So, you want to retire? It can seem like a distant dream for many people. However, life expectancy is longer, and the cost of living is on the rise. Employers don’t support like they once did, and the stock market is unreliable. Therefore, it can be difficult to accumulate enough wealth to justify leaving the workforce at the expected age, let alone early. You can use a retirement calculator to evaluate how much you will need to put aside to be financially comfortable for the rest of your life. However, you do not necessarily have to work forever before finally retiring. One solution? You can start investing in real estate, and specifically in rental properties.
Maybe you are considering buying some real estate buildings in addition to the stock market. Maybe you are focusing solely on real estate. Either way, here is how purchasing multiple income properties can help you prepare for retirement early!
Create cash-flow to support your living expenses for the rest of your life
One of the significant advantages of rental properties is that you can create a reliable, steady, and long-term cash flow that will not expire even if you live longer than expected. How many properties you will need to retire comfortably depends on your lifestyle. Thankfully, you can calculate your needs by using the following formulas:
- Monthly amount needed for retirement ÷ Cash flow per rental property = Number of rental properties you need
- Cash flow = Income – Expenses
Real estate tax laws are incredibly beneficial to those who are willing to hold on to the properties in the long term. Therefore, rental properties are an excellent choice. Since rental income is considered to be a business, you can write off many expenses such as building maintenance, HOA fees, property management companies fees, etc. You can also depreciate the structure of rental properties from your taxes. All these savings add up!
Enjoy the growing equity of your buildings
As you hold your properties for long periods, the equity (the part of the property that you own vs. its market value) grows as well. Not only do you owe less on the mortgage, but real estate also has a proven track record of raising in value over time. The good news is that you do not need to sell the building to tap into that equity thanks to home equity loans if required. You can also use this equity to buy more properties and grow your rental property portfolio, securing your retirement even further.
Get around the “4 percent rule.”
The rule of thumb is that retirees should withdraw no more than 4 percent from their retirement accounts each year. By owning rental properties that produce regular income, would-be retirees can get around this approach and withdraw more. They do not necessarily face the daunting prospect of a dwindling egg nest that could not be replenished.
What you should keep in mind when buying rental properties for retirement
Despite those advantages, you can not plan to retire thanks to rental properties on a whim. Building a portfolio that can sustain your lifestyle takes time and choosing which properties to include carefully. You will also need a reliable team around you if you want to enjoy your passive income without dealing with tenant issues. But the rewards are well worth it!