Investors should consider three keys to success:
1. Pay off the mortgages. “Assuming you purchase property that is profitable from the start, not having a mortgage every month can significantly increase your profit,” Degagne says. “I know for me, [my profit] will double in 20 years when all the mortgages are paid off.”
2. Hold the real estate for at least ten years and keep good books. “In real estate you have good years and bad years, just like you will in any business and almost any retirement investment strategy,” Degagne says. “In a ten-year time frame you should see a) A trend in your real estate — prices, costs, profit b) What your worst year was, and c) From there you should be able to figure out a solid number that you can rely on. This is by far the most important point.”
3. Have an exit strategy. “This involves planning how [the properties] will be taken care of when you’re still alive, but don’t want the bother of making any decisions on them,” Degagne says. “For this, my suggestion is training someone who will eventually inherit them to make the decisions. Bookkeeping and day-to-day management can always be outsourced. There’s no need to be fixing toilets in the middle of the night at 70 years old.”
Word to the wise: to invest in real estate, you don’t have to have a tool box and plumbing supplies. In fact, in some cases, you’re not allowed to manage or perform maintenance on such investments. For example, property can be purchased and placed in a self-directed IRA, but financial and maintenance matters should be handled by a property manager. Performing work related to the IRA asset yourself is regarded as a “prohibited transaction” by the IRS.