8 Real Estate Investments That Could Fund Your Early Retirement Dreams
If you want to retire earlier than expected, you may want to look into investing in real estate. There are numerous ways that real estate investments can help you build enough wealth to retire earlier. Here’s a dive into the real estate investments worth considering to help you leave your job sooner.
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Buy and Hold Investing
“If you want to use real estate to supplement your income in retirement, the best way is to buy rental properties with a buy-and-hold strategy,” said Brie Schmidt, owner and managing broker at Second City Real Estate. “You purchase a property to rent it out and collect a monthly profit. These investments can be self-managed or managed by a professional property management company.”
If you’re early in your career and want to ensure that you don’t work until you’re 65, you can start investing in real estate to build a portfolio that will allow you to replace your income from your full-time job.
“This is the slow, boring way to wealth accumulation,” noted Schmidt. “You can purchase rental properties in either your local or out-of-state markets. If done properly, the tenants will pay down the mortgage, and you will receive monthly cash flow that can be added to the monthly loan balance to accelerate the payoff.”
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When Does This Real Estate Investment Work Best?
“This strategy is ideal for those in their late 20s to early 40s,” Schmidt said. “By the time they reach retirement age, the property will be paid in full, and the monthly cash flow will increase substantially.”
Flipping Properties
“This involves buying houses below market value, performing renovations to increase their value and selling them for a profit,” said Schmidt.
You’ve likely heard about the idea of flipping properties based on the many reality shows around the topic. While finding the right home to upgrade is difficult, you can retire early with a few well-timed flips.
When Does This Real Estate Investment Work Best?
Since this is a fairly active investment strategy, you’ll want to ensure you have the time and resources. If you have a passion for renovation, you could eventually quit your job to focus on flipping properties. If you have enough successful property flips, you could accumulate enough wealth to leave your job.
Wholesaling
“You negotiate a contract with the seller and then sell that contract for a profit,” said Schmidt.
The goal is to find properties below market value, often by finding distressed ones. You become the middle person when it comes to pairing buyers and sellers.
When Does This Real Estate Investment Work Best?
The main difference between this and flipping a home is that you don’t have to worry about carrying costs or renovating the property. This plan will make the most sense if you have the real estate expertise to know what to look for based on market value.
Syndications
“This is a passive investment in which you invest capital in a large apartment building with a pool of investors,” explained Schmidt. “The strategy of the investment will vary by operator, but you usually receive a preferred return with an exit strategy of five to 10 years.”
When Does This Real Estate Investment Work Best?
This method can be ideal when you have a significant amount of capital that you’re willing to invest. With this investment, you don’t have to worry about buying a home yourself or getting caught up in renovations. You just need to have the funds to join a syndication.
Private Money Investing
“This is where you become the bank and either lend money for the note (mortgage) or to other real estate investors who may use the capital to flip the property,” Schmidt said. “You do not directly own the property and instead have a lien position on it.”
When Does This Real Estate Investment Work Best?
If you’ve already accumulated capital and want to speed up the process of retiring, you can look into this strategy. The good news is that with a few successful projects, you can retire early.
Multifamily Properties
“Multifamily properties generate rental income from multiple units, providing a reliable and consistent cash flow,” said John Kobierowski, president and CEO of ABI Multifamily. “This income can serve as a source of passive income to support an early retirement lifestyle without the need for active employment.”
When Does This Real Estate Investment Work Best?
Kobierowski added, “Multifamily properties offer various tax benefits, such as depreciation deductions, mortgage interest deductions and potential tax deferral through 1031 exchanges. These tax advantages can help optimize cash flow and maximize returns for early retirees.”
Vacation Property for Short-Term Rentals
The short-term rental market has the potential to create substantial income on platforms like Airbnb or Vrbo. If you purchase a few short-term rentals in the right markets, you could replace your income from your day job — or put the extra funds straight into your early retirement savings. You could eventually outsource the management of the properties and turn this into a passive income stream.
When Does This Real Estate Investment Work Best?
You can create a new income stream when you have the capital to purchase a few investment units. The properties can have a positive cash flow that lets you regain control of your time.
Crowdfunded Real Estate Projects
This new type of real estate investing allows you to pool with other investors to purchase real estate. With platforms like Fundrise, Yieldstreet and RealtyMogul becoming more popular, you can build a diverse real estate portfolio that provides you with exclusive access. Some crowdfunded projects will also allow you to invest in commercial properties, farmland and other property investments formerly reserved for the wealthy.
When Does This Real Estate Investment Work Best?
If you don’t want to become a landlord or worry about dealing with guests, you can invest your funds in real estate through this avenue. You can be hands-off and still invest in this asset without the stress that comes with it.
Choosing a Real Estate Investment
If you’re looking to retire earlier, there are many options with real estate to make this possible. It’s worth noting that you may have to choose just one of these strategies to help you retire earlier, if you have limited financial resources. The goal is to pick a real estate plan you can commit to.
Here are a few key points to think about before deciding how to invest in real estate to fund your early retirement:
How much time do you have? If you’re early in your career, you can start investing in properties that will appreciate in value over time. If you’re in your 40s and want to retire earlier, you may want to get more aggressive with your approach by flipping properties.
Your capital. As your capital increases, you can access different types of real estate investments.
Your knowledge and skill set will determine your involvement in real estate investing. For example, you don’t want to get involved in flipping homes if you’re not confident in your abilities to perform renovations or outsource the work correctly.
The goal is to retire earlier by focusing on real estate as the primary asset that you’ll be investing in. You want to ensure that you find the ideal real estate investing strategy that matches your lifestyle and financial situation.
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