We’ve had a retirement crisis looming for awhile now, and it’s not getting any better.
Pensions used to fund retirements back in the 70s and 80s, but those are disappearing. Currently, only 13% of all private-sector employees have a pension. The other option would be a 401(k) retirement plan, but only 14% of all American companies even offer a 401(k) plan. Of the employees who do have this kind of plan, the average balance is $96,000. Clearly, that won’t cut it for a 30-, 40-, or 50-year retirement plan.
This is why, I suggest you invest in real estate if you’re looking to fund your retirement. San Diego real estate, in particular, is a fabulous buying option. This is assuming you’re at least 10 to 20 years away from retirement, you have the ability to put at least 20% cash down, and you have good enough credit to be able to take out a mortgage that’s 80% loan to value.
Look for properties along the San Diego coastal zone if you can, or homes that are located in really good school districts. Once you find an available property you like, do a proper analysis and make sure you can get a cash-on-cash return of at least 5% after all expenses are paid.
There are three reasons in particular that you should buy rental real estate in San Diego:
- Great tax advantages. You can write off the mortgage interest in most cases (even with the new tax bill), some of the property taxes, and phantom expenses like depreciation. Other investments such as stocks and bonds don’t necessarily have depreciation you can write off.
- Real estate almost always appreciates in value. Of course, this assumes that you purchase wisely and not at the top of a bubble.
- The majority of what you buy is paid off by OPM, or “other people’s money.” This comes to you in the form of rent. Rent will pay off your lender and property manager, pay for any minor improvements to the property, and still put cash in your pocket.
Why aren’t more people doing this? Where do investors typically fail when they try to invest in real estate?
The answer lies in the property management-side of the operation. When investors look for tenants, sometimes they don’t properly qualify them—they get whipsawed by both their emotions and their tenants’ emotions. To avoid this, make sure you use a professional property management company. Professional property management almost always pays for itself in terms of achieving higher rents, lower vacancies, and lower expenses.
If you pursue this and buy rental properties over the next 10 or 20 years or so, let the renters’ money pay down your mortgage so you can have a beautiful portfolio of mortgage-free real estate with tremendous cash flow once it’s time to retire.
If you have any more questions about investing in real estate or you’re looking to buy or sell a home in our market, don’t hesitate to give me a call or send me an email. I’d love to help you.