Investors ask me everyday about the benefits of using their retirement dollars for a passive investment in real estate. There are many people who agree that buying and holding real estate is one of the most effective wealth building strategies available to investors today.
Especially if you are doing it inside of a self directed retirement account and taking advantage of all the tax benefits.
Many of my clients are taking advantage of real estate as a way to diversify their retirement portfolio. I personally know multiple investors who have held real estate for 15-20 years, eventually to own numerous properties outright and create a net worth well into the millions. The cash-flow that can be generated from properties that no longer have mortgages can be a very nice supplement to their retirement portfolio.
Here are some of the top reasons why investors are taking advantage of real estate as a passive investment.
1. An Asset that Appreciates
All markets have different cycles. Working with a company like Growth Equity Group, who identify emerging markets and are constantly evaluating 20 markets across the US at once, can help educate investors on the best investment properties that will yield the greatest appreciation for a long term investment. By zooming in on markets, you can ensure the property is in a great neighborhood that is clean and safe, by the best schools, and near commute lines. Top investment companies spend thousands of dollars and a great deal of time every month on analytics in a market. They invest in researching characteristics in a specific market like the cost of living index, occupancy rates, building permits, absorption rates, and historical appreciation rates, just to name a few. Most importantly they look at employment rates which is vital. As an investor you want make sure this research has been completed so you can enjoy an asset that appreciates in your portfolio. This is very Powerful!
2. Earn Passive Income
Sadly, many investors don’t think about earning passive income. The realty is many people live in the here and NOW, not thinking about how they can continue earning money after they cash their last pay check. Or, what if you were stuck in the hospital and not able to work for a period of time? The great thing about a passive investment, like real estate, is once you invest in it, you don’t have to think about it. It makes money for you by leveraging your time. You are making money while you are at the beach, while you are sleeping, and while spending time with the people you love! Instead of just flipping homes today, why not have a passive investment working for you as well? By diversifying you can reap the rewards of both!!
Real Estate returns are much higher than stocks, bonds or mutual funds. Working with a company that provides full management services with tenants already in place is key. You can have a hands off real estate investment that works for you much like a stock-headache free.
3. The Power of Leverage
Real estate is one of the few investments where you can use leverage, meaning you don’t have to use all of your own money. You are using someone else’s money to benefit from the investment. If you had $50,000 you can only buy $50,000 of stock. Now take that same $50,000 in real estate and you can purchase $160,000 worth of property.
- Using leverage increases cash flow, boosting your wealth much faster
- Using leverage gives you financial flexibility and diversity
- Using leverage allows you to buy more or better real estate
4. Return on Investment
When purchasing property, like real estate, you are making money 3 ways.
- Monthly Cash flow – owning real estate not only allows you to lock in housing prices and interest rates that are at all-time lows, it also provides you with an opportunity to increase future cash flow though raising rental payments … thus increasing your ROI in future years.
- 2. Appreciation – your entire asset grows in value over time
- 3. Principle reduction – every year you own a real estate property your tenants will amortize your mortgage for you!
Having an asset where you are earning money in 3 different ways is a no brainer for increasing your ROI in the future!!
5. Hedge Against Inflation
An investor’s goal is to choose an investment that will not decrease in value. You want to protect yourself against inflation. The most common way that smart investors do this is with real estate. Hedging against rising prices is required when the asset will be need to be sold in the future. As inflation occurs in the housing market more people will be renting homes versus buying homes. Research is already showing that millennials are choosing to rent rather than buy in most cases. As an investor, now is a more relevant time than ever to own rental property.
6. Multiple Exit Strategies
Deciding how long to hold your property is totally up to you and your long term strategy. A great thing about real estate investments is the number of strategies to use when selling the property. It is beneficial to choose an investment firm that can be with you from acquisition to disposition. They will help you utilize strategies that will maximize your profits when you sell.