Investing for growth in retirement

Real Estate

Real estate is a great investment. Like all investments, it goes up and down in cycles. If anyone tells you it does not go down, run as fast as you can.

There are a few ways to invest, You can buy property outright, you can buy property in a group, you can purchase real estate investment trusts (REITs) or similarly, Master Limited Partnerships (MLPs). The latter two trade like shares of stock on the stock exchanges.

Buy property outright

When you own property outright, this is not an investment, it is a business. You will either need to take your time to make repros, interview tenants, do credit checks, etc. or hire someone to do it (an employee or a contractor). Notice that these activities are not much different than owning a laundry. That's why I say owning real estate is a business. if you don't want to be bothered, this route is not for you. The advantage of outright ownership is control. You get decide what to buy when to sell, when to refinance who the tenant will be, etc. For most retirees, this is not often the best bet.

Group Ownership

In this situation, you an other investors, own the property. One of you manages the property (usually the "managing member" if the business is formed as an LLC). In this case, the investment is passive and the number one issues is your trust of the managing member and the fees you need to pay to them. If the managing member does not have a significant investment in the property, this is a danger sign. If there are up front fees, this is not good. The most fair deal is that the managing member gets a percentage of profits upon sale that exceed their proportionate share of the investment. That way, if they do a good job, they are rewarded at the end. A small ongoing management fee is also okay.

REITs

These are popular investments as these trade like share of stock. You choose what types of properties you like (residential, office, commercial, etc.) as most REITs specialize in one type. There's a ton of information at www.nareit.com and most major brokerage firms have research on these. REITS should be a part of your portfolio because they are inversely correlated with other securities and they help balance a portfolio.

Most important about REITS is how they balance a portfolio of stocks and bonds.
While mostly anyone will tell you , its not possible to get more return without more risk,
this is not true. Here you see that by adding REITs of a portfolio of stocks and T-Bills,
the return increases and the portfolio risk declines.