|
 |
|
|
Babyboomers Without a Retirement Nestegg: Investing in Real Estate
By Felix Hung
Babyboomers Without a Retirement Nestegg: Investing in Real Estate In a perfect world you and your loved ones would be well prepared for retirement and live better than you did during your working years. You would get to enjoy your golden years doing what you desired most or what you did not get to do during your working years, but what happens if you're a babyboomer and you haven't prepared for retirement? What should you do? Many people's largest investment and retirement nestegg is in the home they own and live in...but is that enough? With all the uncertainties in the economy today, I would recommend a proactive approach for babyboomers approaching retirement in the next 15 years. What are you going to do if the market falls through the floor like it has been since 2006 when the US real estate bubble burst? What if that happens when you're supposed to retire wiping away 20-60% of your home equity and retirement? Now is the time to diversify and invest for your retirement. We're going to look into the option of investing in real estate. The topics to be discussed are: 1. using other people's money (OPM), 2. buy and hold rental strategies, and 3. rehabbing and flipping homes. If you own your own home or have purchased real estate, you've probably used OPM. OPM is very powerful as a leveraging tool to help you make better returns than other investment mediums. Here is how OPM works: you buy a nice home in Florida for $200,000 and you put 20% down or $40,000. The bank give you a mortgage for the remaining $160,000. If you paid market value for the home, then you have 20% equity in the home at the time of purchase. In a normal market, you can expect 4-6% appreciation BUT this is based on the $200,000 NOT your investment of $40,000. Let's say for this example you're 50 years old and you want to retire at 65 and let's assume it appreciates at 4% a year for the next 15 years and then you sell it at age 65. This is how your return would look: your real estate purchase at $200,000 would be worth around $360,000. You sell it and realize a $140,000 gain after expenses and closing costs. Your actual return on investment would be (140,000 - 40,000)/40,000 or a 250% ROI. This is a very simplistic way of calculating ROI, but still gets the point across. Of course you would still pay capital gains on the sale if this is not your principal residence (the home you live in). Compare the above to if you put the $40,000 into a tax deferred annuity at 6%...your $40,000 would turn into about $98,000 (before tax dollars) in 15 years or a ROI of (98,000-40,000)/40,000 = 145%. This is the power of OPM and leveraging your money. For those who are not familiar with buying and selling real estate, most use the buy and hold strategy. Using the same scenario above, your Florida home is rented out for the 15 years at the market rent. If this is in the suburbs of a major city like Tampa, Orlando, or Miami your likely to have some cash flow after paying the mortgage, taxes, insurance and upkeep for the property. This is a MUST if you're a babyboomer looking to add to your retirement nestegg. Do not purchase a property that you can't achieve cash flow on. If you had more time, the safest bet would be to apply any cash flow made to paying down the mortgage. Good areas for a buy and hold strategy would include areas with a growing population, low cost-of-living, low unemployment, and in the suburbs of a major city. Vacations destinations can be great investments if you know what you're doing, BUT not for beginners or those who want a hands off approach to investing. Rehabbing is another technique that is widely used to create real estate wealth. The strategy is to buy undervalued properties that need some tender-loving-care (TLC) and add value to it through renovations, remodeling, and improvements. These fixer uppers are a great source for huge returns, but as in all investments, rehabbing real estate and then flipping it (placing it back on the market for resale), there are more unforeseen risks. You would want to make sure you partner with a knowledgeable team including a contractor, a structural engineer, a termite inspector, and a REALTOR. Finding those you can trust will expedite decisions and lessen risk. In rehabbing, you'll need to be able to look at a property and be creative on how you can solve exisiting problems to make it appealing to buyers. This could include repairs, updates, changing the layout, improving the landscaping, expanding the property, and even solving noise and privacy issues. Like the buy and hold strategy, you need to make your money upfront. You'll need to estimate how much it will take to fix the issues and what a buyer will pay after you've done the work. The problem most face is not accounting for unforeseen issues while rehabbing the home - most of which could have been avoided. In conclusion, both are very viable solutions for babyboomers who want to boost their retirement savings. Like most investments, I do not recommend hedging your real estate investments all in the same location. What if something impacts the city in which all your real estate is located (like a major corporation relocating)? Another thing to consider is purchase price. I recommend picking up homes in the hottest price bracket. Usually this will be within the first-time homebuyer price range. This will ensure you have plenty of buyers when you need to sell. Lastly, invest with caution as no one can truly know with certainty how the market will perform and never bank on appreciation as the reason for buying. The internet is a wealth of free knowledge as well as the public library. Books, CD, coaches, and real estate investing programs can all help you to expedite your investing goals but not all of them actually deliver what's promised. Proceed with caution on high priced programs and infomercials.
|
Contributor's Note
Felix Hung, is a REALTOR residing in Southern California. He has extensive knowledge in real estate investing and helped friend and real estate investing coach, Jason Hanson, to put together his training program.
|
|
Felix Hung's ActiveRain Profile
| Creative Real Estate Online
| MSN Real Estate Investing Center
| Wikipedia - Real Estate Investing
| FREE Real Estate Investing Newsletter
| How Much Do You Need For Retirement
PLEASE VISIT THE CONTRIBUTOR'S WEBSITE
No reactions yet.
Please login or sign up to rate this intel.
Please login or sign up to add a comment.
Thank you for sharing this, "Investing in Real estate" information, Felix.
The bank bailouts and the burst of the real estate market,
has made it more difficult to secure financing for investers.
Hopefully, this will change.
Best wishes.
Frederick
This is very good advice and in this buyers market there is no better time than the present to act on it. When I was in my forties a successful aunt of mine advised me that there was no better investment than real estate and I am comfortable now because I took her advice. I have always bought at or near the bottom of the market for safety.
Thanks for sharing this information.
CONTRIBUTOR'S REPLY
Thanks Sandy, the most important part is finding the right people to help you that are truly looking out for your best interest with whom you can trust.
The copyright for this content entitled "Babyboomers Without a Retirement Nestegg: Investing in Real Estate" has been specified by the contributor as:
Creative Commons Attribution-Share Alike 3.0
Details 
This content may be copied, distributed, and modified, as long as a) the original author is acknowledged with a link back to the content page, and b) if the work is modified, the result is distributed with this same license.
If you use this content according to the license specified, you must link to the following URL:
http://felixhung.qondio.com/
|
 |
|
This intel was contributed by Felix Hung
Felix Hung
|
February, 2012
| | | 1 | 2 | 3 | 4 | 5 |
| 6 | 7 | 8 | 9 | 10 | 11 | 12 |
| 13 | 14 | 15 | 16 | 17 | 18 | 19 |
| 20 | 21 | 22 | 23 | 24 | 25 | 26 |
| 27 | 28 | 29 | | | | |
|
2008
January, February, March, April, May, June, July, August, September, October, November, December
2009
January, February, March, April, May, June, July, August, September, October, November, December
2010
January, February, March, April, May, June, July, August, September, October, November, December
2011
January, February, March, April, May, June, July, August, September, October, November, December
2012
January, February
|
|
Not a member yet?
Qondio is a powerful network for making it online. If you have a website to
promote, we can help.
Sign up and get in on the action.
|
|
Welcome to Qondio! Discover the awesome power this network can deliver by going to our About page. Or you could skip straight to the Sign Up form.
|
|
