Brick and Mortar Retirement: The Pros and Cons of Real Estate Investing for Retirement

In this episode, we construct a helpful conversation about the role of real estate in a retirement strategy, exploring everything from rental income to reverse mortgages. Whether you're a pre-retiree with a portfolio of properties or just curious about leveraging your home equity, this discussion offers thoughtful insights for anyone navigating the crossroads of real estate and retirement.

 

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Website: http://www.yourplanningpros.com

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Transcript: 

Intro  0:00  
Look Up in the sky. It's a bird. It's a plane. No, it's the tax man. He may not be a superhero. But Tony Morrow has saved many retirement plans with his extreme knowledge of tax planning strategies. It's time for a plan with the tax man.

Marc Killian  0:17  
Welcome into a another edition of the podcast in the September now here and is starting to cool off a little bit. And we're gonna have a conversation about brick and mortar retirement, some pros and cons of real estate investing for retirement. And, you know, Tony, before we get into this conversation this week, speaking of cooling off, you and the missus went for an Alaskan cruise that had to have been just

Tony Mauro  0:40  
awesome. It was it was absolutely fantastic. I'd recommend that to anybody to go up there and check that out. Because it's, I don't know, it's just like a different world. You know that I guess they call it the last frontier for a reason. Right? It is rugged, and it's amazing. It just does the wildlife. And the interesting thing about it, besides all of that, I didn't realize when I when I went up there that Alaska is way bigger than Texas as far as landmass. It's huge. And, and they only have 730,000 odd people. Yeah, if you can imagine. I mean, so it's sparsely populated up there. Yeah, you know, but it is so rugged, that it's not easy to live up there.

Marc Killian  1:20  
Yeah, my in laws live in Wyoming. And you know, it's a pretty big state too. Yeah. And there's like 500,000 people in Wyoming, right, same kind of thing. So it's harder, it's hard to live in. But you know, if you have that kind of temperament, for sure. But yeah, I've wanted to do the Alaskan trip myself, just, you know, love seeing wildlife and things of that nature. Obviously, go up to Wyoming and see the in laws. As I mentioned, I've got some amazing pictures of wildlife up there. But we'd love to do like the whales and things of that nature. So

Tony Mauro  1:47  
yeah, that I tell you the sights, the wildlife, the glaciers themselves, pictures, don't do them justice. Oh, I bet because they are so blue, you know, the pictures, a lot of times they look white, right, and you get up to them. And they're almost it feels like they're glowing. You know, it's just incredible. We saw a glacier feels about 65 miles deep. And it's interesting how fast they're receiving, you know, they're receiving so fast. I mean, the one a couple of weeks saw ever seen it like 12 miles in the last 30 years. You know, it's like, wow, that that is a lot. But it's cool to see. Yeah, I

Marc Killian  2:24  
mean, if you really like oh, that kind of stuff. I encourage everybody to get up there. Well, there you go. So I mean, one of the things that if you need to have a conversation with Tony on, on travels, he loves to travel, so Well, yeah, for your, for part of the retirement planning process is, you know, things to do in retirement. So definitely get a great resource to talk about some ideas there as well. So he's seen some very cool stuff over this week, let's go ahead and jump into a conversation about pros and cons of real estate. Tony, some people place more of an emphasis on acquiring real estate, you know, versus maybe funding accounts, like you might see this, especially depending on your type of work, right? A lot of times you'll see this with, you know, realtors or things of that nature. And I mean, it can be a great tool. But have you seen some people successful used rental properties to create the rental income or the retirement income? I should say that they need,

Tony Mauro  3:07  
by and large? I'd say no. And I say no. And we, as a caveat, have owned real estate for probably 2527 years. And we started out with that dream back. We started before before we started the firm, because we had nothing else to do. We had no clients, and we acquire single family homes, we thought, well, if we can do this, and this will be our retirement. But and we migrated away from those and started building apartment buildings. And we and we still have those and they are a good income stream. But a lot of people aren't going to aren't going to I guess probably own multi, you know, unit 50 buildings, they're more probably into duplexes, single family homes and whatnot. I say no, because I get a lot of a lot of things people will say why I don't really like stock market all invest in real estate. And you know, I think that's, you know, somewhat legitimate, I don't think you should put all your eggs there, though, for sure. Number one, and number two is real estate investing, while it can throw off some income, it's work. And I don't think a lot of people get into it and realize how much work it is. And if you get yourself highly leveraged in real estate, you're not making that much. And so I think you have to amass a large portfolio of homes or units to depending on what your retirement income you want it to be to, you know, to have that. So I think there's goods and Bad's of it. You know, I think it's good to have if you really like to diversify a little bit, but I think you you got to understand all the ins and outs, which is what we like to talk to people about,

Marc Killian  4:38  
right. So what that kind of said, if somebody came to you as a pre retiree with you know, maybe limited liquid assets, but a ton of real estate, is that something you would want to strategize with them on or maybe kind of paring some of that down so that they can build up that liquid side of the assets?

Tony Mauro  4:53  
I would you know, depending on we'd have to find out you know if they owned them all outright or if there's loans be paid And then, you know, compare that to the income that they're thrown off versus if you could invest it and say, you know, I don't know, get four or 5% out of it type thing. Or if it was big enough, you know, maybe you could just live off of, you know, off the principal. But, yeah, I would definitely take a look at that. And most of the time, when we've looked at that people aren't netting or the other cash flow coming out of them is not that much, because either have some loans, and then they've got turnover, and they got to put money back into them. And you know, at the end of the year, they didn't really cash flow that much. They do some and depreciation offsets some tax, but I definitely would want to take a look and probably have a conversation about if you're looking for more income, you may want to do something else, or at least partly do something else.

Marc Killian  5:46  
Yeah, definitely. You know, because you gotta have some liquidity, right? I mean, real estate can be can be a great tool, but I mean, you can't reach in the walls and just pull out some cash. Right, exactly.

Tony Mauro  5:53  
Right, y'all, you've got the rent income coming in, you know, and that's it.

Marc Killian  5:57  
Yeah. Do you ever see that? Generally, that TV show Arrested Development? You know, I

Tony Mauro  6:01  
never did watch that. No,

Marc Killian  6:03  
I don't I didn't watch much of it. But I know there's a funny scene about that, you know, that concept that works well for the conversation where I guess the father of the family goes to jail or whatever, for I don't know what for, but the sun keeps going and talking to him and saying that the family is struggling and needs money. And he's like, Well, there's always money in the banana Stan, because they have like a banana Stan is a business right? And so of course, the sun takes that is, you know, well, there's always money in you know, going to work and work in the business, right. But he gets so ticked off at the dad for whatever that he says the bananas stand on fire and burned to the ground. Basically, the longest sort of as the father says, you eat it, there was $250,000 stuffed in the walls of the banana Stan. So, you know, it's a funny way to think about it's obviously it's TV shows, it didn't really matter. It's fictional, right? But think about that concept that you just can't reach into your walls and pull money out in. So if you have too much real estate and not enough liquidity, you could be doing yourself a disservice. Right? So you could Yeah, so just kind of bear that in mind a little bit. What do you think about like home equity loans, or he locks in somebody's retirement strategy? Now, again, in the retirement strategy,

Tony Mauro  7:06  
it could be an option, it should they should they need it, I think most of the time, I'm of the belief, I don't like to, to see my clients having a lot of debt secured by their home. But if they need to, I don't think it's a bad idea to have a line of credit. And maybe, you know, you tap it and you're borrowing pretty low rates get to deduct a little bit of the interest, although I wouldn't do it just for that, and have that just in case, but I wouldn't rely on it for you know, month in month out cash flow type of thing, for sure. So I'm not a huge fan of that. I'm also not a huge fan of the reverse mortgages, which I know, will probably take a look at. But I think reverse mortgages, and maybe some of this makes sense. If you don't have any other sources of income, and it's all tied up in your own home, you know, and you, you have to take it out. Now, for real estate investors, it's not a bad idea if you've got some equity, because you could basically use that equity and maybe maybe help fund a down payment on another one, you know, or maybe use it for repairs, you know, things like that. But again, you got to watch it because it is debt at the end of the day. And even though you may not be saddled with it, you know, it, it could be something that your state has to deal with.

Marc Killian  8:15  
Yeah. What's your thoughts on REITs? Tony? Is REITs a part of the conversation? What should retirees and pre retirees know about those?

Tony Mauro  8:22  
Well, the REITs are these real estate investment trusts, you know, so they work similar to kind of a mutual fund, you know, where you put your money in a REIT and it's pooled together with other people and what they do is management company goes out and invests in a bunch of properties that could be shopping malls otherwise, they're probably not the not the thing right now or, you know, apartment complexes, things like that, they run the trust, and you've got more liquidity, and you have shares of that REIT and you can get in and out for the most part and you know, hopefully you're gonna earn you know, a good percentage of return without doing all the work of really investing in the real estate but I find that most people I kind of mentioned it, and they just get this blank stare in their eye they say, No, no, no, I want to I want to just own my own, you know, I want to I want to be on the ground and fixing things and but I think REITs truly have a place in a retirement strategy, especially if you're into real estate.

Marc Killian  9:15  
Yeah, great point for sure. tax considerations obviously that's something that you're very focused on with your practice how the tax considerations play into the decision

Tony Mauro  9:24  
well with with real estate you know, obviously you're only paying taxes on the the net rent income that you have every year and that might be enough at least on the books for taxes which make does make real estate appealing. So you're you haven't a positive cash flow but you're not really paying a lot of tax on it because of the depreciation that's a plus but the income is taxed at ordinary income rates. That's kind of a you know, depending on where you're at, maybe a negative I do like real estate in the fact of unlike an investment in a stock were talking losses now for just a minute. You know, if you lose you know money on a stock, you can only deduct up to 3000 bucks a year. You're against other income in real estate, you can deduct up to $25,000 of loss. So if you have a bad year, you know, you can take advantage of tax laws a little more more leniently than if you just sold a stock, but you go over to the investment side, just a stock and you sell it for a gain, you know, the max capital gains right now is 20 percents, a lot of them, depending on your income might be only 15. So you have a little bit of a tax advantage there. So a couple pluses and minuses on both sides.

Marc Killian  10:29  
Okay. All right. And then the final piece here to consider when we're, again, we're talking pros and cons of real estate, you mentioned earlier reverse mortgages. Now, once upon a time, like this is, you know, just like annuities, or even sometimes insurance, right, or even used cars, right? There's that kind of, oh, there's this kind of negative connotation to the people that maybe sell these types of things and the types of products that they are, but just like annuities in the last 10 years, they've made, you know, major changes. And so this could maybe be a potential, you know, idea for someone to use, depending on their scenario, their option. Like for me, Tony, we only have one child, and she's in the Navy. She says she has no plans to return here where she grew up, she has no plans to live here, you know, so what did we do with the place? Right? So maybe it's maybe it's worthwhile for us to do something like that, you know, and when we're both gone, so be it. So I don't know what your

Tony Mauro  11:21  
thoughts, I think, just like you said, they do have a place that was kind of like, you know, some of those other back in the day, they were kind of considered shady, you know, the back to back room deals, they have come a long way they are, you know, for the most part on on the up and up, I should say, I think they're more viable. Like you were talking about your situation, I had an aunt who was elderly, and she didn't have a lot of money just living on Social Security. And she did a reverse mortgage, and it worked well for her before she died because it gave her the income that she needed and desperately wanted, right, and that she didn't make those those loan payments, you know, because the reverse mortgage works, you don't have to pay it back until you die, you know, and they sell the house to recoup their their miles right? Now, they don't loan you 100% of the value, you only get a portion and there are some fees. So you want to make sure you look into that and make sure that you understand it all. But in certain cases, I wouldn't frown upon them. Now, I don't think they're right for everybody, you

Marc Killian  12:18  
know, right? Oh, yeah. Like yours. I mean, I think if you've done a good job saving for retirement, it may not even be something that's on your radar. But for those who maybe haven't, or maybe they even have, but they decided, you know, hey, due to our situation where nobody wants to place, you know, hey, maybe we can get some more equity out of this place and enjoy a little more fun in retirement. I mean, you never know, right? I mean, it's just multiple ways of looking at it. But I think the concept there is just like an annuity or just like possibly having insurance in your 70s when most of us think of it as something we only meet in our 30s 40s or 50s. When we still have growing children. It's don't shut it down until you understand. Is it useful for me or not? If it's not move on, right? But it's a product, you know, that serves a purpose. And if you fall into that, that range, and then it might make a hell of a lot of sense for you. Yeah, there you go. Exactly. Alright, well, that's gonna do it this week. For some pros and cons of real estate, investing for retirement. Again, if you've got some questions on how it's going to relate to your situation, as always, you know, when you listen to our podcasts, or any other kind of program or read some things, you want to see how it's going to translate to your specific situation, all these universal things that affect us all, are all well and good in, you know, in general conversation. But until you really dive in and see how it's going to relate to your unique scenario, you're not going to truly understand how it works. So if you're not working with a professional, and certainly if you're not working with Tony, consider reaching out to him and let him know that you need some help and get yourself on to the calendar for a complimentary review. Go to your planning proz.com Couple things with lots of stuff you can do. There's good tools, tips and resources. You can reach out to them schedule some time get on their calendar, subscribe to us on Apple, Google or Spotify. You can find the podcasting page there as well. Again, that's your planning proz.com You're planning proz.com Or just call him at 844-707-7381 Tony, thanks for hanging out my friend as always, I appreciate you breaking down some of these things for us. Good conversation.

Tony Mauro  14:08  
All right, we'll talk to you next time.

Marc Killian  14:09  
Yeah, man and I'm jealous. I want to go to Alaska. Thank you very much. So you gotta get there. I know. Right? So we got to put that on the radar as well. But you have a great week, my friend. We are in the September so hopefully you enjoy the the cooling off. And sports football season is back in if you're into that sort of thing. So folks, enjoy yourself out there be safe and we will see you next time here on playing with the tax man with 21.

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