Time’s a resource that no one can get back when it passes. It’s also one of the most valuable assets at disposal that you need to be wise in spending.
In most countries, retirement lies between 60 to 65 years old. In fact, according to a 2020 report, Canadian workers usually retire around 64 years old. At this age, an individual has already worked for 20 years just to have a restful, enjoyable retirement. But is it possible to retire earlier by investing in real estate?
6 Most Asked Questions About Property Investment and Retirement
Here are some conversations I had with my clients on using real estate investment for financial security and early retirement.
1. How much income do I need?
This depends on the lifestyle you’re cultivating now and what you envision for yourself upon retirement. Start with your personal finances – this includes savings, regular income, assets and liabilities and your financial projections.
Reflect on answering questions like, “How much do you need on a daily basis?” or “At what age do you plan to retire?” or “Will you travel a lot after you retire?” With answers to these questions, you can proceed to setting financial security targets.
As you plan for your rental properties, you should always have this target income in mind. Once you’re able to establish your investment properties, you can rely on rental income for early retirement. You can therefore keep your retirement fund untouched for a later time.
2. Where do I start if I want to retire early?
Retiring with high-interest debts won’t work. Getting rid of debt is definitely a crucial step in establishing security of your personal finances. Saving up for retirement with hefty student loans and credit card debt won’t be sustainable. It’ll be a huge relief if you’re able to pay your principal mortgage. If you’re close to paying it off, then you’re on the right track.
3. How do I know if my rental income is enough?
If you already have rental property, look at the numbers and see how much you’re earning. How close is this amount to your financial security target?
We’ll also be studying history and trends. We’ll look into the property rental’s history to know if it’s occupied, trends in your vacancy rates and the average rental income being received annually. From here, you’ll see if your rental income is sufficient or if you’ll have to make changes.
Make sure to look at your other expenses, such as the mortgage you’re paying for your investment property and your principal property. These must be kept as manageable and sustainable as possible.
4. I’m still planning to buy my first rental property, what should I look for?
You’ll need good rental property if you’re planning to rely on this for early retirement. Look for rental properties that lessees or renters want. In choosing good rental properties, always put yourself in the tenant’s shoes. “What do I want in a house?” Make sure to integrate the basic features of a property and add a bit of flavour or upgrade.
If you’re unsure where to start looking for investment property, a good place to start is usually near the downtown areas and campuses. You’ll always have a market in locations where employment opportunities are prevalent.
5. What if the unexpected occurs?
Interestingly, even experienced landlords and rental property owners run into problems when handling this type of business. Some examples are: a tenant who can’t pay, excessive maintenance costs and difficulty in finding renters. When you start encountering these challenges, you’ll realize that owning rental property isn’t an absolute passive investment.
Thus, emergency funds are reliable in the event of these unforeseen scenarios. These funds can also be used to hire rental realtors and for necessary repairs.
6. How do I continue building my real estate portfolio?
Always remember that you can keep on building your real estate portfolio. In doing this, reassess when there are market conditions or when your cash flow needs change or new opportunities arise. Your portfolio is something that should be adjusted accordingly.
You can also adjust your mortgage by considering debt consolidation or accessing the equity of your home. When you have a good understanding of your personal finances, there’s always a solution. The first step is to consult an expert to learn more about mortgage solutions.
The Main Takeaway
When planning for early retirement, thinking long-term is key. Retirement’s all about financial security, a strong foundation and a healthy financial portfolio.