Early retirement takes years of careful planning and investment. And even then, unforeseen circumstances can throw you off track. Fortunately, rental properties offer a unique and reliable avenue to help achieve your financial goals, including early retirement. A well-timed investment in a rental property can create a steady income stream at a low risk. This article explores six tried and tested ideas to help you secure your financial future and enjoy retirement using income from rental properties.
Ways Rental Properties Can Help You Retire Early
- Get the Power to Leverage – Taking a rental property loan may be the best financial decision of your life. You can quickly diversify your real estate portfolio by purchasing multiple rental properties and accelerating your cash flow, appreciation, and tax advantages. As time passes, your monthly cash flow from the rental property is bound to increase. Add to that the rise in property value. The properties earn a steady monthly income to help pay off your loans while making a profit from day one. Diversifying with multiple rental properties minimizes your risk and improves your chances of success.
- Tax Benefits – Investments such as mutual funds and paper assets can only be made through tax-sheltered accounts like IRAs, HSAs, or 529 plans. These investments offer good returns but burden you with tedious paperwork and have an annual cap. Investing in real estate for retirement, such as buying rental properties, may provide numerous tax benefits with no special accounts. There is also no limit to the number of properties you can invest in a year. Tax benefits from your rental investments can increase your savings rate, bringing you closer to your goal of retiring early.
- Steady Income – Rental properties start earning a steady income from the day you acquire them and never stop. Even after retirement, you can continue to earn rental income from your real estate portfolio. On the contrary, if you choose a nest egg retirement model, your paper assets must be sold to generate revenue. Selling assets reduces your net worth, and you risk running out of money in old age. Investing in an asset that will increase in value while assuring a steady income stream is best. After retirement, you can rely on rental income and keep your net worth steady.
- Rents Rise to Counter Inflation – Income from rental properties increases to counter inflation as opposed to bonds and mutual funds, wherein your returns reduce due to rising inflation. As the value of your property increases, the rent also rises, helping you counter the effect of inflation on your income and savings. It would help if you had an investment not prone to recessionary conditions and market fluctuations for your retirement. Thus, investing in rental properties for retirement protects your financial progress and ensures you can retire early.
- Rental Returns are Predictable – Returns from a rental property are predictable, and you can estimate the returns with better accuracy than paper assets. Calculating your expenses, including property taxes, insurance, maintenance, and repair, is much simpler. Therefore, you can make a reliable estimate of the returns on your investment. Rental properties for retirees offer assured returns compared to other financial assets subject to market risks.
- Control Over Returns & Risk – There are three primary risks associated with investing in rental properties – vacancy rates, property damage by tenants, and tenant rent default. Property owners can mitigate these risks by choosing their purchase area carefully. The best strategy is to buy rental properties in an area with a high demand for affordable housing, a conscientious and stable population of tenants, and a reliable tenant screening process. Assessing the property area and the tenants will help you build a steady income with the least expense until retirement.
Consider multiple income streams when planning long-term financial goals. You may be happy with the steady income stream from your rental properties, but building other income sources will always be more helpful. Passive sources of income reduce your dependence on your job and improve the chances for financial independence. Rental properties are a reliable and simplistic investment to create passive income. Therefore, investing in real estate for retirement income may be a good investment if you wish to retire early.
