October 26, 2023
Receiving an inheritance is always a significant event, but when it comes in the form of real estate, it can be a game-changer for your financial future. Whether it’s a family home, a rental property, or a piece of land, inheriting real estate can open up a world of possibilities for pre-retirees. In this article, we’ll explore three ways to use this gift to your advantage or benefit as you retire.
One of the most common ways to leverage inherited real estate is by turning it into a source of passive income through rental properties. If you’ve inherited a residential or commercial property in good condition, consider renting it out. Here’s why it can be a smart move:
A. Steady Income Stream: Rental income can provide a consistent source of cash flow, helping to supplement your retirement income. This additional income can cover daily expenses, medical bills, or even fund your dream vacation.
B. Tax Advantages: Owning rental property comes with various tax benefits, including deductions for depreciation and maintenance expenses. These deductions can significantly reduce your overall tax liability.
C. Real Estate Appreciation: Over time, real estate tends to appreciate in value. By holding onto the property and renting it out, you enjoy regular income and benefit from potential appreciation in the property’s value, which can be a valuable asset during retirement.
D. Property Management: If managing rental properties seems daunting, consider hiring a property management company. They can handle tenant screenings, property maintenance, and financial matters, freeing you from the day-to-day hassles of being a landlord.
Real estate can be a valuable addition to your investment portfolio, offering diversification and stability. Here’s how you can benefit:
A. Wealth Preservation: Real estate is known for its ability to preserve wealth over time. Adding inherited property to your investment portfolio reduces your reliance on traditional financial assets, such as stocks and bonds.
B. Hedge Against Inflation: Real estate often acts as a hedge against inflation. As the cost of living rises, so do rental prices and property values, which can help your overall portfolio maintain its purchasing power.
C. Portfolio Diversification: Diversifying your investments across different asset classes can reduce risk. If you’re already heavily invested in stocks and bonds, adding real estate can provide balance and protect your portfolio during market fluctuations.
If the inherited real estate property is a house or a vacation home, you may want to consider using it as a retirement sanctuary. Here’s how you can benefit:
A. Cost-Effective Housing: If the inherited property is debt-free, using it as a primary residence can significantly reduce your housing expenses during retirement. This could free up more of your retirement savings for other purposes or provide you with financial security.
B. Emotional Connection: If the property has sentimental value or holds cherished memories, living there can enhance your retirement experience. It can become a place of relaxation, family gatherings, and personal reflection.
C. Potential Downsizing: If your inherited property is smaller than your current home, consider downsizing. This can help you simplify your life and reduce maintenance costs while enjoying the comforts of a familiar place.
Inheriting real estate can be a financial windfall for pre-retirees, offering various opportunities to enhance retirement planning. Whether you choose to generate passive income through rentals, diversify your investment portfolio, or create a retirement sanctuary, make sure to evaluate your options carefully. I’m happy to consult with you on these matters in the context of your personal goals and preferences. In addition to being a CFP and CPA, I co-own a property management company with my sister, so we are well-versed in real estate situations. By making informed decisions, you can maximize the benefits of your real estate inheritance and enjoy a more secure and fulfilling retirement.