Retirement: real estate investments to improve your pension


Investing in real estate to improve your retirement pension has many advantages. Once retired, your income is automatically lower than the wages you received when you were working. However, your bills and other current expenses are no less reduced. Also, to compensate for this drop in income, one of the options available to you is to invest in real estate. An investment medium that has many advantages. On the one hand because it is a tangible investment with little volatility, on the other hand because real estate offers investors a particularly attractive return-risk ratio.

In a study published in April 2022 devoted to the performance of real estate investments over the past 40 years, the Institut de l’Epargne Immobilière et Financière (IEIF) highlights the fact that over 30 years (1991-2021), equities and listed real estate delivered comparable levels of performance. Over this period, housing proved to be particularly successful, to the point of outpacing the other real estate asset classes. Over 40 years, stock market investments have outperformed real estate vehicles in terms of return. Nevertheless, the internal rate of return (IRR) in Paris for housing has exceeded 10%.

The study also points out that unlisted real estate has performed better than bonds over 40 years. So many elements that attest to both the stability and dynamism of real estate. And so many points that can guide you if you want to increase your pension once you retire. Provided, however, that you choose a real estate investment medium suited to your life, your budget and your needs.

As is often the case in real estate, there is a golden rule to consider and which can be summed up in three words: location, location and location. As for a traditional real estate purchase, a real estate acquisition with a view to renting must be carried out after having carried out a preliminary study.

Does the neighborhood you plan to invest in have good transport coverage? What about shops, schools? What are the upcoming construction projects? Are the prices per square meter attractive? What about rental supply and demand? Is this a tight market? And of course, what estimate of rent can you expect to collect each month?

Before any rental investment, you should therefore ask yourself these different questions. And this, whether or not you are retired. The idea is to make sure beforehand that you can easily rent the acquired property at a price that suits you. Once retired, benefiting from additional income linked to a rental investment often constitutes a breath of fresh air (financial) for buyers. Hence the interest of considering this option as soon as possible. Especially if you have taken out a loan for this acquisition.

Another solution to consider if you want to supplement your income once you retire: SCPIs. SCPI should be understood as: Société Civile de Placement Immobilier. In detail, it is a question of buying shares of buildings through management companies. It may as well be a question of office buildings, warehouses, or even businesses.

The advantages of this type of investment are multiple. On the one hand, it remains a real estate investment therefore not subject to stock market volatility. On the other hand, you have nothing to manage insofar as it is the company with which you have subscribed and purchased shares that does it. Each year, it pays you the share of rent that is yours. As for the returns you can expect to obtain, be aware that despite the various confinements, holders of SCPI shares have been able to count on average returns of around 4.45% in 2021, according to Aspim. Either yields much higher than those of the different booklets.

In fact, the SCPI medium is often considered to be the one that offers the most optimal return-risk ratio. All the more so since it is now possible to subscribe to shares from a few hundred euros. The only point of attention: the costs! Between entry fees, management fees, exit fees… The fees attached to this type of investment can quickly erode the profitability of your investment. Do not hesitate to inquire with your management company and ask questions to avoid any disappointment.

Note, however, that today there are management companies that offer to subscribe to SCPI shares without management fees.

Among the real estate investment vehicles on which you can rely to increase your pension, serviced residences may be an option to consider. In fact, it is a question of buying rooms located in health establishments such as nursing homes, or in student residences. Here again, it is a question of going through a manager. As with any real estate investment, you must first ensure the establishment’s occupancy rate, the quality of its location, its services and also the quality of the manager who will pay you your rent. This is the most important subject.

Once these different points have been clarified, this investment can be interesting to supplement your income. On the one hand, because it is not a question of acquiring an entire property but only a room, on the other hand because you have, again, nothing to manage (unlike a traditional rental investment that you would have done without going through a real estate rental company).

Do not hesitate, finally, to opt for new residences whose rooms are already furnished. By taking all these precautions, you can, depending on the establishment, hope to obtain a return of between 4 and 6%.

In any case, do not forget to diversify your heritage investments in order to smooth out risk taking.