At this point, as someone who's new to the game and isn't all that far out from retirement, my goal is to simply buy and hold a handful of properties. Any increase or decrease in value really doesn't matter because I have no plan to sell. We'll use the cashflow to add a boat buck or two to our retirement income. Most of what I've studied seems to indicate rents don't change all that much based on the home value. As long as ours cashflows well enough, we can ride out a dip in value and absorb a 10% or 20% hit in rent, which would be pretty extreme.
Who knows what will happen in the future, maybe 1031 into a 4 plex, but that's not the goal at this point. Buying and holding is the plan. Plus, with the budget I have, I won't be investing in any areas that are expected to have huge appreciation. Solid rental markets in midwestern cities that should always enjoy a good rental demand but probably won't appreciate all that much (although this last year was a crazy exception on the rental property we do own.) Buying properties with numbers that make sense, managed by highly recommended Property Managers, and holding on to them is the plan (dream? hope?)
This has been a great topic and a matter of significant interest in our TF community for good reason. We are all (well most of us) looking to figure out a way to sustain our passion for a depreciating asset that gives us great pleasure with an income that will appreciate and take care of inflation at our pre-determined 'kicking-off' point.
It's worth noting at this point that 30 years ago all you needed was a good job in a 'good company' that would provide you with a good retirement income till death. Many spent years working in large companies for exactly that reason. That all stopped in the 1990s unless you were working for the US govt. In my case I never had a pension plan until our firm was bought by a multinational and shortly after that they turned their defined benefit pension plan into a 401k before it had any real value to me. Pension plans of course have had their problems, if your company was under-funded and subsequently went bust you were done. But it was something at least.
For the above reasons, our current generation of US resident active retirees/near retirees is more likely to have significant assets in a 401k or IRA and less guaranteed monthly income than our parents - if any beyond social security. Therefore we need to take a more active role in self-determination of how to manage that asset.
Lots of views have been expressed: Stock market; SFHs; MFHs and probably others I have missed.
What I have learned from reading all the posts is that there is no one "sure fire" solution to this issue. We all live in different places, have different levels of desire to participate in a post-retirement business, have different opportunities (regarding real estate investments) and different levels of skill and confidence (regarding stock/bond markets).
I remember when I first met with an investment counsellor after I sold my first business in 1999. They designed a fancy investment portfolio of stocks and bonds and told me I should expect a cash return (dividends/LTCGs) of around 6% and an appreciation of 8%. Assuming an inflation rate of 3.5%.
Well none of that happened - but I did learn after I exited their program, that if I was to be successful in investing in the stock market I needed to spend a significant amount of time understanding the companies I would consider investing in, monitoring and re-evaluating regularly.
They didn't teach me that, but I did learn, which proved pretty accurate, that I could expect an inflation rate of 3.5%. I later worked out that I can realize a 3.5% dividend income from stocks that have the capacity for growth (not the 6% they were promoting) and that the growth is pretty up and down. over 21 years it has averaged 5% but there have been huge swings.
My investment portfolio dropped in value by close to 55% in the great recession. I was living on my boat in the Med at the time. I was not following the market or it would have driven me crazy. I held on to as many investments as I could while pulling out the minimum amount to sustain our life in Europe. At that time we had almost no fixed expenses. Our home was rented out and covering its costs. Our needs were all associated with the boat and our meals.
I write this because our decisions have long-term consequences. We learn as we go and make mistakes along the way but the mistakes we make later in life have more lasting impacts. I was foolish to put my trust in my investment advisers, however at that time I had no reasonable alternative option. I didn't have the time or knowledge to try something like real estate.
I went back to work, sold the boat, accumulated cash and now I feel that "I know what I know" I trust my knowledge in terms of directing my assets to an income source that can depend upon and which I understand.
I encourage anyone following this and looking for direction or guidance to understand that whatever approach you take, it will require your pro-active determination/research/analysis/decisions to make it successful. There are no easy 'hands off' solutions that I am aware of. You may be more comfortable with your evaluation of the financial situation and business model of your target investment stock or you may be more comfortable with a small business in the hands of a manager, or a SFH, MFH. They all have unique risks and they all require oversight.
~A
This year? We'll see.
