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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308225  
Subject: Re: Possibly the worst retirement investment Date: 5/20/2013 8:52 PM
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Wow, you read a lot more into that article than I did. What I saw was that there are issues with tapping retirement accounts and life insurance (presumably whole life, since it's 'tappable'). And I also saw some risks pointed out that are unique to real estate. But I also missed anyone pointing out the risks of any other investments that could be substitutes. There is no such thing as a 'safe' investment. Even CDs have inflation risk, so while you may not lose your principal, when you get it and the interest back, it's not going to purchase as much as it did when you invested. And putting your money under your mattress, or burying it in your backyard is even worse than a CD paying paltry interest, because the money under the mattress pays no interest and has risk of theft or loss in a disaster besides.

A lot of condo groups and HOAs put restrictions on rentals.

If someone is getting a mortgage to purchase a condo/townhome, there are actually more restrictions than just the HOA/condo group restrictions. FHA also requires condo/townhome projects to be qualified, meaning that they must have at least 50% owner occupants, no entity/investor can own more than 10% of a complex, and no more than 20% of the HOA members can be delinquent on their fees, among other requirements. And you generally can't get a conforming or FHA mortgage (90%+ of the current mortgage market) for a condo at all if the condo complex isn't FHA qualified, although there can be some exceptions.

The owner has to live in the house for a certain period of time before a rental is allowed.

This is if an owner-occupant mortgage is used. Investor financing does not require this. If HOAs require this, it's in the CC&Rs. If an investor is not willing to slog through the CC&Rs themselves, or pay someone to do so, then they shouldn't be investing in real estate that has CC&Rs, whether it's for personal purchase, retirement investing or some other investment. So, again, this is not an issue with 'real estate for retirement', but just an issue with real estate investment at all.

There have been some ugly stories about what happens when someone buys with intent to rent and doesn't mention this to their agent.

If they buy with the intent to rent, they need to be mentioning it to more than their real estate agent. They need to tell their loan officer, too (assuming they are using a mortgage to purchase). If they check the box on the loan application that says that they intend to occupy the property as their primary residence, and instead, actually intend to rent it out, they are committing mortgage fraud. Again, this is not an issue with 'real estate for retirement', but just an issue with any real estate investment at all.

As I tried to say, real estate investment can be profitable if you know what you're doing and have the funds to cover the costs.

And as I tried to point out, the issues that you are bringing up with investing in real estate aren't issues with using real estate as an investment for retirement, but rather, general issues with investing in real estate.

I don't see that those issues make real estate any better or worse as an investment for retirement than other investments. It's all about what risks one is willing to take, and ensuring that the risks are recognized. Stock index funds have market risk. Bond index funds have interest rate risk. Managed mutual funds have expense and management risks. Individual stocks have bankruptcy risks. Individual bonds have call risks. Commodities have weather/natural disaster risks. Collectibles have the risk of no longer being as popular. etc., etc., etc.....

I don't disagree that investing in real estate successfully requires some study and knowledge. But it's not any more insurmountable than learning about any other investment, and probably simpler to learn about than some investments (FX trading, anyone?).

I do disagree that the article portrays real estate investing is 'possibly the worst retirement investment'. What it portrays is that people are taking risky and potentially costly actions, like cashing out or borrowing from retirement accounts, to invest in real estate. That doesn't mean that real estate investing is bad. It means that people who are investing in real estate (or gold, or individual stocks, or energy futures, or collectibles, or any other investment that they often can't buy in their retirement account) are taking significant risks, which they may not completely understand.

AJ
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