How Real Estate Can Strengthen Your Retirement Portfolio

Did you know that you can fund your retirement through real estate?

Recent data confirms the widespread use of real estate as part of a retirement portfolio. The latest English Private Landlord Survey found that 54% of landlords in England utilise buy-to-let properties as long-term investments to supplement their pension pot.

Additional analysis from Savills reveals that retirement-age households own an estimated 1,491,000 buy-to-let properties valued at a staggering £437 billion, confirming property investment’s vital role as a primary means of generating retirement income.

However, despite these promising numbers, a secure retirement portfolio goes beyond property ownership. It stems from understanding the fundamentals and using that knowledge to unlock real estate’s full potential and convert properties from simple assets into a resilient wealth-building vehicle.

But where do you actually start?

Luckily, this article provides a clear roadmap that covers real estate’s unique benefits, the wide range of investment options, and several strategies to maximise your retirement portfolio’s performance.

1. Benefits of Real Estate as Part of a Retirement Portfolio
• Passive Income through Rental Properties
• Portfolio Diversification
• Property Appreciation
• Wealth Preservation
2. Types of Real Estate Investments for Retirement
3. Tax Advantages of Retirement Portfolio
4. Strategies for Building the Best Retirement Portfolio
5. Maximising Retirement Security
6. Ideal Retirement Portfolio: Frequently Asked Questions

Benefits of Real Estate as Part of a Retirement Portfolio

Real estate presents opportunities that make it indispensable for anyone looking to fortify their retirement portfolio. Here’s what investors can gain as part of their property portfolio management.

Passive Income through Rental Properties

A residential property does more than provide shelter; it serves as a powerful income-generating asset. For many, real estate is a reliable business: 9 out of 10 landlords successfully report turning a profit from their letting activity.

By renting the property, investors secure a dependable source of regular cash flow that can reliably support their retirement lifestyle and cover monthly expenses.

Portfolio Diversification

One of real estate’s most compelling advantages is its capacity to build a diversified retirement portfolio. By extending investments beyond traditional assets such as stocks and bonds, investors can effectively reduce exposure to market volatility.

Research supports this view, showing that property values have historically maintained a low correlation with conventional financial assets, moving independently of equity markets (H. Kent Baker, 2014). This independence allows real estate to remain steady, even gain value, during stock market downturns, thereby lowering overall portfolio risk.

Beyond asset type, diversification in real estate can also come from investing in properties across different geographic markets. Spreading investments in this way helps protect retirement portfolios from risks driven by local economic shifts.

Read more: 7 Things You Need to Know Before Buying Property Abroad

Property Appreciation

Real estate stands apart from many other investment options for its tendency to appreciate over time. Despite occasional dips driven by market cycles, the overall trend in property values remains upward.

Proving this point, the global real estate services company Savills states that the U.K. property market is set for significant appreciation, fueled by a strengthening national economy after 2026.

Savills further notes that the robust economic outlook, which is characterised by low inflation, rising GDP, and falling unemployment, will combine with a continuing undersupply of new homes to exert upward pressure on prices.

This momentum is expected to result in a peak in home value expansion in 2028 and 2029, with increases of 5% and 5.5%, respectively.

Wealth Preservation

Beyond personal financial gain, real estate offers a powerful way to secure the fiscal well-being of a retiree's family for generations. Unlike some liquid assets, properties are easily transferred to heirs (with proper estate planning), ensuring the income stream continues long after the original owner is no longer present.

After buying their first home, beneficiaries can preserve it or grow their wealth through continued rental income. This can be a reliable source of security and financial advantage for decades.

Types of Real Estate Investment for Retirement

When planning a retirement investment portfolio, it is crucial for property investors to think beyond traditional houses. An ideal retirement portfolio is often composed of different types of real estate investments, each bringing unique advantages.

To help you explore the range of options available, here is a list of various real estate investments, complete with the pros and cons of each, helping you identify the property type that best fits your financial needs and retirement goals.

Direct Ownership

Directly buying a real estate asset is a form of ownership that grants investors total control over their property, according to Societe Generale Private Banking. This oversight allows them to maximise the asset's potential for generating both rental income and long-term capital gain.

With all that in mind, the question arises: what types of property investments fall under direct ownership? The following are some key examples.

Residential Properties

As defined by AXA, a residential property is any building intended for individuals or families, offering the dual option of being used as a personal dwelling or being rented out.

This type of property investment encompasses various housing types such as flats, terraced houses, detached houses, and condominiums.

Pros

• Consistent Demand: Housing, being a basic human requirement, maintains a relatively stable demand regardless of economic conditions.
• Low Entry Cost: Requires a lower entry cost and offers easier access to financing, typically with more favourable mortgage rates than commercial real estate.
• Tax Advantage: Provides tax advantages for those managing rental properties by allowing deductions for eligible expenses. This includes repairs, maintenance, management fees, and utilities.

Cons

• High Level of Involvement: Demands active involvement in maintenance, repairs, and tenant management unless a property manager is hired.
• Low ROI: Although residential properties are generally cheaper to acquire, the combination of lower rental yields and rising costs, particularly Stamp Duty Land Tax, negatively impacts the investor's overall Return on Investment (ROI).
• Responsible for Repairs: Residential landlords must handle property upkeep and repairs—tasks that can demand both time and money.

Commercial Properties

Unlike residential assets, commercial properties are intended purely for trade or business operations, providing income for their owners.

This category covers diverse holdings, including office buildings, retail shops, restaurants, hotels, medical centres, and warehouses.

Pros

• Higher Returns: Returns are typically higher due to greater income potential. For instance, flats with separate leaseholds or buildings that accommodate multiple businesses.
• Long-Term Leases: Commercial leases typically span five years or more, effectively guaranteeing rental income for the duration.
• Repairs Delegated: For commercial properties, management demands are lower: most leases are Full Repairing and Insuring, so tenants handle upkeep and insurance costs.

Cons

• High Compliance Costs: Additional safety requirements for fire escapes, automatic vents, and dry risers can amount to thousands in costs, particularly for larger buildings.
• Higher Initial Investment: Expect higher upfront costs for the deposit, transaction expenses, and any required property improvements.
• Higher Vacancy Rates: Longer commercial leases can make it harder to fill vacancies, resulting in prolonged downtime that significantly impacts rental income and lowers the property’s market value.

Indirect Ownership

According to Trider, indirect ownership means having a financial interest or claim over an asset without legally holding its title. This structure typically involves owning shares in a company or a stake in a partnership that owns the asset.

Crucially, it allows an individual to benefit from the asset's income or appreciation while limiting their direct liability and exposure associated with the property itself.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust is a company engaged in owning, operating, or financing income-producing properties across diverse real estate sectors. Essentially, REIT enables investors to earn income from real estate without the obligations of direct ownership or day-to-day management.

Pros

• Accessibility: Enter the real estate market without saving for substantial down payments or managing mortgage payments. Notably, certain brokers offer fractional shares for those with limited funds.
• Diversification: Participate in a mix of real estate sectors and markets, helping to minimise the risks of single-property investment.
• Passive Income: Receive regular dividends (monthly, quarterly, or annually) proportional to one's holdings, making them an effective option for those seeking passive income or preparing for retirement.

Cons

• Interest Rate Risk: The value of a REIT follows the real estate market, so higher interest rates and falling demand can lower property values and investment performance.
• Limited Growth: With the majority of earnings paid out as dividends, REITs retain less capital for expansion, often leading to slower stock appreciation than other growth-focused firms.
• Tax Implications: Dividends are usually taxed as ordinary income, often at a higher rate than the long-term capital gains tax on standard stock sales.

Real Estate Crowdfunding

Real estate crowdfunding, according to Rocket Mortgage, is an investment strategy where individuals pool money to collectively fund property ventures. This combined capital is used to purchase shares in existing assets or to finance new commercial or residential developments (like housing or office spaces).

This approach grants investors access to real estate's financial benefits without the burden of large capital or direct property management.

Pros

• Access to Large-Scale Properties: Some of the UK’s most lucrative property projects are typically reserved for institutions, yet crowdfunding gives retail investors a chance to invest in these opportunities.
• Diversification: Investors are no longer limited to their local area and can invest in properties nationwide, ranging from modest residential homes to upscale apartment complexes.
• Reviewed Investment Options: While investors should always research before investing, crowdfunding platforms conduct due diligence on projects prior to listing them for investment.

Cons

• Illiquidity: Due to their illiquid nature, real estate assets cannot be quickly converted to cash, and sales may involve high transaction costs.
• Extra Fees: Investment returns can be impacted by fees like platform, management, and acquisition charges.
• Lack of Control: Leaves key property decisions such as management, improvements, and sales, to the platform or manager, meaning investors remain mostly passive compared to direct ownership.

Tax Advantages of Retirement Portfolio

Beyond its core investment advantages, the real estate asset class also offers tax and financial benefits crucial for retirement planning. Below are some of the advantages that make real estate a powerful component of a retirement portfolio strategy.

Depreciation Benefits

Depreciation reflects the decline in an asset’s value over time as a result of wear, tear, or obsolescence. A clear example is when a new smartphone model launches, the older version instantly loses resale value, reducing its trade-in worth.

In real estate investing, depreciation is a crucial financial tool, not a loss. Although assets like walls, roofs and floors naturally decline in physical value, tax regulations allow property owners to take an annual deduction for this decline, effectively reducing their taxable income.

As referenced in Forbes, this benefit is powerful because it allows investors to lower their tax burden on an asset that is often appreciating in market value simultaneously.

Tax-Advantaged Accounts

Tax-advantaged accounts are foundational to minimising one's overall tax burden. As defined by Investopedia, these accounts are financial vehicles that offer tax benefits, helping investors grow their retirement net worth.

A prime example is the Self-Invested Personal Pensions (SIPP), which is one of the defined contribution plans designed to act as property investment funds.

Self-Invested Personal Pensions (SIPP)

What is a SIPP?
As noted by the commercial law firm Schofield Sweeney, a Self-Invested Personal Pension (SIPP) is a personal pension scheme that allows clients to directly invest in commercial property while utilising the tax benefits of a pension structure.

The key advantage of holding commercial property within a SIPP is the profound tax protection afforded by the pension wrapper. Specifically, any rental income received by the SIPP is exempt from Income Tax, and the eventual sale or disposal of the asset is entirely shielded from Capital Gains Tax (CGT).

In this way, investors reduce their tax liabilities, allowing rental income and capital growth from their commercial properties to be channelled directly toward building retirement wealth.

Strategies for Building the Best Retirement Portfolio

From building a retirement portfolio to developing an exit strategy, this section presents key retirement investment strategies investors can adopt when using real estate to support long-term retirement goals.

Retirement Portfolio Allocation

When an investor constructs a diversified retirement portfolio that includes real estate, one of the most critical questions that arise is:

How much real estate should be allocated in your portfolio?
A common retirement portfolio allocation strategy, frequently cited in financial guidance, suggests that a range between 25% to 40% of the total portfolio provides a sensible framework. This range is often favoured because it helps create a truly balanced retirement portfolio.

In reality, determining the best retirement portfolio allocation for real estate is highly subjective, and there is no single, definitive answer. The optimal percentage will be heavily dependent on individual financial circumstances and goals.

As MRI Software explains, this modest allocation allows the portfolio to capitalise on real estate's unique strengths and its potential to act as a hedge against inflation and its ability to provide stable income streams. At the same time it preserves essential liquidity and ensuring diversification across other major asset classes.

Exit Strategy for Investors

Transitioning from active real estate management before retirement requires a proactive and strategic plan. Instead of relying on a last-minute sale, having a clear exit strategy enables investors to maximise returns, manage tax implications such as capital gains, and convert property assets into a stable retirement income.

The following are practical approaches worth evaluating ahead of retirement, as suggested by Integritas Property Group:

• Gradual Sell-Off to Manage Capital Gains Tax: Selling one or two properties gradually over several years helps reduce the overall tax burden by keeping yearly gains below tax thresholds. This approach provides flexibility to align sales with favourable market trends while distributing capital gains over time.
• Sell Assets and Reinvest in Retirement Vehicles: Liquidate the property portfolio and clear all associated debt, then redeploy the capital into tax-efficient, liquid investments such as ISAs, SIPPs, or annuities that offer greater liquidity and tax efficiency.
• Transferring Assets to Family: Incorporate property transfers or gifts into an inheritance plan to strengthen long-term wealth preservation. Establishing a family trust or limited company can assist in managing Capital Gains Tax and Inheritance Tax liabilities.

Post-Retirement Strategy Adjustment

For those approaching retirement, the investment strategy must pivot to prioritise income generation over wealth accumulation. The following tactics can support strategy adjustments for the portfolio after retirement.

• Delegate Property Management Duties: Generate steady rental income while avoiding day-to-day responsibilities by delegating all property management to a professional agency, ensuring a stress-free, sustainable source of retirement income. Crucially, it is advisable to utilise property management software to monitor real estate and maintain alignment with professional advisors.
• Downsize Property: Selling larger homes for smaller, more affordable properties, to unlock significant home equity while also lowering the cost of living.
• Optimise Portfolio: Dispose of low-performing or maintenance-heavy properties and reinvest in more reliable assets, or shift completely from direct ownership into passive vehicles such as REITs or pensions.

Nonetheless, the final decision on an exit and post-retirement strategy is highly personalised and depends on factors like the investor's desired lifestyle, tax situation, and legacy goals. Consulting early with a tax adviser and financial planner is crucial to avoid unnecessary costs and missed opportunities.

See more: From Spreadsheets to Smart Platforms: Best Tools for Growing Your Rental Portfolio

Maximising Retirement Security

Making real estate part of a retirement portfolio can boost financial security and growth, but it only serves as a successful retirement asset with a clear plan for generating income, either through sale or ongoing rental revenue.

By including both direct and indirect property investments, retirees can benefit from passive income, property appreciation, and portfolio diversification, all while leveraging tax advantages like depreciation and tax-advantaged accounts.

Moreover, successfully managing a recommended retirement portfolio requires a continuous, strategic approach. It includes defining the optimal asset allocation, establishing clear and flexible exit strategies for different holdings, and proactively adjusting post-retirement investment approaches to mitigate risk and respond to dynamic market conditions.

Ultimately, building a property portfolio can be highly rewarding, but when supported by a clear strategy, investors can fully realise how real estate strengthens a retirement portfolio, providing both growth and reliable income.

Ideal Retirement Portfolio: Frequently Asked Questions

1. What are the cons of owning real estate during retirement?

The primary risks of owning real estate in retirement include illiquidity, making it challenging to quickly convert property into cash, and operational costs such as unexpected maintenance, vacancies, and ongoing management fees, all of which can reduce cash flow.

2. At what age should I reduce real estate exposure?

The timing for reducing real estate holdings is highly subjective, but advisors generally recommend a phased reduction that begins 5 - 10 years before retirement. This strategy ensures sufficient liquidity and better risk alignment, contingent upon one's specific financial goals and the overall structure of one's portfolio.

3. How much real estate should I have in my retirement portfolio?

Financial experts often recommend allocating 25% to 40% of a portfolio to real estate, as this range helps achieve a balanced and resilient retirement strategy.

Your Retirement Portfolio, More Organised with MyAssets

After building a retirement portfolio, you wouldn’t want to let hard-earned money slip away or miss out on opportunities that could grow your wealth, right?

From lucrative residential properties in the best markets abroad to high-yield commercial assets generating massive rental income, real estate forms the foundation of many strong retirement portfolios. But acquisition is only the beginning. Effective management requires careful monitoring and organisation, which is where tools like MyAssets prove invaluable.

A Property Organisation Tool, and More

Primarily an asset management platform, MyAssets provides investors with the tools to:

• Digitise their property portfolios.
• Input details such as property address, purchase date, purchase price, and current valuation, to ensure accurate, up-to-date records.
• Track the financial performance of every property acquired.
• Present portfolio performance in a visually engaging Dashboard, showing investors exactly how each contributes to their net value and allowing them to understand the true impact of their real estate portfolio.
• See value fluctuations and key insights at a glance.

A Retirement Portfolio Digital Manager

MyAssets simplifies collaboration via its Delegates feature. Users can efficiently assign permissions (view, create, edit or delete) to key individuals, including beneficiaries, co-owners, and property managers, ensuring the right people have the necessary platform access.

MyAssets is not limited to the property itself; it dives deeper to track its contents. Through its Smart Asset Linking, MyAssets helps users link and manage all the collectables and belongings each property contains. Whether tracking family heirlooms, an extensive art collection, or significant household items that contribute to the overall estate value, MyAssets create a dynamic asset ecosystem that ensures nothing is ever overlooked.

Simplify how you manage your own retirement portfolio with MyAssets today, free for 14 days.