When you’re reading about diversification, next time think about more than just diversifying among different stock sectors or buying mutual funds. Consider reallocating some of your portfolios to real estate for a goal of retirement wealth.

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Investment Overview

It’s tough enough to stick to a plan and accumulate enough money to retire with the lifestyle you want without seeing double-digit losses when the stock market takes a big dip.

Sure, the real estate market always comes back, but how many months or years of gains are you losing while you get back to where you were?  The problem is that the market is where the portfolios of the vast majority of savers accumulate wealth.

This article isn’t about how to get rich quick with real estate or flipping houses for fast profits, though you may decide to flip a few to build cash. It is about building wealth separate from stocks and bonds in real estate, which enjoys a different risk profile.

If you’re not ready to jump into active real estate investing, look first at how you can do it in your current retirement account.

REITs and REIT ETFs

A REIT, or Real Estate Investment Trust, invests in real estate and the shares trade like stocks on the exchange.

There are two main types, equity REITs, and Mortgage REITs.

Equity REITs invest in ownership of commercial properties of all types.

An equity REIT may specialize in buying and holding retail properties, offices, or even medical buildings.  The REIT makes money from the rents on the properties owned.  If you want to be able to say you own part of the mega-mall in your city, you can do so by buying shares in a REIT that owns it.

Mortgage REITs invest in the mortgage loans that finance the commercial properties. 

Income from both types is paid to shareholders as dividends.  It is an excellent way to ease into real estate investment and enjoy returns often in the double-digits.

ETFs, or Exchange Traded Funds, can diversify your real estate REIT portfolio even more. There are ETFs that invest in multiple REITs of both types. They also trade like stock shares on the markets.

By researching to find one or more REIT ETFs that cover different types of properties, you gain maximum diversification with whatever dollars you can afford to invest.

Active Real Estate Investing

This would be conservative purchase of rental properties, generally single family homes or condos to start with.  Rental property has made more millionaires than any other investment vehicle.

By owning rental homes, you profit from the value appreciation over time, but the biggest incentive is the monthly positive cash flow into your account from rent income that exceeds expenses.

In a retirement account, this monthly cash flow accumulates tax-free and grows through other investments or goes into buying another rental home.  Over time, if you end up owning 10 homes with each generating say $400/month in cash flow, that’s a nice $4,000/month toward your retirement lifestyle.

You can’t actively invest in real estate in most of the traditional retirement custodial accounts.  To do this, you’ll need to transfer some or all of your assets into a self-directed IRA or 401k.

The fees for account management are higher, as the custodian must collect all of your rents and pay all expenses.  No money can pass through your hands.  If you think about it though, over the years the returns and security of owning lower risk real estate investments more than compensate for expenses.

Now you have two ways to get started, passive or active, and either is a great choice to grow your retirement wealth.

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Building Retirement Wealth for the Risk Averse with Real Estate
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When you're reading about diversification, next time think about more than just diversifying among different stock sectors or buying mutual funds. Consider reallocating some of your portfolios to real estate.
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