Real estate is great when it comes to retirement because income is often predictable and rises with inflation, just like index pensions. People may prefer these investment advantages over stocks with daily turbulence, let alone annually. The key for retired stock investors is to remind yourself not to sell stocks at once – ideally, you should withdraw the amount of low to intermediate numbers from your portfolio every year, a portion of which will come from dividends and interest.
Real estate liquidity and transaction costs
There are two reasons to buy real estate with caution, and you may need to retire early.
Real estate is not always liquid. Sometimes, because the market is soft, you have to be patient, which may be longer than the property you want to sell. With real estate, it’s all or nothing. You can’t just sell garages or basement apartments, you have to sell the entire property.
The transaction cost of buying and selling real estate is also very high. There are land transfer taxes everywhere except Alberta, Saskatchewan and territory. Buyers in Toronto may pay a city-wide and provincial land transfer tax in full.
The real estate board for sale may be 5% or more, especially in Atlantic or rural communities in Canada.
With increased attorney fees and step-by-step purchase and sale costs, investors may pay 10% of the property’s value to buy and sell. If these transactions are 10 or 20 years apart, their impact may be negligible. However, if they are five years apart, especially during periods of low prices, you may eliminate most of the potential return on investment.
As a result, investors should be cautious about buying rental properties they may need to sell when they retire. Investors should also avoid waiting too long to sell, when they run out of more current assets (such as traditional investments).
Real estate as inheritance
Many baby boomers benefit from the appreciation of real estate prices. They also see that it is difficult for their children to buy real estate. As a result, some parents try their best to inherit real estate, whether it is buying a rental property or insisting on living in a cabin or family home.
