352: Why Real Estate is the Best Retirement Investment

SHOW NOTES FOR EPISODE 352: WHY REAL ESTATE IS THE BEST RETIREMENT INVESTMENT

Many seniors, as they approach or enter retirement, have found that their retirement savings may be inadequate for the long haul, let alone be able to cover unexpected expenses, medical emergencies or assisted living costs.  Their 401(k) or IRA aren’t earning what they thought it would, and even though they qualify for Social Security, they realize it might not be around nor be enough to even make a difference.  In this podcast, Bill explores the reasons why real estate investing may be the best way for seniors to “fill the gap” in their retirement financial planning.

If you are like me, you didn’t expect to be where you are today, rapidly approaching retirement without a pension or a “big enough” 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 nor be enough to even make a difference.  That’s where real estate investing comes it.

Now, I’m not saying everyone listening has an issue with retirement.

• You may just be starting out in your career and feel you have plenty of time to make the millions necessary to insure you will have a great retirement
• Or, you maybe you’re close to or already in retirement with full confidence that you are “covered” for the long haul – including emergency contingencies
• Or, you just did all the right stuff and you’re basically set!

However, 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

That was what I was facing when I returned  to the United States in 2015 after spending 12 years in Haiti working with orphans and abandoned and at-risk children.  Although we love Haiti and the Haitian people we served, we were getting older (I had just turned 60), our kids were growing up and moving back to the states and my wife and I knew it was time to go back.  We were in a new season of our lives and we had aging parents to care for and wanted to spend more time with our seven children and four grandchildren.

I didn’t have pension, had a little tucked away in an IRA but not enough to carry us for the long haul.   So I was faced with the issue of returning to the US to either find work or find another way to fund my retirement.

I chose the second option.  But, the big question was, “How was I going to fund my retirement?”  I had used those online retirement calculators to see how much I would need and all I did was get depressed at the results.  How was I going to generate that much money this late in my life?

So, never afraid of a little hard work, I was ready to roll up my sleeves to see what I could do to fill the retirement financial gap:

I knew I didn’t want a full or part-time job working for someone else (been there, done that) because I wanted the flexibility to do other things, like enjoy my afternoon naps and, of course, my retirement. I also wanted to make a lot of money for very little effort or at least be able to be rewarded for working hard.  It looked like, in order to meet those requirements, I would have to start my own business enterprise.

I had started businesses before and knew what that was like.  One’s own business could be worse than a full-time job with long hours and a considerable investment of personal capital. My thought was that I would only do that for a short time with the idea of eventually generating passive income stream.

Before leaving Haiti, I did some research and saw how many people were doing well with online businesses, which required very little upfront funds to launch.  So I decided to launch my own online business, reselling Amazon products on eBay.  I could dropship everything while Amazon does all the shipping.  It seemed easy enough.  It wasn’t difficult to learn and required almost no upfront cash to start.  Within a couple months, I was making well over $1,000 a month and it looked like I was going to increase that each month… that is…until I got kicked off of eBay.

You see, you have to depend on other suppliers for your products and when they run out of a product, they don’t always tell you and you have to go back to your customer and refund money.  Even though I would be real nice to people and refund their money promptly, I still got a few negative reviews and, unfortunately, on eBay, that’s all it takes for them to kick you off… forever. That ended my wonderful short-lived online business.

So, I continued researching and, after looking at many different things, found that that real estate investing, and specifically, rental property real estate, stood out as a good possible way to “fill the retirement income gap” for a number of reasons:

• I could start it with little or no money down
• It is relatively easy to learn (I’ve bought houses before)
• I could hire property managers to run the properties day-to-day, thus giving me the free time I wanted
• The properties would, in turn, generate regular monthly cash flow income that would increase as rents went up
• The properties, if bought right, would also increase in value and I could draw upon the accumulated equity to buy other properties or use for whatever purposes I wanted
• There were even great tax advantages and deductions, including mortgage interest and depreciation expenses
• I could purchase the properties and receive my income and even manage the finances through a self-directed IRA and only draw upon and have to pay tax on the distribution until I was 70 1/2
• And, further, if I grew my investment portfolio, I would have a legacy to leave to my children and grandchildren

It sounded perfect.  I began educating myself – reading books, listening to podcasts, attending webinars, boot camps and seminars.

I eventually ended up buying three properties – two in Memphis and one in Atlanta. That was in 2014.  Since then I have added 24 more units and have since made a goal of 1,000 units in the next 6 years.  I have also found that buying apartments makes more sense than single family homes.

I also have learned about syndication and how I can partner with others who are interested in benefit from real estate investing as well.

I know that 1,000 units sounds pretty high but I also have a nonprofit organization called Child Hope International that my wife and I founded years ago that still helps orphaned, abandoned and at-risk children in Haiti that I want help out as well.

Well, I’m well on my way

I love it! I’m always learning new things and I have a growing steady stream of monthly income. I can take off on vacation anytime and the income continues to come in.

Like many other seniors have discovered, the answer for me was real estate, and it could be the answer for you, too.

As I invest, I document my progress (and challenges) on this podcast and in our blog on olddawgsreinetwork.com. In addition, I’m interviewing expert guests, share helpful tips and insights along the way.

Now, of course, I am emphasizing rental property real estate investing. However, there are a lot of different ways to invest in real estate. You can fix and flip properties; wholesale them (purchase properties at a discount and sell them to other investors); invest in deeds, trusts, or liens; and even become a hard money lender who makes short-term loans to help other investors close deals.

For most seniors like me, though, I think the best approach is to purchase rental properties or partner with other investors and sponsors apartment buildings through syndication. Here’s why I think real estate is the best cash flow source for seniors:

• It’s a relatively safe investment. The real estate market can go down but almost always rebounds, and unlike stocks, you own a tangible asset, that will eventually go back up.
• Also, you already know the basics. If you’ve ever purchased your own home, you have a basic understanding of how real estate works.
• Upfront costs can be minimal. You can negotiate seller financing, get an FHA loan for 3% down or a VA loan for 0% down, assign properties and sell them at a bonus, invest in a crowdfunded property for as low as $10.
• Income is steady. With a rental property, and if you manage it well, you get paid regularly from the start and on a regular basis.  You earn whether you’re working or not.  It just keeps coming in.
• Tax advantages. You benefit from tax advantages at tax time, depreciation, deductible expense and equity when you sell or borrow against the property.
• You can work as much or as little as you want. You can set your own hours, work only a few hours a week or go gang busters and go for the big bucks.

Is real estate right for you?

Yes, real estate isn’t for everybody, but if you are facing retirement or have already retired and don’t have enough income, real estate is one of the quickest and best ways to generate wealth over a short period of time.  Historically, most real estate returns range from 5 percent to 21 percent, but the percentage can be even higher depending on how you leverage and or how long you hold the property.

Ask yourself:

• Do you feel your retirement savings or income is inadequate?
• Have you seen your pension cut or eliminated?
• Are your retirement accounts/funds generating insufficient income for you to live comfortably?
• Has the fluctuating stock market caused your retirement savings to decline in recent years?
• Do you have enough emergency funds to cover a serious medical issue of fund assisted living for a long period of time

If you answered yes to any of those questions, like I did, it may be time to consider some way to generate consistent cash flow.  Investing in real estate gives you the opportunity to control your financial future and create the retirement you want.

The Federal Reserve, with its zero interest rate policy (ZIRP), has virtually killed the market for senior savers.  Gone are the days of high interest 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.

7 Reasons Why Real Estate Investing is the Best Way for Seniors to Invest for Retirement

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.

1. 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 minimum gross return of 5%, but most likely, higher. That beats the banks.
2. 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.
3. An investment property offers more than one opportunity for financial gain: in addition to income and tax savings there may be appreciation that can result in a sizable profit when the property is sold.
4. 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.
5. If you can raise rents over time, you not only increase your income, the investment property becomes more valuable.
6. 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 put off the capital gains taxes indefinitely.
7. And, if managing tenants, toilets and trash doesn’t appeal to you, 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 of properties while receiving a very high income, as well as participation in the profits. It’s called “being the bank.”  Or, you can join other investors and pool your capital through a syndication to participate in large scale real estate projects as a general or limited partner..

In Conclusion

In conclusion, politicians love real estate.  They are always finding new ways to benefit investors and 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 way to fill the gap in your retirement financial real estate investing is tough to beat.

This show was sponsored by SMARTMOVE

SmartMove is part of Transunion, a trusted consumer reporting agency with more than 4 decades of experience.  They built an online screening service for independent landlords that delivers critical credit and background reports to you in minutes. It is a really valuable tool to have when you are trying to decide who to put into your rental property.

And they can help you find your next great tenant.

• Only SmartMove has a credit score built specifically for rental screening called ResidentScore, which can identify eviction risk 15% better than a traditional score.
• With the SmartMove report you’ll also get a criminal background check, eviction history report, as well as a full credit report.
• And, only SmartMove has Income Insights, a report enabling you to analyze renter income to determine if further verification is needed.

See why 9 out of 10 users recommend SmartMove and more than 4 million landlords have used SmartMove to make better leasing decisions.

SmartMove has a special offer just for Old Dawg listeners.  Go to tenantscreening.com, enter code “OLDDAWG25” and you’ll get 25% off your next screening.

SmartMove.  Reduce your risk of Non-Payment and Evictions.

IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher, GooglePlay, iHeartRADIO and Spotify and Subscribe, Rate & Review our podcast.  This will greatly help in sharing this podcast with others seeking to learn real estate investing as a means to achieve a successful retirement.

Check out our other podcasts at olddawgsreinetwork.com.

Get a FREE copy of our 3-Minute Rental Property Analyzer at olddawgsreinetwork.com.

Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com