How does investing in real estate aid early retirement?
Thinking about early retirement? Well, if so, you may have seen tons of information about investing in the stock market, specifically index funds or exchange-traded funds. But are there other ways you can put your excess cash to work for early retirement and financial freedom? The answer is a big yes! You could be investing in real estate and use the cash flow from rental properties to fund your early retirement lifestyle.
Investing in the stock market is a great way to invest for early retirement. However, if you can afford it, another good option is to invest in real estate. All you have to do is gain a bit of knowledge, do some research, maybe even work with a professional like another investor or agent then buy an asset that’s been around long before index funds ever existed! There are many advantages of investing in rental properties that range from financial freedom to live off the cash flow they produce. Investing in your future doesn’t always mean buying index funds and mutual funds. Real estate is an investment vehicle that has been around longer than those financial instruments!
Why should you be investing in real estate?
One of the best reasons to invest in real estate is that it’s pretty much always in demand. Of course, that demand may change, but most people will always want to have a roof over their heads. And as long as there is a need or demand for housing, you can either sell it or collect rental income until you take your last breath and then after that as well! You can even pass real estate on to your kids. And if done right, without a huge penalty of a capital gains event.
If you do the math and buy right, it’s easy to see that buying rental properties can help you achieve your early retirement goal! This is especially true if you’re diversifying your portfolio with real estate and other assets. By diversifying your portfolio with rental properties, you’ll not only reduce risk but also increase the cash flow coming in every month for yourself!
What are different ways of investing in real estate?
There are a lot of routes you can go when it comes to investing in real estate. Let’s take a look at a few!
Invest for Income (Active or Passive)
Cash flow: Cash flow is the difference between rental income and the expenses involved in maintaining a property over a certain period of time such as one month (usually). For example, if you buy a house for 100k and it rents for 700 bucks a month, your cash flow would be 500 bucks per month after paying all expenses.
Another good strategy for early retirement is to invest in rental properties that produce high cash flow! This can be done by renting the property out long or short term. Your rental property can either be managed actively by you or passively by having a property manager do the work for you.
You can use this money to live off of or continue investing elsewhere. Unless something goes wrong with the property (major repairs, vacancy), you’ll always have rent coming in. And if your expenses are low enough and money available to make capital improvements, your cash flow can increase even more!
Invest for Appreciation
Appreciation: This is when the value of an investment increases over time. For example, let’s say you buy a rental property for $100k, and it’s valued at $100k after 10 years (assuming no repairs or cash flow issues). That means you’ve experienced zero appreciation because the house is worth the same as when you purchased it! But if the new value of the house increased to $300k then the property would’ve appreciated by $200k.
It can be very lucrative to invest in properties that are likely to appreciate. But investing for appreciation alone can be a risky proposition. It’s never a guarantee, it may take decades before the property increases in value, and you might lose money while waiting!
This is why I prefer to buy-and-hold real estate for cash flow as I previously discussed.
Invest for Dividends (Passive)
Invest in REITs: A REIT is a real estate investment trust. It’s a company that purchases and turns income-producing properties into securities that can be bought by the public. In other words, you don’t have to go out and find a property to buy when it comes to REITs. You can simply purchase shares of stock from a publicly-traded REIT and collect income from the properties they own.
Since REITs trade like stocks, it’s easy to buy and sell them on a whim. Plus, you’ll never actually have to look at the property or meet the tenants. There are also many different types of REITs. Some REITs buy and focus on a single asset class like apartment buildings, regional malls, etc. And some purchase a mixture of different assets classes. REITs are just another way to diversify how you invest in real estate and plan for early retirement!
Is it too late to invest in real estate?
No! As you can see, there are many ways to reach the status of early retirement. Real estate is just another way to help you get there.
And let me not forget that if you have a self-directed IRA the IRS lets you use it to invest in real estate.
So what are you waiting for? Do your research and due diligence on the options I’ve provided. Once you know what you want to do, don’t hesitate in pulling the trigger. Time is ticking, and there’s no time like the present!
