Securing a reliable source of income for retirement is what most of us strive for throughout our adult life. After all, life in our golden years is not cheap. In addition to everyday living expenses, retirees need to prepare for higher healthcare and long-term care costs, as well as have sufficient funds for leisure activities such as travel and hobbies.
While most retirees rely on social security or employer pension plans, others fund their golden years with various income sources including IRAs, taxable investments, annuities, and even continued employment. According to a recent Society of Actuaries survey on the Risks and Process of Retirement, however, only 3% of retirees cite rental properties as a major source of income. In contrast, Social Security benefits are a major source for 64% and pension plans for 35%. Furthermore, 16% rely on IRAs and 11% on brokerage investment accounts.
Understandably, there are several reasons why retirees may be hesitant to buy investment real estate. They may not have the energy for do-it-yourself maintenance or the desire to deal with tenants. Additionally, property taxes, insurance, and HOA fees add significant cost to owning income property. Lastly, if they are in a pinch for cash, they may not be able to liquidate a real estate investment as quickly as a taxable investment account, for example.
Investing in rental properties through multifamily syndications can be a more realistic pathway for retirees. Let’s take a look at some of the reasons why.
Passive investment – the hands-off nature of multifamily syndication investments is what makes them ideal for retirees. As limited partners, they won’t have to lift a finger. All facets of the property’s operation are managed by a syndicator and a professional property management team.
Multiple profit sources – multifamily syndications typically distribute recurring cash flow to their limited partners. Since real estate tends to increase in value due to natural market trends and forced appreciation, passive investors also receive proceeds when the property is refinanced and capital gains when the property is finally sold.
Depreciation and other tax benefits – real estate investors, including limited partners in multifamily syndications, can take advantage of tax breaks such as depreciation. This deduction takes into consideration the gradual wear and tear of investment assets such as real estate, allowing owners to fully depreciate a property over 27.5 years.
Low-risk – real estate has long been considered a low-risk, high-return investment. Multifamily syndications spread the risk across all limited partners invested in the property. To diversify even more, retirees spread their investable capital across multiple syndications.
Hedge against inflation – because property values and rents tend to increase with inflation, real estate can provide an excellent hedge. This correlation is explained by the fact that an increased supply of money in the economy drives up the price of all goods.
These advantageous features of multifamily syndications are what makes this type of investment perhaps the best option for individuals who are considering real estate as a source of retirement income but don’t want the hassle of owning and managing rental properties independently.
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