Saving retirement is one of those topics that everyone thinks about as a distant dream or goal until it is almost upon you. The only people who like talking about retirement are financial planners and those with strong opinions on the matter.
401ks, IRAs, Roth IRAs, & Roth 401ks are talked about a lot and there are pluses and minuses to each of them. The vehicle you utilize to save for retirement will differ, but no one talks about other vehicles for retirement savings. Specifically I am talking about assets that appreciate in value AND provide a return on the money invested.
Real Estate… if you haven’t noticed it is one of my favorite vehicles to research, discuss, and invest for both wealth creation and preservation.
Warren Buffett is quoted as saying about investing,
“Rule number 1. Never lose money Rule #2 Never forget Rule #1.”
I find that when it comes to finding investment opportunities that have the potential to be a long term vehicle for wealth creation (retirement and beyond), it is hard to beat real estate. If you buy an investment property – something that puts money in your pocket every month, you are likely to abide by Buffett’s 2 rules above.
Purchasing a residential or commercial property that someone else or multiple people/companies pay to rent from you every month is a great vehicle for wealth creation and preservation. The key is it is someone else paying for the mortgage through rent, not your own personal residence. As long as you don’t over pay and the rent covers your mortgage, expenses, and capital reserves (for emergencies) you will make money. Focusing on what is called the cash flow or the difference between your rental income and your expenses you are in a good position to have success in real estate.
The real estate bubble in 2008 occurred in part because people naively believed that real estate prices will always go up. While it is true that over time real estate prices will likely rise to keep up with inflation – there will be peaks and valley as the local, regional, and national markets change overtime. So focus on the cash flow versus the potential for appreciation because appreciation is not guaranteed and you can control the cash flow by increasing rents and cutting expenses (according to how you buy the property, location, and market). The key is you have the control in this investment which provides you more flexibility and growth opportunity.
No investment is a sure bet, but when you analyze the wealthiest individuals many got wealthy through real estate and those that had success in areas diversify in real estate to preserver and create additional wealth. So next time you think about your retirement vehicles, don’t forget about real estate as an opportunity for you to retire young off the cashflow of your properties. Also don’t let your stock broker or financial advisor tell you to just purchase a REIT (Real Estate Investment Trust) which is traded like a stock, but is a stake in a real estate investment company. These are great, but you lose out on the benefits of personally owning and controlling your own property.