Retirement plans: is real estate the right route?

Most Americans use a combination of investments in real estate and the stock market while planning for retirement. Most financial advisors recommend a long-term portfolio that allocates 50-50 between the two investment avenues. Markets and real estate prices often rise together but they almost never fall at the same time, thus ensuring that you’re maximizing the appreciation of your investments.

Investments in real estate provide some benefits over the stock market, as it is easier to define factors like price, location and use. With real estate, more factors are under your control, while with the markets you’re basically betting on the fact that the company will efficiently use all its opportunities.

However, before you choose between real estates and markets, you need to understand that building a retirement portfolio is a long-term activity, which needs you to establish budgetary rules and then live by them.

Perhaps the biggest advantage of real estate investment is that it can be structured to provide an income stream after retirement. Owning a block of flats in a trendy urban area with a young working population can provide a steady stream of income.

Global development is creating a sustained demand for both infrastructure and housing. There are many real estate investment hotspots across the world. The BRICS block is one obvious center, but even areas like the Middle East are emerging centers. Value appreciation in some areas like the UAE and most of the oil producing countries is close to 15% on an annual basis. Countries like Egypt, Tunisia and Jordan aren’t far behind.

On a broader scale across the Middle East, countries have averaged a 5 to 7% increase in rentals and a 6 to 8% increase in valuations on an annualized basis. Demand for housing and office space across segments continues to keep pace with the increasing supply. A growing, consuming and affluent middle class continues to drive this growth.

The Chairman of Ahli United Bank and the Wafra Investment Advisory Group, Fahad Rajaan, has played a major role in the real estate development of the region. He has financed infrastructure and housing projects across the UAE, Bahrain, Kuwait and Oman. You can connect to Fahad Al Rajaan online for inspiration if you are thinking of making a real estate investment in this region.

The 5-3-5-15 real estate retirement plan is perhaps the best-kept secret among investors. The rule simply says: Buy five, three-bedroom houses within five miles of where you live and you can retire in 15 years. The simple logic behind this is as follows: If you put all the rentals from the five properties towards repayment of the properties, they will be free in 15 years and you will have a steady stream of income once you retire. Three-bedroom houses yield the highest rentals and re-sale values and five miles keeps them within a manageable distance.

On the taxation front as well, investment in real estate scores over stocks, as there are many more tax deductions for investments in real estate. It is easier to leverage real estate investments and hence you can use one property to leverage a loan for the second property.

Planning for your retirement is a long-term process and one that requires discipline over the long term, coupled with intelligent investment decisions. The idea is to have both an income stream and a stable capital base on retirement. Invest wisely and get professional help if required.

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