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Real Estate for Retirement

Written by Scott Bird    

Each year we see a cyclical swing in the real estate market, some are greater than others. The one thing that remains constant between then and now is that it is most likely that values will once again swing back up and the chances of increasing your return on your investment is greater. Real Estate is a way to invest your money safely and should be considered as a long-term retirement investment included in your portfolio.

A portfolio is the combination of all your producing and non-producing assets. It may include a 401k, real estate, cash, stocks, bonds, etc. Everyone seems to be trying to make the best decision on where to put their hard earned money so that some day they will become self reliant.

An IRA (Individual Retirement Account) allows opportunities for long-term investments, as the government allows you to invest $5,000 annually ($6,000 if you are older than 50) in individual stocks, money market accounts, certificates of deposits, bonds and mutual funds. There are several various types of IRA accounts that allow you to also invest in real estate, trust deed notes and other qualified investments. The one you should consider most is a Roth IRA.

The Roth IRA was initially set up to defer your taxes paid. You pay taxes on the money you deposit at the current tax rate but you don’t pay any taxes on the balance or increase when you begin take it out at the age of 59 ½. We know that taxes will not decrease between now and retirement age so by paying taxes on the upfront investment, your return will be maximized because you are not paying a higher tax rate. The beauty with the Roth IRA is that you can use the invested money to purchase real estate.

Buyers of real estate generally want to buy at a good price (low) and sell high. Today’s market is very low. When you are purchasing with the intent to use the generated income as retirement money, your investment should be more thought out with the intent for long-term benefits. For example: Paying a little more in a down market for a better property in a better area may be a much smarter investment in 30 years from now. You should consult your local Realtor when trying to locate the perfect home as he/she will generally know more about market trends. If history repeats itself, the real estate values will continue to rise and fall. As most Roth IRA investors predict, the value of investment will be much greater when the time to withdraw arrives.

Setting up a Roth IRA is easy but it is recommended to contact a custodian/administrator or financial planner for assistance.

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