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WHY REAL ESTATE:
Best Real Estate Investment
Real estate is a proven method for building wealth. Did you know there have been more millionaires made through real estate than any other wealth-building medium in the world? Long-term real estate ownership historically has proven to be a strong vehicle yielding high appreciation... far superior to other retirement asset choices. Real estate is also an EXCELLENT investment to hold within a retirement account versus stocks and mutual funds. Here’s why the best real estate investment can also be made with your retirement savings:
1. Create Leverage: Your IRA can borrow money and create leverage allowing you to expand your holdings. National American Savings Bank is one lender that does non-recourse loans to IRA holders. They usually require 30% - 40% down and want to see positive cash flow in any deal, but you can create leverage with an IRA. By the way, you could also borrow money from another IRA holder since the law also allows IRAs to lend money.
2. Tax Free Cash Flow: A successful real estate investment can provide monthly cash flow to help grow your retirement along with any appreciation earned in the property itself. Since the asset is held within a tax-free environment, there are little to no taxes to worry about. Any profit withdrawn from the IRA is income based on your tax rate upon withdrawal. And since you’re in retirement, your taxed at a lower tax rate based on the limited income you make. And if you own the asset in a Roth IRA, the monthly cash flow and capital gain are TAX FREE.
3. Control: Want to improve the value of your investment? Add a new roof? Put in carpet? Do landscaping? Add new fixtures? All of these improvements can increase monthly cash flow and ultimately improve the value of your asset. These costs do get paid out of your IRA, but name another investment class that you can improve with your own free will. If you own mutual funds, CD’s, stocks, you’re along for the ride and your return is completely independent of your effort. Not so with real estate.
4. Reasonable Custodian Fees: Self-directed IRA custodians get paid based on the size of your account, usually 40 basis points or less. So if you have a $100,000 account, your annual fee is in the $450 range. But that’s it. Other banks and brokerage houses don’t charge you a fee because they make their money from the limited investment products they offer. Own mutual funds? Their fees can include management fees, redemption fees, exchange fees, account fees, purchase fees, distribution fees and operating expenses to name a few. Usually these fees are TWICE as much as what a self-directed custodian will charge. And depending on what type of investor you’re going to be, you may not even need a custodian to house your retirement savings!
5. Diversification: Real estate offers a great way to diversify your portfolio. How many people had ALL of their retirement portfolio in the stock market? Nearly 80%. Use real estate as a way to generate leverage, produce monthly cash-flow and long-term appreciation. But also use it to balance your retirement portfolio, along with other asset classes, so retirement doesn’t get postponed due to a bear or down market.
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