With current real estate market conditions, you may be wary when it comes to adding property to your retirement portfolio. Although there is still a level of uncertainty surrounding real estate, conditions may be favorable to gain some assets in this area.

In 2010, Tennessee’s real estate trends have shown positive growth. Many buyers in major markets—including Memphis, Nashville and Knoxville—are benefiting from interest rates in the high 4% range. Although the market is favorable for those who plan to purchase homes, investors who wish to profit from selling property may harbor some concerns.

When it comes to retirement savings, it’s important to comprise your portfolio of elements that will give you the financial returns necessary to reach your goals. While diversifying and putting some money into real estate may give your portfolio the edge it needs for true success, watching your local market to determine selling trends can help you make an informed decision about whether investing in real estate is the right move for you.

“Initially, real estate investment may seem like a tremendous undertaking,” explains Tim Godwin, CRC ® with First Tennessee Brokerage, Inc.’s Chattanooga division. “Over time, however, the financial returns of real estate investments are often superior to cash or other vehicles, resulting in a more comfortable retirement income.”

Rewards and Risks

One of the major advantages of selecting real estate for your portfolio is the tax benefit. When property is included as part of an individual retirement account (IRA), income may accumulate tax-free until you begin to withdraw money from the account. In these cases, income is generated and sheltered over long periods of time.

On the other hand, purchasing property comes with a fair share of risk. If a rental property is purchased outright, the owner becomes responsible for the management and upkeep of the property. This can translate into steep costs out of pocket, necessitating substantial cash reserves. Additionally, vacant properties or tenants who are not credit-worthy can diminish retirement funds due to loss of income.

You Have Options

When most people think of real estate, the first thing that comes to mind is paying for a building or piece of land all at once. While these purchases may be beneficial for those with funds to hire a management company to take care of the property and keep it rented, it’s not for everyone. If property management doesn’t interest you, there are other options.

“A key understanding of real estate investment is that properties do not have to be purchased outright,” adds Godwin. “Real estate investment trusts [REITs] and other vehicles are available that offer investors the opportunity to invest in the real estate market without the risk of property upkeep or additional costs. Investors benefit from high yields as well as corporate income tax breaks and are spared additional responsibility or exposure.”

There are also risks associated with REITs, so do your homework to determine if they are consistent with your risk tolerance.

For more information about IRAs, visit the Investing section or call toll-free 800-238-1111 to schedule an appointment with an investment professional from First Tennessee Brokerage, Inc.

Insurance Products, Investments & Annuities: Not A Deposit | Not Guaranteed By The Bank Or Its Affiliates | Not FDIC Insured | Not Insured By Any Federal Government Agency | May Go Down In Value

Insurance Products and Annuities: May be purchased from any agent or company, and the customer’s choice will not affect current or future credit decisions.

Financial planning provided by First Tennessee Bank National Association (FTB). Investments and annuities available through First Tennessee Brokerage, Inc. (FTBR), member FINRA, SIPC, and a subsidiary of First Tennessee Bank National Association (FTB). Insurance products available through First Tennessee Insurance Services, Inc. (FTIS), a subsidiary of FTB. [Outside Tennessee and Mississippi, insurance products and annuities available through First Horizon Insurance Services, Inc. (FHIS), a subsidiary of FTB. CA License # 0D12174. FHIS, ]FTIS and FTBR may transact insurance business or offer annuities only in states where they are licensed or where they are exempted or excluded from state insurance licensing requirements. First Tennessee does not offer tax or legal advice. You should consult your personal tax and/or legal advisor concerning your individual situation.

©2010 First Tennessee Bank National Association. www.firsttennessee.com