In this latest episode of Next Act Ninjas, host Rachael Van Pelt takes a deep dive into the world of real estate investing—specifically tailored for those in their 50s and 60s. As the housing market shifts and our time horizons shorten, is now really the right time to buy a second property? Whether you’ve dreamed of owning a vacation home or are curious about rental income, Rachael breaks down the pros and cons of real estate versus traditional stock market investments. Discover how real estate can serve as a powerful tool for both wealth-building and lifestyle enhancement, but also why it’s essential to approach with eyes wide open. From evaluating the ongoing costs of property ownership to understanding the nuances of market timing, this episode is packed with actionable insights that can help you decide if real estate should be part of creating your best Next Act. Tune in to learn about the potential returns, the risks, and whether investing in a second property is the right move for you. Rachael shares personal experiences and expert advice to help you make informed, confident decisions that align with your financial goals and dreams. Don’t miss this compelling discussion—your future self will thank you!
Chapters
00:00 Is it Too Late to Invest in Real Estate?
01:06 WHY Consider Real Estate Now
03:29 The Hidden Costs of Owning a Second Property
05:20 Finding the Ideal Property Location
08:11 Comparing the ROI for Real Estate vs the Stock Market
12:31 Evaluating your Options and Risk Tolerance
Welcome back to Next Act Ninjas, the number one podcast for mastering your health and wealth longevity. I'm your host, Rachael Van Pelt, and today I'm diving into a topic that could totally transform your Next Act, real estate investing. But is it even a good time to buy? The housing market is shifting, our time horizon is shrinking. It's easy to simply dismiss the idea altogether. And yet, if you're in your 50s or 60s, you likely already own your primary residence and have probably considered a second property at some point.
Maybe you've dreamed of owning a vacation home where you can unwind part of the year, or perhaps you're just curious about investing in a rental property so you can generate a little more income. But the big question is, does it make sense financially? Especially at this age and in today's shifting market. Should you put some of your money into real estate or would it be wiser just to stick with the stock market? Today I'm going to dig into this question, but let's start by talking about the why.
Why should real estate even be on your radar as you plan your Next Act? For many of us, the idea of owning a second home is a dream come true. We picture a cozy cottage by the lake or a beach house where the waves can lull us to sleep, or maybe a mountain retreat where we can escape the hustle and bustle of the city. We picture a place where our family can congregate for the holidays and so forth. But beyond the lifestyle benefits, real estate is also a powerful tool for building wealth. It can be a source of income in our Next Act and even a way to build generational wealth. Now I know some of you might be thinking, why not just keep that money in the stock market? It's worked well so far, right?
And that's true, the stock market has been a reliable wealth-building tool for many of us. But real estate offers something that stocks often don't, and that's tangible value. You can see it, you can touch it, you can live in it. Plus, if you choose wisely, that property can generate rental income. It can help you diversify your investment portfolio and provide potential tax benefits. Real estate and stocks serve different purposes in your portfolio.
Stocks offer liquidity. That means you can quickly sell them if you need the cash. They also have the potential for significant growth, but they're volatile, right? What goes up quickly can come down just as fast. Real estate, on the other hand, tends to be a little more stable. Property values generally increase over time, and while they can dip, they don't usually experience the same wild swings as the stock market. Plus, real estate can generate passive income through rent, which can be especially valuable in retirement when you're looking for some steady cash flow. And one of the best things you can do is diversify your portfolio. Real estate can complement your stock investments. They provide a balanced approach to growing your wealth. But the challenge is finding the right property, isn't it? You want one that aligns with your financial goals and your lifestyle goals.
But let's get real for a moment. Owning a second property isn't just about vacation getaways and sunset lifestyles. It's not all rainbows and unicorns. There are real costs involved, and it's crucial for us to go in with our eyes wide open. First, there's the purchase price. That's obvious. But what about the ongoing costs? Mortgage payments, property taxes, insurance, utility bills. And don't forget about the unexpected repairs. Even the most charming beach house might surprise you with a leaky roof. Then there are the costs of managing that property, especially if it's far from your primary residence. Are you prepared to handle rental logistics? Or are you going to need to hire a property manager? And if you're thinking about renting it out, remember that rental income can be seasonal and unpredictable.
You might have peak seasons where the property is booked solid, and then you could have long stretches where it's empty. All of this isn't to say that owning a second property is a bad idea. It just means you need to plan carefully. The key is to budget not just for the purchase, but for those ongoing costs as well. Ideally, you want to find the right balance between enjoying your vacation home and generating rental income. That way you can offset the costs and you can continue to grow your wealth. That's where the rubber meets the road. Just imagine owning a property that you can retreat to whenever you want, a place that feels like home, but also has the potential to pay for itself when you're not there. Sounds perfect, right? But how do you find a property that meets both your personal and financial needs? Well, the answer is location.
Location is everything. A property that's ideal for your vacation might not be as attractive to renters and vice versa. For instance, a remote mountain cabin might be your dream escape, but if it's too far off the beaten path, you might struggle to find renters. Conversely, a condo in a hot ski resort may have so many bookings that you can barely squeeze yourself in. My husband and I experienced this with our own mountain property. People love it so much that if we want to use it ourselves, we have to block out dates months in advance. It's not a bad problem to have. It just means spontaneous trips aren't usually an option.
Also, you're going to want to think about how often you'll actually use the property. If you're planning to spend half of the year there, you're not going to be able to rely as heavily on rental income. You'll only be there a month or two, renting it out the rest of the year is a great way to offset those carrying costs. Either way, you're not just buying a home, you're making an investment in your lifestyle.
Speaking of which, let's talk about the dream of becoming a sunbird. This lifestyle of spending part of the year in one location and part of the year in another has become very popular among retirees who want to enjoy the best climates year-round, warm winters, cool summers. But of course, it's not just about chasing good weather, is it? Many people chase their favorite activities, like great skiing in the winter and fishing in the summer. And still others want to be near family part of the year. Splitting your time between two homes can be wonderful, but it does require some planning. You'll need to consider the costs and the logistics of travel, as well as maintaining two homes. Most people find that renting out one property while they're away does help to offset the costs, but it requires a bit of coordination and organization. If you struggle to maintain one home, I would not recommend trying to juggle two. On the other hand, if you're the type of person who loves variety and you like change of scenery, then you're going to thrive splitting your time between two homes. It can be incredibly rewarding if it fits your personality and your goals. It's a great way to create a life that gives you joy and comfort year round.
But let's crunch the numbers. If you're trying to decide between investing in real estate or simply putting your money into an index fund, you'll appreciate this breakdown. Let's compare the potential return on investment over 10 years for two different scenarios. Scenario one, you buy that vacation property that you've set your heart on. Imagine you purchase a lovely mountain property for about $575,000. You make a 20% down payment. You take out the rest in a mortgage at about 7% interest rate. On top of that, you have closing costs and upfront costs like furnishing the property. All in, your total investment comes to about $137,000. Now let's say you decide to rent that property out when you're not using it, and you're able to cover all of your expenses, including mortgage payments, utility fees, insurance, general maintenance. Let's say that you end up mostly breaking even. You have a net cash flow of about $1,000 per year. It's not very much, but over 10 years, that brings it to about $10,000 in cash flow. Not too impressive, but we're just getting started.
As you make your mortgage payments, you're also paying down the principal. So after 10 years, you're going to have paid down approximately $61,000 of that mortgage. And then there's the property appreciation. Assuming a conservative 3% annual increase in property value, your $575,000 property could be worth around $773,000 after 10 years. That's a gain of about $198,000 in appreciation. When you add that to your mortgage pay down, you've increased your total equity about $259,000. And we can't forget about the tax benefits. The mortgage interest and property taxes you pay are generally tax deductible. And you can account for depreciation of that asset as well. So over 10 years, your tax savings could amount to at least $28,000. So when you add up all those things, your cash flow, your mortgage pay down, your property appreciation, your tax savings, that total return on investment comes to roughly $297,000 on an initial investment of $137,000. That's 218% return on investment. It's great, isn't it? Over 10 years. But now let's consider a more traditional approach.
Scenario two, you simply put that money in the stock market. You take that same $137,000 and you invest it in an S&P 500 index fund, which has provided an average annual return over the last few decades of about 7 to 10%. So with a set it and forget it strategy, you find a good broker and they invest it for you, assuming about a 7% return after those brokerage fees, your $137,000 could grow to about $269,000 over 10 years.
So when we compare the two scenarios, real estate offers a somewhat better return than the stock market. That's $299,000 versus $269,000. Now that extra $30,000 is great, but remember, the real estate option does require ongoing management and responsibilities. You're essentially working for that extra $30,000 dealing with tenants and property maintenance, whereas the index fund would be a more hands-off approach. Also, if you use that property as a sunbird, a large portion of the year may not have a positive cash flow. That is, unless you turn around and rent out your primary residence while you're not there.
The bottom line is both strategies will grow your money. They just have different risks and benefits. Real estate has historically been a great hedge against inflation and a great tax shelter, but it does take more effort to sell when you're ready to cash out. The stock market on the other hand tends to be more volatile, but you can cash out anytime with a push of a button. Although I would argue that ability to liquidate your stock portfolio quickly can itself be a risk if you're inclined to let emotions dictate when you sell. At least selling a property requires a little bit of planning, right?
But either strategy, if there is a major economic downturn and you sell at a market low, you can lose money. Leaving cash in the bank, on the other hand, is not much safer. The feds keep printing money, don't they? And they're shrinking the value of our money day to day. So that's not a great bet. That's why when it comes to investing, our goal has to be to try to outpace inflation. That's why when it comes to investing,
The goal is to try to outpace inflation and to keep playing the long game. I realize this can be difficult. As we get older and closer to needing that money to live on, our risk tolerance goes way down, as does our time horizon. Either strategy, if there's a major economic downturn and you sell at a market low, you can lose money. But leaving cash in the bank isn't much safer because the Feds keep printing money and shrinking the value of our money day-to-day.
That's why when it comes to investing, the goal is to try to outpace inflation and to keep playing the long game. I realize this can be difficult as we get older and closer to needing that money to live on. Our risk tolerance goes way down as our time horizon shrinks. But if you're in good enough health to enjoy that property for at least another 10 years, investing in real estate remains a great option. And right now, the housing market is shifting to a buyer's market. Prices are coming down, which means it's going to be a great opportunity to buy. If you have money to invest, I don't recommend sitting on the sidelines.
That being said, whether or not to invest depends on your individual situation. Real estate can be a powerful addition to your retirement portfolio. It can offer both personal enjoyment and financial gain. It can be a great way to diversify and build generational wealth. But it's not a one-size-fits-all solution. It requires careful planning, a clear understanding of the costs, and you need to be willing to take on the responsibilities of property ownership. and don't forget it does require a bit of health longevity.
If you're considering this path, take the time to evaluate your financial situation, your health, your lifestyle goals, and your risk tolerance. Talk to experts, do your research, and most importantly, make a decision that feels right for you. And when you get to that stage, hop on my calendar for a free consult. I'd be happy to help. Remember, your Next Act is the time to enjoy the fruits of your labors. And there's still plenty of time to keep growing your nest egg.
The important thing is that you're making choices that support your peace of mind, a high quality of life, and your family's well-being. Thank you for joining me on another episode of Next Act Ninjas. I hope today's topic has inspired you to keep mastering your lifestyle longevity. If you haven't already, please subscribe, share with a friend, and leave a review. Until next time, live well, love more, age less, my friends.