028: Why Real Estate Investing is Great for Retirement

SHOW NOTES FOR EPISODE 028 – WHY REAL ESTATE INVESTING IS GREAT FOR RETIREMENT

In this episode, Bill explains why he believes real estate investing is the perfect vehicle to prepare for and succeed in your retirement years.  Sharing 14 key reasons why real estate is ideal for retirement, he examines various benefits of real estate investing from “tax savings” to “giving yourself regular raises and bonuses.”

Overview

If you are like me, you didn’t expect to be where you are today, rapidly approaching retirement without a pension or comfortable nest egg. Your 401(k) or IRA isn’t earning what you thought it would, and even though you qualify for Social Security, you realize it might not be around (and the amount will almost certainly not be enough for most people to survive on). We’re not alone.

According to the most recent poverty report released by the United States Census Bureau, one out of six senior Americans lives below the poverty line set by the federal government. To make matters even worse, without their Social Security income, more than half of America’s seniors would be living in poverty.

The National Council on Aging paints an equally bleak picture. Citing information from the Institute on Assets and Social Policy, the NCOA reports that one-third of senior households either goes into to debt to meet their needs each month or has no money left over at the end the month.

My Story and Finding the Answer

That was what I was facing when I returned recently to the United States after spending 11 years in Haiti working with orphans and abandoned and at-risk children. Although we loved the work, my wife and I were getting older, slowing down and wanted to spend more time with our seven children, four grandchildren, and her aging parents. I didn’t have pension or retirement accounts, so I needed to either continue working, find another job or find another way to fund my retirement.

I chose the to find another way to fund my retirement.  Like many seniors, the answer for me was real estate.

I set the goal to grow my real estate investments to 1,000 units (or doors) in 6 years.  Those units will be a combination of single family residences and multifamily housing such as duplexes and apartment buildings.  As I’m investing and going through the process, I’m also documenting my progress on the Old Dawg’s blog, through my podcasts, and I’ll also share tips and insights along the way.

You all know by now, that I feel pretty strongly about the value of real estate investing as a means to prepare for and build cash flow in your retirement years.

My Revelation

I remember when I was a banker in Beverly Hills, in the early 80s, seeing all the retired folks lining up like clockwork each month with their bankbooks (remember those) to get their books updated with their monthly interest.  Usually, it would be some older person with 6-10 books, at $100K each waiting to see that interest posting at 10% at the time.  They would go, bank to bank, because the insurance was only up to $100,000 per bank.  That was when bank interest really produced!  Of course, on the other side, loans were in the 20% range.  Nonetheless, most people preferred banks because the interest was good and you also had the FSLIC of FDIC insurance on your investments.  Those days are gone – at least for now.  You are lucky to get 1% today.

When rates went down, I took my money out of bank CDs and started vesting heavily in money market funds and the stock market.

• Another job I had as a young man was to run a regional tech organization – working with software, technology companies and internet start-ups.
• Felt comfortable evaluating and investing in tech stocks
• Invested and made good money
• However, as the market has become more volatile, I started pulling out of the market
• Many economists are predicting another major crash soon
• I don’t invest in stocks any more

Shifting to Real Estate Investments

Now, I am in my retirement years and the funds that were in stocks are sitting in a self-directed IRA as I wait for the next good real estate opportunity.  I currently own 28-units and actively pursuing more on my goal to 1,000 units by 2020.

How Does One Invest in Real Estate?

• Purchase properties – some fix ‘n flip, some buy – wait for values to increase and then sell.   And there’s the “buy n’ hold” investor – that’s me
• Could buy notes or liens
• Invest in other people’s projects (as part of a syndication or crowd funding)
• Could buy a REIT
• Buy raw land and hold
• Buy raw land and build
• And the list goes on and on

12 Reasons why Real Estate Investing is Great for Retirement?

1. You don’t have to work full-time. Most of us don’t want to keep working or find more work when we retire.  We want to enjoy our retirement years.  Whether you are approaching retirement or already there, the great thing about real estate investing is you can do it part-time or invest as little as a few hours per week – depending on your goals.  Once you set up your “money making machine” it continues to produce whether you do anything or not.
2. It’s a relatively safe investment. The market can go down but almost always rebounds, and unlike stocks, you own a tangible asset, the land.
3. You already know the basics.  If you’ve purchased your own home, you have a basic understanding of how real estate works.
4. Upfront costs can be minimal.  You can purchase a property with little or no money down.  You can also invest in a REIT or other investment property with a few thousand dollars or less.
5. Your money goes a long way.  In real estate you can use leverage to control more assets. In the stock market $30,000 can control $60,000 of stock. In real estate, the same $30,000 can control $150,000 or more of real estate. Leverage is important. A small increase in the value, over the years can will double your equity.
6. Income is steady.  With a rental property, you get paid regularly from the start and on a regular basis. If you own rentals, you’ll receive monthly income.  If you are an investor in someone else’s property, you’ll generally get paid quarterly.  You get to keep more of your income than you would with stock market dividends because of the tax write-offs.
7. You can give yourself a raise. When you increase rents, your monthly income increases and so does your equity.
8. You get bonuses.   And if the property is sold, you’ll get equity income on top of your monthly or quarterly income.  If you syndicate you get acquisition fees just for finding the property.
9. You benefit from tax advantages at tax time and equity when you sell. Your income is offset by depreciation, expense deductions and more.
10. You can invest from home.  You can set your own hours and work as much or as little as you want.  You can do 90 percent of your work on the computer or telephone.
11. You can avoid capital gains.   When it comes time to sell your investment property, real estate has a big advantage over the stock market. In the stock market a long term gain is taxed at 15 to 20% depending on your income. In real estate a capital gain is untaxed for the first $500,000 (a husband and wife each get a $250,000 exemption. Then there are 1031 exchanges in which you can sell a property and buy another of equal or greater value, and not pay taxes on the sale for many years later, if at all.
12. You can be the bank.  Once you start generating lots of cash, you can also be a resource for other investors that may have trouble obtaining a loan for various reasons (too many properties, lack of experience, etc.).  As an investor can loan money to other real estate investors funding the purchase and the rehabilitation and receive a very high income, as well as participation in the profits.
13. Politicians love real estate.  They find new ways to make financing available. Some mortgage lenders are encouraged to provide loans with zero to 3% down payments. There is even a program called FHA 203(k) loan. It enables homebuyers and homeowners to finance both the purchase or refinancing of a house and the cost of its rehabilitation, through a single mortgage or to finance the rehabilitation of their existing home.
14. You have something to leave your children.  You reap the benefits of the great cash flow during your retirements. And when you leave this world, you leave a wonderful legacy behind for your children and grandchildren.  What better gift to leave to the ones you love.

If you are looking to “fill the gap” in your retirement budget, reap a great return on your investment, generate a strong monthly passive cash flow, increase your net worth and leave a legacy for your children and grandchildren, real estate investing is tough to beat.

So, until next time, remember CASH FLOW IS KING AND REAL ESTATE INVESTING THE MEANS.  Thanks again for listening and God bless!

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