How real estate can save your retirement.

For majority of people retirement sounds like a dream. You don’t work, you travel the world, you have time to see your kids and grand kids, you relax and enjoy life after years of hard labor.The reality is that the average retiree will have some difficulties paying their bills and maintaining a comfortable lifestyle. For those that have savings,majority of them will outlive them. And then, for the retirees that saved enough and happen to have enough savings to live, majority of them will have nothing or close to nothing to give to their children or help a grand kid go to college. This means that retirement is not what people dream about. The reason this happens is that with the current economic environment it is virtually impossible to grow your saving at a pace that is faster than inflation. Most people save some money and invest it through tax deferred accounts, RRSP in Canada or 401K in the USA and into mutual funds. The problem is that those funds grow at an average of 7% or less per year and the older you get the less exposure to the stock market you have therefore you ended up making less than 7% on your money. On top of that, there are these pesky commission fees that eat up your savings from 1 to 2% per year. If this doesn’t sound bad enough, those fees will compound and end up taking more than 30% of your retirement money by the time you retire. The chart below shows how these fees impact the growth of your retirement. For the example, for a person that started saving with a capital of $10,000 and added $100 per month growing at 4% per year. Their capital grew at a 10%, which is what the S&P500 returned in average and the other curves (9% and 8%) are the equivalent of 1 and 2% fees deducted from that growth.

 

The results are clear, those fees take more than $190,000 off your retirement. If you follow the traditional 4% rule that states that if you withdraw only 4% per year from your savings you should have enough savings for your entire life, in this scenario, you will be missing over $600 per month to live. The missing amount will contribute to a huge loss of quality of life at retirement. All this, to pay for people that got you standard market returns minus their fees.

This is not all doom and gloom, your retirement can be lot better. Real estate is one of the best ways to invest your money and gain control over your future. Real estate is a very stable and safe investment, when done properly, that will give you better than the 7% of your average mutual fund. For example, if you purchase a $250,000 4plex, in a up and growing area, you can derive an income of around $1000 per month. If you don’t have 250K laying around it is ok, because you can get a mortgage to complete your savings, so you effectively multiply your savings. Now, this 4plex will do more than giving you $1000 per month it will also appreciate and your mortgage will be paid down. This means that your return went from 5% to 10% or even 15% per year. So, after a few years, you can just do it all over again and purchase you next property. So now you will have two 4plexes making you over $2000 per month. This is more than your life savings are doing on the market managed by “professional”. You did this with $75,000 of your own money. The rest came from the banks and your tenants! If you start early enough, you will be able do this process many times over and eventually you will be able to be mortgage free which would increase even more you monthly income without having to sell your assets. Now, you will be able to live the retirement that you wish and that you deserve.

If you do not know how to proceed to purchase real estate and how to make a good investment stay tuned more blog post will come to teach you how to do a successful real estate investment. Also, Fortune Scientists Inc. is here to help just contact us and we will guide you through the process.

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