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The path towards a comfortable retirement can be a long and strenuous one. So, plenty of people dedicate their time to finding ways to simplify the process and retire early. Real estate investing is an excellent way to do this.
A healthy retirement fund is diverse and delivers a strong enough return on investment to support your lifestyle once you finally stop working. So, people who looking to expand their wealth and finally retire early are constantly on the hunt for new ways to invest their money for the future. That is where real estate investing comes into play.
So, if you are looking to invest for your own retirement and need a new way to diversify your portfolio here is how real estate may be the solution you need.
Before we dive into how real estate can help you retire early, click the link below to book a free strategy call to start planning out your investment financing in order to ensure an early retirement.
Generating Cash Flow
One of the most common appeals of real estate investing is the ability to generate cash flow from your investment properties and potentially retire early. In case you are not aware, cash flow is the difference between the monthly expenses on a property such as the mortgage, insurance and utilities and the rental income generated by the property.
On average, residential properties generate a couple hundred dollars in cash flow each month. This means that each time you expand your portfolio you increase your potential cash flow. Eventually, once you have enough properties, you can earn enough cash flow each month to live solely off your cash flow.
However, it is important to remember that your cash flowing properties will only continue to pay as long as they are occupied. So, you need to work hard to make sure you do what you can to prevent turnovers and extended vacancies. Otherwise, you will begin to lose money.
Appreciation Exceeds Inflation
Another reason real estate investing can help you prepare to retire early is the fact that the average appreciation on residential real estate usually surpasses the rate of inflation. This means that by investing in real estate you are protecting your money from being eaten up by the annual rate of inflation.
Alternatively, if you were to leave your money in an average savings account, the funds will slowly decrease in value if the interest rate is less than the rate of inflation.
So, if you are looking to reliably save money or your retirement, real estate investing can be a relatively safe way to allow your money to compound and grow until you need to pull it out.
Discover How To Buy Unlimited Rental Properties With This Step By Step Guide
Another way that investors try to quickly raise funds to establish their retirement savings in order to retire early is by house flipping. This is a short-term form of real estate investing that relies on buying and increasing the value of a property to make a quick sale.
However, house flipping is a very high-risk high-reward form of investing. This is because if the amount of money you sell the property for does not exceed the initial purchase price, renovation costs and other fees, you will lose money. However, if you plan carefully enough and stay beneath your expected ARV (After Repair Value) you can stand to turn a healthy profit.
This can be a strong way to add large sums to your retirement savings, or to generate enough funds to continue investing and growing your wealth.
Using Home Equity and Reverse Mortgages to Retire Early
One under-valued tool to generate wealth for retirement so that you can retire early is simply owning your own home. Each month as you pay your monthly mortgage payments and continue to own your home, you are building equity within the property. That means the value you have stored in the home is continuing to grow.
Once you have generated enough equity, you are capable of refinancing the property to take out that value and use it for your own purposes. This can be another valuable way to build retirement funds in order to retire early, simply by making your required monthly payments.
Alternatively, if you are at least 55 years old and own your own home, a reverse mortgage can be another way to draw on the equity built in your home and retire early. In essence, a reverse mortgage allows you to take out a loan against your home equity that you do not need to pay back during your lifetime.
With a reverse mortgage, as the homeowner you would be able to take out a loan equal to a percentage of the value of the property. The loan would only need to be repaid under certain conditions such as:
- You Sell the Home
- You Move Out of the Home
- The Last Borrower Dies
- You Default on the Loan
In order to default on a reverse mortgage you would need to be caught doing one of the following.
- Lying on Your Mortgage Reverse Application
- Allowing Your Home to Fall into Disrepair and Lowering the Property Value
- Using the Loan to Perform Illegal Activities
- Failing to Follow the Conditions of Your Reverse Mortgage Contract
However, it is important that you speak with your lender to ensure you understand the exact terms and conditions of your agreement.
If you die while still owing on a reverse mortgage the debt will pass on to your estate to repay. From here they will have the option to refinance to keep the property, sell the home to repay the loan, pay off the loan in full, or authorize the lender to sell the home and settle the balance.
If you are interested in learning more about how real estate investing can help you start saving for retirement contact us at LendCity. A member of our team will be glad to answer any questions you may have. To contact us, you can call 519-960-0370 or visit us online at LendCity.ca