How to Increase Your Retirement Savings?
Do you know how much an average American saves for the retirement? You will be surprised to hear the answer. Despite all the available financial education, more than 50% Americans do not save anything for their future. Those who do save have an average of $60k in their retirement accounts. Considering the inflation rate, low-interest rates, and increasing lifestyle expenses; $60k is a small amount, and you cannot expect to maintain a normal lifestyle with such minimum savings.
You need something more than a simple 401(k) account. Most 401(K) accounts are based on the stock market. Historically the stock exchange has a return of 5.5%. So, let’s just expect that you earn the same with your retirement account. If you are operating a Roth IRA, you will earn tax-deferred income.
Now the problem is that, although you are earning 5.5% interest, you are not saving that much!
Why?
Because most retirement accounts charge you a certain fee for account management. A small percentage of your monthly savings (1%-2%) goes toward the account management fees. Now reduce the 1% or 2% fees, and your return rate will become 4.5%-3.5%.
Do you think that these rates can help you create a financially stable future? Will you be able to provide your family a normal life?
If not, it is time to think of some alternatives.
Real Estate IRA:
Investing IRA in real estate is one of the best ways of securing a safe future for you and your family. Even in struggling times, real estate investment has provided better returns than the stock market and simple savings account. There are numerous ways you can use a retirement account to invest in real estate. Let it be buying mortgage notes or rental properties; the options are endless. Each choice comes with a certain risk limit and returns rate. For the sake of simplicity, we will discuss the two most popular investment options.
Invest in Rental Property or Buy Turn-Key Real Estate
Buying rental property is perhaps the easiest way to get started in the real estate industry. You can purchase a residential property with a down payment as little as 3.5%. You must live in the same home for a year and then rent it out. Be careful, as you have to calculate the cash flow. The positive cash flow will help you pay your mortgage, maintenance fees, and you will be able to save money.
The rental property offers another benefit besides the rental income. The property value appreciates over the time which automatically increases your original investment.
Private Money Lending
Banks have strict lending guidelines which make it difficult to borrow money for business purposes. Savvy investors have solved this problem by accessing private money loans.
This type of loan is given privately to an investor and comes with surprisingly high-interest rates. You will earn between 8%-12% depending on the length of investment.
However, there is a difference between conventional private loans and the private loans given to RE investors. Real estate investment is a secure transaction as your loan will be backed by a tangible asset i.e. land/property.
Let’s consider a scenario where you lend money to a redevelopment company for “fix & flip” projects. Once you make the loan, you will become the official lien holder on the property.
Your active partner (investment company) will then rehab and sell the home to a new family. Once the sale is complete, the lender will pay you entire loan amount plus the interest rate. The interest rate is between (10%-12%) which is more than any other investment product offered in the market.
Real estate investments are not volatile like the stock exchange. You will know exactly how much you are giving and what you will get in return. Most private money deals are for 1yr. That means you will get your money back in a maximum of 12 months.
In very unlikly cases, if the investor does not pay you back, you can foreclose the property to receive your investment amount. However, you must work with a reputable company to make sure you are investing your money without the hassle of going through the foreclosure process.
[Photo Credits: 401calculator.org]