Last week, we talked about why real estate investing is often overlooked by most financial advisors. It’s such an interesting topic, which is why we’ve been focusing so much on real estate this whole month. At Illumination Wealth, we see real estate investment as one of the primary ways to consider for building one’s wealth and creating a sound retirement plan in a non-traditional way.
Not only does real estate appreciate over time (when done correctly), but equity also builds through the principal pay-down of the mortgage on the property. At the same time, real estate investment is ideally used to generate cash flow for you when a property is rented out or renovated and resold for profit. Most importantly, real estate offers many valuable tax benefits that you simply won’t find with most other forms of “traditional” investment (stocks and bonds).
How much of your portfolio you dedicate to real estate investment is completely up to you. It may only be a small portion for some people who aren’t comfortable diving into that pool. Others may invest in real estate much more aggressively because they see the opportunities, have the required skill set and are committed to making the investments work for them.
There are many different types of real estate investors, but a bigger picture reveals two main categories that you can fall under:
1. Active Real Estate Investor
An active real estate investor is one who is willing to put the work in to get the most out of their real estate investments. It typically requires a hands-on approach in seeking out properties, managing rentals for income or renovating (flipping) properties and reselling for profit. You will have to develop a team to help you source and close deals, and you may be delegating a lot of responsibilities by hiring a real estate agent, property manager, and other team members. However, you still have to be involved on at least some level to keep your investments performing well. Your time invested must also be factored into the profitability model.
2. Passive Real Estate Investor
Some real estate investors prefer to take a hands-off approach so they can focus on other important aspects of their financial life including their family, leisure or primary career. They want to invest their money passively and let others do all the dirty work. In this case, the goal is to identify a quality investment group (or groups) to partner with. This would include finding partners who have experience, have a track record of success through different market cycles, have skin in the game by co-investing a significant amount of their own capital in the investments, are transparent, aligned from a fee standpoint and open to scrutiny. This way you know your investments are in good hands and then you can continue reaping the rewards over time.
Ultimately, all forms of investment are aimed at building wealth, achieving financial independence and saving for retirement—ideally an early retirement if you really do things right. Real estate investment should be no different, and it has proven to provide an accelerated timeframe for financial independence and retirement planning for many savvy investors.
Again, how many real estate investments you need to acquire for your personal retirement goals will vary from person to person. You really have to understand the long-term gains (equity), renewable earnings (cash flow) and tax benefits. The more research you do, the more likely you are to put together a real estate investment portfolio that gets you where you want to be in your retirement years and beyond. Real estate can also be handed down to your benefactors, though there is some strategic tax planning you will want to do to make sure they are provided the best inheritance situation possible.
Not all financial advisors will be equipped to help you with your real estate investment portfolio, and some may even avoid it like the plague. That is not the way we do things at Illumination Wealth. We look at your entire financial situation and help you explore all your investment and retirement savings options to achieve your financial goals. Whether it’s generating more income now, building a retirement plan or achieving early financial independence—ideally all three—our advisors bring real experience in real estate and will help you make the most of all your investment and tax planning strategies.
Contact Illumination Wealth today for more information or to schedule a personal consultation.