Is Real Estate a Good Investment for Retirement?

Investment Strategies | by Jules Buxbaum | Monday, January 20, 2025

Real estate investment for retirement sparks curiosity among soon-to-be retirees looking for new ways to generate stable income. Many wonder if owning property can truly support their goals while also protecting them from inflation and market downturns.

If you’re looking to balance property investing for retirees with other assets, you might want to explore how to diversify your retirement portfolio so that real estate remains only one piece of your retirement puzzle. By spreading out your risk, you can tap into the potential benefits of real estate without relying on it exclusively to fund your future.

The Potential Upside of Real Estate for Retirement

Real estate has historically offered both income and growth potential. Rental properties can pay monthly cash flow, and over time, property values often increase. According to the Federal Reserve Bank of St. Louis (2023), the median sales price of houses sold in the United States grew from $17,800 in the first quarter of 1963 to $428,700 in the first quarter of 2023—a strong sign that real estate can outpace inflation.

Beyond price appreciation, many see real estate as an inflation hedge. Rent rates often track broad economic increases, creating a buffer against a rising cost of living. Properties are also tangible assets, so some retirees take comfort in having something physical under their ownership—an investment with real-world utility.

Tax benefits add to the appeal. Depreciation deductions can reduce taxable rental income, while 1031 exchanges let you defer capital gains by reinvesting property profits into similar real estate. These breaks may keep more money in your pocket during your non-working years, particularly if you invest in locations with potentially lower tax burdens. For instance, consider reviewing tax advantages in different states if you plan to buy property in retirement-friendly regions.

The Challenges and Risks

Although real estate offers upsides, it does come with hurdles. It’s far more illiquid than stocks or bonds. Selling a property can take months, and any unexpected maintenance or tenant issues can disrupt what you hoped would be a passive income stream.

Financing can also inject risk. Leverage amplifies gains in a hot market but magnifies losses if property values fall or units remain vacant. In 2008, many retirees faced problems when mortgage costs climbed while their home values dropped. Factor in ongoing expenses—like repairs, property taxes, and insurance—and you realize that rental income alone may not always cover your costs, especially if the market turns sluggish.

From a broader investment lens, many people assume risk should automatically decline with age. However, 2Pi Financial’s perspective is that your wealth relative to future earnings is what matters. This viewpoint suggests real estate may fit retirees with enough cash flow or outside income sources, but it may not be ideal for those needing day-to-day liquidity. If a property investment causes you to lock up most of your savings, the illiquidity might hurt your overall retirement flexibility.

Popular Real Estate Strategies for Retirees

Choosing the right strategy depends on your goals, location, and risk tolerance. One approach is direct ownership of single-family rentals or multi-unit homes, which can yield steady monthly income but requires active management—or hiring a property manager.

For a simpler route, some retirees turn to Real Estate Investment Trusts (REITs). These trade like stocks, so they’re more liquid than direct ownership. REITs pay dividends from large portfolios of residential, commercial, or industrial properties, letting you benefit from real estate’s potential without handling tenants or maintenance.

Some also explore joint ventures or crowdfunding platforms where multiple investors pool funds into a project. You could buy a fraction of a commercial building, for example, and collect a proportionate share of the rent. While this model lessens day-to-day headaches, you must still consider market swings, sponsor experience, and any platform fees involved.

Location matters, too. A beach property in Florida might attract short-term tourists but could remain vacant off-season. Meanwhile, a stable job market in a midsize city could provide reliable tenants year-round. If you’re specifically interested in retirement hotspots, have a look at the best places to retire in NY, NC, and FL based on taxes & cost of living before making a purchase.

Debating Risk, Age, and Future Earnings

Conventional wisdom says: “Dial down your exposure to risk as you age.” Yet academic research points to a deeper principle—if you carry a high number of future earnings relative to current wealth, you can endure more market volatility. For some individuals, that means real estate could still be part of a higher-risk allocation, even later in life.

At 2Pi Financial, we often discuss another perspective: many retirement portfolios might be too timid. Carrying minimal risk might work if you have a large enough nest egg, but most individuals need higher returns. Historically, equities have raced ahead of bonds over the long haul, and real estate has sometimes matched or exceeded inflation. Rather than blindly reducing risk with age, think carefully about your remaining career years, additional savings potential, and other income streams.

If you feel uncertain, consider broad-based analysis. Real estate may fit your plan if you have time to weather market fluctuations, anticipate stable rental demand, and hold adequate cash for emergencies. But if that isn’t the case, you may want to reduce investment risk as you get closer to retirement through more liquid or less volatile alternatives, such as short-term fixed-income funds or balanced portfolios.

When Real Estate May or May Not Be a Fit

Real estate can be a good choice if you crave monthly rental income and can handle long holding periods. It works particularly well for those who enjoy some level of property management or have a team ready to help. Meanwhile, it becomes trickier if you need easy access to capital or if you’re unwilling to worry about repairs and tenant turnover.

Your personal financial standing is the ultimate guide. With enough resources to cover any property hiccups—like a big repair bill or a sudden vacancy—real estate might serve as a reliable slice of retirement income. If your funds are limited, or if you already have equity-heavy positions, you might reevaluate investing too deeply in property.

Attending to state taxes, property laws, and local regulations is also key. Owning a condo in New York is significantly different from running a rental in Carolina. Overlooking details can lead to unexpected fees, legal complexities, or even difficulty securing tenants. That’s why many savvy retirees evaluate a range of investment vehicles before committing to real estate alone.

2Pi’s Approach and Where Real Estate Fits

Our team at 2Pi Financial believes that every retirement plan should reflect each individual’s wealth, future income potential, and lifestyle objectives. Real estate might be consistent with your goals—especially if you combine it with growth-oriented assets like equities or alternative investments. The key is alignment with how much risk you can tolerate if property values dip or repairs pile up.

For those eager to model different retirement scenarios—like setting a later retirement age or adjusting your risk tolerance—take a look at our Two Pi Financial Planner. You can change variables such as savings rate, withdrawal amounts, or asset mix, then see how real estate might slot in. The tool will show you how even small decisions, like investing in a rental property just before retirement, can alter the sustainability of your nest egg.

Bottom Line

Property investing for retirees can certainly be profitable, but it’s no guarantee. Forethought, cash reserves, and the right financial structure are all critical. Make sure your real estate ownership fits into your bigger picture. It’s not only about potential gains, but also your comfort with risk, necessary upkeep, and the ability to supplement your nest egg steadily.

If you’re looking to optimize your retirement game plan further, you might want to read about how to avoid common pitfalls when planning for retirement. With a well-rounded approach—supported by data-driven planning tools—it’s possible to position real estate as a valuable asset within your golden years strategy.

References

1. Federal Reserve Bank of St. Louis. (2023). “Median Sales Price of Houses Sold for the United States.” Available at: https://fred.stlouisfed.org/series/MSPUS

2. University of California Davis. (2017). “The Rate of Return on Everything, 1870–2015.” Available at: https://www.econ.ucdavis.edu

3. Nareit. (2022). “Historical Returns of REITs vs. Other Asset Classes.” Available at: https://www.reit.com