Three Ways in Which Real Estate Investments can Improve Your Retirement Income
Even if you have successfully managed to direct a large part of your income to your 401(k) every year, it’s normal to worry about inflation and how it can cause the value of your retirement funds to deplete significantly in the next 30 years.
For you to reduce the chances of this happening, it is important that your boost the amount of retirement income that you will get. One of the ways to do this is by investing heavily in the realm of real estate
Some of the most common ways in which individuals go about investing in real estate is by buying shares that belong to private lending firms, purchasing of rental property which is considered a direct investment, purchasing shares owned by real estate investment trusts, and last but not least, proceeding to cash out on home equities.
However, the aforementioned strategies have pretty much been exhausted these days. This means that individuals need to find smarter ways through which they can invest their money for a rainy day.
That being said, here are four amazing ways of gaining the benefit of asset diversity with your retirement income when analyzing the real estate spectrum.
Directing Your Investments to Private Mortgage Funds
Private mortgage funds have a very simplified structure. Money is lent to flippers in the real estate business whose strategy is to resell, improve or buy properties.
Due to the fact that the pool provides money to a large number of flippers, the risk becomes less because of the presence of many deals.
Additionally, if you are a borrower, you can further avoid any risks by simply flipping a single property on your own. For example, buying high to, unfortunately, sell low in the months to come. Another risk that private mortgage funds will help you avoid is taking a tremendous amount of time when it comes to renovations, which can inevitably eat into your profits.
The great thing about private mortgage funds is that they are long-term, and they have fixed-rate investments whose nature is not as liquid as bonds and stocks.
One is required to commit fully to the investment for a particular number of years, or ultimately provide many months’ notice if they are hoping to redeem their investment at an earlier period of time.
Additionally, private mortgage funds are not traded on an exchange, hence it is wise for an individual to first scrutinize the company that is providing an investment.
Going the Direct Investment Option
There are many benefits of direct investments. One of them is that you can purchase real estate at an affordable price, making it much simpler for you to receive a high return on investment (ROI).
As a matter of fact, most independent home lenders provide loans in the investment property spectrum with as minimum as 15% down.
That means you can purchase property worth $200,000 by simply making a first down payment of say, $30,000.
In the event that home prices do increase by say 5% the following year, your rental property will have gained a worth of $210,000, which would translate to a 33% gain in the 30 grand you first forked out.
Real estate also tends to be greatly affected by inflation. This means that as consumer prices increase, so does the amount of rent that tenants pay, which translate positively for you because the effects of inflation are redirected to your tenants.
That being said, it is crystal clear that purchasing rental properties is one of the smartest long-term investments that an individual can make. Moreover, they are not as volatile as stocks.
While stock value might only take a few hours to change, home value might take years before a change (and a negative one, at that) takes place.
Taking a Look at Real Estate Investment Trusts
REITS (Real estate investment trusts) is a setup in which money is collected from shareholders and then directed to real estate investments such as commercial or residential properties.
The benefits of REITS is that they are hundreds of them to choose from, and because many of them are traded publicly, they can easily be sold or bought as stock.
In fact, the average return for REITS has been 9.7% since 1972.
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