Strategies for Incorporating Real Estate Into Client Retirement Portfolios

Most investors find balancing risk and return challenging. The client’s age impacts the allocation of funds and how much volatility their portfolio can bear. Factoring real estate into retirement planning adds another level of consideration.

Incorporating real estate into an overall investment strategy requires careful planning. Here are the elements to consider as you build the perfect portfolio to meet a client’s needs.

1. Discover Client Goals

According to a 2024 National Institute on Retirement Security report, 79% of people believe American retirement is in jeopardy. Around 55% express concerns about financial security during their twilight years.

The client’s age can factor into how much risk you might take and if you can plan for longer-term investments to come through or need something with a faster return over a shorter time.

Although surveys help ascertain where the client is on a scale of funds, a one-on-one conversation is still the best source of information to set goals. What expenses will the person have in retirement? Do they want to travel the world or stay close to home? Is their house paid off, or will they still have rent or a mortgage? You may need to work with them to set more realistic goals if their financial situation misaligns with their dreams.

2. Drill Down to Risk Tolerance

Spend time figuring out how much risk someone is willing to take. One client may go all in and choose high-yield but risky investments, while another wants their money safe. Investing in real estate investment trusts (REITs) may be slightly more dangerous than buying local rental properties in a desirable area.

Find out how they feel if the investment goes wrong and they lose most of their money. Are they open to a higher level of risk for potentially more earnings? Every person has a different comfort level with potential loss. The time until retirement also impacts how risky you should go with investments. When a 25-year-old loses half their retirement portfolio, it isn’t nearly as devastating as when a 55-year-old does the same.

3. Choose Passive Income Ratios

Many clients look for passive income. They want their money to offer enough of a return that they can leave it in their portfolio and continue growth. Ideally, a well-balanced portfolio will pay dividends and interest throughout someone’s life and leave something for their heirs.

REITs offer an exciting option for real estate investors because they pay 90% of the earnings as dividends. For example, you might split real estate investment into a few managed properties and REIT stocks.

4. Consider Tax Advantages

Take the time to look at the best use of investments to save clients money at tax time. Properties offer the advantage of tax deductions, and investors can manage them under a corporate structure for tax savings. REIT dividends may be treated differently than capital gains, depending on the person’s taxable income and other investments.

Each client has a different tax bracket and retirement range. Consider all factors before choosing which type of real estate investment suits them best, including taxes they must pay.

5. Embrace Technology

Advances in artificial intelligence (AI) put more data at financial advisers’ fingertips. For example, a machine can run scenarios to determine which percentage of a retirement portfolio should be real estate and which should involve other stocks.

Digital banking may impact how well REITs and investments perform as banks remove emotion from the equation. Experts predict AI in banking will hit $64 billion by 2030. Focus on the REITs tapping into technology to move forward and make wise decisions. Those fleeing from the rapid tech changes are likely to fall behind.

6. Educate Clients

Clients may be uncomfortable with less familiar real estate investments. Take the time to educate them on the reasons for balancing long-term and short-term growth. Those with decades until retirement may benefit by spending more on physical properties and building equity.

The more clients know and understand possibilities, the better they’ll accept risks and work alongside their financial advisers to make sound investment decisions.

7. Find Alternatives Like Crowdfunding

Some clients may only have a small amount of money to invest, particularly if they’re just getting started in the retirement planning process. Crowdfunding options let them get involved in real estate deals without the risk of buying an entire property. Busy professionals may not have the time to manage, renovate or flip a home.

It becomes much more affordable to get started in real estate when a team of people come together and pay for the building, management and repairs. Some individuals may want information about angel investors and being the front person for buying and renting properties without risking as much of their own money.

Real Estate Offers Potential for Massive Growth

Real estate is one of the investments where people can potentially grow their money by a much higher percentage than mutual funds and other safer alternatives. However, understanding the risks and the market requires a lot of study. Retirement advisers have an opportunity to serve as their clients' eyes and ears, leading them to the right strategies to give them a comfortable retirement at the right time.

Related: Cultivating a High-Net-Worth Clientele: Strategies for Financial Advisors