Finance your retirement with real estate investment
Finance your retirement

Finance your retirement with real estate investment

Your retirement is fast approaching but you haven't saved enough? Fortunately, it is never too late to prepare well for your retirement years. Real estate investment is a preferred solution for financing your retirement. Thanks to the rents received, real estate generates regular cash flow. It is a valuable addition to maintain your standard of living after 60. Many seniors rely on stone to supplement their pension.

Discover in this article how to take advantage of real estate to calmly finance your retirement. We will review the different types of investments to be preferred. We will also address the issue of debt and taxation. Follow the guide! It's never too late to properly prepare for retirement. But before we start, here's How can you better finance your future retirement? Let's go !!

What is a real estate investment?

A real estate investment consists of buying a property with a view to building assets and financial returns. There are different ways to make this type of investment. The most classic is buying an apartment or a house to rent it out. The investor then receives rental income each month corresponding to the rent, from which the charges inherent to the property must be deducted. The objective is to generate an annual return thanks to the rents collected.

You can also buy a property in the goal of reselling it a few years later by making a capital gain. This capital gain comes either from the rise in the real estate market or from a revaluation of the property after improvement work carried out by the investor. Whatever the strategy, real estate investment must to consider the long term. Diversification is also recommended so as not to concentrate all the risks on the same property.

finance your retirement

Invest in a larger primary residence

The main residence must be spacious enough to be partly re-rented once you retire. Think about it before buying or building. Prefer a house with an independent annex or a large apartment with two separate bedrooms. You can then rent out part of the property to generate income. It is easier to rent to a single person than to a family.

Aim for a central, well-connected location to make renting easier. Good insulation, low charges, parking: the apartment must be functional to attract tenants and a furnished lease is more profitable than an empty rental. Provide quality furniture and equipment. Seasonal rental in summer, student lease, subletting of a room: multiply the possibilities for additional income. Anticipate possible work to facilitate cohabitation and rental. An apartment that is too cramped or dilapidated will be difficult to rent.

Article to read: Discover relevant advice for investing in SCPI

Acquire a rental property to finance your retirement

Buying a rental property for your retirement is like planting a tree. You have to do it early and take good care of it to reap the benefits later. First, choose your location carefully. That's the basis. A crappy apartment in a bad neighborhood will always be better than a crazy villa in the middle of nowhere. Think about rental demand: transportation, schools, shops... All that counts.

Do your calculations before you start. Look at the local rents, estimate the charges, the taxes, all that. It has to be profitable, otherwise it's useless. Don't forget to plan for a safety net for hard times. Financing is crucial. Negotiate your loan well. If possible, try to repay it before you retire. That way, when you're old and all wrinkled, you'll only have the rent coming in, without having to pay out a penny.

Think about taxes. There are plenty of schemes to reduce your taxes when you invest in real estate. Find out about them, it can save you a lot. Management, don't neglect it. You can do it yourself if you have the time and the desire. Otherwise, an agency can take care of it, but it will cost you part of the rent.

Diversify if possible. Don't put all your eggs in one basket. A studio here, a two-room apartment there... It limits the risks. Don't forget maintenance. A well-maintained property attracts good tenants and increases in value over time. And then, be patient. Real estate is a long-term investment. You may not get big returns right away, but over 20-30 years, it can really change your life.

Finally, stay on the lookout for opportunities. The market is always moving. If you see a good deal, don't hesitate to jump on it. To optimize the investment:

  • Prefer a small property that is easy to rent : studio, two rooms, modest apartment. Rents will be higher per m2.
  • Aim for a strategic location : near university, city center, metro, shops. Rental demand will be significant.
  • do some work to modernize the accommodation before renting it out: parquet, electricity, bathroom.
  • Equip at least: bedding, hotplates, refrigerator. This facilitates more profitable furnished rentals.
  • Bet on the advantageous taxation of the LMNP (Non-Professional Furnished Rental Company). Possible tax exemption.
  • Keep precautionary savings for contingencies: urgent work, vacation rentals, unpaid bills.

If you already own a property, also consider renting it out after you retire. The rents will generate a significant supplement.

Place your savings in SCPI

Another way to finance your retirement is to make SCPI investments. SCPIs (Civil Real Estate Investment Companies) allow to invest in rental real estate in a simple way. Investing your savings in SCPI is an increasingly popular option for savers wishing to diversify their assets while benefiting from passive income. SCPIs allow you to acquire shares in a real estate portfolio managed by professionals, thus offering exposure to the real estate market without the constraints of direct management.

One of the main advantages of SCPIs is their ability to generate regular income. Indeed, the rents received from the real estate held by the SCPI are redistributed to the partners in the form of dividends. This allows investors to receive rental income without having to worry about managing the properties themselves. In addition, SCPIs offer a certain liquidity, although less than listed shares, because the shares can be resold on the secondary market.

finance your retirement

However, it is essential to choose your SCPI carefully. The criteria to take into account include the company's investment strategy, the quality of the real estate assets, the occupancy rate of the properties and the history of returns. A good preliminary analysis helps to minimize risks and optimize the return on your investment.

Finally, it should be noted that investing in SCPI also presents risks. Like any real estate investment, the value of the shares can fluctuate depending on market conditions. In addition, management fees can reduce the net return received by the investor. It is therefore crucial to be well informed and, if necessary, to consult a financial advisor before embarking on this form of investment.

We buy SCPI shares which give the right to a share of the rents collected on a portfolio of properties managed by professionals. Choose an SCPI invested in residential real estate. Aim for one net yield of 4 to 5% to generate comfortable additional income.

Bet on the life annuity

The life annuity is a clever financial and real estate arrangement that allows an elderly person, the seller, to sell their real estate (house, apartment, land, etc.) while retaining the right to live there until their death. This technique also allows you to finance your retirement with ease.

The buyer immediately pays an amount called "bouquet" which only represents part of the sale price, usually between 10% and 30%. The remainder of the price is paid in the form of "life annuity" paid periodically to the seller during his lifetime. The buyer will only have full ownership of the property upon the death of the seller, of whom he is in the meantime only the bare owner. The price depends on the age of the seller and therefore on his estimated life expectancy.

The life annuity is therefore a real estate investment at a lower cost for the buyer but risky if he is mistaken about the remaining life expectancy of the seller-occupant. The advantages of the life annuity for retirement:

  • discounted price, making it possible to invest in a beautiful property. Up to -50% of the market price.
  • Possible income if the occupant accepts a partial sublet.
  • Advantageous taxation : no taxable capital gain on the death of the occupant.
  • Return on investment on death if resale of the property or rental.

Choose your life annuity carefully: in the right location, occupant not too old, precise medical expertise. A clever arrangement to invest in stone when there is a lack of contribution.

Use real estate credit

To build up rental assets, do not hesitate to use a real estate loan, even close to retirement. Borrowing remains attractive given the current low rates. As advice, limit the amount borrowed at a maximum of 50% of the value property to facilitate obtaining the loan. Negotiate a credit over 15 years maximum. The ideal is to repay it before you retire.

Prefer a fixed rate to avoid rising rates. Even if it means paying a little more.  Opt for the cheapest borrower insurance, your age does not matter. Choose constant monthly payments : no surprise or snowball effect. Negotiate the taking into account of rents in the calculation of your debt ratio. Amortize the capital more quickly if possible thanks to the rents received. Please note, the loan must remain sustainable after retirement. Your future rental income will need to cover monthly payments and fees. Estimate your budget very carefully.

Conclusion

Thanks to rental investment, you can ensure comfortable additional income for your retirement. Several options are available to you depending on your budget and your temperament. Renting part of your main residence is the simplest solution. The pure purchase of a rental property is more profitable but requires more rigorous monitoring. SCPIs allow you to invest passively through professionals.

The life annuity and the real estate loan must be studied according to your situation. Whichever option you choose, plan your project carefully. Carefully analyze all aspects: taxation, profitability, future charges, rental risks, possible resale. Call on a real estate consultant to guide you. Contact us. But before you leave, here is How to Create an Irresistible Business Offer

I am a Doctor in Finance and an Expert in Islamic Finance. Business consultant, I am also a Teacher-Researcher at the High Institute of Commerce and Management, Bamenda of University. Group Founder Finance de Demain and author of several books and scientific articles.

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