October 2016 Posts

Investing in Real Estate for Retirement

The earlier you begin saving for retirement, the better off you will be during your golden years. Don’t kick the can down the road, start investing now, as the more years you have until retirement, the more years you have for your money to grow.

A great vehicle for growing retirement savings is in real estate investments. According to Than Merrill – CEO of Fortunebuilders Inc., a real estate education company, “Nothing prepares someone for retirement more so than real estate. I maintain that real estate trumps other retirement savings vehicles, and it’s not even close in my opinion. While a Roth I.R.A. and a 401(k) have their place in any portfolio, they don’t come complete with the added benefits real estate exhibits.”

In many ways, real estate investments offer many advantages over traditional stock market investments. 401(k)s and IRA are still a valuable vehicle for saving and investing for retirement, but adding real estate to your portfolio will provide a way to both diversify your investments, and take advantage of the many advantages real estate has over equities.

Inflation Hedge

While there are no guarantees when it comes to investing, real estate prices and rental rates have been historically shown to go up over time. In addition, because the mortgage you take out on a property is fixed, as the years progress your mortgage payments will be a smaller and smaller percentage of the rental income you generate from the investment property.

Tax Advantages

Real estate offers many tax incentives over other types of investments. For one thing, you are able to depreciate the value of the property you purchase. You can depreciate the value of a rental property over 27.5 years, meaning if you buy an investment property for $500,000, you can write off $18,181 every year off your taxes! This will help shelter some of your rental income from taxes, giving you higher returns on your investment.

An Asset You Control

Traditional stock market investment portfolios are passive investments, meaning you are dependent on the conditions of the market. With real estate investments, you have more control over the type of property you purchase. In addition, you can control the rent prices, property costs, change tenants, and make many other active decisions to protect and grow your investment.

Leverage: Other People Money to Make You More Money

One of the best aspects of real estate investing is leverage. Because you are borrowing 80% (or more) of the purchase price of the property, if the property grows just 3% a year in value, in 10 years you will have nearly tripled your money!

Remember the best time to start investing for your retirement is today. If you want to take advantage of the benefits of leveraged investment you control, with tax incentives and a proven hedge inflation, consider investing in real estate for your retirement.