Many people have different ideas about how you should save for retirement. Some say you should max out your 401k. Others believe that you should speak to a financial advisor and carefully select a number of stocks and bonds to invest in. If you’re a home owner, the perfect investment may be right under your feet. After the economic collapse of 2008, many people are wary of investing in real estate. However, this may just be one of the best investments available to you. Let’s explore why.
Why Real Estate Is a Great Way to Save For Retirement
To put it simply, real estate is a very stable investment. The financial markets tend to go up and down on a yearly basis, but housing prices do not generally have massive spikes and pits that need to be avoided. Until recently, real estate was a difficult asset to liquidate. But thanks to creative financing techniques like reverse mortgages, your equity is easy to access after retirement.
Many people claim that mortgages are the lowest yearly interest rate available. In many ways they are right, the yearly interest is quite low. However, the interest over the duration of your payment period is extremely high. For most consumers, nearly 40% of their mortgage payments are going straight to interest. If you already own a home, the only way to reduce this interest is by paying off your home early.
Let’s say that that you are paying your mortgage, and contributing to an investment portfolio. If you were to take that same contribution you are already making and double your mortgage payment, you’d be able to reduce your interest liability by up to 70%, depending on the terms of your mortgage. After the house is paid off, your living expenses will plummet and you can focus on investing elsewhere.
If You’re Planning to Sell Your House, Consider Upgrades
Paying off your mortgage early isn’t the only way to invest in your home. If you’re considering selling the near future, you can consider putting in some upgrades. The general rule of thumb is that $1 invested in renovations raises that price of your home by $1.50. This isn’t always true, of course. But if your kitchen is looking a little dated or your bathrooms are bland, then some modern updates can really improve the appeal of your home to potential buyers.
Why Real Estate is Often Ignored
Up until a few years ago, your home was considered the most bulletproof investment anyone could make. The economic collapse of 2008 taught us that homes are not always guaranteed to go up in value. Fortunately, the goal of investing your extra income towards your homes equity does not rely on capital gain to be successful. The goal here is to simply reduce the amount of interest you are paying on your mortgage, and put your money in an investment that is easy to liquidate during your retirement. It’s important to look beyond the financial hype of financial investments and consider putting your money somewhere that hold long term value for you.