The “Three-Legged Stool” is a commonly used metaphor in personal finance referring to three primary sources of retirement income. Diversifying retirement savings helps to increase your earning ability for the future and stabilize your wealth. This stability is akin to a three-legged stool.
Many people save for retirement by way of a personal savings account and participate in an employee pension plan or traditional retirement account (Roth IRA, IRA, or Keogh). Many people also enjoy the benefits of owning a real estate investment property as another source of growing their personal financial independence and security.
Here are a few potential benefits of owning an investment property.
• Appreciation: Historically, real estate has appreciated in value over time, meaning that your property will likely be worth more in the future than what you paid for it.
• Cash Flow: You have the option of renting out your property so you can receive rental income which provides a steady cash flow.
• Tax Benefits: Owning real estate can offer tax benefits like mortgage interest deductions, property tax deductions, and depreciation deductions if you do rent out the property.
• Equity: As you pay off your mortgage over time you build equity. Equity can be used for future investments or as a source of funds in case of emergencies. The loan can be paid with the money you earn from tenants.
• Control: Owning real estate gives you more control over your living space and allows you to make changes to your property as you see fit because you are independent from a landlord.
• Inflation Hedge: Real estate can serve as a safeguard against inflation. As the cost-of-living increases, so do rents and property values.
• Pride of Ownership: Owning a home can give you a sense of pride and accomplishment and provide a stable place to raise a family.
• Leverage: Real estate can be purchased with leverage, meaning that you can finance a large portion of the purchase with a mortgage loan. Getting a loan allows you to buy a more expensive property than you could afford to pay for in cash.
Of course, there are also potential downsides to owning real estate, such as maintenance costs, vacancy risk (with rentals), and the potential for market declines. For these reasons, it’s important to carefully consider your options and do your research before making any investment decisions.
If you are considering a real estate purchase of your own let us help! Our friendly and knowledgeable team is standing by to answer questions and get you one step closer to a secure financial future. Click the contact me button at the top of this page or give us a call at (907) 248-9653 today!