Want to learn how to retire early with real estate?
If you’re disillusioned by the idea of working until you’re 65+ at a job you’re not passionate about, retiring early can help you do things like…
- Increase your financial security
- Spend more time doing things you love
- Travel whenever you want
I’ve done it, so I know firsthand it’s possible. Okay, but what’s the exact process?
Keep reading – you’re about to find out.
Can you retire early with real estate?
In a word?
Absolutely.
Real estate investing alone allowed me to quit my job as a pharmacist and retire in my early 30s.
But when I started investing back in 2016, I had zero experience.
I just knew I wanted to follow in my grandfather’s footsteps because he invested in real estate and retired early himself.
As a young college grad, I didn’t like the idea of having to work for a salary until my mid-sixties. I wanted to create income streams that would give me financial security and more free time.
So, after I graduated with my doctorate, I worked two jobs and saved as much as I could to afford a downpayment on my first investment property.
And it worked.
By renting by-the-room in college towns, I maximize my investment returns and re-invest in new properties to expand my portfolio even further.
I talk more about my experience in this video:
Now, let’s talk about what retiring early with real estate might mean for you.
Is real estate the best way to retire early?
As with anything, there are pros and cons to investing in real estate. Let’s look at a few:
Pros:
- Mostly passive income
- Property appreciation
- Tax benefits
- Budget-friendly options
- Beginner friendly
- More control over withdrawals (versus a 401k)
Cons:
- Not the most liquid asset (compared to stocks or bonds)
- Market fluctuations can negatively affect property value
- Potentially high maintenance costs
And what type of portfolio do you need to retire early? That’s what we’ll look at next.
How many properties do you need to retire early?
The short answer is, it depends on many factors.
For example, how much money do you want to have before retiring? What real estate niche do you want to invest in, and what kind of returns can you expect?
So, as a first step, understand what your financial goals are. Once that’s done, you’ll be able to calculate how many properties you’d need based on expected cash flow, expenses, and so on.
Think of it this way…
If you want to retire with $10,000 per month in after-tax rental income and you’ve calculated that you could earn $2,000 per property after taxes, you’d need five properties to meet your goal.
The most common expenses are mortgage payments, property taxes, and maintenance costs.
Other things to take into consideration is the time frame you have between now and when you want to retire as that will impact things like property value appreciation and mortgage pay down. You’ll also need to decide on how you manage your property (property managers cost around 8-12% of your rental income).
Here’s a simplified formula for calculating the number of properties you need:
Desired monthly income / the cash flow per rental property = the number of properties you need
You can read more about calculating property ROI here.
Alright, now that we’ve looked at how doable it is to retire early with real estate, how exactly can you get there?
You’re about to find out.
8 tips on investing in real estate for early retirement
Here’s the investment process I recommend:
1. Choose your strategy and goals
The first step to successfully investing in real estate is to identify your strategy and goals.
For example, you could invest in REITs, rental properties, fixer-uppers, crowdfunding platforms, and so on. Each option has pros and cons (and we’ll briefly cover a few of these in a minute.)
But personally? I’d go with rental properties – and specifically, I recommend renting single family properties by the room.
That way, you can earn a lot more for the same property than you would if you rented it to just one person.
And again, once you’ve chosen a strategy, calculate how many properties you’d need to retire early. Then you can work backward and make progress toward your defined goal.
2. Be financially secure
Before investing in real estate, make sure you’re financially secure first. Remember: If you establish good money habits now, it’ll be easier to handle a growing portfolio later.
So, for example, look for ways to maximize your income and minimize your expenses. Pay down any debt you have.
As I mentioned earlier, I worked two jobs and saved as much as possible before I started investing, and that helped set me up for success. It wasn’t easy, but it was worth it.
3. Know your numbers
Here are some important questions to get answers to before investing:
- What’s your current income/what are your expenses?
- How much do you need to cover your basic expenses (housing, food, transportation, and so on).
- How much can you invest?
Once you have answers to these questions, it’ll be easier to see what your current financial situation is – and calculate how close you are to being able to invest.
4. Find profitable properties
As we’ve already touched on, there are plenty of profitable investment options you could choose, each with pros and cons:
- Vacation rentals: You can charge higher rates per night, but returns are less predictable
- Commercial properties: Lots of niches and potentially high returns, but the upfront investment can be steep
- Rental properties: There are plenty of strategies you can use, including renting multifamily and single family properties. By choosing to rent by-the-room to students, you can maximize your returns, but you run a higher risk of having problem tenants
- REITs: Low barrier to entry, but potentially high fees
Ultimately, the best choice for you will depend on your goals and how much you can invest. But again, I recommend rental properties because they’re a great option for maximizing your ROI.
5. Decide your rent
Wondering how much you could charge in rent? That’ll depend on the market, where your property is located, its size and condition, and so on.
You need to do your research here.
Luckily, there are tools you can use to help you charge the right amount, like Rentometer.
I talk more about deciding on your rent here:
With that said…
Estimates aren’t always accurate. For example, because I charge per bedroom in my rentals, I earn significantly more than the calculations on Rentometer.
6. Find and keep the right tenants
If you decide to invest in rentals, finding and keeping great tenants is the key to having consistent positive cash flow. Remember: An empty property won’t put money in your pocket.
So, how can you choose the right tenants?
I use a process I call PRIME. Let’s quickly take a look at what this means:
- Placement of ads: Advertise where your ideal tenants are looking for housing.
- Review: Research a potential tenant’s background to get a better idea of who you’d be renting to.
- Identify the tenant: In other words, are they polite? Do they make reasonable requests?
- Measure responsiveness: Are they quick to reply when you ask for necessary paperwork, documents, and so on?
- Ensure proof of income: Confirm they have stable revenue and can pay rent.
Ultimately, this process can help you filter tenants effectively, which will save you time.
But before you can choose the right tenants, though, first figure out what kinds of tenants you want to attract.
For example, if you’re trying to rent to college students, advertise in campus housing Facebook groups.
On the other hand, if you’d prefer renting to seniors, running ads in the local paper might be a better choice.
By knowing WHO you want to rent to, you’ll be able to adjust your marketing strategy with them in mind.
7. Maintain your properties
It’s up to you whether you want to hire a property manager or manage your properties yourself. And though self-managing IS more work, there are ways to minimize it.
I know this first hand because that’s what I do myself.
For example: Instead of putting your name on the internet service, it makes more sense to put your tenant’s name.
That way, if the internet is down, they’ll be able to contact the internet company directly and get the problem resolved a lot faster – without your involvement.
8. Expand your portfolio
As your experience grows, you’ll want to expand your portfolio to earn more and spread out risk.
Think of it this way… If you have multiple properties but haven’t found tenants for all of them yet, you’ll still have some cash flow.
Quick story:
When I was a newbie investor, I bought a house that ended up needing a TON of repairs. I was so eager to start investing that I didn’t have it inspected before signing on the dotted line.
Yes, big mistake.
I lost money that year with all the repairs I needed to pay for. And because it was my first investment, I didn’t have cash flow coming in from other properties yet.
But thankfully, I learned my lesson and now have a checklist of things I look for before buying a new property. And today, I regularly expand my portfolio and all my properties have positive cash flow.
Ultimately, knowing that my bills are paid for and that I have mostly passive income hitting my bank account every month gives me the freedom to do things like travel – without worrying about money.
Next steps
Alright, now you know how to retire early with real estate. As you can see, this isn’t a get-rich-quick scheme – it’s a legitimate, long-term path to more financial freedom.
Not sure where to go next?
I’ve been there…
Early on, I made a lot of expensive mistakes as an investor. And that’s why I help people just like you invest the RIGHT way so they can have the life they want a lot faster.
Want to find out how?
Book a call with me here.
Read more:
How to Buy Rental Property as a Complete Beginner
