Should you invest in real estate during your retirement?

Looking forward to retirement?

The sun. Sleep in. play golf. Catching up on your favorite TV shows (and seven others). Visiting grandchildren.

It sounds so idyllic.

So why ruin it by investing in real estate?

Many of you have come to Pyjama People because you have heard about the joys of generating passive income. Some of you read Robert Kiyosaki. Or maybe you are an HGTV enthusiast.

You see the merit in replacing your income. You see the dangers of relying on social security. And you really want to enjoy your retirement rather than squeeze pennies during the sunset decades of your life.

Who told you that investing in real estate was passive?

I am here today to tell you the truth and possibly save some of you from years of frustration, pain and loss.

Being a landlord can be fun – if you do it right

No matter how good you are at finding good leases, you can lose everything if you don’t manage your properties properly. Being a landlord doesn’t have to mean midnight calls, expensive evictions, or daily frustrations with ungrateful tenants.

My experience

I tried to retire once. I was only about 34 and didn’t feel like thinking about that word. I had sold my business and moved to the mountains to raise our children.

After two years of boredom and anxiety, my buddy and I tried to roll up our sleeves. It worked. Then we started building modular homes. Then stick built. We’ve flipped waterfront lots, made a small subdivision, and I’ve even made the disastrous mistake of investing in mobile homes to rent (don’t try those at home, but consider a mobile home park).

I played half a dozen other roles in the real estate world before I found my groove. I can safely say that most real estate activities are anything but passive.

This article grew out of my own experience, as well as over a hundred conversations with real estate investors who found this out the hard way.

Like the oral surgeon who called me from the Pacific Northwest. He told me about his retirement plan, which was based on acquiring 20 rental properties to replace his income.

He sounded excited at first, then he sounded depressed. He sighed and told me about negotiating with painters between surgeries and showing tenants’ premises at night. Then he admitted, “And I’m alone at house number three!”

Tenant problems happen

Landlords have a funny way of making fun of each other at parties. “Yes, that’s pretty bad. But wait till you hear what my tenant does!”

Pyjama People contributor Kevin Perk had a stellar career as a city and area planner near Memphis. In 2003, he retired from that career to delve into real estate full-time. Then his problems started. You can learn about a handful of his trials and tribulations here.

Kevin will tell you about the renter who burned his plywood with the cigarette he thought was out, or the lady who used her rent for target practice (it was just a gun).

There are stories of the man who bought a cool stereo with his rent, the 24-hour obscenity-shouting tenants (with $20,000 in damage in eight months), and the trailer full of non-paying tenants parked permanently in the driveway of the rental unit. stand .

Have you heard Brandon Turner’s nightmare toilet overflow story? He sums it up here, but I’ve heard his much bloodier version. It could cost you your lunch. It led him to outsource everything. And it seems to be part of his equation to eventually move away from residential to the commercial real estate domain (mobile home parks).

Being a landlord is work

You may be able to invest in real estate with a team of great tenants. But you can’t count on that if you count on a quiet pension. And even with the best tenants, maintaining your units is still your job.

What will you do when you are in the Bahamas and the police need you at the station within an hour? It has happened.

What do you do when you get the call saying “Your rental house is a crack house” 2,000 miles away? That happened to my friend Brian Hamrick.

Or how about the phone call informing you that your eight-year-old tenant has moved and sublet to another tenant without your knowledge or consent? That happened to me. We took the $50,000 mobile home to the dump a month later.

So what’s the solution?

I don’t have a ready-made solution. But I can assure you that you will not have a carefree life if you want to directly supervise most real estate assets.

Many owner-investors have managed to hire a large property management company. This is not a guarantee of a life of ease, but it can certainly help.

Other investors put up the capital and partner with an active operator to do the heavy lifting. If you are lucky enough to be in this position, do your very best to ensure you choose the right partner to protect your hard-won capital.

Some investors give up the real estate and throw their money into Wall Street casinos. They lose many tax breaks and gain a life shaken up and down by Middle East wars, volatile investor sentiment and CEO scandals. But they don’t have to deal with toilets, tenants and garbage. This would not be my choice, but to each his own.

Personally, I have decided to passively invest in commercial real estate syndications. I love the income streams, wealth building and the tax benefits of real estate. But I’ve finally renounced the hassle and potential nightmares of active asset and property management.

I invest with professionals obsessed with choosing the right asset class, acquiring the right assets and refining them to increase income and maximize value.

These professionals are active, so I can be passive. It’s a beautiful thing!

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