Real estate as retirement provision – tips & pitfalls

Two people in front of a property as retirement provision

The thought sounds tempting: live in your own property and no longer pay rent in old age. In the following, you will learn about the advantages of real estate as a retirement provision, which properties are suitable for this purpose and what you should pay attention to during planning.

Real estate as a retirement provision: How does it work??

If you invest in real estate to provide for retirement, there are basically 2 options:

If you decide on a house as a retirement provision, you should ideally have paid off the loan by the time you reach retirement age. You then benefit from rent-free living in your own property and only have to pay the incidental costs incurred. Buy a rental property, use the rental income to supplement your monthly retirement income. With both options, there are a number of things to consider.

Tip: Calculate the repayment rate for your construction financing so that the loan is completely repaid by the time you retire. The more you pay off, the faster you will be debt-free.

What should I consider for an owner-occupied property as a retirement provision?

If you want to use your property in old age, you should make sure that the house or apartment is equipped for old age. Consider carefully in advance whether you really want to spend your retirement there. In old age, many people prefer short distances for shopping and good medical care nearby. If it is a single-family house with a large plot of land, keep in mind that you will still have to take care of the garden and maintenance in old age.

Important questions you should ask yourself about the location of the age-appropriate property:

  • How good is the transport connection?
  • Can I get from my home to all destinations without any problems, even without a car??
  • What is the noise situation??
  • What kind of neighborhood do I want to live in when I retire??
  • Are there shopping facilities, doctors and hospitals nearby??
  • How big is the property? Can I continue to take care of my house and garden even if I have health restrictions??

Good to know: If you want to convert your property to suit your age, it is advisable to plan in good time. Ideally, you create sufficient reserves for the project during your active working life. A building savings contract can also be a good idea for remodeling projects.

Tip: The Kreditanstalt für Wiederaufbau (KfW) grants subsidies or low-interest loans for age-appropriate conversions and the removal of barriers. Think also here of the timely planning, in order to reduce the debts up to the pension entrance.

What should I consider with a rented property as a retirement provision?

An alternative way to secure additional income in old age is to rent out a property. In this case, you will earn monthly rental income, with which you will supplement your income. Ideally you plan the purchase of the real estate in such a way that this is paid off with entrance into pension. In the best case, the monthly rent is sufficient to repay the construction financing.

Keep in mind that you will have to pay taxes on rental income. In addition, as the owner, you are responsible for maintenance and may have to pay for any costs incurred.

You can also initially rent out the property in order to live in it yourself in old age. By this time, the house or apartment is paid off and you are living rent-free in your own property. However, you may need to renovate or modernize before you move in – you should factor in these costs.

If you have been living in your own house, which is now getting too big for you, moving to a smaller apartment and renting out the previous house is another option. Here, too, you should bear in mind that the rental income is taxable and that you also have to pay the rent for your own apartment.

Tip: Another idea is a house with granny flat. You can initially rent out the apartment and live in the family home yourself. In old age, move into the granny apartment and rent out your house. In this way you remain in your familiar surroundings.

What mistakes can you make when buying a property as a retirement plan??

The idea of rent-free living in old age sounds simple, but you should be aware that ongoing costs will still need to be managed. Property tax, garbage collection, housing subsidies in the case of a condominium or other costs will continue to accrue. In addition, as the owner, you are still responsible for maintenance. So plan prudently and check whether you can pay for ongoing maintenance costs out of your monthly retirement income.

Conclusion: Do not choose real estate as retirement provision as the sole solution

Even though property is a very good idea as a retirement provision, you should not rely on this option alone. Real estate ownership is perfectly suited as a solid mainstay of your retirement planning. The house or apartment is yours, but you should ensure that you can continue to meet the running costs. It is therefore ideal to rely on further protection such as a private pension insurance in addition to real estate as a retirement provision. In this way, you secure valuable real estate property and, by combining it with another provision, ensure that the statutory pension payments are topped up. The earlier you start planning, the more relaxed you will be about retirement.

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