Understanding Real Estate As An Investment In Retirement

When people think about investing for retirement, their minds usually go toward financial instruments like stocks and bonds. Real estate, however, can be a retirement investment vehicle, even if all you ever buy is the house you live in. Here are four ways you can take advantage of this idea.

Not Paying Rent

The idea is simple to understand. If you're paying rent, you're never going to see a nickel of that money again. Even if the value of an owned house were to decline 80% over your time there because you didn't fix anything, the 20% return is still better than the giant goose egg you'd get from renting.

Buy Low, Sell High

A classic idea in buying and selling other investments applies to houses, too. If the opportunity presents itself to buy a fixer-upper, for example, buy it cheaply and give it some love. You can then capitalize on the improvements by getting in touch with a real estate agent to sell it when the value goes up.

Savvier buys will also look at trends in neighborhoods. Getting into a neighborhood before it takes off can yield massive returns.

Time is your friend, too. For example, the inflation-adjusted value of the average American home bought for $101,100 in 1990 was $119,600 in 2000. While that's not an aggressive return compared to the broader economic boom of the era, it nevertheless represents a pretty good value given that you have to live somewhere anyhow.

An Investment You Can Enjoy

Even if you've invested in stocks that yield major dividends, the reality is that there isn't likely to be much immediate enjoyment to be had from your investment. One major advantage of using your home as a bank to save for retirement is that you also get to use and enjoy it. Many of the upgrades you'll be inclined to make, such as renovating the bathroom, will help you enjoy the house more and also increase its potential sale value down the road.

Selling and Playing With House Money

Unless you are absolutely committed to a house, there may come a point in time when it's wisest to call a real estate agent and sell. If a $200,000 home has doubled in value, maybe it's time to collect the $400,000 and find another $200,000 house. The other $200,000 could go into a vacation home, a business, or investing in a rental property.