NEW YORK –  Why do some Americans invest in real estate as part of their retirement strategy? Your Money Briefing podcast host J.R. Whalen spoke to Wall Street Journal personal finance reporter Veronica Dagher to learn if it’s a good decision.

Daghter said some Americans believe the stock market is too volatile. Instead, they view real estate as steadier. Real estate investments, however, can be risky, potentially leaving some retirees without adequate savings if not properly managed.

Many of those Americans investing in real estate are former agents or general contractors, but there are others who are taking funds out of their 401(k)s to make these investments, she said.

“This is an industry where you can really lose your shirt. You can make a ton of money, but you can also lose everything. But it’s like any investment, more risk, more reward,” Dagher said.

Housing appreciation has really helped some investors who purchased properties four decades ago. For example, in Brooklyn, N.Y., brownstones rose in value from $40,000 to $3 million.

“Granted, that is a paper benefit, so you don’t actually benefit from that until you sell the property. So that’s one way. Another way is by flipping. So a few people bought properties, they watched them appreciate for a few years, then they sold them at a profit and then they bought another, and repeat and repeat. And some people accumulated some really big portfolios by doing that,” she explained.

Renting real estate, however, comes with its own challenges from repairs to renters who don’t pay on time or at all, and emergencies that require immediate attention. Dagher said landlords can hire someone to manage their properties, but that’s an additional expense.

Americans considering investments in real estate need to determine if they can afford to have their money locked up in a property, because “any property is very illiquid,” Dagher said.

Another factor to consider is taxes, which cannot be offset until the property is sold and only if the improvements to the property are tracked carefully to offset profits.

Wall Street Journal (07/01/24) Whalen, J.R.

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