Utilizing Cash and Retirement Accounts to Invest in Real Estate
Many people are interested in investing in real estate and either aren’t sure how to or don’t think they have the time to do so. Furthermore, people may have sizable retirement accounts and don’t know they can use that money to fund real estate investments that can yield higher returns while being more secure and less volatile at the same time. Even worse, many people sit on money in the bank earning less than 1% interest annually.
Have you ever considered loaning money for real estate? Below are a few benefits of putting your money into real estate by loaning your money to professional investors in the industry.
Benefits of Loaning Money for Real Estate Investments:
Less Volatility - If you invest in the right ways, real estate allows more control and less of the uncertainty that comes with stocks, bonds, mutual funds, etc. Everyone has seen events like the government enacting new legislation then immediately seeing the stock market drop as a result. Even the poor choices of an owner, CEO, or the whole company can make their stock price plummet. With real estate, it is much different. You aren’t relying on world events to dictate what happens to the markets and your money, you dictate what happens to your money.
Higher Returns - Cash in the bank is most likely earning less than 1% or 2% annually. The same goes for CD’s. Banks are taking that money and loaning it out on… you guessed it: real estate in the form of mortgages. They are giving you 0%-2% and loaning your money out to others at somewhere between 3%-8%. Why aren’t you doing the same? Stocks can be a little bit better with the average S&P 500 return over any 30-year period being somewhere between 5%-8%. However, this is much more volatile as stated previously. Did you know that the average returns on private money loans on real estate are anywhere from 7%-12%? This number can be even higher depending on the terms of the loan.
More Secure - Let’s use an example: A property is valued at $100,000. You loan $75,000 on this property. First, this property is insured for $100,000 so your money is protected against a major loss such as a fire. Stocks, on the other hand, are not insured. Second, the loan is backed by the property itself, with legal documents such as a mortgage and promissory note to secure the loan to the property. This means if the borrower fails to pay, you can take the property back and do what you want with it to recoup your money and potentially profit from the property. Think about it: A bank will lend consumers money to buy a house because they know their money is secured by a property and insured against loss. However, if you go to the bank and ask for a loan to purchase stocks, they’ll tell you no unless you have some sort of collateral.
Investing In Your Local Neighborhoods - Loaning money on real estate investments allows you to invest in and improve properties that are close to home.
Relationship Based - We all like to do business with people we like, know, and trust. Putting your faith in people you have never met over on Wall Street can be a gamble. Investing in real estate allows you to get to know the people you are working with and build a relationship so that you can understand each other’s goals.
Easy - It is not as difficult to do these investments as one might think. There can be slightly more upfront work but the upside can be much better.
Retirement Accounts - In most cases, you can invest money from retirement accounts in real estate, loans, businesses, and other alternative investments (see information below).
Using Your Retirement Account For Real Estate:
Many people have retirement accounts but don’t know all of the opportunities that are available with them.
There are accounts called self-directed accounts that allow you to invest outside of just stocks and bonds. Companies, such as Equity Trust Company in Westlake, Ohio, act as a custodian for these self-directed accounts. They allow you to take control of your money and let you direct it the way you want. They offer 401k’s, IRA’s, HSA’s, and more that allow you to reap the benefits of tax-free and/or tax-deferred investing while offering the opportunity to invest outside of stocks and bonds if you want (but you can still invest in stocks and bonds through their company).