Real estate is likely missing from your investment portfolio. It is
not your fault the deck is stacked against you. From many investment advisors
not having any desire to give advice for investments they do not earn a
commission on, to the horror stories of turning into a landlord and dealing
with stopped up toilets and irate tenants, investing in real estate gets pushed
to the side. Though at the same time, we all know about real estate’s cash
generating potential and we naturally need a piece of it.
Particularly for those nearing or in retirement, real estate can
be a fantastic method to produce stable income while preserving their nest egg.
It is no secret that interest rates are at historical lows. This makes the
typical retirement portfolio, which is generally realigned far from value and
into fixed income, not feasible unless you are comfortable with seeing your
principal balance decline over time or you are willing to significantly change
your lifestyle. You should not have to make that choice when real estate can
help you achieve your retirement goals.
There are many ways to invest in real estate from purchasing REIT
stocks to investing in Real Estate Limited Partnerships to purchasing a duplex
on individually. In all occurrences, you are looking stable, tax-advantaged income
with the possibility for long term thankfulness without the volatility found in
the stock market. That is real enhancement that our portfolios need.
Additionally, real estate can be a hedge against inflation as the Federal
Reserve moves us out of this low-rate condition. Since rents rise during
inflationary periods, so does the property’s income. Security yields are secured
in when you buy it and the value of your money declines.
However, unlike stock investing, where being inactive and discovering
low cost mutual assets or ETFs is the best way to generate the highest returns,
real estate requires you to be proactive. You should be ardent in your desire
to add real estate to your portfolio because no one else will tell you it is a
good thought. You should figure out how to evaluate a real estate transaction
yourself, but you already know how to do it. And you must decide which type of
real estate investment matches your personality and how you will invest to
capture the unique tax advantages afforded in real estate. Once you conclude
real estate meets your need for reliable cash flow with the opportunity for
appreciation, invest in it.
Below are just a few of the many tips that we have picked up
during our years of investing in real estate that can help you take ownership
of your portfolio and demystify real estate investing
1. Defeat your
allies: In many cases, your trusted and paid advisors may recommend
you maintain real estate in your portfolio altogether. They for the most part
give the same tired reasons that it’s “illiquid” or “too management intensive.”
Those can be valid arguments based on your specific situation, however that is
not the real reason they need you to avoid real estate.
Stockbrokers do not get paid for you
to invest in real estate. There’s nothing in it for them, no commissions and
nothing to do. That is, unless they need you to buy a high cost non-traded
REIT, however now you will know their actual motivation. You have to do your
own homework to choose if the potential income from real estate is ideal for
you.
2. Elementary
school arithmetic: We all realize that real estate is a numbers
amusement, however you might be amazed to know that you learned all of the
skills necessary in primary school. To choose whether or not to pursue a
potential investment, you will just need a few key formulas and nothing will be
more difficult than long division. Once you have remastered these ideas, you will
have the numerical tools to effectively guarantee real estate investments.
3. Use a taxable
account: Why try to avoid charges by contributing through an IRA or
401k when the government provides tax advantages to real estate? Especially in
the early years of a real estate investment, the cash flow that you receive may
not be entirely what the IRS considers taxable income. Non-money items like
depreciation and amortization serve to dramatically reduce your taxable income
but have no impact on your income. Taxable losses are potentially wasted in an
IRA or 401k however have great value in your taxed account.
Real estate needs to be a piece of a diversified investmentportfolio, especially in retirement. By equipping yourself with the proper
tools to evaluate transactions and the self-awareness to seek out real estate
investments when others tell you not to, you will take ownership of your
investment future.
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