Apartments and retirement

Apartments and retirement

Our country is facing a retirement crisis. As I’ve written before on this blog, the unfunded liabilities of Social Security and Medicare, coupled with the low savings rates and decimated 401(k)s will result in large parts of the baby boomer generation not having enough money to retire.

I’m starting to see articles here and there on strategies for retirement outside of the standard advice of mutual funds and bonds. Over the weekend, I read an article in The Wall Street Journal by Tom Lauricella called “Want a Job? Become a Landlord”.

In summary, Lauricella writes that for those facing retirement, a valid option is buying a small mutli-family building, living in it, and managing it.

He cites low interest rates and depressed pricing as reasons that it’s a good time to jump into this type of investment. He also points out that rents are on the upswing in most states and that the long-term trend in the US looks to be one of renting vs. ownership. All of this bodes well for landlords.

Additionally, he says that having a job as a landlord will “provide something harder to quantify for retirees who have difficulties walking away from a full-time job: a challenge, a purpose and an opportunity for accomplishment.”

I’m happy to see this type of article in the mainstream media because I’ve been preaching for years that cash flowing real estate is one of the ultimate investments due to the ability to leverage, receive cash in your pocket each month, and the tax benefits.

Also, I’ve been saying through the last part of this crisis that this is the time to begin buying real estate for the same reasons as the article. You can find properties at a bargain and interest rates are at historic lows. Wealth is flowing from those who made bad real estate bets to those who are ready to cash in now.

That being said, there are a few things I’d say differently than the article.

Hire a property manager

If you’re buying an apartment building, why spend the time and energy renting, managing, and maintaining the building—especially if you don’t know what you’re doing? Who wants to spend their retirement years fixing toilets and changing locks?

One of the great things about multifamily investing is that you can factor in property management into your calculations when buying an investment property. Find a deal that can provide income while supporting professional property management.

Make investing your “job”, not management

To me, it’s short-sided to find only one building and make managing it your job. Instead, become an investor and find more great deals that you can purchase and have professionally managed. Spend your spare time educating yourself on the market, rounding up investors, finding better deals, and building the value of your portfolio so that you can leverage it into even more deals. That will give you a purpose in retirement and build your wealth.

Start now, no matter your age

While I think it would be smart for those nearing retirement to consider multi-family investing, it would be even smarter for the young people reading this post to begin investing.

As the old saying goes, “Youth is wasted on the young.” Don’t let your youth be wasted. Rather begin planning for your future by investing in your financial education and building a portfolio of assets that will provide for you and your family when you’re ready to retire.

My wife, Kim, began investing over two decades ago with one two-bedroom house in Portland, OR. Today, she owns thousands of units in multiple states that bring millions of dollars into her pocket each year. Anyone can do this. Start small when you’re young, and build big for when you’re old.

For more on multi-family investment and management, I encourage you to read the books by my real estate advisor, Ken McElroy, The ABC’s of Property Management and The Advanced Guide to Real Estate Investing.

Original publish date: June 21, 2011