Real estate offers many investment options. If you choose wisely, it can be more secure and yield higher returns than stocks, bonds, and other investments. These are among the reasons to include it in your retirement portfolio:
1. Cash flow - Commercial and residential rental properties can yield profits, especially if they're well-maintained and in good locations. You can use the rental income to pay off the loan or invest in other properties. Some people just decide to "flip," or buy buildings below market value, such as through foreclosure, renovate them, and sell them for higher prices. The American Association of Retired Persons' (AARP) Investment Property Calculator can give you an idea of the expenses vs. the return on investment, which is also useful information for getting a mortgage loan.
2. Leverage -- As a real asset, property more easily lets you borrow money to increase its earning potential. When you pay back the loan, you also build equity. You reduce your mortgage and increase your equity with every payment toward reducing the debt. The shorter the loan period, the faster the equity builds, which makes it easier to get more loans.
3. Tax benefits -- Tax deferments, deductions, and losses can help you offset your investment costs.
A deferment known as a 1031 exchange can help you delay paying capital gains taxes on an investment property when you exchange it for another one.
You can deduct expenses, mortgage loan payments, and for depreciation on the building, closing costs, improvements, and appliances. In most cases, residential properties depreciate over 27.5 years and commercial ones over 39 years. (When you sell a property, you will face a capital gains tax on the increase in value of the property and the recapture of the depreciation.)
You can also write-off up to $25,000 of losses against any type of income while still making a profit, if you own at least 10 percent of the rental property and are heavily involved in managing it. Consult a professional for more advice on these and other tax advantages.
Real estate offers a solid foundation for retirement. Our real estate agents can provide expert guidance. Call Coldwell Banker Rizzo Mattson, Realtors today: (207) 622-9000.
American Association of Retired Persons (AARP). Investment Property Calculator. http://www.aarp.org/money/investing/investment_property_calculator.html
Barrymore, John. How Stuff Works. How Tax Shelters Work. http://money.howstuffworks.com/personal-finance/personal-income-taxes/tax-shelters1.htm
Bernard, Tara Siegel. New York Times. Rental Investment May Seem Safer than it Really is. http://www.nytimes.com/2013/03/30/your-money/investing-in-a-rental-home-isnt-as-safe-as-it-may-seem.html?pagewanted=all&_r=0
Foust, Todd. Why Your Home Isn't A Retirement Account, and Where You Should Be Using Real Estate To Fund Retirement. http://orangecountycarealestate.featuredblog.com/?p=16
Realtor.com: Using a Rental Property in Your Retirement Planning http://www.realtor.com/news/using-a-rental-property-in-your-retirement-planning/
RealtyTimes: Great Reasons to Invest in Real Estate http://realtytimes.com/rtpages/20020207_invest.htm
San Diego Real Estate Library: Retirement Investment with Real Estate
Vision Investment Properties. Top Ten Reasons to Invest in Real Estate.