10 Ways Real Estate Can Boost Your Retirement

When it comes to boosting a retirement, real estate is one of the best avenues for investing because it offers a host of benefits, aside from income and growth alone. As you'll see in the next 10 slides, supercharging your retirement can give you big rewards now and well into the future.

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Whether you're investing more passively in real estate investment trusts (REITs) or taking a more active role in buying and leasing real estate on your own, income is a huge perk of investing in real estate. REITs, by nature, are required to pay dividends, making them a really great way to build reliable income in retirement. Rental properties, if purchased properly, can also generate a nice income that is equally reliable.

ALSO READ: Real Estate Investment Trusts: What They Are and How to Invest in Them

Generally speaking, real estate appreciates, or increases in value, over time. While there are times of accelerated or decelerated growth, there's a good chance the piece of real estate you buy today will be worth substantially more in the future. That means that if you buy and hold -- a practice we encourage here at The Fool -- you'll benefit from gained appreciation when it comes time to cash in at retirement.

REITs also have the power to grow by increasing dividends or seeing share prices grow. While not every real estate stock or REIT will raise its dividends or see its share price soar over time, many will.

Most people think real estate is illiquid. And in some ways, it is. If you want to sell a property to get some cash, you'll have to list the property for sale and wait until it closes before getting a check. However, if you invest in REITs, cashing in on your earnings can be done with the click of a button from your brokerage account.

ALSO READ: How to Make Money in Real Estate

Owning real estate as an investment comes with some major tax benefits, the biggest of which is depreciation. Depreciation is the act of deducting a percentage of a property's wear and tear over a set time, which is determined by the asset type. In turn, depreciating a property can reduce your tax burden by reducing your taxable income.

With residential real estate, you can depreciate a property for 27.5 years, equating to nearly 30 years of tax savings. Additional tax deductions are available if you own investment property, including deducting mortgage interest and any expenses relating to the management or improvement of the property.

The big bummer with depreciation is that, eventually, the depreciation will be recaptured when the property is sold. That means, if you held the property for the entire 27.5 years, all the deductions made would be taxed as income in that given year.

Thankfully, there is a way to avoid this -- through a 1031 exchange. This complex tax structure allows you to exchange one property for another without recapturing any depreciation.

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Real estate values adjust with inflation, making it an inflation-resistant investment. Properties leased over shorter terms, like vacation properties or annual rental leases, offer an additional hedge for the landlord to raise rental prices to cover insurance and any increases in property taxes, among other costs. This helps secure your return over time.

ALSO READ: What Is Inflation?

Most retirees are living off a mixture of social security, pension, dividend income, and savings from a retirement account. While this can go a long way if well planned for, real estate can be a tremendous way to supplement your income in your retirement days.

A rental property purchased when you were 40 could continue to generate income for 30 years or more, especially since it has the power to grow if the mortgage is paid off or rent is adjusted to combat inflation.

Individual retirement accounts (IRAs) aren't exclusively for traditional investments like stocks or bonds. There are special accounts called self-directed IRAs (SDIRAs) that allow you to purchase things like real estate in a retirement account.

That means you can benefit from the tax savings offered in a traditional or Roth IRA while investing in an alternative asset class. If you're not interested in getting an SDIRA -- don't worry: REITs make a perfect investment for a retirement account.

ALSO READ: 10 Reasons You Should Own REITs in a Retirement Account

It's not very often in the world of investing that you can use one investment to buy another. But thanks to the power of leverage and the ability to tap into a property's equity through a home equity line of credit (HELOC), you can do just that with real estate.

If you purchase a rental property and it appreciates over time, you can eventually take advantage of its raised value by using the extra money to buy another investment property. Now, one investment has the power to generate double the returns with no additional capital.

REITs are known for having higher dividend returns than traditional stocks. When compared to the S&P 500, REIT dividend returns are over double. Rental real estate can also offer competitive returns, although the return you achieve will vary greatly depending on the market you are in and the property you purchase.

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Real estate offers diversification for your retirement account and can be a wonderful way to supplement and boost your savings over time. Thankfully, there are dozens of ways to invest, ranging from active to passive, that can provide loads of perks along the way.

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