Lookin’ To Retire At Least Partly Through Real Estate Investing? Let’s Talk About What’s Most Important

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When talkin’ to those who’re seriously interested in what it takes to retire well through real estate and other related (maybe some unrelated) vehicles, I’m most often asked the following question.

What’s the most important thing(s) we should know? 

I’ve learned there are a buncha answers to that question — and those answers tend to change from investor to investor. Go figure. Here are a few of ‘em though, just for fun.

You’re not gonna get rich next week/month/year in real estate. Ain’t gonna happen.

Time is your friend. 

Time is definitely not your friend.

You like the idea of ‘using other people’s money’ with $0 down? You’ll get zero advice from me. 

Buyin’ low and sellin’ high is nice, but it requires outside forces you simply don’t/can’t ever control. 

Cash flow is king when you’ve quit your job and retired — not when you’re printin’ money at work. 

Being able to ‘drive by’ your RE investment portfolio is as important to your retirement as stealing bases is to a linebacker.

Again, those answers barely scratch the surface.

What’s on the A-List of Importance?

The nature of your retirement income. The ultimate goal I hear most is, “The most cash flow possible at retirement.” I get the sentiment. However, the Devil’s always in the details. Would you prefer a retirement income of $100,000 a year, all of which is completely taxable, at a time in your life when tax deductions are but a fond memory? Or, would you rather have say, $80,000 per annum, almost all of which is either tax sheltered or tax free? See what I mean? Taxes on retirement income is a reality for which planning is crucial — not a pesky detail. Here’s an equally pesky detail.

In retirement, as is always the case, the only income you can spend is what’s left after taxes.  Duh — and oops.

Yet, most folks give little or any thought to that bothersome little factoid. Know when they give it all their focus? A year or two before retirement. After tax or tax free income is the only income that matters a whit to you in retirement. Ignore that axiom at your own risk.

What Strategies to Employ. 

I’ve talked at length on these pages about what strategies work best for what people. Also, in what time window will they be executed? What vehicle(s) will be used to get you from Point A to Point B — and safely? Will real estate itself be the only means to your end? Is it possible in your scenario to not only engage real estate but other choices that blend well with your personal Plan? Are you now using a strategy(s) which is in reality detrimental to your end game? Are you even aware that’s a distinct possibility? In fact, I’ll make this flat statement. The vast majority of Americans are virtually guaranteeing a vastly disappointing retirement — or many extra years of workin’ just to make ends meet. They’re gonna be living with their kids. They’ll be cannibalizing their home’s equity just to stay afloat. I know most of you are noddin’ your heads as you read this, cuz you see it and hear about it all the time. It’s no longer the exception, as it’s slowly but surely headed to the point where it’ll be the rule.

Stop Doin’ what Everybody Else is Doin’ — They’re Failing in Slow Motion.

Here’s a concrete example. Take a guy who graduated college in his early 20’s, and in 1980 got his first solid job at 25. He’s now about 57 years old. His kids are long gone. (Well, maybe not these days, right?) He’s makin’ as much money at work as he ever has. The combination of his cash savings and work related retirement plan comes to about $150,000-500,000. Heck, let’s assume his home is paid off too. So what? If he’s plannin’ to retire in roughly eight years, what’s his life gonna look like?

If Social Security is still around, that’s around $25,000 a year, maybe a bit more. If he’s at the top of the retirement plan range — $500,000 — his yield, according to Wall Street wisdom, will be approximately 4% annually. That’s a whole ‘nuther $20,000. In other words, the exercise of 40 years of discipline hasn’t even produced the amount he’ll be gettin’ from his SS check. But wait! There’s more! That’s before tax income — no happy dance to be seen here.

What you May Wanna Consider as an Alternative Plan…

First off: reality check. Ascertain — with seriously blinding exactitude — where you are now, financially. Don’t leave any stone unturned. Treat it as if the quality of your retirement depends on the veracity of the data you uncover. You have little chance of gettin’ to Point B if your understanding of Point A is somewhat to completely inaccurate. The analogy I often use is mapping out a trip. If your destination is Chicago, which direction on the compass should you head? How could you possibly know that without knowing exactly where your starting point is?

 Your end game must be based upon the window of time available to make it happen, the amount of capital/equity with which you have to start, the realities of the current national economy, and the ability to borrow money, if a certain degree of prudent leverage is involved. Also, the ability to add money from the family budget on a more or less routine basis can and often does have a hugely significant impact on the results produced in the long run.

When the smoke clears it’s almost all about strategy.

The DIY investors do very well at times. But, since end game results are relative, they usually don’t do nearly as well as those able to execute multiple strategies, often with synergistic affects, much of the time simultaneously. Over a 10-30 year period there’s simply no way the average real estate investor can possibly know, much less apply all the different options on their personal menus. Over time, the seemingly small differences found in superior strategic approaches begin to widen the gap between those who have/employ those options and those who don’t. In my experience it’s not uncommon at all to see an investor whose 20 year plan produced six figures a year less than was possible.

Solid strategy(s) executed with a Purposeful Plan will trump most of Murphy’s efforts at derailment. On the other hand, a strategy taken from Grandpa’s playbook, or an ill-advised strategy unsuited to the surrounding economic realities will not do well when the financial/economic factors in play begin to change. Building in future flexibility to your long term Plan is compulsory if you’re serious. An inflexible Plan is one of the most common reasons for failure.

It all boils down to what’s possibly the most important factor in you retirement Plan’s success.

We get lulled into complacency by the computer quick ability to access answers to our questions. But, those answers aren’t the problem. It’s the answers to the questions you never knew to ask that can and will scuttle your ‘sound’ retirement Plan.

The most important thing you should know is the answers to the questions you never knew to ask. 

Image: Ferran Cerdans Serra

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About Author

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.

5 Comments

    • Jeff Brown

      Hey Thomas — I had to find both the questions and the answers from a buncha guys who mentored me within an inch of my life. Ya gotta know somebody, or a whole gang of somebodies who know those answers.

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