You are using an older browser version. Please use a supported version for the best MSN experience.

How To Retire Early Using Real Estate Investing

Benzinga logo Benzinga 2/8/2021 Roofstock
a large green field in front of a house © Provided by Benzinga

Is your dream to retire early? It may seem impossible at the rate the market’s going or just relying on stocks and bonds. But what about real estate?


It provides a monthly cash flow, and it builds wealth, enabling you to reach your financial goals much faster. Investing in the right real estate at the right time can create the passive income you need to replace your 9 to 5 job while building wealth for you to use during your golden years.

9 Ways to Retire Early Using Real Estate Investing

So how do you retire early using real estate investing? We outline the steps for you below.

1. Establish Financial Security

Before you consider retiring early, you must get your debts under control or pay them off. Retiring with high-interest consumer debts won’t work. At the very least, pay off your credit cards and student loans.


Ideally, you should have your principal residence mortgage paid off too, but if you’re close, you’re on the right path.


Use this time to get control of your budget. Limit expensive purchases, live below your means and focus all efforts on paying off any high-interest debts.

2. Know Your Income Needs

Once you’re out of debt, determine your monthly income needs. How much money do you need to live day-to-day? In other words, how much money do you need monthly to live the same lifestyle you’re used to or want to live?


Call this your financial independence number, CoastFI, or whatever you want, but it’s the number you need to reach, so you make enough money each month. You know you’ll have your regular bills and the daily cost of living expenses covered and can retire with ease of mind.


The number you set is the money you need to bring in from monthly rent. This is your monthly cash flow requirement. 

Before you set a number, think about your goals in retirement. If you’re retiring early, what will you do with your time? Will you live the same lifestyle or change it? If you’ll change it, what will you do?


Some people travel, others downsize to a home they can pay for in cash, and some retire from their stressful job but take on a ‘fun’ job or go back to school to do something they’ve always wanted.


This will be your ‘goal number’ as you set up your real estate portfolio. You’ll need a sizable number of properties in your portfolio to reach your number unless you have other income to supplement the rental cash flow. 


Now, let’s compare this to the standard ‘withdrawal’ rate for retirement accounts. Experts suggest retirees withdraw no more than 4 percent of their retirement balance annually. If you have $1 million, you should withdraw no more than $40,000 to make your retirement funds last. When you use real estate profits as your retirement income, you may not need to withdraw from your retirement accounts. This means your retirement accounts can keep growing for you to use in your golden years.


But, you can use the 4 percent rule for real estate too. Knowing your target retirement number, what will it take to reach the 4 percent number using your monthly cash flow from real estate? That’s your focus as you prepare to retire early.

3. Prepare for Emergencies

Life happens, and no one can predict when emergencies will occur. If you retire early using real estate investing, you need a backup plan, also known as a healthy emergency fund.


A standard person needs 3 to 6 months of expenses on hand, but that’s someone who still works. If you’re retiring early and relying on your real estate investments, consider saving as much as 12 months of expenses before giving up your job. This should prepare you for vacancies, unforeseen circumstances with renters, and personal emergencies you experience.

4. Know the Rental Income

If you already have a real estate portfolio, look at your numbers. How much rent do you bring in monthly? How close is it to your monthly number from above?


Look at each property’s rental history. Are some properties always occupied and others have higher vacancy rates? Look at the average rent received annually and use that number to figure out where you stand.


Does your portfolio cover the required monthly income for you to retire early, or do you need more? If you’re looking to expand, check out the Roofstock Marketplace. You’ll find many of the hottest listings to add to your real estate portfolio.


Don’t forget to include maintenance and repair costs, plus unforeseen issues with the home. If the house has a mortgage, take that off the top of your income too. 


You’re looking for the bottom line, much like you would look at if you had a 9 to 5 job - how much money do you bring home?

5. Figure in Taxes

Since you’re operating your own business, you’re responsible for the taxes. As a real estate investor, you’ll have many write-offs, but there will always be tax liabilities. Work with your tax provider to get a good number for taxes, as it will decrease your monthly cash flow. 

6. Be Selective About Your Real Estate Properties

To retire early using real estate investing, you need good properties. This isn’t a fix-and-flip strategy. You need to buy and hold the properties, and not just any property will do. When you browse Roofstock Marketplace, look for properties renters will want.


Put yourself in the area’s renter’s shoes. What do they want from the area? What type of renters will you have?


If it’s young families, pay close attention to schools, park districts, and area activities. If the area is for older couples or retirees, think about what they would want. Are the homes the right size for your target audience?


What style do most renters look for in the area? What features do they want/need? These are the answers you need before investing in properties you’ll use for your retirement income. Don’t just buy a property and assume it will help you retire. Before you buy, put in the work - do your due diligence, know who you’re targeting, and find homes that meet what they need.

7. Invest in Your Properties

Buying the property is just the start. If you buy and hold, you must keep the property in good condition. All issues are your responsibility, which means 3 AM phone calls and calls that make you drop what you’re doing to get over and fix the issue.


There’s more than routine maintenance, though. Reinvesting in your property increases its value and your future rent. You won’t have the same tenants forever. When you sign new leases, not only will inflation play a role, but if you invest in the property and make it worth more, you can charge more rent.


Your investments will pay off not only in monthly cash flow but in overall wealth too. Remember, investment properties create cash flow but appreciate throughout your investment. When you sell the property in retirement, you’ll earn the capital gains. The more you invest in it throughout the time you own it, the greater your profits in the end.


8. Find the Right Tenants

Now that you’ve found the right properties using a listing like Roofstock Marketplace, it’s time to find the tenants.


This step could be more challenging than finding the property. You don’t want just anyone to rent the home, so you must vet them. Here’s a simple process you can incorporate into your own:

Find or create a rental application. It should ask questions about their employment, income, financial information, lifestyle, pets, and ask for personal references. This is your first line of defense. If you see any red flags on the application, don’t move further with that tenant. Pull credit. You’ll need the potential tenant’s permission, but it’s worth it. If you live in a state that you can pass along the credit report charge, you should do so. Otherwise, consider it a business expense that’s well worth it. Look at the applicant’s credit history and score. Do they pay their bills on time? Do they have excessive outstanding debt? Aer there a lot of collections? Use this information to decide if the tenant is trustworthy and financially capable of buying the home. Run background checks. You can order an official background check that will tell you about any criminal history, evictions, or public records. Also, consider calling previous landlords and the applicant’s personal references.  

Using this information, decide if an applicant is a good choice or if they appear less trustworthy. You want tenants who will pay their rent on time and not bail on your lease early so you can rely on the income for your early retirement.


No system is foolproof, but the more work you do upfront, the higher your chances are of finding the right tenants.

9. Keep Building Your Real Estate Portfolio

Start with your foundation, but always be willing to add to your real estate portfolio. Reassess your income needs if/when things change. Did your lifestyle change, or did you change your mind on how you’ll live your retirement?


Adjust your real estate portfolio. If you need more money, you’ll need more cash flow, which means more properties. If one property isn’t performing as you predicted, you may need to sell it and buy another in a better area.


It’s about flexibility and constantly reevaluating your situation. Even if you set a 5-year plan, if things change, adjust, so you are always on track to retire early using your real estate income.


Stay Organized to Retire Early Using Real Estate Investing

The key is to stay organized. You can retire early using real estate if you put in the hard work now. Do your research, know how much money you need to live each month and what it will take to reach that number.


How many properties must you own and where? How can you maximize your cash flow with minimal properties?


Regularly reassess your situation and make sure you’re on track. Work with professionals to ensure you are on target for earning enough cash flow to live the life you dream of without working your 9 to 5.

Read more about Roofstock:

Roofstock Review

Photo by Bailey Anselme on Unsplash


More From Benzinga

image beaconimage beaconimage beacon