The threat of economic recession can mean devastation for traditional investors. Losses in the stock market can be so dramatic that those on the cusp of retirement may never recover in their lifetime. But that shouldn’t mean that investing is out of the question – only that we’ve got to prioritize investing in the right things.
Here’s why investing in real estate is great for retirement income, even when tough economic times kill lesser portfolios.
How Does Real Estate Builds Wealth and Security for Retirees?
1. It's an essential asset
Real estate is reliable. Everyone needs a roof over their heads, period. Because of that, you know you’re investing in something that lasts, something with real value. You have both the property itself and the land that it rests on. Land availability is finite. It will always have value! This makes real estate the reliable asset to own.
2. It can generate cash flow along the way
Traditional retirement plans accrue value over time, but you can’t utilize it until you retire – often facing penalties it you withdraw too soon. Additionally, these types of retirement accounts aren’t designed to provide cash flow. You’ll have what is essentially a limited amount of money to work with.
Real estate investing, specifically buy-and-hold residential real estate investing, generates monthly income. The more properties you own, the more that income compounds. Cash flow also acts as a counterbalance to inflation. By increasing your monthly earnings, you will be able to better compensate for any loss of dollar value over time.
3. Real estate withstands market fluctuations
It’s well-known that real estate is a hedge against inflation. Not only do you benefit from cash flow, which also aids in easing the effects of inflation, but properties tend to appreciate at or above the rate of inflation. Cash and retirement accounts will lose their value, but real estate will not.
While there are changes and fluctuations in real estate, the market cycle is reliable. An upswing always comes after a recession. Real estate investors don’t have to worry if their assets will recover from a downturn. They will with time.
And even if you’re close to retirement and fear that you won’t have enough time, real estate offers both short-term, monthly benefits on top of long-term appreciation.
4. Leverage can expedite your investments
Virtually every investment you can make is done with 100% your own money. A 401(k) will often include contributions from your employer, of course – but that’s not the same as utilizing leverage. Leverage allows investors to use a fraction of their money to acquire assets while utilizing the help of a lender. The thing about using leverage is that it allows you to keep a great deal of your capital liquid.
Additionally, real estate investors utilize the cash flow generated from their properties to pay off the debts – essentially using someone else’s money to acquire assets and then pay for them in full. This means your equity in the property is maximized and you are more equipped to scale your portfolio over time.
For a retirement hopeful, leverage helps you jump ahead of the pack without waiting to earn the full sum of a property’s value before you buy. Faster scaling means compounded cash flow and value. Real estate investment isn’t a fast process by any means, but there are both immediate and long-term benefits that make it worthwhile.
5. You control your assets
So many times, it feels as though your retirement savings are at the mercy of unseen forces. You can’t control your 401(k), your stock portfolio, or any number of traditional investments. That’s not the case with real estate investing. On one hand, you can benefit from expert leverage (from advisors, property managers, CPAs, and more) that decreases your day-to-day workload and reduces overall investment risk.
On the other hand, you’re the sole owner of your investments. You determine what goes into your portfolio – your retirement – so that it accomplishes your specific fiscal goals. You determine the risks you take, the assets you acquire, who oversees their success, and, ultimately, what your portfolio looks like and does for you and your family.
This control means you can pivot when appropriate and make decisions based on your specific strategy and goals. Don’t underestimate that power!
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