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The Federal Reserve with its zero interest rate policy (ZIRP) has virtually killed the market for senior savers. Gone are the days of CDs and savings accounts that beat the combined costs of taxes and inflation. Even if you buy thirty year treasuries, a 3% return is about the best you can get and the risk to your capital is very high should interest rates normalize. There’s even been talk of the Federal Reserve moving to negative interest rates (NIRP) in which case you would have to pay the bank to store your money.
So let us go back to investing 101 and consider 7 Reasons Why Real Estate Investing is the best way for seniors to invest their hard earned money.
- An investment property is one purchased strictly for the purpose of generating income. It’s neither your current primary residence nor a vacation home used only by your family. An investment property like an apartment or single residence is usually purchased with the intention of renting it out. Even in today’s inflated market, an investor can get a gross return of 5% maybe higher. That beats the banks.
- The income from the investment property is partially tax sheltered by depreciation and expenses that get written off against income. You get to keep more of the income from rents than you can from stock market dividends.
- An investment property offers more than one opportunity for financial gain: in addition to income there may be appreciation that can result in a sizable profit when the property is sold.
- You can enter the world of property investment with a relatively small amount of out-of-pocket money. 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.
- If you can raise rents over time, you not only increase your income, the investment property becomes more valuable.
- 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.
- Many real estate investors offer opportunities for private investors to participate in real estate indirectly. The private investor can loan money to the real estate investor funding the purchase and the rehabilitation and receive a very high income, as well as participation in the profits. Or, there have been some recent innovations in crowdfunding where investors pool their capital and participate in a real estate project and are treated like the owners they are.
In conclusion, 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 Section 203(k) insurance. 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.
If you are looking for a return on your savings that is greater than the banks and maybe even grow your capital, real estate investing is tough to beat.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.
