Retirement is not just a case of not setting an alarm anymore to go to work. It’s a major life-changing decision. “The trouble with retirement is that you never get a day off.” – Abe Lemons
Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money.
It’s never too early to start saving for retirement, and the sooner you realize that, the better!
Nothing prepares someone for retirement more so than real estate. We @ St Dyke Consulting maintain that real estate trumps other retirement savings vehicles.
Let’s take a look at some of the reasons we favor saving for retirement with real estate over traditional methods:
Hedge against Inflation:
Inflation, simultaneously coincides with an increase in prices and a decline in the purchasing power of capital. It’s the same reason the cost of living is nearly double that of 20 years ago: the money people have doesn’t go as far in the face of increasing inflation rates.
Fortunately, all is not lost; a number of strategies can hedge against inflation, and real estate isn’t the exception. In fact, its ability to hedge inflation is one of the reasons we favor real estate over Crude retirement plans.
Why isn’t real estate affected by inflation in the same way most consumer goods are? The fixed-rate mortgage.
A fixed-rate mortgage will maintain the same interest rate over the duration of the loan. As a result, those paying the note off benefit from a consistent, single payment every month over the course of the loan. No surprise there; inflation can’t weaken a payment that doesn’t change.
But how can a fixed-rate mortgage hedge against this phenomenon? It’s worth noting that both home prices and rental rates have historically increased in the face of inflation. So when the purchasing power of the market tends to slip, home prices tend to increase; some would argue enough to offset the initial inflation. So while the amount you pay into your mortgage every month remains unchanged, there is a good chance you will see the equity in your real estate investment increase.
Overlooked more often than not, tax incentives are an integral component to a viable real estate investment plan, and compliment the perfect retirement strategy.
Note this, however: not all taxes are bad for homeowners. While property taxes may be a burden when it comes time to pay your mortgage, they are a small price to pay for the subsequent advantages tax incentives offer homeowners over the duration of ownership. For what it’s worth, taxes are one of the most attractive benefits that coincide with real estate, and can drastically improve one’s outlook when saving for retirement.
Diversification Leads to Increased Stability
Many investors strive to reduce the overall risk of their portfolio through allocating funds to various types of assets and securities. A good investment advisor will tell you the fundamental component of investment risk reduction is asset class diversification (or put more simply, not putting all your eggs in one basket). This variation of assets helps to ensure that a portion of your investment portfolio is performing well at all times, increasing the overall value of your portfolio at any given point in a fluctuating economic cycle.
Adding investment real estate to your portfolio will help offset the volatility of other high-risk assets, thereby reducing the overall risk level of your portfolio, and providing you with steadier returns.
Use Market Cycles to Your Advantage
Effective market timing (buy low/sell high) is a crucial component of successful real estate investing. While it is difficult to time when a market has reached the bottom of the real estate cycle, noting an upward trend and taking action (even if it means paying slightly more than you would at the bottom of the cycle) can translate into strong future returns.
Real estate market timing is not an exact science, however there are several key indicators we use to determine where a market is in its lifecycle. A number of factors, including seller motivation, supply and demand, interest rates, employment trends and population growth can all have significant effects on market timing.
Developing a solid understanding of the real estate cycle, performing substantial market area research, and having the fortitude to get into the market can be difficult for the individual. However, when you work with ST. DYKE CONSULTING TEAM, you are backed by a team of industry experts committed to your investing success.
A fundamental benefit of real estate investing is its potential to generate income, especially over the long-term as your mortgage is paid down. The income generated from your investment property will often be sufficient to offset your mortgage payment, taxes, condominium fees and other expenses, while still providing you with increased monthly cash flow. Your cash flow will be strengthened over time as you pay down your mortgage and funds can then be used to supplement your retirement income.
Over time, strategically selected real estate investments can be powerful vehicles for wealth creation. The value of your investment property increases, while the corresponding mortgage financing is reduced nominally through regular mortgage payments. The result is increased equity and increased wealth.
The equation is quite simple:
Mortgage Financing Reduction + Property Value Appreciation = Long Term Wealth Creation