Building a better retirement for real estate investors is what I do. Though obviously there are multiple factors involved, my typical client zeroes in on income, which makes sense. The glitch in their plans is control — they don’t have much of it. Their 401Ks/IRAs go up and down for reasons on which the experts disagree. Playin’ the stock market themselves? In my career I can count on one hand how many have experienced a couple decades of laudable success and still have a thumb to hitch a ride home.
Ask yourself this question.
If I took all the available investment capital/equity at my disposal, and bought real estate, would the ultimate debt free income and net worth at retirement be superior or inferior to what I’m doing now?
Let’s take $150,000 and look at what you might be able to accomplish with it over say a 10-12 year period. Here are some assumptions we’ll use.
1. You’re a better than average earner. You can add $1,000 monthly towards accelerating debt elimination. You’ll add the cash flow from your properties to that agenda also.
2. The interest rate will be 5% fixed for 30 years.
3. The down payment used will be 25% on all purchases.
4. Appreciation will not be a factor — value will never change.
5. Increases in Net Operating Income will not be a factor — NOI will remain static.
In 10-12 years you’ll have grown your $150,000 to about $520,000 or so. Income would be roughly $40,000 annually after all expenses, and before income taxes. Approximately 40% of that income will be tax sheltered for 15-17 years after the debt is eliminated.
Will your current investment plan produce those results?
If so, it means you’re relying on non-stop value appreciation for your portfolio. Every losing year means time spent on the investment return treadmill ’til you’re caught up. Meanwhile you keep having those pesky birthdays. Will your current plan produce that level of income in 10ish years? Has your so-called qualified retirement plan been showing signs of the above demonstrated results? Is it realistic to expect those results given your experience the last 10-20 years?
It’s all about relative risk.
We call it risk capital for good reason. Here’s the ‘cut to the chase’ questions.
How much risk are you willing to take — i.e. Are you willing to risk your retirement doing the same things that got you where you are now?
Doesn’t having hands-on control of your retirement destiny make more sense?
Does it comfort you knowing your retirement doesn’t rely on appreciation in value or NOI when invested for retirement in real estate?
Do you know anyone whose retirement was postponed or cancelled due to the last stock market downturn? How’re they doin’ lately?
That question’s answer is the key to how you’ll be spending your retirement years. Or even if you’ll have retirement years.
Related posts:
- Synergistic Strategies – 15 Years To A Magnificently Abundant Retirement –
- Location and Age Now VS At Retirement – Game Changers?
- Are You Sabotaging Your Own Retirement? Let Us Count The Ways
- A Flipper’s Retirement – An Oxymoronic Phrase
- Are You Getting Ready to Get Ready to Invest in Real Estate?
Article Author: Jeff BrownJeff has written 126 articles for us.
Visit Jeff's Website: http://www.bawldguy.com
Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.
Joshua Dorkin
{ 5 comments… read them below or add one }
Hey Jeff, 100 articles and no signs of slowing down. Thanks.
You stories are all very similiar which I would say is the point. It is truly amazing to see people’s reactions to your math. I do this often. I say 15 year note, no appreciation, no rental income profit and in 15 years you have increase you have an return on your investment of 400% – 500% depending on down payment. Where else can you have such great returns over a fifteen year period especially when we are counting a lot of things going poorly, no appreciation or rental income. I usually get the response that real estate is too much work. Well I personally think working for someone else for 45 years of my life is too much work but to each their own.
Thanks again Jeff, keep them coming.
“Let’s take $150,000 and look at what you might be able to accomplish with it over say a 10-12 year period. Here are some assumptions we’ll use.
1. You’re a better than average earner. You can add $1,000 monthly towards accelerating debt elimination. You’ll add the cash flow from your properties to that agenda also.
In 10-12 years you’ll have grown your $150,000 to about $520,000 or so.”
__________________
Is that $520,000 taking into consideration the extra $1,000 monthly payments? If so, wouldn’t it be more accurate to say:
“In 12 years you’ll have grown your $294,000 to about $520,000 or so.”
($150,000 + $144,000 in additional out-of-pocket payments.) Without trying to do too much math this early in the morning, it’s earning around 6% per year on your money instead of 20%.
Don’t get me wrong — I’m not arguing against real estate investing by any stretch of the imagination (otherwise I wouldn’t be on BiggerPockets every day!). Using RE for retirement instead of stocks/bonds is a no-brainer for me. I’m just trying to clarify the numbers you’re using to get a real understanding of what returns you’re talking about.
Thanks Kyle — I was told from an early age that repetition was the mother of all learning.
Hey Travis — You’re point is well taken. I should’ve been a tad clearer. It’s the same grand a month they would’ve been continuing to put into their 401k, if that’s the way some would like to look at it.
Either way, as you said, the real estate approach wins. If the average American could nearly double their money every decade or so in their retirement plans at work, real estate would be an orphan.
Jeff -
Fantastic content every time you write! Thank you for writing this article and laying it out. The sooner anyone, let alone those already looking at real estate, make the decisions to address their retirement incomes the sooner they will begin to build passive incomes.
Good stuff –
Chris