Twenty-one percent of America’s population is comprised of baby boomers who will soon begin retiring if they haven’t already done so. Many will draw money from the stock market and start to draw from their retirement accounts. However, few of them will have considered the best investment for retirement of all—strategic real estate investing.
The truth is that money from the stock market and traditional retirement accounts can diminish quickly, especially if it isn’t tax protected. We’ve got some challenges facing America in the next 10-25 years, and people must become financially educated if they want to flourish. Retirees need to learn how to make money and live off of assets rather than earned income.
Now, to be clear, we believe in a diversified portfolio that includes paper assets, precious metals, and real estate. However, as you’ll learn later in the article, fewer people have considered the latter. So, this blog discusses five reasons why real estate is the best investment for retirement, as well as a bit about how you can get started.
1. Relatively Low Competition
The United States stock market has a value of approximately 30 trillion dollars. Single-family real estate has a value of 33 trillion dollars. However, there are 60 million people who are investing in the 30 trillion-dollar U.S. stock market and approximately only 1 million investors who are investing in the 33 trillion-dollar single-family market. That means the pie is much smaller when you invest in the stock market. On the other hand, real estate is full of opportunities—you just have to know where to look.
2. A Win-Win
In the stock market, somebody must lose for someone else to win. Real estate can be a win-win for everyone. Sellers can receive a great deal on a property they want to sell, and buyers can secure an asset that will appreciate over time. That’s not even to mention the short and long-term tenants that will benefit from your properties. Housing is a great way to bless people.
3. Tax Benefits
Most retired folks will tell you the greatest challenge they face isn’t just getting the money they need to make a living—it’s how taxes can eat away at that amount. They aren’t sure how to take their assets and produce a sufficient income stream after they pay their taxes.
Retirement accounts held in traditional 401(k) and IRA plans are taxed at earned income rates. Those can be well over 30 percent. So, if your gross income from retirement accounts is $100,000, you could pay $30,000 or more in income taxes! With real estate, it is possible to receive $100,000 in income and pay zero in taxes. (We’ll cover how to do that in The WealthBuilders Real Estate Workshop, October 14-16.)
4. You Already Have the Money
You may be closer to the best investment for retirement than you think. If you own a home, the odds are that you can start real estate investing. Dormant home equity is the most common place where assets remain tied up. HELOC loans and cash-out refinances are relatively simple ways to get down payment funds or the cash to put an offer on a property in full.
I’m not an advocate of leveraging up to your eyeballs so that you can’t pay your bills, and you shouldn’t take money out of your homes to buy things that go down in value. In other words, don’t use your home equity to buy things that most people use consumer debt for.
I suggest that you use your home equity to acquire assets that increase in value, such as a home. (The national average appreciation rate of real estate is 3.8 percent per year.) You can borrow up to 90 percent as long as you can make the payment and maintain a positive of at least $300 per month.
5. Generational Wealth
Strategic real estate investing is one of the best ways to build generational wealth. As a parent or grandparent, you can purchase a property on a 15-year mortgage when your children or grandchildren are born. Then, you can rent out the property as other people pay the mortgage. When your child or grandchild is eighteen, they have a college fund, money to buy a house, or capital to start their own business.
Real estate’s value grows passively, leaving little headache for beneficiaries. It is easily transferable to succeeding generations, and you can set up a trust to hold your real estate assets. Ownership will automatically transfer through the trust.
[Read Next: Are we on the cusp of a great wealth transfer?]
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