Consistent and Predictable Income
Assets are great, but when you retire, monthly income is what you need to pay bills, and real estate can put a rent check in your account every month. In good times and bad times, everyone needs to live somewhere, and California’s housing shortage is not going away. The high cost of construction, building materials, government fees, and labor continue to hamper new housing construction, pushing rents and values higher.
Along with monthly income, the typical real estate investor enjoys annual appreciation. Ups and downs in the stock market are common, and markets can turn on a dime. The real estate market can change as well, but real estate tends to move more slowly due to the high transaction costs. Historically, California real estate increases over time and tends to hold up well when the economy slows down.
We all agree that investing an entire retirement portfolio in a single asset class is risky, so why do most 401k’s in America contain zero real estate? The reason is that stocks and bonds are easy, and stockbrokers like to take it easy. To succeed in real estate you need a lot of experience and local knowledge, in other words, you need help from an experienced team of professionals. Stocks and real estate tend to perform differently in times of economic stress so adding real estate to your portfolio may provide some needed diversification.
Real Estate as a Hedge Against Inflation
Inflation has become headline news lately, and for good reason. Inflation can steal large portions of your retirement right before your eyes, but real estate values often rise during inflation. Deflation caused by an economic downturn can also steal your returns; the average return from a US bond portfolio from 2010 through 2020 fell from 3.31% to .92%. Residential real estate over the same period was the model of consistency, providing a 3% to 4% average appreciation throughout the US and 5% to 7% in California.
It’s no secret that direct ownership of rental real estate can provide significant tax savings for investors. Many expenses related to owning and maintaining real estate, including property taxes, insurance, repair, and mortgage interest, are tax deductible. In addition to direct costs, many investors receive significant tax benefits from depreciation. Consult your tax professional to find out how real estate can help you achieve your retirement goals.
Selecting the Right Property
Long-term success in real estate involves selecting the right property in the right location at the right price to ensure you’ve found the balance between rental value and appreciation. Choosing a property that will offer broad appeal to a wide range of possible tenants is essential. Of course, any real estate salesperson can help you find a home, but an experienced real estate investment professional can offer so much more. A talented advisor will prepare a report detailing recent sales nearby, a rent survey to confirm current lease rates of similar properties, and a cash flow projection to help ensure the property you select will meet your investment objectives. Renovations are often necessary to help a property meet its full potential and that same skilled advisor will prepare a cost-benefit analysis and monitor the construction.
Don’t Want to be A Landlord? No Problem.
We’ve all heard stories about angry tenants vandalizing properties, but serious damage is rare when a qualified tenant is selected for a well-maintained property in a good neighborhood. An experienced and competent property management company can help you prepare your property for marketing, market your rental across the internet, select the right tenant, manage that relationship, maintain your property, complete necessary repairs, and handle all the bookkeeping.
Where do you find the expertise you’re seeking? Contour Realty
The experienced professionals at Contour Realty have been helping investors meet their real estate goals in California for over 30 years. The Summit family of companies brings real estate brokerage, mortgage lending, and property management together under one roof, and they seek life-long relationships with their clients. Ready to get started? Connect with us today.