property, it will take time as you are learning the world of real estate and you will probably make mistakes along the way (which it totally fine). How much time do you want to dedicate to real estate? For instance, if you don't want to spend a lot of time I would recommend investing with partners who will do the work or in syndications. If you want to be active then you could buy and manage real estate yourself.

My next question is what is your goal in investing in real estate and how quickly do you hope to reach that goal? If you are looking to replace all of your income in 5 years you will need an aggressive strategy that would probably involve the BRRRR method to keep the velocity of your money or short term rentals where you can get a lot of cash flow and appreciation. The downside of both of these are that they involve a lot more time and risk. Investing in long term rentals or syndications are less risk and less time but lower returns.

No matter what, whatever you invest in should be cash flowing monthly. It is rarely a good idea to buy anything that does not cashflow, definitely not at this stage in your investing career. While you will probably make more money in the long term from appreciation, cash flow protects you from market down turns.

When it comes to buying multiple properties or one with cash, I would recommend multiple properties or one multifamily but using leverage. Leverage is one of the reasons that real estate is such a powerful tool. This way, when there is appreciation in the market you benefit from the appreciation of the purchase price of the multiple homes or much larger home, not what you put down on it. For instance if you buy a $1 million property with 20% down (200k) and the market appreciates 5%, the 5% is on the $1 million value, not the 200k you put in.

I would be glad to answer other questions or to help you figure out the best investment path for you! Feel free to connect with me here on BP if you want to discuss in more detail. I am also looking for cash partners on some deals that I am working on or could recommend you to a syndicator that I know if that is the path you decide on!

Theresa Harris · Answer

You've got great advice from the others and I echo what they said. think about what you want to get from the rentals-is it long term income (ie let the tenants pay off the mortgage, so it is paid off when you retire) or for extra money now if your husband is retired?

I'm your age, but I'm single and my plan is to retire early and have the rental income supplement my pension.  When I want to, I can sell one of the rentals that is paid off and get a lump sum payment and then if I need more money, sell another one.

Justin Hammerle · Answer

All your classic retirement funds (401ks/IRAs) slowly shift from stock to bond allocation as you age showing income production is generally more important than value appreciation as you age.

Everyone has different goals regarding lifestyle and what income they will need to support it, so I would recommend reaching out to a financial adviser to explore this more to find out what your number is.  In understanding your number, multi-family real estate is a great asset class to consider because of its tax benefits and low volatility/risk adjusted returns.

Patricia Steiner · Answer

First of all, you and your hubby are still young and you've lived long enough to know what not to do - which goes a long way in real estate investing.  A few things to consider:

1.  What market are you considering?  Do you want to invest where you live or where you wish you could live?  There are benefits to both.

2.  Find the right opportunity first.  Let that drive what happens next.  One great investment is better than 3 so-so ones so kick some tires and analysis the ROI.  Some deals look good at first but by the time all the numbers are crunched, it's more of a "why bother?"

3.  Find a realtor/broker who works with investors in your preferred market.  A residential realtor won't be the best match as you want someone who deals with income and commercial properties and the analysis of those.

Take the time to get it right from the start...it's makes all the difference.

Best.

Paul Moore · Answer

Hi @Melissa Steinour! Welcome to BP. It looks like you got some great advice above.

After speaking with a few thousand investors over the past decade, I would recommend that you don't buy and actively manage your own property unless you are passionate about it and want to dedicate the time needed to do this. A lot of investors try to do this on the side and while it works for some, it can be a big hassle for others. I've seen both.

Given the passive investment opportunities available these days, I would recommend you consider passive investments. Unless, like I said above, you are passionate about real estate and are sure you would be excited to manage these properties, or are willing to pay a property manager. Good luck!

Eliott Elias · Answer

Paying cash gives you more room for error, I wouldn't recommend it though. I would buy a well stabilized asset, established tenants and property managers, something that is hands off.

Karen Margrave · Answer

Do you own the house you currently live in free and clear? Will you have retirement income, and if so, how much?  Debt, current income, expenses, etc. all weigh in to the equation. Even though real estate is a great way to increase wealth, there is a risk involved. In boom times it's easy to look at houses, see the appreciation and jump in. However; there's a recession predicted, interest rates rising, and prices are going down in some areas, and holding steady in others. What is the rental market like in your area? Are rents higher than they've ever been with no homes available, or is there an abundance of rentals? Same with homes for sale, how many are on the market compared to normal, higher or lower?  Every area and location has their own specific markets, and people on BP, though well intentioned can't give you specific information on what is best. If your present home isn't paid off, your best route may be to pay it off first, before buying anything. We are coming into what may be tumultuous times. Prices may drop, rents may drop, jobs may be lost, it may be better to sit tight and wait a few months to see how this all shakes out.

David M. · Answer

@Melissa Steinour

It really depends on what you think will provide the "better" return.  You are on a real estate investment forum, so generally the answers will be pro real estate.  However, that is not always the way to go for some people.  Also, your time horizon is honestly a little short.  I think you need to seriously consider what are your investment goals and associated strategy to determine your "highest and best use" for your funds, and your TIME --- being a landlord is not always as "passive" as it might seem.

Basit Siddiqi · Answer

I think either option can be correct to different people.If you have a sizeable retirement fund that covers your living standards, I personally would go with the fully paid off house, especially at current interest rates.If you potentially need more cash-flow / appreciation, you may be better off with 3-4 leveraged homes.Return on time may be just as important as return on capital along with living a life with less things to worry about.Best of luck

Nicholas L. · Answer

@Jacob St. Martin

@Theresa Harris

@Patricia Steiner

all great advice.  i see so many posts where new investors are encouraged to dive in to the riskiest strategies and everything here is good...  you could turn this thread into an article.

How to invest in older age

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