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.