Investing in real estate is one of the best ways to secure your future. It can be a fantastic way to bolster your savings account and ensure you don’t hit financial downturns. Furthermore, with some smart investing decisions, your investment properties can become a source of passive income. Because of these reasons, there’s a growing community of people who are investing in real estate as a means of retiring early. There’s a lot of misperceptions about this process: Some people believe it to be an unfeasible and lofty goal. However, by taking some strategic steps and knowing what your goals are, you can start building wealth with real estate in 2020 for the future. Follow this guide to learn how to retire early with real estate.
1. Set Your Real Estate Investment Goals
The first thing you need to figure out when you want to retire early with real estate is how much income you’ll need to generate to maintain your lifestyle. This is a common exercise for individuals who wish to retire early and is referred to as your “Financial Independence Number.”
A lot of variables can influence this number: Do you want to travel often? Do you want to relocate to a more or less expensive city? What about inflation? These questions will determine a rental income for retirement that makes sense for you.
Once you know this number, you will have a clear idea of how much income your investment properties will need to generate to sustain your lifestyle. Whether it’s $20,000 or $200,000, knowing this number is your first step to retire early with real estate.
2. Develop Your Real Estate Investing Business Plan
For a majority of individuals who retire early with real estate investing, owning rental properties is the way to go. This is because rental properties will generate a consistent stream of income every month for the foreseeable future. If your properties lie within an area that is in high demand or where the housing market is expected to continue growing for decades to come, you’re on the right track. This is the underlying mechanism of retiring early with real estate.
Rental properties are also favored because they have the potential to generate passive income. By contracting professional property management, your workload will remain at the bare minimum with your rental properties! Make sure you find a property manager or property management company that is trustworthy, to whom you can delegate the responsibility. Passive real estate investing can guarantee that you receive a salary every month into the foreseeable future.
So how does this all tie into your real estate business plan? You need to outline many different things. Among the most important are the real estate investment strategy (the clear winner being investing in rental properties), the real estate market/s where you want to buy a rental property, and your management plan. Learn more about how to put together a business plan by reading: Developing a Real Estate Investing Business Plan for Beginner Investors.
3. Find the Right Rental Properties
There’s a lot of things that can go wrong with this strategy. Foremost, some cities and regions which are currently in demand might not be in the years to come. If your rental properties are in a rural area, for example, there’s a chance that your tenants may start leaving as urbanization takes over. These diminishing real estate markets can be risky in the long term since you may be left with an investment property that lacks tenants.
You might even eventually find yourself in a situation where your rental properties aren’t generating enough income or are not keeping up with inflation. So while your expenses increase over time, their rental income won’t.
Thankfully, being wary of these risks can put you on the right track to mitigating them. If you find the right income properties in the right areas, you’re sure to guarantee your income for decades to come.
You want to look for strong housing markets that have performed well historically and rental properties that can guarantee a higher-than-average return on investment. Buying multiple rental properties within this category is a must if you intend to retire early with real estate.
Thankfully, there’s a handful of online real estate investment tools that can make this search a lot easier. Consider using Mashvisor’s Property Finder to locate rental properties that meet these criteria.
This tool is especially powerful since it’s made with real estate investors in mind. Simply set the filters and you’ll be given a list of the properties for sale with the highest return on investment across up to 5 different cities at once.
Related: 6 Insider Tips for Finding Investment Properties
4. Calculate Your Income and Expenses
The final crucial step you need to take is knowing exactly how much rental income each property will generate and what expenses you need to set aside money for. Using an advanced tool like Mashvisor’s real estate investment calculator will go a long way here.
Not only will it provide you with a massive number of listings, but it will also provide you with in-depth figures that you need to know if you intend to retire early with real estate investing. You’ll have data like expected rental income, cash on cash return, and cap rate, which can show you the success of your real estate investments at a glance. But you’ll also have valuable data about your real estate comps, which can inform you of how much you can reasonably charge for rent. All of these numbers are crucial when developing your real estate investing strategy.
You also need to know your outgoing cash (things like maintenance, property management costs, mortgage interest, and a budget for repairs) versus your rental income. This exercise can show you exactly how much money you’ll be getting from each rental unit on a monthly or annual basis. Doing the math is crucial when you intend to retire early with real estate. Luckily, Mashvisor’s tool also provides estimates for rental property expenses and allows you to factor in your mortgage costs to see how they affect your cash flow and return on investment. This investment property analysis calculator is an invaluable tool for anyone who intends to retire early with real estate.
You should also consider setting aside a budget for repairs to be undertaken every several years. To make sure your properties are competitive and appealing for decades to come, maintenance and upgrades should never be disregarded.
Once you know your exact real estate income — with certainty it is sustainable for years to come — you can begin planning for early retirement. Compare this figure to the aforementioned Financial Independence Number to see how far off you are. Are you still short on reaching your FIN? Now you’ll know how many rental properties to retire you still need!
Some real estate investors try to buy one rental property per year in order to achieve this goal. But depending on your Financial Independence Number, you might be able to achieve your goal much more easily.
Related: Creating Rental Income for Retirement Income: A Complete Guide
Bottom Line
The ability to retire early with real estate investing sounds ambitious. But by employing the right strategies, this is a feasible option that many investors can pursue. Use this guide as a starting point, and be sure that you have a clear plan. If you can secure passive retirement income for decades to come, retiring early can be a real option for you. Whether you are just getting started in real estate or are a seasoned investor, there are steps you can start taking today to retire early with real estate.