Discover how to turn your retirement savings into safe, strong income. The traditional investment industry would have you believe that you can have either more income or more safety, but not both. However, you can collect tremendous income from incredibly safe investments while also increasing your principal (appreciation) and reducing your tax liability (depreciation). Here’s how:
Strong vs Safe
There are two main challenges that every retiree faces today when deciding where to invest their retirement savings:
- STRONG?: Will your retirement savings generate enough income to allow you to retire? The traditional investment industry provides retirement calculators based on how much income that can be produced from a combination of stocks and bonds (or their derivatives like annuities, mutual funds, etc). But as you discover from the calculator, the amount of income generated from your savings is tiny! So most people simply go back to work for 5 more years in hopes of finally having enough. But is that calculator all there is? Are you really stuck with a miniscule percentage of your savings becoming actual income?
- SAFE?: Since investment advisors are stuck with offering stocks, bonds and their derivatives, in order to provide you with more income while also maintaining your principal amount of savings, they explain that you must take on more risk. But is that always the case? Do you have to sacrifice safety to increase your income and hold onto your principal?
3 Work-Life Stages
The first step to turning your retirement savings into safe, strong income is to acknowledge where you are in your life today. There are 3 work-life stages we all go through: survival, then stability, and finally success.
- SURVIVAL: In this first stage you are just starting out, struggling paycheck to paycheck and barely making ends meet. We’ve all been there and it’s not fun, but it’s necessary. It’s good for you because it toughens you up. But this beginning stage is supposed to be temporary. The goal is to transition from survival mode into the stability phase.
- STABILITY: This is the second work-life stage where you are at the peak of your career, and you are saving money for retirement. This is when you need a game plan for how you will turn your retirement savings into investments that will produce a safe strong income for retirement. Just like saving for retirement, the earlier you begin learning how to invest savings, the better you will be prepared when you arrive at retirement.
- SUCCESS: This final life-work stage is the hope of every working individual, financial freedom. You’ve achieved financial independence from investing your nest egg wisely and generating safe, strong income. This is also where you can give back and create generational wealth. The Bible says, “A good man leaves wealth for his children’s children”. You can teach the next generation and pass on a family legacy. One of the key things to remember is that in this stage your investments can keep growing too! You don’t have to lose principal! Many of our Proteges achieve great success, and even though they are older, they continue to grow their portfolio because they know they are building something significant for the next generation.
How to Turn Your Retirement Savings into Safe Strong Income
What is the investment that allows you to generate strong, safe income? Multifamily Real Estate! Multifamily investing is the solution to the lack luster returns and volatility of traditional retirement accounts. We have been investing in multifamily property for decades, and no matter where we are in the real estate cycle or what the macroeconomic factors are, multifamily real estate investing has remained strong because of the unique advantages that set is apart from any other investment vehicle.
3 Benefits of Multifamily Investing
Income
The primary benefit of multifamily real estate investing is tremendous monthly cashflow (income). When you purchase an apartment building, you collect the income, pay the expenses and the mortgage, and what’s left over is your cashflow. That cashflow can be passive income if you hire a professional management company to manage the property for you. And although as owner you will need to manage the management, your multifamily investments can provide you with a strong passive income.
Depreciation
One of the greatest benefits of commercial real estate is the ability to deduct from your taxes the depreciation of the building over twenty-seven and a half years. You can write off a part of the building against your cashflow and end up not paying taxes on the property. It’s a paper loss so you’re not actually losing money and it’s an incredible benefit of multifamily investing.
Appreciation
Another benefit is multifamily real estate investments can appreciate naturally, due to market demand, or you can even force the appreciation. Let me explain:
- Natural Appreciation: Multifamily investors can increase the values of their property simply by allowing the forces of the market to slowly increase the value. If you continue to increase the rents to keep up with the general market, your property will appreciate due to market appreciation. In our current market, due to limited supply and high demand, this natural appreciation is accelerated. There just isn’t enough B and C class apartments to meet the demand for affordable housing. And when you have high demand, and limited supply, it causes prices to increase. Over the last 20 years we’ve had economic ups and downs, but all my multifamily assets have appreciated in value. I’m winning huge from buying 20 years ago, and holding those assets long term.
- Forced Appreciation: The ability to force the appreciation is one of the most powerful ways create wealth in commercial real estate. By raising the rents and implementing other value-add strategies, you can increase the NOI (Net Operating Income) and force the appreciation on your property. One of our Protégés Chris is a great example of this. The first multifamily deal he did was a 90-unit apartment building. After implementing key value-add strategies and completing a cash out refinance of his 90 Unit, he acquired a RV Storage Facility that is now worth more than $5 million. Chris now has over $12 million in commercial real estate assets. Again, I don’t know any other investment vehicle whereby you can implement techniques that force the appreciation like commercial real estate.
4 Advantages of Investing in Multifamily
Tax Benefits
One advantage investing in multifamily has over stocks and other traditional retirement accounts is the many tax benefits. When you invest in multifamily you can write off any expenses related to the business. You have significant write-offs when you’re in the business of commercial real estate, particularly multifamily investing.
Total Loss Insurance
When you invest in stocks, if for some reason your stock crashes, is there a way to get that money back? Can you buy insurance that will cover total loss in a stock market crash? Unlike the “invest at your own risk” nature of stocks, your multifamily asset is insured for total loss. Which means if your apartment building burns down, your insurance will cover a total rebuild of your property to current building code standards. Your asset is protected, which means your retirement savings are safe.
Protection Against Inflation
Multifamily investing is a tried and true defense against inflation. Inflation has gone through the roof in the last couple of years, and at the same time our rents have increased. So, multifamily is keeping pace with inflation and our returns remain strong.
Stable During Economic Uncertainty
There has been a lot of speculation about the U.S. dollar losing it’s value or crashing. Will that happen? Maybe, but guess what? Regardless of what happens to the dollar your multifamily investments will be safe because no matter what happens to the dollar, people need a place to live. And if the dollar collapses and people are forced to sell their homes, B and C class apartments that are affordable will be in even higher demand. So while stocks and retirement accounts are subject to the strength of the dollar, multifamily will remain stable despite fiscal uncertainty.
5 Capabilities of Multifamily Investing
Scalability
One aspect of multifamily investing that sets it apart is the ability to scale your investments more efficiently. If you invest in ten single family homes, you have ten tenants, ten roofs, ten mortgages, ten sets of books, ten insurance policies, and ten properties to manage. On the other hand, a ten-unit apartment building still has ten paying tenants but only one loan, one insurance policy, and one property manager managing tenants under one roof. Not only is this more efficient because you are generating the same amount of income from one investment, but it makes portfolio growth faster and more manageable.
Financing
Another key characteristic of multifamily is the capacity to implement creative financing strategies. Financing multifamily can be done in almost any market right now using seller financing techniques, like seller carry first where the seller becomes the bank, or other forms of seller financing to leverage ourselves in the property. Can you do that with stocks? Can you go to IBM or Google and say, “Hey Google, I’d like to do something creative and take ownership of your stock, but not really pay you any money.” Of course not! But you can with multifamily. And when you are financing through a traditional lender today, interest rates for multifamily loans are lower than single family home interest rates. Across the country our Proteges are getting great interest rates because lenders are confident that multifamily will continue to perform.
Liquidity Event
One aspect of multifamily investing that we emphasis is the importance of having an exit strategy, or what is known as liquidity event. There are several ways to leverage the equity in your investment. First is a cash out refinance, whereby you force the appreciation on your property and then refinance and pull money out to invest in another property. And it’s tax free until you sell the property! What other investment vehicle can do that?
Another powerful exit strategy is a 1031 Tax Deferred Exchange. Again, because multifamily appreciates in value, you can benefit from that equity by selling your property and reinvesting the profits into another multifamily property. This powerful tool allows you to defer capital gains taxes and is probably America’s greatest wealth builder. Over twenty years ago I used a 1031 Exchange to sell my duplexes and purchase an 80-Unit apartment building. Not only did I increase my net worth, but I also increased my cashflow.
Cost Segregation
Cost segregation is arguably the most powerful tax saving tool available to multifamily investors. It allows you to accelerate the amount of depreciation you can claim on your taxes in the first few years you own the property. Instead of depreciating it over twenty-seven and a half years, you can depreciate parts of a building over five years. I have a video called Cost Segregation Made Simple that will explain what it is and how to use it. So, watch the video and you’ll see how a cost segregation study can save you hundreds of thousands of dollars in taxes.
Real Estate Professional Status
The main benefit of getting Real Estate Professional (REP) status per the IRS rules is that it will reduce your taxes. To achieve this status you must be a full-time real estate investor and own and manage your own rental property. The benefits are the unlimited write-offs. As a part time investor, there are limits to how much you can write off. But when you are a real estate professional, the sky is the limit.
Turn Your Retirement Savings into Safe Strong Income
All it takes us one multifamily deal to dramatically change your financial future, but it starts with you. If you are new to multifamily investing, watch my video Beginner’s Guide to Multifamily Investing and discover how to get started turning your retirement savings into safe strong income.
Every Successful Multifamily Investor Has a Mentor
Every successful multifamily investor has a mentor. Get your mentor here: Commercial Property Advisors Protege Program
Hello Peter I would love to be considered for your program.
I’m a writer, editor and leadership program facilitator who’s looking at ways to include my monthly cash flow and credit. This article is super clear and informative. I’m inspired to keep learning more about investing in multi family properties.