To be or not to be: Real estate in retirement strategy?

Real estate and gold are those assets that many of our elderly people consider as their preferred investment avenue. Though we can’t blame them as in those times, real estate and gold indeed used to give better risk adjusted returns. However, with the changing times, one should reconsider their investment strategy. So, in this article, we will discuss whether real estate should be a part of your retirement strategy or not.

Real estate does provide an opportunity of earning passive income, not just during retirement but also in your pre-retirement phase. Moreover, it weighs similar or sometimes higher when compared to other common retirement investments. When we compare real estate with other assets, it turns out to be less volatile. This means that your portfolio would have consistent returns.

Meanwhile, buying property that you intend to rent out might take a significant upfront capital investment. Even managing it can be time-consuming as well as require some unplanned expenses. Apart from this, you will also have to face vacancies on occasion. Even if you consider hiring a manager, it can further reduce your returns. Also, investing in real estate is not that easy and is a risky & costly proposition.

There can be a situation in retirement wherein, due to emergency, you will have to liquidate your assets. However, with real estate, you also lose on flexibility. This means that you cannot sell just one part of your property. Say for instance, you have a property of 1,000 square feet (worth Rs 1 crore) and you require a liquid cash, of say Rs 15 lakh for medical emergency; now the problem with real estate is that you cannot just sell 150 square feet for the amount your require but instead, the entire property altogether.

Therefore, for retirement, real estate does not support as much as your well-followed retirement plan can do. Real estate does not prove to be an effective solution in retirement. Thus, if you have received an ancestral property, you can rent it out as that can definitely add to your cash flows. But relying completely on real estate is not a good idea. Rather, keep it not more than 10 per cent of your overall portfolio, just for the sake of diversification.