The Investor’s Guide To Reinvesting Returns

Investing in real estate has developed a reputation for building wealth. Few other investment vehicles, for that matter, are capable of realizing the same returns as a well-balanced portfolio of performing real estate assets. Carried out with a mind for due diligence, there’s no reason an investor can’t attain the one thing most business owners covet the most: residual income. If you are serious about building long-term wealth and retiring comfortably, learn how to make your money work for you and reinvest some of the profits you earn.

Should You Reinvest Dividends & Real Estate Returns?

Whether or not you should reinvest your real estate income depends entirely on the goals you set for yourself. If you are content with what you have, you may feel no need to reinvest your profits. If, however, you are interested in realizing financial freedom and retiring with enough money to maintain your current lifestyle, you may want to consider reinvesting any profits you make from real estate back into the industry.

Real estate has become synonymous with some of today’s greatest wealth-building vehicles. Rental properties, in particular, have proven they belong in an investor’s retirement portfolio, as it is entirely possible for the cash flow to supplement one’s entire retirement if carefully managed. In the right hands, a passive income portfolio can make saving for retirement a reality, and not just something for the exorbitantly wealthy. Whether you are looking to build wealth or retire comfortably, you may want to consider reinvesting your profits back into real estate.

According to an analysis by the Government Accountability Office, “the average retirement savings is about $104,000 for households with members ages 55 to 64 and $148,000 for households with members 65 to 74 years old.”

While the actual number households should have saved by the time they retire is debatable, it’s safe to assume the average household hasn’t saved enough for retirement. The $104,000 for households with members ages 55 to 64 and $148,000 for households with members 65 to 74 years old may prove insufficient faster than most people realize. According to The Motley Fool, $1 million would last less than 20 years in 13 U.S. states. Fortunately, there are many opportunities in real estate to get started building wealth and preparing for retirement today.

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4 Ways To Reinvest Rental Income

Whether you want to reinvest rental income or flipping profits, there are several vehicles that warrant your consideration. Again, your specific goals should dictate which path you choose, but know this: there are more than a few ways to reinvest your profits. Let’s take a look at some of the most popular ways real estate investors tend to reinvest their capital:

1. Purchase An Additional Investment Property: Investors considering reinvesting their real estate income should pay special considerations to the vehicle that has already produced their residual income. In the event real estate has netted you profits, it only makes sense that you should reinvest them back into real estate. After all, real estate has historically produced attractive profits. According to Attom Data Solutions, “homes flipped in the second quarter of 2018 yielded an average gross return on investment of 44.3 percent.”
2. Invest In REITs: Real estate investment trusts (REITs) award investors the ability to invest in real estate without owning any physical property of their own. Instead of buying physical assets, investing in REITs will have investors purchase shares of companies that invest in real estate, not unlike traditional stocks. What’s more, high-quality REITs may trade at 6-8% yields and produce consistent growth. Perhaps even more importantly, they have developed a reputation for paying out relatively high dividends and hedging against inflation. To that end, investors should reinvest dividends from REITs back into the same vehicles from which they came to compound returns.
3. Remodel An Existing Property: Remodeling an existing property contributes a lot more than appeal and demand; it can increase one’s equitable interest in an asset. In remodeling an existing property, owners may increase the homes value.
4. Act As A Private Lender: In the event investors have accumulated a great deal of residual income, they should consider acting as private lenders. That’s right, it’s entirely possible to act as the same type of lender that probably funded your previous deals. Proceed to reinvest the returns from previous investments into subsequent investors. Whereas placing your returns in a bank account will result in negligible interest returns, acting as a private money lender can net you upwards of a 12-15 percent return, all for letting someone borrow your money for a short period of time. Additionally, this form of asset-based lending will secure your investment with the physical asset itself.

Tax Implications Of Reinvesting

Investing in real estate helps investors build wealth in two very specific ways. For starters, cash flow and profits from flips can result in immediate residual income. That said, profits aren’t the only way to build wealth: investors can use real estate as a tax shelter to reduce their taxable wages.

A number of real estate tax benefits can make reinvesting profits back into the industry well worth the effort. After all, it is true what they say: a penny saved is a penny earned. By reinvesting profits back into real estate, investors can take advantage of the tax benefits associated with the industry and compound their savings.

For example, rental property depreciation and interest deductions have proven very lucrative for investors that are able to take advantage of them; so much so, in fact, that many people invest in real estate just for the tax advantages.

Summary

Those intent on building long-term wealth that is capable of supplementing their retirement should strongly consider reinvesting their profits from real estate back into additional real estate opportunities. Remember, one of the best retirement strategies includes reinvesting in rental properties, as they not only generate income, but also serve as a tax shelter. With a mind for due diligence and a diversified real estate portfolio, properly reinvested profits can go a long way in your journey to build wealth.

Key Takeaways

• Those looking to reinvest their real estate profits can’t ignore the tax implications of doing so.
• Real estate income can do a lot more for investors that are willing to reinvest their profits into proven wealth-building vehicles.