How Real Estate Can Save Your Retirement
Updated: Oct 23
For majority of people retirement sounds like a dream. The hope is that you can leave your 9-5 job in the rear view mirror, you can pack up and travel the world, spend more time with your loved ones like your kids and grandkids, and relax enjoying the fruits of years of hard labor.
The reality is that the average retiree will have some difficulties during their retirement years paying their bills and maintaining a comfortable lifestyle. With life expectancy increasing every year, the probability of people outliving their savings is becoming a harsh reality forcing people back into the workforce in their old age or sinking into poverty.
One of the main contributors to shrinking savings is the current economic environment where it is virtually impossible to grow your savings at a pace faster than inflation. Most people save money and invest it through tax deferred accounts, RRSP in Canada, or 401K in the USA. The issue with these funds, is that they grow at an average of 7% per year or less, and as you get older, your exposure to the market decreases. On top of that, the pesky commission fees eat up your savings at a rate of 1 to 2% per year, and as if this was not bad enough, those fees compound and can take more than 30% of your savings by the time you retire.
The chart below shows an example of how fees can impact the growth of your retirement. For the example, if a person starts with $10,000 dlls, adds an additional $100 dlls per month, increases that contribution by 4% per year and assumes an average of 10% growth per year, that person can reach retirement savings of more than 500K. However, fee deductions of 1 to 2% can decrease your savings by $190,000 dlls and the missing amount can 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.
However, this is not all doom and gloom, with some financial education, you can take control of your savings and get yourself on track to reach your dream retirement. Real estate is a very stable and safe investment and one of the best ways to invest your money and gain control over your future, and with the right strategy, it can give you a better return than the 7% of your average mutual fund.
For example, if you purchase a $250,000 dlls 4plex, in an up and growing area, you can derive an income of around $1000 dlls per month. And if you don’t have 250K laying around it is ok, because a mortgage is a financial tool that you can use to leverage your savings. Other advantages of real estate is that your asset will appreciates over time and as time goes by your mortgage is being paid down. This means that your return went from 5% to 10% or even 15% per year and after a few years you can leverage this property to acquire your next one. So now you will have two 4plexes making you over $2000 per month. This is more than your life savings can gain with average market returns and 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 dreamed about and that you deserve.
If you do not know how to go about financing real estate or how to invest in real estate, stay tuned for more blog posts, take a look at our event page for upcoming seminars, or reach out to us and we'll help you become a successful real estate investor. Fortune Scientists Inc. is here to help, just contact us and we will guide you through the process.
Simon Bilodeau is a Licensed Mortgage Broker in British Columbia.