Using Real Estate to Fund Your Retirement

With the right assets, one can ensure they have sufficient cash flow to not only fund their retirement but also to fund the lifestyles of their children and grandchildren. While 65 is a common age to retire, real estate could lower the age for many to retire.

Generational Wealth

Acquiring enough real estate by 35 could allow for enough time to pay off mortgages by the age of 65. Those who are older than 35 can also shorten their waiting time for retirement. Following the complete payment of mortgages and other expenses, income from such real estate could constitute positive cash flow.

With the right assets, cash flow can provide income which lasts generations. There are cycles in the real estate industry which means that there will inveitably be downturns in the demand for real estate. This could result in lower income generated from such property in the short to medium term.

With enough real estate acquired, one can generate the income necessary to take more risks in other business ventures. Consistent income generated from real estate can serve as a risk buffer for other ventures, allowing for greater flexibility and creativity in other business ventures that could generate more income.

Using Goals to Invest in Real Estate

Setting goals in relation to the amount of income to be generated from real estate is essential. For example, a goal of $4,500 a month in cash flow can help to raise important questions on objectives that need to be executed. With a goal of $4,500 a month, an individual may be prompted to consider how many rental units they need in order to reach their goal.

An investor must buy real estate that is cash flow positive. This means that after income has been received and all expenses have been paid, there is a surplus of money. A target of $100 – $200 a month per unit may be adequate to reach one’s goal of $4,500 a month in cash flow.

Providing each unit provides $150 per month in cash flow, 30 units will be required to reach a total of $4,500 per month. Small multi-family properties are great acquisitions which can make this possible.

Breaking Down Retirement Goals

It is important to break down investment goals. An investor may benefit from targeted acqusition of 5 units in their first year of investment, followed by 10 units in their second year and 15 units in their third year of investment. This makes their investment plan more feasible.

In order to buy 5 units over 12 months, a competent real estate agent will be required. The real estate agent will be instrumental in providing key insights on the dozens of properties that will need to be reviewed. Searching for the right investment properties can take a significantly long time but it is necessary.

In many cases, it is best to save up enough to invest in real estate rather than relying on disproportionately high debts. Buying real estate at a low price with cash is advisable.

Investment Retirement Account

An investment retirement account can be used to invest in real estate. Funds from investment retirement accounts are usually held in the stock market or mutual funds. This usually means that returns are approximately 3-5%. Taking inflation into consideration, the costs returns to investment retirement account holders can be lower than expected.

A self-directed IRA can be used to take control over how the money in your IRA is invested. A self-directed IRA puts the holder in the driving seat for investments. The money in your self-directed account can be invested in paid off real estate. This may serve as a low risk option for individuals who are close to retirement age. Users of self-directed IRA are often tasked with greater responsibility. The decisions made by users of self-directed IRA’s can result in tax complications. Extra care must be taken in order to follow due diligence.

Saving for Downpayment

An alternative option is to liquidate an IRA. This will accrue a 10% fee. Taxes may also have to be paid, following the liquidation of an IRA. For this reason, investors must focus on comparing the costs of liquidating an IRA against the potential returns of acquiring real estate with the funds from their IRA.

A Roth IRA can be used as savings account. Many people use it to fund their goals of buying real estate. The contributions can be used for a downpayment on a home. There is a downpayment exception which means that investors would not be charged a penalty for using their Roth IRA contributions for a downpayment.

A Roth IRA may also be used to invest in a REIT and ETFs. REIT(Real Estate Investment Trusts) invest in different types of real estate. Their investments are typically aggressive in nature which can lead to higher returns than other alternatives. Exchange Traded Funds which invest in REITs can also serve as a viable source of income for real estate investors.

One thought on “Using Real Estate to Fund Your Retirement

  1. MarryWalker November 20, 2019 / 12:33 am

    My husband and I both max out our 401ks. Can’t see us being in a higher tax bracket when we retire, although who knows.What a great post though.very informative blog for me.

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