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Who doesn’t want an early retirement? Who doesn’t dream of waking up each day, knowing they don’t have to go through the terrible commute to the office, the long hours slaving away at work and finally the tiring trek back home?
Our retirement is part of our motivation to work hard every day. We know that we cannot work forever. And the truth is after the kids have graduated from college and once all the debts are paid off, we really do not need to work as hard as we used to. But even if most of our financial responsibilities are done, we still need a source of income. After all, we still have to spend on our daily needs. It may be smaller when we retire but the need is still there.
This is where our retirement savings come in. This is why young adults – or anyone that is 60 years old and below, are encouraged to save up for their retirement. The sooner you start, the higher the chance of an early retirement.
But that is where most people come up short – when it comes to their retirement savings. According to an article published on Forbes.com, a lot of Americans are having trouble saving enough for their retirement. The study done by Schwartz Center for Economic Policy Analysis revealed that a lot of workers may be facing a retirement with a lower quality lifestyle. The study also shows that 68% of Americans between the ages 25 to 64 do not have an employer-sponsored plan.
Although workers can expect to receive money from their Social Security it is not enough. With the rising cost of living and health care, more Americans need an alternate source of retirement income. If a lot of them do not participate in a retirement plan, then what are their options to get additional funding for an early retirement?
The answer to that can be found in rental properties.
How to retire early through rental investments
A retirement plan is actually an investment portfolio. When you save money towards any retirement plan, that money is invested in stocks, bonds, and other accounts so it can increase the fastest. You should know that it is not the only investment that you should look into if you want to pursue an early retirement. You can also invest your money in rental properties.
Generally, investing in real estate is rewarding. It can yield high returns but, the risk is also great. According to RealtyTrac.com, with homeownership rates at its lowest level in 20 years, there is a lot of opportunity for rental investors. A lot of Gen X homeowners have become renters because of the most recent financial crisis. There is obviously a demand for rental properties.
But despite that news, you need to understand that real estate investment is not for everyone. You need to calculate if it will be worth your while. There are a couple of considerations here.
Finances
Your first consideration is how much can you invest. Buying a property is not cheap. It is one of the most expensive investments that you can make. You need to check your current finances and find out if you have enough to start with. Ideally, you should have as much as 20% of the real estate price for your down payment. That is in cash. The rest can be borrowed through a mortgage loan – which you have to get at a low interest so you can yield as much return from your investment. If you do not have enough for your down payment or you cannot get a low interest home loan, then you need to rethink if you are financially capable of investing in real estate.
Location
Another consideration is your location. Every time you want to buy a house, location will always be an important factor to consider. You want to invest in a real estate property that will attract as much tenants as you can. For instance, investing in an urban area is better than a rural one. The closer you are to the business districts or schools, the more people will be interested in leasing your unit. You can charge a higher rate for your property because your tenant will be saving a lot when it comes to their monthly transport costs. If they can walk to their office or school, they will not hesitate to pay more to rent your property.
Rental price
Now this is how when you will decide if your investment will be worth it. Rental rates vary and will depend on the location. Not only that, it will also depend on the type of property that you will lease out. Once you have an idea on the rental price, you need to consider if it can afford to pay off your monthly amortization. On top of that mortgage payment, you need to think about your expenses like property taxes, maintenance costs, the salary of your property manager (if any) and any improvements or upgrades. Your target rental price should be able to cover these costs and still leave extra for you to profit from.
Once you have considered these, you can decide if investing in real estate is something that you can afford. Make sure the risk that you will take is worth it.
Benefits of using rental properties to retire young
There are three important benefits to using a rental property as your retirement income.
- It appreciates in value. Real estate properties usually appreciate in value. After all, a land is a resource that will never increase. As land is bought and available lots decrease, the property that you own will continue to become valuable. In the event that you want to sell it, you are sure to get a sizable profit. Now you may think that the housing market has its ups and downs. That is true but if you hold on to your property when the market is down and wait for the right time, you are sure to earn from this investment.
- It provides a steady income. The great thing about real estate investment is that it can provide you with a steady income if you will always have a tenant. That is why you need to make sure that your property can attract tenants. Imagine if you have two rental properties that you can lease for $1,200 each – that is already $2,400 a month. If you add your Social Security to this amount, you can probably afford to go on an early retirement. Even if you have to pay your mortgage, you can use the extra profit to finance a frugal lifestyle. If you add other investments like stocks and mutual funds, you should be able to live comfortably even if you retire at the age of 50.
- It allows you to get huge tax deductions. If you borrowed money to buy your rental property, you can use the interest on your mortgage payments and use it to get tax deductions. Any income that you earn through your rented property can enjoy these tax benefits. If you used your credit cards for the repairs of this property, you can write off the interest of that credit too. Even the insurance, repairs, and other professional fees that are associated with your leased property can be written off as part of your tax deductions.
As long as you try to understand what is at stake in rental properties, you can use it to make early retirement possible.
Here is a video of one guy who was able to invest in rental properties with only $3,000 to start with. Find out how he did it and you may be able to copy the strategies that he used to build an empire of about 100 properties.
