Only 5 percent of North Americans are financially independent when they reach retirement age. The rest are dependent on family, friends, religious organizations, and charities to make ends meet. If you envision a comfortable lifestyle during retirement with the proceeds from your social security checks but don't manage to save a good portion of your income before retirement, you'll definitely need another plan, if you expect your social security checks to maintain your lifestyle later in life, you are going to have to either continue working well past retirement age or have an extremely meager lifestyle until your eventual death. In my opinion, you should forget about social security. Generation X and the echo boomers will probably never see these funds. I certainly don't count on social security, nor do I lose sleep over what's being done about it on Capitol Hill. You can't depend on social security or any other government program to support you during retirement. Being dependent on anyone other than yourself is a major miscalculation. A prudent plan to safeguard your retirement is to acquire income-producing properties while you are relatively young and pay them off over the course of time so that you can live off the rental revenue stream when you are too old to work. A more aggressive plan would be to buy rental properties and continue to leverage them until you have amassed a sizeable portfolio with a cash flow that can sustain your lifestyle through retirement.

Your savings have less buying power every year because of the effects of inflation. Investing in assets that not only provide a good return but also appreciate in value at a rate significantly above the rate of inflation is paramount for a sound retirement plan. Not only does real estate achieve these goals, but you also receive the added benefit of tax advantages. The deducibility of depreciation, operating expenses, property taxes, and mortgage interest, along with 1031 tax exchange laws, makes real estate the investment of choice when one considers all of its economic advantages.

The most successful investors I know have been in the real estate business for quite a long time and have paid their dues in the early days by responding to irate tenants, clogged toilets, broken windows, and other commonplace but critical maintenance issues. Afterward, they upgraded the size and location of their properties and were able to hire a property manager to deal with the day-to-day headaches. Realizing that they can make more money by using their brains than by using their brawn, they now manage the managers and spend more time looking for new deals while eliminating the unpleasant and time-consuming contact they once had with their tenants.

Eventually, the investors who maintained a small portfolio of properties were able to pay off their mortgages and thus eliminate the vast majority of their annual expenses. At that point, the properties begin to generate significant cash flow. The investors who opted to grow their holdings substantially, as opposed to paying off the mortgages, continued to leverage their holdings to acquire more income-producing properties with even greater overall cash flow. They actually increased their debt by refinancing or extracting equity to finance more acquisitions. You can only decide how large you want to grow your business and how much responsibility (10 tenants versus 1,000) you care to assume. Either way, making money in real estate requires patience, dedication, and perseverance, but the rewards are well worth the time invested. The revenue generated by your income-producing properties will enable you to earn more money than you do by working for someone else. When you make the transition from part-time landlord to full-time investor, you'll be able to dedicate ail of your resources to maintaining or expanding your real estate empire.

 

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