How to Structure Real Estate Investing For Retirement

With the massive swings in volatility associated with the stock market in recent years, many people look for different forms of investment in order to save for their retirement. Many people choose to invest in real estate primarily as the main vehicle for their retirement planning.

This creates several problems that need to be addressed that deal primarily with timing. Rental properties are great but unless you structure them correctly they may not throw off the right amount of income at the right time for you to take advantage of them when you retire and need the money to live off of. Of course, this could all be taken care of with a few careful steps that you can take and which I’m going to discuss in this article today.

The best forms of real estate investing from the point of view of retirement planning are called limited partnerships. These partnerships invest in a pool of shared appreciation mortgages or sometimes flat out pay all cash for income producing properties. Many partnerships include a combination of the two as well.

I find that these partnerships afford you the largest possible appreciation potential, the best tax gains, all at the lowest risk which is especially nice when you’re talking about investing in them for retirement plans. Because there’s one thing that we can all agree on and that is lowering risk is important for retirement planning. The closer you get towards your retirement, the safer you need your investments to be as I’m sure you are aware of.

There are seven or eight main criteria that most people will agree are the most important for investing with an eye towards retirement. They are…

Safety; will your money be returned to you without being diminished in any way? Income; retirement accounts are required to throw off cash. Growth; you want both the underlying assets to grow and the income that they throw off to grow over time to keep pace with inflation at the very least. Inflation; as I just referred to your retirement account must grow at least as high as inflation every year and hopefully more.

Liquidity; certain real estate investments are very illiquid so you are going to need to structure yours in a way that allows you to liquidate when necessary. Ease of administration; the last thing you want to do during your retirement years is get telephone calls at two in the morning to fix leaky plumbing. Professional management; ditto what I just mentioned about leaky plumbing.

Making sure that your real estate investment conforms to these seven or eight requirements is essential, so before you invest in any sort of real estate deal, go through the checklist I just gave you and ask yourself whether or not the investment fits those criteria. If so then you will have successfully structured your real estate investment for optimum retirement planning.

Popular Countries For Real Estate Investment

Many people are investing in houses, condominiums or land to make money. The real estate market is more stable compare to the stock exchange market. There are several countries that offer profitable real estate investments including Thailand, China, and Malaysia. There are many reasons why you should invest in Thailand. Thailand has a thriving tourist industry.

Thousands of people visit Thailand every year. Many people retire to Thailand after they are old. Retirement visas are granted to foreigners aged above 50 years old. There are many good schools in Thailand. The health care system in Thailand is efficient. There are many mountains, beaches and forests in Thailand. The climate of Thailand is warm and cool throughout the year. If you want to stay in a place that is cheap yet have lots of natural environment, you should stay in Thailand. The real estate property in Thailand is cheaper. You will be able to buy cheaper condominiums and houses compared to the ones in your own country.

China has a fast growing economy. The Property Rights Law will offer security on your private property. The demand for the local properties has been increasing over the past few years. The price of houses, condominiums and land in China will increase by 10% to 50% in the coming fifteen years. The downside of investing in China is the Communist government can cause problem. The rental yields in the cities in China including Shanghai, Guang Zhou, Shenzhen and Chengdu is about 5%. In Beijing, the rental yield can be up to 5.5% or more.

Another country which is very popular you can invest in is Malaysia. Malaysia experiences a fast growth in the economy. Malaysia has many freehold properties you can invest in. The government offer incentives for foreigners. Foreigners can get 10 year entry permit if they invest in the houses, condominiums or land in Malaysia. The capital growth in Malaysia is in between 15% to 30%. If you remit the income you make from the real estate property in an overseas country, you won’t be charged with tax. You won’t be charged tax for unearned income. After 5 years, the capital gains obtained from the real estate property will be lesser than 5%. There is a low buying cost for the properties in Malaysia.

When you want to invest in one of these countries you can find good properties easy by searching the Internet. This saves you time and you can fly over anytime after you have found the property to invest in. Another option is to contact your local real estate agent or property broker in your country which offers foreign properties for investment purposes.

Best Real Estate Investment Retirement

The best way to make use of your money is to tuck property funds into your retirement amount. It is a known fact that you can own real estate property in your retirement plans. With retirements being long term, you cannot get more than real estate. Though it seems to be a good idea, you should be very careful. A single wrong step can create an unbelievable tax disaster. Though you can invest income and appreciation, you cannot deduct depreciation as it is taxable investment. Real estate property will give you maximum profits and there is no better way than to tuck it into your retirement amount.

There are many things that must be kept in mind before you invest in real estate for retirement. To own a property you must have an IRA or any other kind of retirement plan. You can invest on any type of property. It can be land, home, or improved or unimproved property. It should be notes that there are overheads while investing into real estate for retirement. If you are careful enough you can be on the safe side and get profited. The income and appreciation are tax free with an IRA till you start withdrawing the amount. There is no debt-finance income in retirement plans which makes it tax free.

You can also be a tenant in common interest if you’re if you don’t have sufficient cash in your retirement plan. You can purchase a partial interest on property and making cash transactions is very easy. There is a high rate on return, low risk on the long run, and added diversification with planning real estate with retirement plans. The way in which you can attain the best real estate investment retirement is by converting your traditional IRA into Roth IRA in one year. Roth IRA provides more advantages over traditional IRA.

You can keep converting your traditional IRA in portions as required into Roth IRA. If you do not have sufficient cash in your retirement plan you can be a tenant in common and finance the property by borrowing. You can at the same time pay your UBIT during insufficient balance. Converting from traditional IRA into Roth IRA is very easy. And you will lose little will doing so. You need to make sure that you are eligible for taking up a Roth IRA plan before conversion. You need to satisfy the income, age limit etc of Roth IRA in order to convert into it for profit.

Investing in real estate is a great bargain and is the best way to use your retirement investment. For real estate investment retirement you need to invest in a promissory note that earns passive income. The amount on the promissory note increases if there are any cosmetic of functional repairs in the property. In order to sell the property you need not wait for sale as you would in the actual property. Selling is very easy because investors are always looking for the best sell. And as soon as you keep your note for sale it will be sold. A promissory note once kept for sale is a right buy and a great way of passive income. Someone or the other will surely buy it. So there are no problems involving the sale of your note when you want.

Wealth Building With Real Estate

When it comes to saving for retirement, investment advisors generally recommend that one contribute regularly to an Individual Retirement Account (IRA) or a company 401(k) plan. Steady growth can be achieved, they suggest, by diversifying one’s portfolio with a mix of stocks and bonds. Rarely, however, do they recommend adding real estate to the investment portfolio. By neglecting to invest in real estate, one could be missing out on the many benefits afforded by this asset class.

Advisors and investors may shy away from this investment for many reasons. Advisors might avoid it possibility because they are not licensed to sell it. Thus, they have no incentive to decrease the amount of money that they have under management. Also, investors often avoid real property because often they don’t understand it. Even if they do, they don’t feel that they have enough capital to make an initial investment. But if they became better educated in the benefits of real estate, they would find that it offers some advantages not seen in other investments.

Often, advisors recommend utilizing investments such as mutual funds to achieve risk-adjusted, long-term appreciation when saving for retirement. By utilizing qualified retirement vehicles such as an IRA or 401(k) accounts, investors can often receive a tax deduction to offset income, reducing their current tax bill. They may also use Roth accounts to forego the upfront tax deduction enabling them to receive retirement account distributions tax free. Real estate may also provide long-term appreciation, as seen in stock and bond mutual funds. In addition to receiving up-front tax advantages just as qualified plans do, real estate investments may add other tax advantages when the property is liquidated.

Many might be surprised to learn that over the past ten years, despite the “real estate meltdown,” real estate prices have outperformed the Standard and Poor’s 500 stock market index by a wide margin. As of May 2011, data provided in the Standard and Poor’s Case Shiller index (CS) showed that real estate prices, based on a 10-region composite, advanced 30.1% over the latest ten year period. During that same time the Standard and Poor’s 500 (S&P500) stock market index advanced just 7.1%. This is despite the fact that over the past two years, stock prices nearly doubled off of their March 2009 lows. During this same period, bond and commodity prices have also moved dramatically higher, causing many to worry about future market corrections. Only real estate prices have not performed and remain 32% below than their peak. The S&P 500 was just 13% from its all-time high based on May data. This is a value that an investor might look upon as a good opportunity based on current prices.

Both qualified retirement plan contributions and real estate investments offer tax incentives. When one contributes to a qualified retirement plan, the investor can usually deduct the contribution from gross income, reducing the income tax liability. Real estate, even when purchased outside of a qualified plan, offers tax deductions, sometimes as great as a qualified plan contribution. Individuals who own their own home can deduct mortgage interest and property taxes paid if they itemize their tax deductions. If they don’t itemize, they can still deduct their property taxes to receive some tax relief. Investors who purchase real estate investment property do even better. In addition to the mortgage and property tax deduction that home owners receive, real estate investors also receive deductions for property maintenance and depreciation. If this investor is not generating positive cash flow on the property and the investor has an income of less than $100,000, he or she can write off up to $25,000 for losses against their gross income.

A residential real estate also receives a special capital gains tax exemption not offered to other investments. If one had lived in the home as a primary residence for two of the previous five years, the individual is allowed a capital gains exemption of $250,000. This amounts to a $37,500 tax savings based on the current 15% Long Term Capital Gain tax rate. Not so with distributions taken from a qualified plan. These are taxed as ordinary income, at your highest tax rate. If the investor owned a primary residence along with a rental property, the investor could sell the primary residence at retirement, take the capital gain, and move into the rental. The tax-free distributions from the liquidation of the primary residence could be used to pay off any remaining mortgage on the rental property and provide extra funds for retirement expenses.

Real estate offers many positive benefits that may be important to a person planning for retirement. Like stocks and mutual funds, real estate has the potential to appreciate, preserving purchasing power. Adding real estate to one’s holdings increases diversification and reduces overall portfolio risk helping to ensure a financially successful retirement. Residential and investment real estate often provide tax benefits not found in other retirement investments.

Gary Lewis, CFP® provides Guardian Angel Protection in your Financial Affairs through comprehensive financial planning and monthly follow-ups. Gary doesn’t want to replace your current advisers, only make sure that they are working for you and not themselves. With Guardian Angel Protection, you can be assured of making informed choices in all of your investment decisions.