Make Real Estate Part of Your Retirement Plan
If this past week’s turmoil in the stock market has not convinced you to put some of your retirement nest egg in real estate, or at least convince you that you have to pull what’s left out of the stock market and put it into something else, please read on. Below I list my ten reasons why I like real estate as an investment and then I will give you an example of an opportunity. Be sure to read point Eleven….
Ten (plus 1) Reasons I like Real Estate as an investment:
- I prefer to put my hard earned money into something easy to understand and I believe I understand real estate. What I don’t understand is a share of stock, a derivative, and I still can’t figure out really what an annuity is. But I have been living in some sort of real estate since I was born and I think I have figured out what it is by now. It’s REAL. It says so right in its name. I don’t have to explain at a cocktail party what real estate is – and I have never met someone that needs to be told what it is.
- I have some sort of control of my real estate investment. I probably have a lot less control than I think I do, but the control I do have makes me, well, happy. I’m not at the whim of some investment advisor, financial guru, or daily market pundit.
- I can drive by it and takes its picture. I can go in it and smell it. Heck, I can even feel its personality. I can be proud of it or ashamed. I can pull up a picture on my iPhone and show someone what it is – and I do.
- I can improve it physically. Update the appliances, put in a new kitchen, a pool, or lawn. And when I do these things I can convince myself I am making an additional investment, not just throwing my money away. I can also improve the investment with sweat equity, something that I love to do. Try that with a stock. A little TLC on a rental property goes a long way in improving its value. The value of a well maintained home versus one that was let go is demonstrably different.
- I can leverage real estate. Yes, yes, I know you can buy stocks on margin, but the loan on my real estate is not going to be called because the value is set daily in the Wall Street Journal. Leverage on real estate is a wonderful thing. It increases my buying power and the returns on my income property.
- I can improve it financially. I can restructure my debt by refinancing, lowering my carrying cost; and I can lower my insurance costs with some physical changes. I can even speed up my payoff and improve my equity position. If I improve its value physically, I can use greater financial leverage as well.
- It makes me proud. Pride of ownership is a big selling factor in real estate. That’s why curb appeal is so important.
- Knowledge gives me an advantage. I am an insider in the real estate market. On every other investment I am an outsider.
- I can borrow money on my real estate and borrowed money is tax free.
- To date the government wants me to own real estate and gives me other tax advantages to do so. From capitals gains treatment to tax deductions.
- Real Estate has two economic values: Income and Appreciation.
My rental property will pay me “dividends” in the form of income while I own it. Furthermore as time passes and income goes up, so does the value, it’s worth more.
Now for an example that you can get into now:
Pre-construction Student Housing to add to your Retirement Plan
I am now investing in student housing to be built near a major university that has a dire need for more student housing. Each building will consist of four condos that will be rented to four students in each of the condos. Cash on Cash return is over 11%, internal rate of return is over 16%, and the CAP rate is about 10%. The total investment per condo is $250,000. This is both an appreciation play as well as an income play.
Many of us don’t have $250,000 cash to buy student housing, but leveraged (borrowing some of the money to purchase these investments) only make the potential returns higher. I suggest $100,000 cash, balance in debt.
This is not an offer to sell, and these numbers certainly are not set in stone. The purchase price of $250,000 is programmed to go up after the first 25 are sold and this is certainly one of the reasons I think this is a good buy. I suspect there will be many parents that will want to buy a condo at the school to house their kids and make this real estate part of their retirement plan.
If you are interested in putting real estate in your retirement plan, mail me at GFous@RetirementNEXT.com (full disclosure here – as most of you know, I am a Florida Real Estate Broker) I do have other “real estate in your retirement plan” concepts that a I really like right now – and most of them involve buying new construction.
I have for you a detailed analysis on buying a new home here in Fort Myers that by my projection shows an internal rate of return that is quite handsome. (Not, by the way, as good as the student housing opportunity). If you contact me I will send you the detailed analysis on the student housing project, but I prefer to have a one on one phone conversation before I do that.