The Unique Value Proposition of the Over-55 Investor

Posted by Michael Miller on October 22, 2019

Investing in residential real estate as you get closer to retirement age has its advantages and disadvantages. If you are over 55, there are several considerations to keep in mind whether you are new to the investing arena or already have an established track record. First up, ownership: According to a recent report, baby boomers own nearly $13 trillion of U.S. real estate—close to two out of every five homes in the country.

Nationwide, many boomers are looking to bolster their retirement savings with single-family rentals. The Entrust Group, an organization that oversees self-directed IRAs, says that more than half their clients who choose real estate investments opt for single-family homes. Another 25% bought multi-family rentals, and 20% purchased land.

Whether you choose ongoing retirement income through rentals or opt to increase your savings through the sale of fix and flip properties, there are many advantages to investing in real estate when you’re over 55.

Pros of Over-55 Real Estate Investing

Investors who are over 55 are likely to be in better financial shape than their counterparts in their 20s, 30s, or 40s. Chances are your credit is well-established, you have more capital available, and you will be able to qualify for a better interest rate when financing your investments. You also are likely able to afford multiple properties to build a more robust portfolio.

Real estate investing provides you with a more diversified approach to your retirement. Rather than relying exclusively on your IRAs and 401(k), which are at the mercy of the financial markets, you are able to take charge of your assets. You are able to create a stream of revenue with rental properties or property resales that will eventually fuel your retirement.

Cons of Over-55 Real Estate Investing

One downside for the over-55 investor is that you have a shorter window to recover in case something goes wrong. Investors in their 30s and 40s are better able to withstand a downturn in the market, knowing that the leaner years will be followed by fatter ones. However, older investors will not have as much time to make that recovery. Thus, there is less margin for error, and you have to be sharper in picking investment opportunities.

Also, every investment is a trade-off. If you are investing your capital in real estate, those dollars are unavailable to invest elsewhere. You need to weigh all your investments to ensure that your overall portfolio works best for your retirement.

Where to Find the Best Investments

If you’re just getting started as an over-55 investor, you may not know where to find the best rental properties. Online investing platforms like Roofstock and SFRHub provide investors with access to single-family rental listings and the ability to invest online. Accredited investors can even make fractional investments for as little as $5,000 through Roofstock.

Websites like LoopNET.net can help those seeking multi-family properties and other commercial real estate. Realtytrac.com and Auction.com assist as you find foreclosures, which can offer tremendous value as fix and flip investments; Auction.com lets you bid on properties through the online platform.

More Tips for Older Investors

The older investor has to read the market well. Thorough research is more important than ever—as is the age-old advice not to invest more than you can afford to lose.

Likewise, taxes may be a concern since retirees may not have W-2 income with payroll taxes taken out that could help offset capital gains tax. Consider using a 1031 exchange to mitigate the tax ramifications of your investments. As long as you buy a similar property within 180 days, using proceeds from the sale of the first property, you can avoid paying capital gains tax on your investment profits. This wealth-building strategy gives you access to tax-deferred investment funds to grow your portfolio.

As you reach the latter stages of your investment career, you may want to start thinking about when and how to modify your business. Perhaps you have adult children or a younger partner who can work alongside you and eventually take over the business.

Your time is more valuable as you get older, so consider hiring individuals to do the work you previously did yourself. Whether it is a general contractor to renovate your next house flip or a property manager to assist with your rentals, using the expertise of others will free you up to pursue higher-level management tasks.

Establishing those relationships now means that you will have trusted professionals in place if you decide to step back from your investment business gradually as you ease into retirement.

Enhancing Retirement

The over-55 real estate investor still has plenty of time to pursue additional opportunities. Be forward-thinking to ensure that the decisions you make today will enhance the retirement you are hoping for tomorrow.

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5 Arch Funding is not a tax advice expert, law firm or accounting firm.  The content of this article is informational only and is not intended as tax, legal or accounting advice.  Consult your own tax, legal or accounting professional for guidance.


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