Why Investing in Real Estate is Better Than a Retirement Account

Why Investing in Real Estate is Better Than a Retirement Account

Looking to invest and multiply your hard earned money? Here are three amazing reasons why you should consider investing more money in real estate, instead of a retirement account.

1. Cashflow

Why investing in real estate will make you more money both short and long-term.

The purpose of a retirement investment account such as a 401k or Roth IRA is to stash away money in the stock market until the age of retirement. These accounts are tax-free which makes it very appealing to the average investor. However, you cannot take funds out until age 65 or else you will incur a tax penalty. 

Meanwhile, Real Estate Investing provides a monthly cash flow going into your pocket everytime rent is paid. If you manage to buy several properties by retirement you should be able to make more money passively than your day-to-day job. Your money will constantly grow under real estate, but with a retirement account, your money will slowly be eaten away as soon as you retire. 

2. Leverage

How can you make more money with real estate?

Once you purchase a property you start building equity. This equity can be used to purchase another property, which will provide you with more cash flow and equity later down the line. As long as you can afford the costs, buying more properties is essential for growth and diversification. 

In the long run, you will be increasing your cash flow, especially when you refinance your loans on those homes. Make sure you do not over leverage as that would increase your exposure to greater risk. Not every tenant will renew their lease so expect some properties to go vacant for a little while.

Now although that recession was caused by a real estate bubble, I want to reiterate that there is a difference between investing and speculation. People who buy real estate hoping it will increase in price is called speculation. When the real estate bubble popped in 2008, many of those people lost all their properties to the banks. This is completely avoidable as long as you buy real estate for CASH FLOW purposes and not for SPECULATION. 

3. Security

Think a retirement account is safer than real estate? Think again.

If you go to Bank of America right now and ask them to let you borrow money to invest in their stock, they will immediately decline. But if you go to them for a real estate loan, they will happily give you one as long as you qualify. This is because stocks are viewed as a great risk than real estate by the bank themselves!

Imagine reaching age 65, finally old enough to retire, and you have all this money stashed in retirement accounts ready for use. One problem, its 2009, a year later after the start of one of the country's largest recessions. In the last two quarters of 2008, Roth IRAs and 401Ks have lost $2.4 trillion dollars. Now your retirement account lost most of its value and now you are barely trying to survive your retirement by having to get a part-time job. Is that really considered safe retiring?

Residential real estate will always be around because people need shelter, it is included in Maslow's Hierarchy of needs. People will always need a place to live and therefore there will always be a demand for rental properties because it is becoming increasingly difficult for the average person to buy real estate due to increasing prices. As long as you do your research correctly, you should expect your properties to generate income each month/year.

Summary

Overall it wouldn't be bad to invest in both things for diversification and extra security. However, if you were to pick one, real estate investing by far is the better wealth generator given the points above. Better cash flow, monthly income at any time, faster growth, and more security is what makes real estate investing a much more attractive way to invest your money.