Retirement stares us in the face as we approach the golden ages and sustaining a current and future standard of living requires intricate planning, prudent management and investment of our resources while we are actively employed or managing an enterprise.
Retirement planning is being encouraged to commence in the younger years when risk appetite is high and one can afford to take on high risk investments in stock markets, hedge funds, private equity to the older years when risk averseness sets in and one turns towards more low risk investments such as money market funds, government bonds, real estate which are less volatile investments.
Real estate investment offer retirees various advantages enumerated below over other types of investment vehicles;
1. Recurrent Income: Rental income accruing from real estate investment serves as a “salary” to retirees and often times a very dependable form of cash flow to cover their utility bills, insurance premium, health plans, entertainment, travel etc. In our peculiar environment where rent is paid annually or in some case multiple years rent is paid in advance, this further allows retirees to invest in other assets from the advance rent and increase their retirement income.
2. Passive Income: Rental income accrues with minimal or no effort especially when the investments are managed by experienced and professional property managers who ensure the value of the investment is maintained. Retirees can sit in the comfort of their homes and enjoy a steady rental income less cost of maintenance and other ancillary costs. Usually there is no physical exertion required by retirees to earn this income.
3. Capital Appreciation: Retirees receive the dual benefit of rental income and capital appreciation of the investment asset. As income accrues from the rents paid, the asset also appreciates in value over the years. Thereby in the event of a sale of the investment, there is the advantage of a surplus in value received vis a vis the initial cost of the investment. This is an overriding advantage of real estate investment. The core of real estate investment advisory is centered around purchasing real estate for long term or future commitments such as children’s tuition, marriage, retirement, whereby the investment purchased would have increased it value at the point of realising the investment.
4. Change of Use: Subject to the regulatory laws and planning permits covering the property location, a very viable advantage of real estate is that land is immovable and indestructible thereby its use can be changed from time to time. Change in lifestyle can necessitate a change in use whereby during pre-retirement and in ones active years, a huge building with several rooms may be appropriate for a large family whereas the same family with children that have flown the nest would prefer a smaller building with fewer rooms . The excess land space can be used for the construction of a new building which could be leased out hence generating additional income.
Real estate investment is dominantly perceived as capital intensive and beyond the reach of the average person especially in our climes where housing financing is broadly unavailable and expensive. However prudent planning and early investment in lower priced assets in emerging locations can serve as a launch pad to building an impressive property portfolio.
