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How to Have Someone Else Add Thousands to Your Retirement Fund
I am the big sister to two kid brothers. Like any older sister, I worry about my brothers, even now. Most of all, I worry about their futures. The one closest to my age is the one I worry about the most lately.
My brother is very gifted at things that require the use of his hands, a lot of patience, and great attention to detail. He's been a carpenter, a chef, and has also rebuilt cars. He's amazing at all of it. However, he is not so skilled when it comes to managing his finances.
Since he's still young (in his early 30s), he feels there's lots of time to work and make money to put away for his retirement. I wish he didn't think this way. The government may not take care of us when we're older, so the time to start saving for your retirement is now.
So, I decided to make a plan for him. There are probably a lot of ways he could save money, but the big thing I focused in on was the fact that he owns three cars! One of the cars has to go, and with it gone, he will be able to save about $500/month, plus he can add the proceeds of the sale to his savings.
Side jobs are great source of extra income and carpenters are always in demand. Building fences and helping with kitchen renovations could also add thousands of dollars into his savings in a short period of time. The savings can then be used as a down payment to buy a fixer-upper which could probably be purchased for around $200,000.
If he lives in the house while he's fixing it up, he can save even more money. Once it's all fixed, he can rent it out for about $1,400 per month. It's at this point he would buy a primary residence where he will live.
Now, keeping this really simple, lets look at what my brother has when he retires in 25 years:
Assuming he adds about $25,000 in value by fixing the property up and the property appreciates by 4% each year, in 25 years his investment property will be worth $576,743. And " his tenants will have paid the mortgage off for him! It's almost like someone else was putting nearly $1,900/month into his retirement savings plan for him ($576,000 divided by 25 years divided by 12 months)!
If you're wondering where the 4% comes from, properties increase in value on the average of 4% every year, even with ups and downs in the real estate market. But even if it doesn't increase quite that much, the tenants have still paid off the mortgage over the 25 year time span. The rent from the property that he continues to collect (which would be up to about $2,350/month if rent and expenses increase at a 4% rate as well) will go directly toward his retirement.
Also- in 25 years he will have the home where he lives paid off as well. The two properties should give him over $1 million in equity. That's a nice number for retirement- especially nice when the majority of the retirement savings was contributed by his tenants over the years!
When I explained this to my brother, he sold one of his cars! And with the money he earned helping us with our property, he's already putting together a nice little down payment for a home.
About the Author Learn How to Retire with Real Estate with Julie's free Real Estate Investing Starter Tips Guide. Learn how to create financial freedom, positive cashflow and massive wealth with tips like: How to find quality rental properties, finding and keeping great tenants, and easy ways to make more money with real estate.
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