If you don’t have an employer-sponsored 401(k), there are other ways to build an income plan for retirement. One of these is having a portfolio of real estate properties or investments, which can come with many tax and income benefits over time.
In fact, even if you do have access to a traditional retirement plan, you might want to consider adding real estate into your investment mix.
Investing in Real Estate for Retirement
Whether real estate fits into your retirement plan will depend on your individual finances and retirement goals. Talking with a financial advisor early on can help you understand your options and create a plan that will provide the retirement lifestyle you want.
“Start researching, visualizing retirement, having conversations, and asking questions,” said Alexa Kane, CFP®, CDFA®, a financial planner at Pearl Planning.
Real estate can improve your retirement plan in three ways:
Value Appreciation
Many retirement accounts, such as a 401(k), shift to a conservative asset allocation in your retirement years, which limits their potential for growth. However, growing the value of your portfolio helps ensure that you don’t outlive your money. Property values tend to rise over time, allowing your portfolio to grow even in your retirement years.
Income
Having multiple sources of income to draw on once you stop working is key to a comfortable retirement. Owning properties that you rent out to businesses or as residences can provide a monthly income after expenses. Other types of real estate investments can generate dividend income, which may be delivered monthly, quarterly, or annually.
Diversification
Asset classes respond to market changes in different ways, so building a diverse retirement portfolio can protect your long-term financial well-being. Real estate provides another type of diversification, especially during times of inflation. Fixed-income assets like bonds or Treasuries may not perform as well during inflationary periods, but real estate values tend to rise when prices go up.
Types of Real Estate Investing
There’s no one-size-fits-all approach to real estate investing. In fact, you may find that one type of real estate investment is more suited to your style and your desired level of hands-on involvement than another.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is a company that owns, operates, or finances real estate that generates income. The REIT then sells shares to raise capital for its business. Investors can buy into the REIT.
Buying shares in a REIT allows you to profit from the income-generating real estate without needing to finance, own, or manage that real estate on your own. Small investors can create a portfolio of properties, such as hotels, shopping malls, or skyscrapers, in the same way they can create a portfolio of stocks and bonds. Many REITs also pay dividends to shareholders, which can provide you with extra income in retirement in addition to the growth in value of your shares. The dividend yields for some REITs are higher than other asset classes.
Publicly traded REITs are the safest option for average investors. These are traded on public exchanges and regulated by the Securities and Exchange Commission (SEC).
Investment Properties
Owning and renting out properties to produce a monthly income is another way to incorporate real estate into a retirement plan. These properties can be residences, such as houses or apartments, or retail real estate, which is rented out to businesses.
Investment properties require management and maintenance. Some owners handle these things themselves, while others hire a property manager or pay a fee to work with a property management company.
The goal of holding an investment property is to generate cash flow, which is the income left over from rents after your mortgage and other expenses are paid off. If you bought the property with a mortgage, your cash flow will increase over time as you pay down the mortgage and build equity.
The equity you have in one investment property can also be used as collateral or leverage to buy additional properties. Many investors use this strategy to build a portfolio of investment properties.
Real Estate Crowdfunding
Real estate crowdfunding through online real estate platforms allows small investors to own a share of large commercial or residential deals. Rather than a small number of large investors, companies solicit investments from a large number of small investors.
It is similar to investing in the stock market: companies raise equity from investors, who then become shareholders in the real estate being purchased and receive a portion of the profits based on the amount they have invested.
Crowdfunding for business was legalized by the Jumpstart Our Business Startups (JOBS) Act in 2012, though the act limited how much investors could put into crowdfunding ventures based on their income.
Subsequent legislation has increased investment opportunities for non-accredited investors through crowdfunding platforms.
Pros and Cons of Real Estate Investing in Retirement
Given the different types of real estate investments available, investors could create a retirement portfolio comprised almost entirely of real estate. However, as with any type of investment, real estate comes with both pros and cons. Market downturns, for example, can impact many types of real estate investments.
Tax considerations are also important when considering any type of retirement fund. Real estate investments, for example, can provide monthly income that is taxed one way. But if you sell the assets generating that income, it may be taxed in a completely different way. “Not all income sources are created or taxed equally,” warns Kane. “Knowing where to draw from and its implications can have a huge impact on your tax bill.”
Before structuring your retirement portfolio entirely, or even mostly, around real estate, talk to a financial advisor about how the right kind of diversification could minimize your potential risks.
Pros of Real Estate Investing
- Tax advantages: Different types of real estate investing come with different tax advantages. If you own investment properties, for example, you can deduct the reasonable costs of owning, operating, and improving an investment property. You can also depreciate these costs over the useful life of the property, which is 27.5 years for residential properties and 39 years for commercial properties.
- Passive income: If you own property and manage it yourself, the income it generates might not feel very passive. But if you work with a property management company, or if you invest in real estate through a dividend-generating REIT or crowdfunding, you can end up with a monthly income that doesn’t require much hands-on work at all.
- Increase in real estate values: Real estate property values tend to increase over time; the average sale price of a home in the United States increased from $19,300 in 1963 to $512,800 in 2025. If you make real estate part of your retirement income, whether by owning and renting property or by investing in it, this increase in value will generally lead to a profit over time.
- Hedge against inflation: Inflation decreases the purchasing power of your money. However, the value of real estate tends to increase with inflation, as do rents paid for personal or business properties. This means owning real estate can serve as a hedge against inflation: the income it brings in may increase as inflation increases. This can offset the loss of purchasing power.
Cons of Real Estate Investing
- Market risk: Though real estate values tend to increase over time, that doesn’t mean they only go up. A recession, for example, often causes real estate to lose value, which in turn can decrease the value of any properties you own. If you invest in a REIT or participate in crowdfunding, there is always a chance that a particular company or venture will fail. If you happen to need money or want to sell when your real estate investments are losing value, this can be devastating to your retirement portfolio. As with any type of investment, there is market risk.
- Fees and expenses: No matter what kind of real estate you add to your retirement portfolio, the fees and expenses associated with it can be high. The expenses of managing and maintaining income-producing properties, whether on your own or through a management company, can quickly add up. If you work with a management company, you will also have to pay the company a fee. Depending on which brokerage you use and which REIT you invest in, you may have to pay high fees, either annually or with each share purchase. Real estate crowdfunding also often comes with high fees, due to the complexity of managing many investors at once. These fees and expenses can eat into your monthly income and profits.
- Income taxed at ordinary rates: Unlike other types of corporate dividends, dividends paid out by REITS don’t receive special tax treatment. If you don’t hold them as part of a tax-advantaged account, such as a retirement account, they generally will be taxed as ordinary income.
The Bottom Line
There are different ways to make real estate a part of your retirement plan, including owning and renting out income-generating properties, participating in real estate crowdfunding, and investing in REITs.
However, real estate carries risks, particularly during market downturns and recessions. Fees and expenses associated with different types of real estate investing can also eat into your profits.
Because of these risks, real estate should be used to diversify your retirement portfolio and income, rather than be your entire retirement plan. If you are interested in generating an income through real estate, talk with a financial advisor to find the kind of real estate investment that makes the most sense for you.
