It’s Not Too Late to Add Real Estate to a Retirement Plan
RealtyTrac.com tracks home foreclosures and a lot of other real estate market sales and price data. In a recent report, RealtyTrac says that distressed residential properties sold for a median 37 percent below market prices in September 2014.
Sure, there are far fewer foreclosure properties on the market today than there have been in recent years, but there is still opportunity for investors. This discount is based on a median distressed property sale price of $ 130,000 nationally as compared to $ 205,000 for non-distressed properties. We can see from this data that there are still some great bargains out there for the investor who is willing to overcome poor property condition and other pitfalls.
Generally, these homes are in less than stellar condition, some in really poor states of repair. However, 37 percent leaves a lot of room for corrective action, even for the aggressive flip investor. For the rental property investor who wants to keep the property as a long-term investment, there is still a lot of opportunity. Rehab of a distressed property that comes in under around 90 percent of current market value results in a purchase that locks in an investment profit at the closing table.
It’s the long-term positive cash flow that seals the deal for rental investors though. When a property can be purchased below market value, it’s easier to keep expenses of ownership below what the property will rent for in the current market. This monthly positive cash flow can be used for other living expenses or reinvested in rental property. If you’re investing inside an IRA or 401k, keeping the cash flow profit in the account allows your investment to grow with pre-tax dollars. These are called “self-directed” retirement accounts, and your choices of account custodians is limited. There are also some strict rules, so if you check into this do a thorough job of it.
The point of this article is to show the potential for retirement account building with rental property, and to let you know that it’s never too late to start. The RealtyTrac report tells us that there are still bargains. Of course, real estate should only be a part of your overall retirement plan, so discuss your allocation of assets with someone you trust. Single family rental home investment isn’t the only avenue to invest in real estate. An interesting article over at NuWireInvestor.com titled “Why Mobile Home Parks Are Wowing Wall Street” describes one alternative investment avenue.
We’re talking here about mobile home parks that charge rent for the space where a privately owned mobile home is parked. A very interesting statistic in the article tells us that 98 percent of mobile homes never move from the original spot to which they were delivered and set up when purchased. Turnover certainly doesn’t seem to be a problem. When you compare this to vacancy rates in even the best of rental portfolios, it’s impressive.
Several other data points in the NuWire article help to illustrate the opportunity in mobile home park investing:
• Recession resistance — Because the tenants in mobile home parks are for the most part in the lowest income demographic, they continue to work and earn through the ups and downs of the economy. It also costs thousands to move a mobile home, so they aren’t going to leave on a whim.
• Rents are flexible — Mobile home space rents are low, generally around a quarter or less than the rent for an apartment, so there’s room to push them upward when the need arises.
• Low maintenance costs — Land and installed utilities are the major costs involved in operations. Land requires little or no maintenance (landscaping maybe), and utilities are also low maintenance items over the long-term.
• Double-digit cash-on-cash yields — The combination of all of these factors produces a great yield on money invested, particularly if you can buy a park at a discount to value.
I’m not recommending buying into a mobile home park for all investors, just pointing out an overlooked investment opportunity that may appeal to some investors, particularly those living where mobile home parks are common.
The point is to think about diversification into real estate in a long-term retirement plan. Single family homes are still a great asset, but getting creative can provide alternatives that involve less competition and at far higher yields than other investment types.