Creating an effective retirement plan deserves a significant investment of your time, and the earlier you start planning, the better. Depending on where you are in your life, you might not be thinking about retirement. However, it’s never too early to start because some of the best retirement plans become more profitable with time, especially with owning and investing in real estate.
If your goal is to retire happy, healthy, and wealthy, consider getting into real estate investing. It doesn’t matter if it’s residential, commercial, or industrial – if you have the capital, the credit, and the time, it’s worth pursuing.
Owning real estate is the ultimate retirement strategy
If you want to retire faster, healthier, and wealthier, consider looking into real estate properties because there are several key benefits you won’t find in other opportunities.
When you invest early enough, owning rental properties is a highly effective retirement strategy that won’t take up too much of your free time (when done right).
When you think about retirement, you probably have the following goals/needs:
- To retire as quickly as possible
- To retire as rich as possible so you never run out of money and can spend freely
- To be healthy and in good spirits
- To have a reliable source of income
- To have someone else manage your technical tasks so you have more free time
Investing in real estate can help you achieve all of these goals and more.
How real estate can help you retire faster
Who doesn’t want a fast retirement? If you ask most people, they’ll probably agree that retiring as early as possible sounds like an excellent idea. Just because the official retirement age is 65 doesn’t mean you can’t retire before that. That number is just when you’re allowed to start collecting Social Security benefits. You can retire at 40 if you really want, although most people don’t because it takes them more time to save up enough money. Owning rental properties can help you retire faster if you’re willing to put in the work ahead of time.
According to FortuneBuilders.com, the elements needed for a successful early retirement are:
- Realistic goals with measurable outcomes
- Basic financial literacy
- Cash flow requirements for becoming financially free
- Buying the right type of properties
- Maintaining your properties in good condition to preserve their value
- Continuing to build your portfolio
Obviously, the sooner you start investing, the better. However, don’t be afraid to start buying investment properties at any age. Now is always the perfect time to start.
How real estate investments can help you retire wealthy
Hopefully, you’re planning on diversifying your portfolio with various stocks, bonds, and maybe even stock market investments. It’s never a bad idea to have multiple types of investments because you never know what fluctuations will impact you the most. However, real estate investing has a much higher profit potential because rental income generally pays more than dividend income and bond yields. For instance, the income yield from rent can be between 6% and 8% annually.
If you’re new to real estate investing, it’s important to remember that you won’t start raking in the high profits right away. Not in the first year or even after five years (unless you’re able to pay in cash and skip the mortgage). However, as time passes, you’ll gain equity in your properties as you pay off your mortgage. Once you get this going, your properties will begin to generate positive cash flow on a monthly basis.
You’ll need to invest in multiple properties to earn any kind of significant income, so keep that in mind. Real estate investing isn’t a get-rich-quick scheme, but it can make you rich over time when you invest in numerous profitable properties, and you have the patience to wait for them to become profitable.
What is an example of profitability?
Let’s say you choose to buy four single-family homes for $300,000 each. You’ll need to make about a 20% down payment on each one, which amounts to $24,000. If you charge $2,000 per month in rent for each property, you’ll be earning an 8% return on your investment based on the property purchase price of $300,000.
Now, say your expenses, including the mortgage, insurance, and other applicable fees, add up to $1,500/month per property. You’ll end up with $500 cash flow each month per property, which is $2,000 per month and $24,000 per year.
It’s easy to see how you can significantly increase your profits just by acquiring more properties. In fact, that’s how wealthy real estate investors make their money. They own a large number of properties that all generate regular income.
When you do get to the point of owning a large number of properties, you’ll definitely want to hire a professional property management company because it’s not a job for one person, and certainly not when you’re retired.
Although it will be another expense, it’s justified and supports your profitability. Having a property manager ensures that your properties will be well-maintained and occupied by qualified tenants. You’ll experience fewer vacancies and your property manager will make sure your tenants are happy. All of these factors contribute to maintaining your rental income and, in some cases, can justify higher rent prices. When your investment properties are well-maintained, they will hold their value and even increase in value more easily.
All these benefits are precisely why investors work with property management companies. For example, investors in Texas prefer working with Houston Property Management company Green Residential because they are experts in managing large portfolios for dedicated investors in the area. They know their craft well and have all the experience required to get the job done right.
A property management company will provide you with the following services:
- Rent collection
- Securing late fees from tenants
- Tenant screening
- Accepting and responding to applications
- Showing vacant units to prospective tenants
- Managing repairs and maintenance
- Creating iron-clad leases and short-term rental agreements
- Handling evictions and all required notices according to the law
- Performing walkthroughs before and after a tenancy
- Cleaning units between tenants
- Implementing new rules
- Increasing the rent on your behalf where necessary
- Enforcing lease violations
- Negotiating lease changes
- Handling reasonable accommodation requests
- Knowing local and federal landlord-tenant law
- Sometimes they’ll even pay your property-related bills on your behalf, like water, sewer, electric, landscaping, etc.
As you can see, these are clear-cut benefits, but you won’t get all of this if you just hire an individual for the job. Always hire a professional company because managing a property really isn’t a job cut out for one person. You really need a team to make it work, especially when you own more than one property.
How real estate can generate reliable income, long-term
The reason real estate generates reliable, long-term income is simply because you’ll always be charging monthly rent. At first, the rent you collect will go to pay the mortgage, but once that’s paid off, your rental income will be mostly profit. You’ll have to start paying property taxes when you finish paying the mortgage, so you will have regular, ongoing expenses in addition to repairs and maintenance, but they’re going to be lower than your mortgage payment.
As long as you own your properties, you can count on that rental income to continue flowing. As time goes by, you’ll be able to raise the rent accordingly to keep up with local rent prices, and if you keep your lease agreements short – like one to two years max – you can stay profitable and competitive.
What are the most profitable types of investment properties?
You may have noticed that almost all millionaires and billionaires invest in real estate, and there’s a reason. It’s a proven method for generating long-term wealth. It doesn’t happen overnight, but over time, it’s one of the easiest ways to have a passive income stream, whether or not you retire.
So, what are all these successful investors buying? There are three main categories of investment properties:
- Residential
- Commercial
- Industrial
Single-family homes, condominiums, apartments, student housing, and even mobile homes all fall under the residential category.
Commercial investment properties are buildings that are used for commercial purposes, like individual stores or office buildings with numerous rooms inside. This includes business parks, hospitals, retail outlets, large shopping malls, strip malls, gas stations, grocery stores, etc.
Industrial properties are buildings like manufacturing plants and warehouses. These are commercial business buildings, but they tend to be much larger than standard commercial properties.
All three options can be profitable, and you’ll find higher profits with commercial and industrial investments. However, these also come with a significantly higher mortgage payment. If you want to invest in commercial or industrial property, you can expect to pay up to 40% down.
While many millionaires and billionaires buy commercial and industrial properties, that’s not a requirement to generate your retirement cash flow. If you can manage the higher expenses, it’s worth pursuing. Otherwise, you’ll be fine sticking to residential investment properties. You may need to acquire more of them to generate the same amount of cash flow as you would from a few commercial investments, but it’s absolutely possible to retire on the income you generate from residential properties.
What about vacation homes?
As a subset of residential properties, vacation homes can be incredibly profitable. Since people will be paying a premium in rent for a short-term stay, as long as you can keep them rented out, you’ll have generous income.
Another similar type of rental is one that has been designated solely for renting on Airbnb. However, the company doesn’t have the best reputation for taking care of issues where renters have done damage or other strange things. Many hosts have been simply told they’re out of luck when trying to recover costs that should have been covered by the company. If you run an Airbnb rental, make sure you have someone tending to it full-time who can check on the property at any time and handle guest concerns immediately.
How does investing in real estate help you retire healthier?
Real estate has no direct connection to health. However, there are several reasons why investing in real estate for your retirement can help you maintain your health.
Investing in rental properties is less stressful.
Stress has a significantly negative impact on the human body, and creates elevated levels of stress hormones that can hurt your heart. Acute and chronic stress contribute to circulatory system inflammation, which can cause heart attacks and strokes.
When you choose to invest in real estate, you’re putting your time and money into an investment strategy that isn’t going to stress you out. At first, it might feel chaotic, but once you get a system for managing your portfolio and you start delegating responsibilities and outsourcing your landlord duties, the chaos will prove to have been only temporary.
Real estate is mostly hands-off.
Provided you hire a property management company to handle your affairs, investing in real estate will be pretty hands-off. That means you’ll have more time to stay active and engage in exercise at your leisure. You can play your favorite sport, golf on the weekends, or just hit the gym anytime you want. You’ll never have to worry about having your workouts disrupted by a tenant calling you at 3 in the morning because their toilet is overflowing.
Real estate investments have and always will be a great way to retire
If you haven’t started looking at properties yet, start now. See what’s available in your area just to start getting a feel for what you’d pay, how much rent you’d generate, and what kind of properties are out there. You don’t have to buy property in your area, but it does help when you first get started.
At the end of the day, your ability to retire healthy and wealthy will depend on how much time and energy you put into executing your retirement plan. You can generate as little or as much cash flow as you want when you retire if you plan it out first.
The earlier you start, the earlier you can retire, but it’s never too late to acquire rental properties.
Featured Image Credit: Photo by Binyamin Mellish; Pexels; Thank you.
