Real Estate: The Financial Challenges Impacting The Self-Employed


America’s self-employed face mounting financial challenges. Is real estate the solution?

Millions of Americans are on their way to being self-employed. It’s both the original, and future American Dream. However, years of industrialization and new threats mean more financial challenges for the self-employed. Can real estate help them navigate the financial maze ahead?

The Financial Challenges of Being Self-Employed

It has become increasingly difficult to pinpoint just how many self-employed individuals there are in America. Data ranges from 1 in 10 workers to as many as 89 percent of executives in different fields being self-employed. Today, this runs from the local business owner, to independent contractors, freelancers, full time real estate investors and agents.

What most share in common is a lack of consistency in income. Even at the top end, some may have a multi-million dollar month, followed be a completely dry quarter. This makes it so difficult to budget that many don’t even bother. And this creates many other issues.

New data from a TD Ameritrade survey shows the self-employed woefully under prepared for retirement. Around half of Americans only have about $25,000 saved for retirement. Many have less than $1,000. Yet, new and future challenges could evaporate much of these savings well before retirement.

Over a quarter of small business owners say that rising healthcare costs have reduced their ability to save. More than a third say these costs have hurt their businesses already. Higher taxes have taken a dramatically larger chunk out of finances in many parts of America too.

Higher wages, and new interest rate hikes are on the horizon. More than half of the self-employed say higher rates will cause them “hardship.”

A new Wells Fargo study rebuts the common mindset that people can just keep working until age 70 if they haven’t saved enough for retirement. We know we are living longer, but so far that doesn’t appear to have dramatically extended our ability to work longer. Thirty-seven percent of today’s retirees say they couldn’t work any longer due to health issues. Almost a quarter had to leave the workforce due to employers. Just seven percent of those that managed to retire early say they had enough money to do it.

Real Estate Solutions & Challenges

Real estate investment is an obvious cure for many of the financial challenges facing the self-employed. However, that doesn’t mean there aren’t challenges. Specifically, many self-employed individuals have found it tough to get into the property market due to lack of access to mortgage loans. So how can these hurdles be overcome?

Thankfully, mortgage loans for the self-employed are coming back, if borrowers know where to look. Many homebuyers and owners report being shut down as soon as they tell banks that they are self-employed. Fortunately, there are options. Other mortgage companies are again offering stated income loans, accepting non-traditional sources of income and income verification, as well as providing asset based loans.

Buying and investing in property through an existing or new business entity can provide a great advantage to those who know what they are doing. Due to stringent Dodd-Frank Act regulations, many lenders have moved to funding investment and business real estate loans. That’s great news for the self-employed. You can by business property to use as a premises and build equity, cash flow, and eliminate business overhead.

Passive income investments in real estate can also keep producing cash and building your nest egg, even if main lines of commerce come to a standstill. They can be kept when the business is wound down.

The self-employed can also fight back against taxes. As a business owner, you can be qualified to contribute far more to retirement plans to reduce tax liability each year. Some of these plans even pass that benefit onto other employees. Roll those dollars into a self-directed IRA and you can use them to invest in real estate while retaining the tax deferred and tax free perks of a regular 401k or IRA. Gain more tax deductions with nonprofit efforts that also boost the local community, and your local real estate assets.