In our hot Seller’s Market, we’re seeing a lot of Non-Contingent Offers from Buyers. What does that mean? Well it means that Buyers are at risk for losing their deposits or even paying damages if they decide not to purchase after an offer is accepted. Even Sellers should be cautioned about this strategy which leaves […]
Retire Early with Real Estate in 4 Simple Steps
- Learn how to retire early with real estate
Investing in real estate is one of the best ways to secure your future. It can be a fantastic way to bolster your savings account and ensure you don’t hit financial downturns. Furthermore, with some smart investing decisions, your investment properties can become a source of passive income. Because of these reasons, there’s a growing community of people who are investing in real estate as a means of retiring early. There’s a lot of misperceptions about this process: Some people believe it to be an unfeasible and lofty goal. However, by taking some strategic steps and knowing what your goals are, you can start building wealth with real estate in 2020 for the future.
The first thing you need to figure out when you want to retire early with real estate is how much income you’ll need to generate to maintain your lifestyle. This is a common exercise for individuals who wish to retire early and is referred to as your “Financial Independence Number.”
A lot of variables can influence this number: Do you want to travel often? Do you want to relocate to a more or less expensive city? What about inflation? These questions will determine a rental income for retirement that makes sense for you.
Once you know this number, you will have a clear idea of how much income your investment properties will need to generate to sustain your lifestyle. Whether it’s $20,000 or $200,000, knowing this number is your first step to retire early with real estate.
- Develop Your Real Estate Investing Business Plan
For a majority of individuals who retire early with real estate investing, owning rental properties is the way to go. This is because rental properties will generate a consistent stream of income every month for the foreseeable future. If your properties lie within an area that is in high demand or where the housing market is expected to continue growing for decades to come, you’re on the right track. This is the underlying mechanism of retiring early with real estate.
Rental properties are also favored because they have the potential to generate passive income. By contracting professional property management, your workload will remain at the bare minimum with your rental properties! Make sure you find a property manager or property management company that is trustworthy, to whom you can delegate the responsibility. Passive real estate investing can guarantee that you receive a salary every month into the foreseeable future.
So how does this all tie into your real estate business plan? You need to outline many different things. Among the most important are the real estate investment strategy (the clear winner being investing in rental properties), the real estate market’s where you want to buy a rental property, and your management plan. Learn more about how to put together a plan by reading “Learn to Create Wealth & Income Through Smart ‘Buy Low Rent High’ Strategy” By: Daniel Diaz”.
- Find the Right Rental Properties
There’s a lot of things that can go wrong with this strategy. Foremost, some cities and regions which are currently in demand may or may not be in the years to come. If your rental properties are in a rural area, for example, there’s a chance that your tenants may start leaving as urbanization takes over. These diminishing real estate markets can be risky in the long term since you may be left with an investment property that lacks tenants.
You might even eventually find yourself in a situation where your rental properties aren’t generating enough income or are not keeping up with inflation. So while your expenses increase over time, their rental income won’t.
Thankfully, being wary of these risks can put you on the right track to mitigating them. If you find the right income properties in the right areas, you’re sure to guarantee your income for decades to come.
You want to look for strong housing markets that have performed well historically and rental properties that can guarantee a higher-than-average return on investment. Buying multiple rental properties within this category is a must if you intend to retire early with real estate.
You can locate properties using web sites like Loopnet.com, Realtor.com, Craigslist or Auction.com or, better yet, your real estate agent who can streamline the hunt.
- Calculate Your Income and Expenses
The final crucial step you need to take is knowing exactly how much rental income each property will generate and what expenses you need to set aside money for. Using an advanced tool like a real estate investment calculator, (https://www.calculator.net/rental-property-calculator.html), will go a long way here. It will also provide you with in-depth figures that you need to know if you intend to retire early with real estate investing. You’ll have data like expected rental income, cash on cash return, and cap rate, which can show you the success of your real estate investments at a glance. But you’ll also need valuable data about your real estate comp (comparative properties), which can inform you of how much you can reasonably charge for rent. Again talk with your REALTOR® about comps. All of these numbers are crucial when developing your real estate investing strategy.
You also need to know your outgoing cash (things like maintenance, property management costs, mortgage interest, and a budget for repairs) versus your rental income. This exercise can show you exactly how much money you’ll be getting from each rental unit on a monthly or annual basis. Doing the math is crucial when you intend to retire early with real estate. You also need to know your mortgage costs to see how they affect your cash flow and return on investment. Ask your real estate agent for a referral to a mortgage lender who can assist with this.
You should also consider setting aside a budget for repairs to be undertaken every several years. To make sure your properties are competitive and appealing for decades to come, maintenance and upgrades should never be disregarded.
Once you know your exact real estate income — with certainty it is sustainable for years to come — you can begin planning for early retirement. Compare this figure to the aforementioned Financial Independence Number (FIN) to see how far off you are. Are you still short on reaching your FIN? Now you’ll know how many rental properties to retire you still need!
Some real estate investors try to buy one rental property per year in order to achieve this goal. But depending on your FIN, you might be able to achieve your goal much more easily.
The ability to retire early with real estate investing sounds ambitious. But by employing the right strategies, this is a feasible option that many investors can pursue. Use this guide as a starting point, and be sure that you have a clear plan. If you can secure passive retirement income for decades to come, retiring early can be a real option for you. Whether you are just getting started in real estate or are a seasoned investor, there are steps you can start taking today to retire early with real estate.
Build your team with qualified, experienced, professionals in real estate and lending.
Originally written by Elias Rizek on mashvisor.com
As reported in the June 11 issue of Sacramento Business Journal, properties throughout the Sacramento region have sold, on average, 4% above their original list price, according to Metrolist data and local appraiser, Ryan Lundquist. For example, in Roseville buyers paid $32,182 over list price on average whereas Rocklin is $22,238 over list. This data justifies the recommendation […]
Imagine the first place you lived as a young adult. Now imagine trying to fit your life today into that space. Not pretty, right?
For most of us, our housing needs are cyclical.1 A newly independent adult can find freedom and flexibility in even a tiny apartment. That same space, to a growing family, would feel stifling. For empty nesters, a large home with several unused bedrooms can become impractical to heat and clean. It’s no surprise that life transitions often trigger a home purchase.
While your home-buying journey may not look like your neighbor’s or friend’s, broad trends can help you understand what to keep in mind as you house hunt. No one wants to regret their home purchase, and taking the time now to think about exactly what you need can save a lot of heartache later.
The Newly Married or Partnered Couple
The financial and legal commitment of marriage has provided a springboard to homeownership for centuries, though these days more couples are buying homes without exchanging rings. In the last few decades, changing demographics have shifted the median age of first marriage and buying a first home into the late 20s and early 30s, planting most newly married or partnered buyers firmly in the millennial generation.2,3 But no matter your age, there are some key factors that you should consider as you enter into your first home purchase together.
Affordability is Key
There’s no doubt about it—with high student loan debt and two recessions in the rearview mirror, many millennials feel that the deck is stacked against them when it comes to homeownership. And it’s not just millennials—Americans of all ages are facing both financial challenges and a tough housing market. But stepping onto the property ladder can be more doable than many realize, especially in today’s low mortgage rate environment.
While many buyers are holding out for their dream home, embracing the concept of a starter home can open a lot of doors.4 In fact, that’s the route that most first-time homebuyers take—the average home purchase for a 20-something is about 1,600 square feet. While the average size increases to around 1,900 square feet for buyers in their 30s, it’s not until buyers reach their 40s that the average size passes 2,000 square feet.5
Chosen carefully, a starter home can be a great investment as well as a launchpad for your life together. If you focus on buying a home you can afford now with strong potential for appreciation, you can build equity alongside your savings, positioning you to trade up to a larger home in the future if your needs change.6
Taking Advantage of Low Mortgage Rates
Mortgage rates are historically low, making now the perfect time to purchase your first home together. A lower interest rate can save you tens of thousands of dollars over the life of your loan, which can significantly increase the quality of home you can get for your money.
But what if both halves of a couple don’t have good credit? You may still have options. First, boosting a credit score can be easier than you think—simply paying your credit cards down below 30% of your limit can go a long way. But if that’s not enough to boost your score, you might consider taking out the mortgage in only the better-scoring partner’s name. The downside is that applying for a mortgage with only one income will reduce your qualification amount. And if you take that route, make sure you understand the legal and financial implications for both parties should the relationship end.
Commute and Lifestyle Considerations
Whether you’ve lived in a rental together for years or are sharing a home for the first time, you know that living together involves some compromises. But there are certain home features that can make life easier in the future if you identify them now. The number of bathrooms, availability of closet space, and even things like kitchen layout can make a big difference in your day-to-day life and relationship.
Your home’s location will also have a significant impact on your quality of life, so consider it carefully. What will commuting look like for each of you? And if you have different interests or hobbies—say, museums vs. hiking—you’ll need to find a community that meets both your needs. Need some help identifying the ideal location that fits within your budget? We can match you with some great neighborhoods that offer the perfect mix of amenities and affordability.
The Growing Family
Having kids changes things—fast. With a couple of rowdy preteens and maybe some pets in the mix, that 1,600 square foot home that felt palatial to two adults suddenly becomes a lot more cramped. Whether you’ve just had your first child or are getting to the point where your kids can’t comfortably share a bedroom any longer, there’s plenty to consider when you’re ready to size up to a home that will fit your growing family.
The Importance of School Districts
For many parents, the desire to give their kids the best education—especially once they are in middle and high school— surpasses even their desire for more breathing room. In fact, 53% of buyers with children under 18 say that school districts are a major factor in their home buying decisions.7 Of course, better funded (and often higher ranking) schools correspond to higher home prices. However, when push comes to shove, many buyers with kids prefer to sacrifice a bit of space to find a home in their desired location.
But when you’re moving to a new community, it can be tough to figure out what the local schools are actually like—and online ratings don’t tell the whole story. That’s why talking to a local real estate agent can be a gamechanger. We don’t just work in this community; we know it inside and out.
For many families, living space is a key priority. Once you have teenagers who want space to hang out with their friends, a finished basement or a rec room can be a huge bonus (and can help you protect some quieter living space for yourself).
A good layout can also make family life a lot easier. For example, an open plan is invaluable if you want to cook dinner while keeping an eye on your young kids playing in the living room. And if you think that you might expand your family further in the future, be sure that the home you purchase has enough bedrooms and bathrooms to accommodate that comfortably.
Try to think about how each room will fit into your day-to-day. Are you anticipating keeping the house stocked to feed hungry teenagers? A pantry might rise to the top of the list. Dreading the loads of laundry that come with both infants and older kids (especially if they play sports)? The task can be much more bearable in a well-designed laundry room. Imagine a typical day or week of chores in the house to identify which features will have the biggest impact.
Chances are, you won’t find every nice-to-have in one home, which is why identifying the must-haves can be such a boon to the decision-making process. We can help you assess your options and give you a sense of what is realistic within your budget.
The Empty Nesters
When we talk about empty nesters, we usually think about downsizing. With kids out of the house, extra bedrooms and living space can quickly become more trouble than they’re worth. While the average buyer under 55 trades up to a larger home, buyers over 55 are more likely to purchase a smaller or similarly sized but less expensive home. Even in the highest age groups, the majority of home purchases fall in the single-family category. According to research by the National Association of Realtors, by the time buyers reach their 70s, the median home size drops to 1,750 square feet.5 But there’s plenty for empty nesters to think about besides square footage.
Maintenance and Livability
What factors are driving your decision to move? Identifying those early in the process can help you narrow down your search. For example, do you want to have space for a garden, or would you prefer to avoid dealing with lawn care altogether? What about home maintenance? In many cases, a newer home will require less maintenance than an older one and a smaller one will take less time to clean. You may also want to consider townhomes, condos, or other living situations that don’t require quite as much upkeep.
Many empty nesters have retired or are nearing retirement age. This could be your chance to finally pursue hobbies and passions that were just too hard to squeeze into a 9-5. If you’re ready to move, consider how you’d like to spend your days and seek out a home that will help make that dream a reality. For some, that might mean living near a golf course or a beach. For others, being able to walk downtown for a nice dinner out is the priority. And with more time to spend as you wish, proximity to a supportive community of friends and family is priceless.
Ability to Age in Place
Let’s face it—we can’t escape aging. If you’re looking for a home to retire in, accessibility should be front-of-mind.8 This may mean a single-story home or simply having adequate spaces on the first floor to rearrange as needed. While buying a home that you plan to renovate from the start is a viable option, being forced into renovations (because of the realities of aging) a few years down the road could seriously dig into your nest egg. Location matters, too—if your family will be providing support, are they close by? Can you easily reach necessities like grocery stores and healthcare? While it’s tempting to put it out of our minds, a few careful considerations now can make staying in your home long-term much more feasible.
Finding the Right Home for Right Now
One thing is for sure—life never stands still. And your housing needs won’t, either. In the United States, the median duration of homeownership hovers around 13 years.9 That means many of us will cycle through a few very different homes as we move through different life stages. At each milestone, a careful assessment of your housing options will ensure that you are well-positioned to embrace all the changes to come.
Whatever stage you’re embarking on next, we’re here to help. Our insight into local neighborhoods, prices, and housing stock will help you hone in on exactly where you want to live and what kind of home is right for you. We’ve worked with home buyers in every stage of life, so we know exactly what questions you need to ask. Buying a home—whether it’s your first or your fifth—is a big decision, but we’re here to support you every step of the way.
We support the Fair Housing Act and equal opportunity housing.
- Freddie Mac –
- PRB –
- Experian –
- Nerdwallet –
- NAR 2020 Home Buyers and Sellers Generational Trends Report –
- Investopedia –
- NAR 2019 Moving With Kids
- Kaiser Health News –
- National Association of Realtors –
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