Today is the first full day of the Biden administration. And things in Washington are already starting to change.
The new president has already signed more than a dozen executive actions, including a mask mandate, revoking the Keystone XL pipeline permit and extending financial aid for citizens affected by the pandemic.
Over the next several days, we’ll be watching carefully to see what other policies will be implemented — either by executive action or through a more traditional avenue of congressional law.
As an American who’s grateful to live in this free country, my promise to you is that I’ll respect the office of the president of the United States — as I’ve done for past administrations on both sides of the aisle.
And regardless of your politics, I ask the same of you.
With that said, it’s also my duty (and privilege) to warn you about some of the risks this new administration poses to your retirement.
That way, you can protect your wealth, grow your savings and thrive through this new season for our country.
Over the last two days, I’ve shared some of my concerns about inflation, higher interest rates and retirement risks that are tied to the policies Biden has committed to implement.
But today, I want to flip the script and show you one particular off-Wall-Street way to turn the scenario in your favor.
I think you’re going to like this idea!
A Perfect Retirement Hedge Against Inflation
Your money must increase faster than the rate of inflation. After all, it does you no good if your savings grows by 3% a year while inflation causes your expenses to rise by 5% each year.
The best way to combat this risk is to invest your savings in areas that will rise during periods of high inflation. And typically, that means buying real tangible assets — things you can touch and feel with your hands.
Yes, gold certainly fits into this category. And if you’ve been with us here at Rich Retirement Letter for some time, you know that I believe gold should have an important role in your retirement savings.
But there are other tangible assets that you can invest in that might wind up giving you more protection against inflation while also giving you great cash-flow to cover your income needs.
One great alternative is buying a residential property that you can rent to tenants.
I know, this may sound like a complicated investment that takes a lot of work. And you may be worried that you can’t logistically do this because of the way your retirement account is structured.
But hopefully after reading this alert today, you’ll feel a lot more confident investing in this type of opportunity.
A Perfect Time for Real Estate Investing
This point in history may wind up being one of the best times to buy residential rental property ever.
There’s a huge demographic shift of young adults beginning to buy homes and start families.
Millennials are the largest generation yet. And while this group of adults may have taken more time than past generations, statistics show that they’re finally beginning to purchase homes in huge numbers.
At the same time, the coronavirus crisis has changed the way we think about living arrangements and work proximity. Hundreds of thousands of families are moving out of crowded cities and into suburban areas.
In the short-term, this helps families feel less at risk of catching the virus. But in the long term, the ability to work from anywhere and enjoy a higher quality of life outside of packed cities is very appealing.
These factors are driving strong demand for single-family homes across the U.S. But the supply of those homes is constrained. There simply aren’t enough homes to come anywhere close to meeting the demand.
That’s why if you buy a home now, you can expect the price to move higher.
It’s the simple law of economics. High demand with low supply naturally results in higher prices. And the potential for rising inflation simply adds to the appeal of owning a rental home.
So buying a home with your retirement funds right now helps you benefit from inflation.
Plus, if you decide to finance part of the purchase through a mortgage, interest rates are still very appealing. (That may not be true in a year or two. So if you’re going to take out a mortgage on a rental property, I would move quickly.)
Adding Cash Flow Without Being a Landlord
While most retirees I talk to love the idea of collecting income from a rental property, many worry about the hassles of finding tenants, managing home maintenance and dealing with the issues that come up from time to time.
I’ll never forget the night I had to drive to my rental property at 2:30 a.m to light the pilot light on my tenant’s furnace. No fun!
The good news for retirees is that you can hire a management company to handle all of these processes. So as the owner of a property, you can sit back and collect rent payments and watch your home value appreciate — without having to deal with any of the hassles of being a landlord.
Yes, these management companies will charge you a fee or a percentage of the rent payments you receive. But the industry has become very competitive and you should be able to find a good deal.
The key is paying a reasonable fee so you have the time to focus on the things that matter in life while letting the property manager focus on the day-to-day rental issues.
Of course, if you like the business of managing properties, you can do all of the work yourself. It’ll save you money and add more income to your retirement. And often landlords enjoy the relationship with their tenant.
Options for Real Estate Investing in Your Retirement Account
If your retirement savings are tied up in a retirement account like a 401(k) or IRA, you may think that owning individual real estate isn’t an option for you.
But some options still make owning rental property feasible — even through your retirement account.
There’s a great process that makes owning real estate in your retirement account very easy.
First, you need to open an IRA with a special custodian that facilitates real estate transactions.
This is pretty easy to do. And you can do a quick internet search for “IRA Custodians for Real Estate” to find a list of potential custodians in your area.
Once you have the IRA open, you can transfer money from your existing IRA or 401(k) to this new IRA account.
From there, it’s a matter of picking out the property you want to own. You can work with your representative at the IRA custodian to get all of the paperwork together.
In some cases, you can even use the funds in your IRA to pay for a portion of the property and then take out a mortgage for the rest. The mortgage could then be repaid through part of the monthly rent payments.
(Please check with your tax professional before doing this to make sure it doesn’t trigger any issues with your personal retirement account.)
Once the property is purchased through your IRA, you can hire a property manager to find a tenant, collect the rent payments and deposit your portion of the income back into your account.
And when inflation begins to build, you can rest easy knowing that your rent payments will increase over time and that the value of the home you own will also shoot higher!
It’s a great off-Wall-Street way to grow your income, protect your retirement and thrive in this new season for our country.