Incorporating real estate as part of your retirement plan is a great way to diversify your portfolio. Most people think of more traditional investment vehicles such as stocks, bonds, and mutual funds. For those of us that are self employed or small business owners the stock market can be an option that doesn’t return the profits we would want. With no employer matching contributions and the volatile nature of the stock market some people shy away or at least want to diversify there investment portfolio. There are a lot of reasons that real estate is a great investment option and I’m going to go through at least some of those reasons below.
1. Rental Income: Real estate can or at least should provide monthly cash flow to supplement your income.
2. Appreciation: Over time real estate appreciates and if you buy and sell the property at the right time during the real estate cycle you can get a great return on your investment.
3. Equity: Real estate is a rare investment vehicle in which you can borrow against. Pulling equity out of a property and using the banks money can increase your ability to purchase more real estate dramatically. The money could also be used to invest in other investment vehicles.
4. Banking on Inflation: Real estate differs from the stock market based investments in that during inflationary periods you can demand higher rents whereas the stock market may struggle.
5. Banking on Recession: The same is true for stock market based investments during a recession as is true during inflationary periods, they tend to struggle. Real estate on the other hand can be purchased at a great discount during a recessed market.
6. Taxes: Having investment properties has the benefit of being able to write off losses, mortgage interest, and depreciation.
There are traditional retirement plans that offer real estate investments but there are limits on annual contributions. I suggest informing yourself, finding a mentor, and getting out there looking for a great investment property to add to your investment portfolio.
