How to retire early using real estate investing and rentals
Real estate investment can be a challenge , but when it’s done with a good planning, it can be very rewarding for you and your bank account after retirement .
Whether you are considering of purchasing or if you you already have a few properties under your belt, with the right strategy , it is possible for you to build a successful early retirement fund. Of course, this sort of goal doesn’t happen overnight.
The following steps can help you start planning for your goal :
1.Develop your Financial Security
First Step is getting your debts under control or starting to pay them off as soon as you can . At the very least, pay off your credit cards and student loans. Ideally, you should have your primary residence mortgage paid off too, but if you’re after that goal now, you’re on the right path.
Use this time to get control of your budget. Limit expensive purchases, focus on paying off any high-interest debts at first .
2.Mind your income
Once you’re out of debt, determine your monthly income needs. How much money do you need to live day-to-day? In other words, how much money do you need monthly to live the same lifestyle you’re used to or want to live?
Before you set a number, think about your goals in retirement. If you’re retiring early, what will you do with your time? Will you live the same lifestyle or change it? If you’ll change it, what will you do?
Some people travel, others downsize to a home they can pay for in cash, and some retire from their stressful job but take on a ‘fun’ job or go back to school to do something they’ve always wanted.
Know how much you need to live comfortably before you rely on your real estate information.
3. Prepare for Emergencies
No one can predict when emergencies will happen. If you retire early using real estate investing, you need a backup plan, also known as a healthy emergency fund.
A standard person needs 3 to 6 months of expenses on hand, but that’s someone who still works. If you’re retiring early and relying on your real estate investments, consider saving as much as 12 months of expenses before giving up your job. This should prepare you for vacancies, unforeseen circumstances with renters, and personal emergencies you experience
4. Know your numbers
If you already have a real estate portfolio, look at your numbers. How much rent do you bring in monthly? How close is it to your monthly number from above?
Look at each property’s rental history. Are some properties always occupied and others have higher vacancy rates? Look at the average rent received annually and use that number to figure out where you stand. Factor in the money required to keep your properties in favorable condition and to care for any upgrades. Be prepared for emergency repairs, as well. You never know when an issue could happen with your property.
5.Be wise when choosing Your Real Estate Properties
Put yourself in the area’s renter’s shoes. What do they want from the area? What type of renters will you have?
If it’s young families, pay close attention to schools, park districts, and area activities. If the area is for older couples or retirees, think about what they would want. Are the homes the right size for your target audience?
For example choose an area with decent schools, a good neighborhood and good property value. Also, make sure it’s in a spot that you can sell easily if need be.
6. Reinvest in your properties.
Buying the property is just the start. If you buy and hold, you must keep the property in good condition. All maintenance issues are your responsibility.
There’s more than routine maintenance, though. Reinvesting in your property increases its value and your future rent. You won’t have the same tenants forever. When you sign new leases, not only will inflation play a role, but if you invest in the property and make it worth more, you can charge more rent.
Your investments will pay off not only in monthly cash flow but in overall wealth too. Remember, investment properties create cash flow but appreciate throughout your investment. When you sell the property in retirement, you’ll earn the capital gains. The more you invest in it throughout the time you own it, the greater your profits in the end.
7. Find the Right Tenants
Ask questions about their employment, income, financial information, lifestyle, pets, and ask for personal references. This is your first line of defense. If you see any red flags on the application, don’t move further with that tenant.
You should also ask for a credit check, you’ll need the potential tenant’s permission, but it’s worth it. If you live in a state that you can pass along the credit report charge, you should do so.
Otherwise, consider it a business expense that’s well worth it. Look at the applicant’s credit history and score. Do they pay their bills on time? Do they have excessive outstanding debt? Aer there a lot of collections? Use this information to decide if the tenant is trustworthy and financially capable of buying the home.
As the landlord, you really need to vet your tenants and pick the best one. If your tenant is costing you money by not paying rent, take steps to remove them .
The key is to stay organized. You can retire early using real estate if you put in the hard work now. Do your research, know how much money you need to live each month and what it will take to reach that number.