Should I Sell or Rent My House When I Relocate for Retirement?

Should I Sell or Rent My House When I Relocate for Retirement?

by Investment Property

Soon after 40 years of sitting in website traffic and punching the clock, you will sit and punch no far more. When your property was fantastic for elevating a relatives and earning a residing, you have made a decision to relocate in retirement. But you may possibly be inquiring you, really should I sell or rent my house? This decision is complicated since there are investment, tax and non-money issues. We will address them in that order.

Is Your Dwelling Considered a Good Financial investment?

Your household as you have utilized it throughout your working yrs, is just that, a dwelling. You have to consider it as a home 1st, financial commitment second. If you are taking into consideration renting out your property, that order reverses. I typically speak with customers who argue that they should retain the residence simply because the lease is adequate to cover the house loan price tag, or that, simply because there is no house loan, this is great “passive income.” These are not superior methods to assess the excellent of the expenditure. Under are a couple of procedures of thumb:

How the Tax Code Can Help Investors Keep Their Real Estate Wealth Stable During Retirement

How the Tax Code Can Help Investors Keep Their Real Estate Wealth Stable During Retirement

by Investment Property

By David Wieland.

Due to the fact unique buyers (not corporate entities) own additional than 70{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of household rental authentic estate, you most likely have some customers who hold house assets and act as landlords for people attributes. With rising fascination costs and costs, clientele with expense homes may be sensation a pinch in income.

In my working experience, these pressures, along with a myriad of other reasons which include a desire to get out of the landlord small business, are top quite a few authentic estate traders to take into consideration promoting. No matter of the motive for wanting to unload assets, they all very likely have just one popular intention – to guard as considerably of their wealth as doable when they provide by lowering the taxes thanks when they market an expenditure residence.

If you have clientele (significantly all those nearing retirement age) who are seeking to offload some genuine estate investments to fund their golden many years, there are possibilities for supporting them access residual earnings devoid of shedding price to money gains taxes. To keep away from that 15{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} strike from the cash gains tax when your clientele provide real estate financial commitment attributes, you can display them how to consider benefit of a tax shelter that’s been all-around for 100 decades: §1031 of the U.S. Tax Code.

Comprehending 1031 exchanges

1031 exchanges (also referred to as like-kind exchanges) are accessible to any individual who has owned real house held for business or expense purposes, for at least two several years. A 1031 exchange allows traders to defer some, or even all, of their gains from the sale of these qualities. To leverage a 1031 trade, an investor has to guarantee the money from a authentic estate financial commitment home sale is reinvested (or “exchanged”) in like-sort assets, which the IRS broadly defines as in the same way valued serious estate held for expense or business reasons.

1031 exchanges also provide possibilities for your clients to protect generational prosperity. For example, your customer can market an investment decision property at a earnings, then reinvest that income in like-sort real estate in an hard work to hold growing wealth for generations to appear. 

The U.S. Tax Code delivers for beneficiaries to acquire belongings from an estate on a stepped-up foundation, which usually means the asset is permitted its sector value at the time the benefactor dies. Normally that means the stepped-up basis will be bigger than the cost at which the benefactor acquired the asset. Due to the fact taxable cash-gain money is figured centered on the advertising rate minus the foundation, that superior stepped-up foundation can drastically minimize the beneficiary’s taxable funds-acquire revenue if they pick out to sell the inherited asset.

So each time your customer conducts a 1031 trade, they’re locking in benefit and deferring taxes. Their foundation is going to be decrease or even zero, but they’ll also have advancement in the relinquished price of the previous property. This permits your consumers to steer clear of tax casualty or devastation and permits their investment’s benefit to potentially expand for many years to arrive.

How serious estate can create options for passive actual estate financial commitment income

Numerous real estate investors could be on the lookout to drop some of the duties of currently being a direct trader. You may possibly, for case in point, have clientele who are exhausted of staying landlords and residence professionals as they enter retirement, in particular just after the tough yrs quite a few may perhaps have confronted for the duration of the pandemic when the countrywide moratorium on evictions gave tenants reduction from rent payments. That ate into investor hard cash flow and even turned it detrimental in some scenarios. These encounters have led some investors to shift their watch of authentic estate as an asset class to keep in their retirement several years.

Below is where by investors can be released to a genuine estate asset course they don’t have to control: a Delaware Statutory Believe in (DST), which is a authentic estate expenditure vehicle that gives folks fractional obtain to a commercial real estate home. (You do not have to are living in Delaware to take part in a DST.) A DST can present many possible advantages for clientele in a phase of everyday living when they want to drop liability and threat.

A DST presents an investor entry to real estate financial investment possibilities comparable to these owned by significant institutional buyers like insurance plan organizations, pension resources and actual estate expense trusts (REITs). In addition to permitting for passive serious estate financial investment, these options can also give your client obtain to much larger house investments than they could very likely afford to pay for on their own, since buyers share possession of the belief with other buyers.

Given that DSTs let for minimum amount investment decision quantities ($25,000 for a hard cash investor and $100,000 for a 1031 trade investor), your clients can build their possess passively managed, custom-made and diversified portfolio of real estate homes — like university student housing, industrial, multifamily, retail and warehouses — without having acquiring to play landlord. Your shopper can also commit in house anywhere in the nation, potentially steering clear of the will need to spend cash flow taxes in states that really don’t levy them. With a DST, the residence is owned and operated by a sponsor who is accountable for keeping the assets, securing buyers, revenue distribution for traders and far more.

By using a 1031 trade to devote in a DST, your client can transfer from a one asset class (say multifamily housing) to just one that is much more diversified. This is an specially excellent move for a person in or approaching retirement. You really do not want to see your client going back to function or suffering from a reduction in way of living since a genuine estate investment decision starts getting rid of value and cash flow opportunity. Variety is crucial. Investing in distinctive real estate sectors in unique regions of the nation can assistance secure price.

Comprehension the risks 

DSTs are not right for absolutely everyone, however. They have their possess unique hazards to consider right before earning an investment.

A Delaware Statutory Have confidence in is essentially a serious estate portfolio in an expenditure safety wrapper. Investments never always fulfill return expectations, and at times tasks really do not expand as substantially as predicted. Your consumers can assistance control individuals challenges by doing work with an seasoned sponsor who duly evaluates alternatives before releasing choices.

An additional possible draw back to DST investment is that authentic estate is not quick to liquidate. A DST won’t in good shape the bill for clients who want an investment decision they can turn into money quickly as needed. Most DST choices will have essential keeping intervals of 5 to 10 several years.

And DSTs will also carry a variety of expenses, which include administration expenses, presenting bills and acquisition fees, that immediate investment decision properties will not. Your customer will will need to get these expenses of expenditure, or “load,” into account when looking at irrespective of whether they can regain and/or multiply the fairness they devote.

So, if you’re wanting to help true estate trader shoppers preserve and develop property even though also sheltering them from key tax liabilities, leveraging a 1031 trade and investing in a DST may perhaps offer a option to aid safeguard funds, crank out revenue and lower publicity to industry volatility.

Whole disclosure. The info supplied below is not expenditure, tax or fiscal assistance. You really should talk to with a certified skilled for advice relating to your precise condition.

======

David Wieland is founder and CEO of Understood, a serious estate wealthtech agency that gives Investment decision Property Wealth Administration for investors.

3 Questions to Ask Retirement Clients About Their Real Estate Investments

3 Questions to Ask Retirement Clients About Their Real Estate Investments

by Investment Property

Unique buyers very own additional than 14 million houses in the U.S., comprising nearly 20 million models.* For advisers, these figures indicate that direct real estate investments could figure into the existing internet really worth and future money wellness of a substantial variety of their consumers.

Advisers owe it to these clientele to variety a tactic all over their real estate property as section of a long-expression economical approach. Concentrating on these 3 questions with shoppers who hold real estate can uncover crucial issues for integrating financial investment assets into their prosperity strategy.

“Too generally, advisers really don’t imagine to talk to these queries due to the fact they really don’t see serious estate as an asset that they are controlling in a liquid or custodial account,” states Rob Johnson, head of prosperity administration for Recognized, a platform that helps advisers and traders manage financial investment assets wealth. “But for holistic organizing, they have to have to understand the client’s asset locations throughout all their investments.”

To get the discussion begun, advisers should use three questions to uncover what financial investment assets their customers may hold and what they might have thought of undertaking with it.

1. Where does real estate fit into your wealth administration strategy as a full?

Advisers typically commence conversations with consumers by assessing their present-day financial condition and how it plays into their limited- and long-phrase aims. If a customer owns a person or far more true estate homes, it’s vital to gauge how these belongings complement extra regular sources of profits and the job they can enjoy in building prosperity in excess of time.

Some purchasers may possibly have a crystal clear idea of the role their investment house performs in their economical problem, whilst others—often these who have inherited or obtained true estate in a settlement—may have to have support integrating into their holistic portfolio. Customers who are however decades away from retirement will likely feel about their actual estate holdings extremely in different ways from clientele who are closer to or even in retirement.

For customers at any stage in their prosperity management journey, it is a good plan to converse via the positive aspects of genuine estate as an investment decision. For starters, authentic estate has the likely to provide robust returns, specially specified that some investors may qualify for connected tax breaks and deductions. It can also be less unstable than a lot of other property, and, because demand from customers for real estate is strongly correlated with increasing economies, it can be a fantastic hedge in opposition to inflation more than the extended phrase. Toss in the positive aspects of diversification that come with including a different asset course to the financial commitment blend, and serious estate’s advantages are tough to dismiss.

2. What is the internet income from your investment residence?

That said, direct serious estate possession comes with difficulties. Selection 1: managing the ongoing costs of possession, adopted by staying on leading of taxes and insurance policy. “Just possessing an investment decision residence and knowing it’s generating some cash flow isn’t enough,” Johnson says. “Ultimately, every single investment decision house operator really should be carrying out an investigation on their personal or in concert with their economical adviser as to what their web earnings from that residence is.”

This assessment can be sophisticated mainly because of the irregular mother nature of cash flow and costs similar to rental attributes. For case in point, the loss of a tenant could outcome in a hole in rental earnings, or surprising repairs could need a sizeable expenditure that places a dent in extensive-term money. It is crucial to converse by way of these opportunities with purchasers and account for them when speaking about a property’s lengthy-time period income-making possible.

Taxes, also, can decrease serious estate cash flow, with funds stream and revenue from immediate authentic estate ownership taxed as normal money. And a customer who plans to liquidate faces a sizeable tax burden. Earnings from residence gross sales are taxed as capital gains, which leads to the final essential dilemma:

3. Are you fascinated in keeping the property, liquidating it or swapping it for yet another genuine estate financial investment?

Some clientele may well have no fascination in finding rid of their immediate actual estate expense. The assets may perhaps hold sentimental benefit or convey in sufficient dependable income that is worthy of holding. Of program, clients who choose for ongoing direct ownership of a home ought to facial area the time, energy and expenditure involved in protecting it.

Liquidating a residence brings just one apparent benefit: the money that arrives from the sale. Quite a few persons opt to go this route as they tactic retirement, with the intention of changing an illiquid asset into higher liquidity. However, unfavorable market place circumstances, money gains taxes incurred on profits or both of those can erode possible gains.

But not several advisers or customers are knowledgeable of a third possibility: swapping out direct true estate possession for passive assets ownership in managed portfolios utilizing a 1031 exchange. These exchanges allow taxpayers to defer the payment of capital gains taxes from the sale of an investment decision home by replacing the marketed assets with a “like-kind” property of equivalent or larger value. This system can give far more predictable earnings from serious estate with a lot less hazard, and carries the likely for intergenerational wealth preservation.

In coming posts in this series, we’ll explore the execs and negatives of 1031 exchanges in far more element. For now, keep in mind that true estate investments can be an fantastic element of a diversified prosperity administration strategy—and an asset that no adviser need to forget when meeting with a client.

* United States Census Bureau. Rental Housing Finance Study (RHFS) RHFS Table Creator 2018 Latest Possession Entity of Residence https://www.census.gov/data-applications/demo/rhfs/#/?s_tableName=Table2

Full disclosure. The details offered here is not financial investment, tax or economical suggestions. You ought to seek advice from with a accredited specialist for tips relating to your certain circumstance.

Why Owning Rental Property Is 1 of the Best Retirement Moves

Why Owning Rental Property Is 1 of the Best Retirement Moves

by Investment Property

It can be probably rental property is just not the first financial investment to appear to intellect when you imagine of retirement. After all, there is a good deal of energetic management and responsibility tied to remaining a landlord — the precise reverse of what most folks are seeking for in their golden a long time.

But rental real estate can be an amazingly powerful way to assist improve and sustain your retirement outside the house of standard stock or brokerage investments. So if you are wanting to level up for retirement, in this article are some vital causes why investing in rental serious estate is one of the greatest moves you can make.

Create passive income with the means to increase

The ultimate target of retirement is to have diversified sources of revenue that present you with far more to stay off of for longer. Ideally, you can have saved a sizable sum of income in a classic retirement account or by means of your firm’s 401(k), that will enhance Social Stability or any pension you may possibly be eligible for. But rental true estate can be an additional vehicle for producing significant passive money in retirement.

Person smiling in front of property looking at phone.

Picture supply: Getty Photographs.

If you adequately obtain a rental assets, the rental payments should not only address the property’s costs but depart you with additional income. For illustration, if you rent a property out for $1,500 and your linked fees, these types of as assets taxes, insurance policy, HOA service fees, administration costs, repairs, and upgrades, as effectively as any linked debt this kind of as a mortgage, appear to $1,200, you receive $300 income stream for each month from the property.

Plus, if you use the funds flow ($300 in this example) to pay down the mortgage, you can pay out off the house loan early and net even additional from the home when it will come time to retire. That $300 could effortlessly grow to be $800 or far more, based on the sum of your property finance loan payment.

Gain from appreciation

Actual estate, usually talking, appreciates above time. In regular problems, appreciation is in the vary of 4{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} annually, which means for most homes, you can expect the price to enhance about that a lot each individual year. Nonetheless, some markets respect at quicker costs than other folks. Suitable now, we are observing in general household appreciation fees of 19{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}. And if you order home in a bull market place, as we have skilled above the past 10 a long time, you have the important added advantage of appreciation above the very long term.

If you bought a rental residence in Oct 2011 for $150,000, centered on the appreciation rate around the earlier 10 decades in accordance to the S&P CoreLogic Scenario-Shiller Home Cost Index, that residence would be truly worth close to $295,000 these days, just 10 several years later on, nearly doubling your investment.

And not only did you accumulate hard cash stream throughout that total time, but if you experienced a mortgage, your tenant was spending for it, eventually setting up your equity in the residence. You can use that newfound equity to purchase other investment decision homes or to live off of in retirement.

Producing a tax shelter

Rental authentic estate also gives numerous tax rewards, which include depreciation, which can support offset some of your taxable income. Depreciation is the act of deducting a part of the property’s price each individual year to mirror general put on and tear about time. Of program, depreciation is inevitably recaptured on your taxes when you sell the assets, but if you approach to hold the rental for the long haul, it is a beneficial way to lower your annual tax stress.

You can also consider deductions relating to the administration or ownership of the home, like rental repairs and advancements, management service fees, house insurance, and much more. These deductions aid cut down the amount of money of income circulation you receive, generating $300 a thirty day period seem like $150 a month or fewer when it will come to taxable profits. If an in depth mend like fixing the roof comes up, this can substantially minimize your tax stress for the yr.

Single-family home in suburban neighborhood with for rent sign in yard.

Impression source: Getty Photographs.

Rental serious estate won’t have to be active

Lots of persons shy away from proudly owning rental assets mainly because they are involved about taking care of it. Listing the residence for rent, displaying the house, signing leases, amassing hire, and if required, evicting tenants is a portion of owning rental assets. But fortunately, you really don’t always have to be the just one to do it. In its place, you have the selection of using the services of a qualified assets supervisor who requires treatment of its working day-to-working day management. In exchange for their perform, you pay out a rate, normally all around 10{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the rental money for every thirty day period, and convert a thing that is commonly viewed as an energetic expenditure into a passive a person.

Rental authentic estate has huge potential for constructing a comfy retirement or aiding nutritional supplement your current retirement plan. Even possessing one rental residence can make a noteworthy distinction, but proudly owning several rental attributes is where by you can really see the ability of rental revenue blended. Although staying a landlord could not be right for everybody, provided its benefits and the opportunity to use third-celebration administration, it really is a lot easier than ever to choose gain of this potent retirement instrument. 

Should you add real estate to your retirement portfolio?

Should you add real estate to your retirement portfolio?

by Investment Property

“In our research, we located that portfolios that have a combination of stocks, bonds and serious estate outperform other portfolios,” mentioned Ken. H. Johnson, Ph.D., a real-estate economist at Florida Atlantic University. “You get a far better threat/return profile from proudly owning authentic estate.”

Dr. Johnson claimed the “optimal mix” in a portfolio is 50{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} authentic estate, 30{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} stocks and 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} bonds. This formulation, he explained, would be viewed as adequately diversified to give security in retirement. The actual-estate element can incorporate your individual dwelling, expense residence or a mixture of both of those.

But what sort of serious estate? And should you make investments instantly in cash flow-creating hard property, like household rental assets or industrial house, or make more passive investments, this kind of as a REIT, by acquiring publicly traded shares or investing in a mutual fund?

Joe Pelayo, a professional genuine-estate broker in Fort Lauderdale who performs with individual traders, suggests warehouse homes to his customers on the lookout to devote for retirement since they normally involve minimal active management. Similarly, health-related-office buildings also have extensive-phrase tenants and generally have triple-internet leases, he mentioned, wherever the tenants pay bills and suppose management obligations for the setting up. Residential investment normally takes extra do the job.

“When you spend in residential home, you have to have some administration expertise,” stated Mr. Pelayo. “But with professional houses, the leases are long—five to 10 years—so you do not have to be chasing a new tenant just about every calendar year or two.”

Despite the problems, many retirees commit in residential residence, this kind of as one-relatives rental properties.

Jim Cheeks has been a builder in Atlanta for about 20 yrs, and he often offered what he developed. But about five decades in the past, he understood that he wasn’t making extensive-phrase retirement wealth that way. So, Mr. Cheeks, 53, now retains about 25{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of what he builds as rental assets. His aim is to have a portfolio of revenue-developing properties when he retires. That portfolio at the moment is composed of eight properties that he rents, but in a yr he expects to individual 29. His investments differ, but a typical house, which incorporates 3 units—a duplex and an accent dwelling unit—throws off about $8,000 a thirty day period in rental earnings, which, he said, yields a “better than common” return on his financial investment.

At 28, Josh Pankratz has the same expense technique as Mr. Cheeks. Mr. Pankratz, a health-related income consultant from Hattiesburg, Pass up., bought his very first financial commitment assets in 2018 and at this time owns two a few-bed room, two-bath households that he rents out. Every delivers rental profits of around $1,500 a month.

“I didn’t want my cash sitting down in a lender account currently being stagnant and not growing,” he explained. “I have a 401(k) and a Roth IRA, but actual estate diversifies your possibility considering that folks need to have to have a spot to stay, even via instances of crisis. And it not only gives funds flow but it is an appreciating asset.”

But genuine estate is not an investment decision for every single retiree. Single-family rentals, for illustration, call for energetic management. And what retiree needs to be woke up in the center of the night by a tenant calling to say his rest room is leaking?

That annoyance can be avoided by employing a home manager. Executing so cuts into your return on the house, for positive, but lots of investors look at the cost—which may differ by current market, but ordinarily is the very first month’s lease plus 10{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of each individual month’s lease thereafter—to be nicely really worth it, specifically due to the fact the administration corporation will also discover and vet long run tenants.

In this article are some items to look at if you are imagining about incorporating money-generating actual estate to your retirement portfolio.

Consider secondary, a lot less-pricey house marketplaces. It may possibly be tempting to buy financial commitment homes near to property so you can hold a close eye on them. But, based on where you dwell, serious estate may well be so dear that the returns are very low. Mr. Pelayo reported investors from New York, Chicago and California are flocking to South Florida and pushing costs up and returns down. He suggests looking in significantly less-pricey markets to increase returns. Jacqueline Ready, a broker at Berkshire Hathaway HomeServices Panoramic Houses in Biloxi, Overlook., stated that she frequently is effective with out-of-point out buyers searching for homes for their retirement portfolios. “They can take their portfolio in Arizona, liquidate it and invest in two or a few situations as significantly home in South Mississippi,” she mentioned. “Your income stretches considerably further in the smaller sized markets, and not just on the home itself but on upkeep, enhancements and administration fees.”

Diversify each solution kind and geographic location. “A diversified portfolio will have a smoother ride as a result of the ups and downs that occur by way of the economic cycle,” stated Michael Silver, a certified fiscal planner in Boca Raton, Fla. “If you commit throughout all asset classes—stocks, bonds, authentic belongings and funds or income equivalents—some of them will zig, when some others zag, and you’ll get a additional constant, stable and predictable return more than time.” Buyers really should also diversify geographically and not focus assets in a solitary sector. “Commercial genuine estate can be risky, primarily if you are seeking in just 1 geographical space,” reported Jamie Hopkins, controlling director, prosperity options at Carson Team, a countrywide prosperity-administration and coaching firm.

Discover the lingo. Although investors should often count on specialists to overview their deals ahead of time—including attorneys and accountants, who can overview the quantities and verify that the return on the house is what was touted—realize that professional genuine estate is all about the numbers. And, to fully grasp the numbers, you require to know the lingo, so brush up on the formulas for NOI (internet working cash flow), cap costs and other relevant finance phrases.

By Robyn A. Friedman

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Should You Include Real Estate in Your Retirement Plan?

Should You Include Real Estate in Your Retirement Plan?

by Investment Property

Investing in real estate is one of many ways to set aside funds for retirement. If you are looking to…

Investing in real estate is one of many ways to set aside funds for retirement. If you are looking to diversify your savings, you might consider including real estate in your retirement plan. There are advantages and disadvantages that come with property investments, along with different options to consider.

Including real estate in your retirement plan might consist of:

— Selling your home.

— Owning a rental property.

— Purchasing and selling property.

— Contributing to a real estate fund.

Read on to learn more about what to expect if you include real estate in your retirement plan.

Sell Your Home to Help Fund Retirement

If you have paid off the mortgage for your current home, you could sell it in retirement to bring in cash. You could then use the proceeds from the sale to fund part of your retirement lifestyle or invest the funds to generate future returns. You might rent an apartment or purchase a smaller place that requires less maintenance to reduce your living expenses.

Before putting your home up for sale, it’s worth researching the real estate market both where you currently live and in the new location. “In some circumstances, downsizing square footage may still end up costing the same, depending on the location of the new home,” says Ross Cohen, a financial advisor at Bartlett Wealth Management, which has offices in Cincinnati and Chicago. If you relocate to a cheaper area, you may find housing costs are lower in the new place.

Even if you sell your home, you’ll likely want other sources of income to help support your retirement lifestyle. These funds could come from other accounts like a traditional or Roth IRA, an annuity or a pension. “While some individuals may want to downsize their primary residence in retirement, it’s not wise to rely upon the proceeds from the sale of a primary residence,” Cohen says.

[SEE: The Most Affordable Places to Retire.]

A Rental Property Can Generate Retirement Income

Purchasing a second property in the city where you live or owning a place in a popular vacation spot can help generate income to use in retirement. You could buy an apartment, lease it to tenants and collect monthly rent. If you buy a cabin in the mountains, you could use it as a getaway and rent it to others when you are not using it.

Owning rental property typically requires a large upfront investment. You might pay for the place with cash or use your savings to make a down payment and take out a mortgage. If you have funds in a self-directed IRA, you can use money from the account to invest in real estate, but there are various requirements you’ll have to meet. “The investor must buy the real estate strictly for investment purposes,” says Daniel Milan, managing partner of Cornerstone Financial Services in Southfield, Michigan. You’ll have to pay in cash from the IRA and also must use the IRA to pay for all the expenses related to owning the property.

Carefully consider whether the rental income the property generates will be enough to cover the related expenses. “To make an investment property a worthwhile endeavor, you need to calculate the expected income and subtract the costs,” Cohen says.

A drawback of owning and renting property is that the investment is typically not very liquid, meaning if you have a financial emergency, it might not be possible to sell the place quickly and receive cash when it is needed. Even if you sell, you might not get the best price if the market prices are lower than normal in that area.

[See: The Best Places to Retire in California.]

Buy and Sell Multiple Properties

If you live in an area where housing prices are expected to rise, you might be interested in purchasing multiple homes with the plan of selling them later for a higher price. You could also acquire several properties that you rent to tenants. As your income goes up, you could build a real estate portfolio which could help fund retirement.

While owning properties may help your retirement funds increase, there is often a vast amount of legwork involved with finding places, acquiring them, making needed repairs or renovations and then renting or selling them. The time requirement is typically much more demanding than what’s needed for other types of investments. “Real estate, unlike stocks, requires management and ongoing maintenance,” says Pam Krueger, founder and CEO of Wealthramp, an advisor matching platform that connects consumers with vetted fee-only financial advisors. Hiring a property manager can alleviate some of the burden of caring for multiple properties, but you will have to pay for the service, which will cut into your profit.

[READ: How to Use Home Equity in Retirement.]

Contribute to a Real Estate Fund

Rather than purchasing and renting or selling property yourself, you might include real estate in your retirement plan by contributing to a fund. “Within 401(k)s or other retirement plans, typically there will be some type of real estate indexed mutual fund available for the investor to invest in a broad basket of real estate investment trusts,” Milan says. “Within a traditional or Roth IRA, the investor will have more options to invest in real estate ETFs or other vehicles that provide more targeted or thematic real estate exposure.”

These arrangements allow you to invest in real estate without purchasing and owning a home yourself. As such, you won’t have the responsibility of managing a property or collecting rent, and the investments you make are more liquid. However, a potential downside is the risk that the fund could decline in value. “You see more volatility within traded real estate, as they are subject to the whims of the equity markets and not necessarily the net asset value of the underlying real estate owned,” Milan says.

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Should You Include Real Estate in Your Retirement Plan? originally appeared on usnews.com