Tuesday, May 22, 2007

Is using real estate investments for retirement dumb?

Here's an article from CNNMoney about a couple that invested in real estate for their retirement income. Although I am not doing real estate investment full time, their path is similar to mine in terms of retirement planning. The financial planner is critical of their decision to depend so heavily on real estate for retirement. However, after looking at their income and assets statements I have a different take.

This couple has nearly $1.6MM invested in their home and a beach house. These are not investments, but perks they have given themselves before they had adequate finances to support such perks. This is their major problem , not their rehabs. They could sell the beach house but are letting emotional ties control their finances. Their home is probably too big an asset to own in proportion to their total retirement savings and 401k. This is another emotional issue.

So it seems to me that the main issue with this couples plan is that they are making emotional based decisions, not business decisions with regard to retirement. Now if they want to return to work to keep the beach house that is OK, but it is not rational for the Financial Planner to blame real estate investing Vs Stock market investing as the cause of their problems.

Unless you are planning on flipping your home or beach house, they are not really real estate investments. Many people fall into this trap with regards to how they regard their investments. If you are not willing to sell your real estate, its not an investment. Don't feel sorry for this couple. They are trying to live the high life without paying the price and got caught. Read Stanleys book on The Millionaire Next Door to see how the pseudo-rich spend their money Vs how the really rich build net worth.

3 comments:

JamesRREI said...

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Christopher Smith said...

Good post.

A big expensive house that you live in is not an investment, it's an expense.

If you're a speculator and you time the market correctly then one could potentially do very well by buying a McMansion that they can't really afford - but this is speculation, not investing.

Income-generating rental properties are investments - and great ones that utilize low volatility + leverage to generate superior returns for savvy investors.

Paul said...

great commment. I've been trying to make this point as well.