Are you wondering if investing in real estate for retirement is a worthwhile endeavor? Many individuals have already secured a quality lifestyle and gained an additional income by investing in real estate.
This week, Immigration Explorer, your immigration consulting company, reveals the benefits of investing in real estate for retirement. Plus, we have useful information to help you get started in one of the best destinations worldwide, Cyprus.
How is Retirement Real Estate Investing Different?
Investing in real estate for retirement is slightly different than the usual real estate investing.
Put simply, retirement real estate investing is a process in which an individual accumulates real estate assets or investment properties.. The goal is to obtain a passive income, usually through the process of renting out the property.
The main aspect of retirement investment properties is that they are typically rental properties that generate rental income by tenants. These buy-and-hold properties consistently bring in cash flow without much effort on the part of property owners. Short-term rentals can be more work for investors. Long-term might be less effort and a management team can be hired to oversee the rental and property upkeep.
In comparison, real estate investors are concerned with wealth-building strategies in general, and oftentimes seek to diversify their portfolios. Various areas of cash generation may be in wholesaling, rehabbing, or the acquisition of commercial or residential rental properties, possibly for funds. This strategy of wealth-building might require more work for the property owner.
This is in part due to the choice of many real estate investors to diversify their portfolio and to follow market trends in real estate in order to accumulate wealth through property acquisitions. Moreover, different types of real estate come with different sets of maintenance requirements and general upkeep or repurposing the properties.
5 Benefits of Real Estate Investment for Retirement
Beyond just the passive retirement income cash-flow, there are some other excellent benefits of retirement real estate investing.
1. Tax Advantages
Investing in real estate for retirement in Cyprus comes with several tax advantages. Aside from being one of the most favored EU destinations for low personal and corporate taxes, Cyprus has some tax advantages for property owners.
Cyprus does not have an inheritance or gift tax. This means that as you plan for retirement and what to do with your real estate portfolio after, you don’t need to worry about the cost of transferring the properties to other family members.
Capital gains tax is only paid on gains arising from real estate sales located in Cyprus with a rate of 20%. Any real estate outside of Cyprus is tax-exempt from the capital gains tax.
If you become a resident of Cyprus, foreign pension income is exempt up to 3,420 Euros and then taxed at 5%.
Rental income from investment properties is taxable under income tax and the defense contribution. The first 19,500 Euros is tax-free and then the rate progressively rises from 20% to 35% for income of over 60,000 Euros.
Lastly, Cyprus has signed almost 60 double tax treaties with other countries. This protects your income from double taxation if you are a tax resident in Cyprus and another country that have a double tax treaty.
2. Mortgage Is Paid by Tenants
Another benefit of investing in real estate for retirement in Cyprus is that the mortgage of the property can be paid by the rental income of the tenants.
Going forward, a real estate investor can plan accordingly to allow for compound interest to take over and in a few years have a powerful stream of passive income.
3. Real Estate Appreciates in Value
While there are always fluctuations in the market, real estate generally appreciates in value over time. Especially as Cyprus is a growing business and tourism hub, there are many new developments on the island.
As with any real estate investment, developments in one city can affect the property values in another city. New development projects can cause property values around the development to rise. But they also can cause other areas to see a drop in value as businesses and tenants move to up-and-coming new locations.
Understanding developments in the market around the area you are interested in buying real estate can help you to predict the property value in the future.
With the right location, investment in a solid property, and on-the-ground knowledge to understand the latest real estate trends, retirement with an increased net worth and cash flow is possible and rewarding.
4. Provide Retirement Accommodations
The best part about investing in real estate for retirement is the opportunity to fund your own living arrangements. It can be expensive to own your dream retirement home in a scenic destination such as Cyprus.
However, with rental options, you can live full-time or just vacation in your rental property on other people’s money. A recent study by Nav.com for Inc. showed that out of 300 business owners interviewed, 37% had rental real estate investments for the one purpose of gaining passive income which they planned to use for their own retirements.
Yet, business owners aren’t the only ones who can benefit from retirement real estate investing. Any individual can also use real estate to improve their retirement income and lifestyle.
5. Retire Early with Real Estate Investment Trusts (REITs)
A Real Estate Investment Trust (REIT) is an investment collection of real estate properties or assets. Instead of mutual funds that collect company stocks, REITs collect properties. There are several different types of REITs. But all of them are stable ways to invest in multiple properties while reducing the personal risk associated with investing.
A REIT can help you manage real estate and generate stable cash flow for retirement with little effort. Although, you might have less say in the property than through direct ownership. Some popular REITs include retirement homes, golf courses, and self-storage properties.
REITs can also be traded on the stock market, making it easy to buy or sell. REITs are good for investors looking for long-term wealth growth or those wanting to retire early as share prices on real estate don’t usually grow fast. However, retired investors can start receiving dividends and interest-earnings immediately through REITs.
For example, the Bank of Cyprus (BoC) REIT continues to contribute to the cash-flow in the Cyprus real estate industry. The Greek company NBG PANGAEA recently signed a deal to buy 21 large commercial properties from the BoC REIT. This shall bring in 96 million Euros of revenue for the company by 2028. Other major international REITs are also eyeing major investment properties on the island.
There are many options when it comes to investing in real estate for retirement and each comes with a unique set of financial and lifestyle advantages. Cyprus real estate is among the most exclusive in the world and opportunities for retirement real estate investment are endless.
3 Choices When Investing in Real Estate for Retirement
When building a retirement plan using investment properties there are a few that make excellent choices. Not only for building a passive income but also for utilizing in your own life plans during retirement.
All three of the following investment real estate options are perfect in a destination such as Cyprus, known for its rapid tourism and business expansion in the last few years. Click here for more detailed information on how to buy real estate in Cyprus.
1. Commercial Property
Probably the most expensive option is to invest in commercial property in a thriving business environment. Cyprus real estate development is a fast-growing industry, with new local and foreign businesses quickly relocating to this market hub.
Commercial property has more upfront investment costs but can boost your overall net worth. Moreover, if you own a business, you can use this space as well while other tenants help cover the cost of the building and generate rental profits.
UPDATE: Effective since 24 March 2021
The real estate investment can now also be made with SECOND-HAND commercial properties (not residential), in addition to new properties from developers. This is a big advantage as it increases opportunities for investors. The restriction of a maximum of two properties for investment has been lifted for second-hand commercial properties (residential remains at a maximum of two). However, residential and commercial investments may not be combined.
Alternative Investment Options
- Investment of the required ~369,000 USD (305,000€) in the share capital of an active Cyprus Company with a physical presence and at least 5 personnel registered in Cyprus.
- Investment of the required ~369,000 USD (305,000€) in a fund approved by CySEC.
2. Single Family Homes and Apartments
Do you dream of owning a vacation home in the Mediterranean but are worried about the costs year-round? If you don’t want to live in your vacation home long-term, this type of property can be put to good use when investing in real estate for retirement.
With many options in short home-stays and room rentals like Airbnb a vacation home is ideal to rent to others while you are away.
There is less effort on the side of the real estate investor as these short-stay companies help handle most of the work. This means that a property owner does not even need to be in the country for this type of investment to work.
3. Residential Property with Long-Term Tenants
Another great choice when considering investment properties is a residential building for long-term tenants. Knowing key locations in Cyprus can help you determine which residential buildings have the potential to appreciate in value over time.
The perk to owning your own residential building is that your tenants can help you pay off the cost of the property through their monthly rent. This is also a stable method of passive income that can help you meet your financial retirement plan needs.
There are some monetary factors that you have to consider when investing in real estate for retirement. Such as emergency repairs and general upkeep of the building. But you can prevent these with careful planning on how to save or reinvest rental income.
This type of property could also become a place to retire for you and your family at little to no additional costs. This lowers the financial burden normally associated with owning or renting a place during retirement.
Already, more than 20,000 expat residents over the age of 60 have chosen to call Cyprus home. Thanks to its affordability and national healthcare option, GeSY.
Investing in real estate for retirement protects your nest egg while also opening up options to vacation or live rent-free in the gorgeous cultural hub of Cyprus.
Investing in Real Estate for Retirement: The Takeaway
Cyprus offers one of the most ideal locations for investing in real estate for retirement. Whether you are looking to produce a passive income or to fund a quality lifestyle in a gorgeous retirement property, retirement investment holds the key to making it happen.
Click here to discover more investment options and to start your residence planning. Here, you can find the best golden visa options in the EU, Europe, the Middle East, and Asia.