Adding Real Estate To Your Retirement Portfolio

Adding Real Estate To Your Retirement Portfolio

Why you should add real estate for your retirement account. 

While I was deployed in 07-08, I was very interested in finances. I read everything I could get my hands on that dealt with investing. While we were overseas, we started an investing club where 28 of us put in $100 a month, and then we talked about which stocks we should invest into. Every two weeks, a couple of us gave our pitch on a stock and we invested accordingly. We didn’t make any money, but it was a great learning experience and a great way to pass time.

Anyone that follows the market knows what happened in 2009; the market went down 50%. Having most of the deployment money into stocks, it was a very frustrating time. I knew that it would go back up, however I had absolutely no control over what the market was going to do. After this time, I knew I had better options. That’s when I started studying real estate.

Why real estate? I do not want to deal with the tenants, or repairs, etc. I assure you,after you see the potential, those little things will not matter.

So I am going to give you two cases, in which happens 1. John, puts $100,000 into the market. He gets a 12% return on investment every year, with a dividend of 3%.Most of you will agree that that is very aggressive. 2. Sally puts $100,000 into a multifamily unit. She uses that money for a down payment on a $500,000 property.The property and rents goes up 4% annually. The property rents for $4,500. Let’s be conservative here and all that rent money goes to repairs, taxes, payments for 15 years. Lets just say she does not cash flow anything for the first 15 years, which is very rare.

After 15 years John is sitting very comfortable. That investment grows to $547,356!! That’s amazing! Not only that he is collecting an annual dividend of $16,000! Now, lets check to see how Sally is doing.

After 15 years Sally finally pays off her whopping $400,000 loan. So she owns this building free and clear!! She calls up a Realtor, and wants to know what it is worth.The agent meets up with her and says the building is worth around $900,000!!! Not only that. The rent rolls are close to $8,100 a month!!! That’s annual income of$97,200. I know that we have repairs, vacancy, taxes, etc. However, most buildings should at least have a take home of 65% of total rents, unless you have major repairs. So she should expect to bring home over $60,000 annually on the home from the rents.

But Derek, I do not want to deal with any tenants…. I assure you, if you hire a good property manager that everything will be taken care of. I have a couple of great companies that I could easily refer you to. 

But Derek, I do not want to deal with any repair… I assure you, the property manager will take care of those things. If they do not, I have plenty of handymen/contractors that I can refer to take care of everything for you.

But Derek, these tenants will trash my property… This is something that you have to be careful on. Make sure you do background checks, reference checks, and credit checks to assure you are getting a good tenant. Not only that, but make sure you do a check in and check out with the tenant. I own 31 properties, and never had a tenant do more than $3,000 in repairs. The security deposit covered half of that and we got the other half in small claims court.

But Derek, I do not have $100,000 cash…. You do not need to buy a $500,000 property. Save up $20,000 and buy a $100,000 property. The concept is the same, we are just dealing on a smaller scale.

But Derek, if I buy a property and it needs a ton of work…. These actually are my favorite! You are buying a home at a discounted price, and building instant equity. Example, I bought a home for $89,000 last year, we put $11,000 into the property and got an offer from the tenant’s dad for $135,000. We will lock the home down,and have a contractor give you an estimate on all the repairs. You can punch in the numbers to see if the property still makes sense to you. If you get the right contractor or handyman, these always make sense.

If you’ve never thought of real estate in this way before and are interested to see how becoming a real estate investor can pay for your retirement, give me a call!

Author: Brandenburg Crew
Phone: 701-793-0250
Dated: September 14th 2016
Views: 1,995
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