27/07/2020
Why You Should Invest In Real Estate
Do you have enough for retirement? Financial planners usually use the “25 Times Rule” to determine how much a portfolio should be worth for someone to safely retire. If you need $50,000 a year to live on when you retire, then, using the “25 Times Rule” you should have $1,250,000 in stocks, bonds and mutual funds in order to retire. Then, at retirement, financial planners begin liquidating these assets using a “4-Percent Rule”, which simply means they liquidate 4 percent of the portfolio each year until it is down to zero after 25 years. If you retire at 65, you better hope you don’t live past 90 or you’ll be broke.
Compared to investors who rely on the stock market to accumulate assets for their retirement, real estate investments take a different approach. If you accumulate $2,800,000 in income-producing real estate it will pay $50,000 a year in income and continue to appreciate in value over the years, not only covering you indefinitely but also leaving you something to pass on to your children.
Here’s the interesting part, it only takes $700,000 in investment capital to accumulate $2,800,000 in real estate assets. By comparison, it takes about $900,000 in stock investments to achieve a $50,000 per year annual income, assuming that during 30 years of investing both types of investments yield a 4 percent return.
Real Estate has many advantages over investing in stocks, bonds or mutual funds. Real estate offers predictable cash flow; it appreciates in value, thus keeping up with inflation; it provides a higher return because of positive leverage; and it offers equity growth through debt reduction. During retirement, real estate is a self-sustaining asset while stocks are a self-liquidating asset. Which would you prefer, a self-sustaining asset or a self-liquidating asset?