People often forget that real estate as an investment can – and should – be looked at just like any other investment. Think about what the normal pattern of behaviors is for people saving for retirement with their 401K plan (buying stock in the company they work for).
They set it up, it comes right out of their paycheck before they receive it, usually with a percentage matched by their employer, and they get a regular report of how their investment is growing. ROTH and other IRAs work similarly, except they typically don’t come right out of the paycheck. They have no other benefit then, until you withdraw the funds and collect your earnings.
Looking at real estate through the same perspective – putting a little money in over time and collecting your earnings at the end – provides a beautiful compliment to those other retirement plans. You can even use the same principles as the other investments, like maximizing your investment by ‘Buying Low’ and ‘Selling High”. And real estate on average appreciates as well as, and even much better than the stocks & bonds people invest in.
Real estate however, provides other benefits along the way, that IRAs and 401Ks do not. With real estate investing you can also get tax benefits every year when you deduct your mortgage interest and other expenses incurred. You deduct your mortgage interests and any improvements made. You can also ‘depreciate’ your property, otherwise known as ‘phantom cash flow’. And you can move funds around without being immediately taxed (using a 1031 exchange). These are all things that you cannot do with your 401Ks and IRAs.
Why then, is real estate so frightening for people?
It’s frightening because people have been taught that it is. Their parents or grandparents survived the depression era and TEACH that it’s dangerous to buy a house. And if you do, pay off your mortgage as soon as you can. Maybe even keep some extra cash in a coffee can, just in case!
If no one takes the time to learn anything new, they are stuck in that paradigm and even pass it on to their own children.
