Early retirement is a dream for millions of people. If you could somehow have a reliable stream of revenue without having to work, you could establish more freedom and independence than you’ve ever had before – and finally start living life the way you want.
That said, if early retirement were easy, all of us would do it. Retiring early is achievable for most people, but it’s something that requires consistent and sometimes significant sacrifices in order to pull off.
Saving money and investing is the way to retire early, and real estate is one of the best ways to invest your money. Given the increasing interest in the area, Texas rental properties (with the help of a Houston property management company) could be exactly what you need to prepare your portfolio for wealth generation and, eventually, retirement.
But how should you approach this?
The Early Retirement Mindset
If you want to retire early, you’ll need to be prepared to make some significant lifestyle changes. Old standby rules, like setting aside 10 percent of your income for retirement savings, aren’t going to cut it. You’re going to need to make retirement your top priority, often sacrificing superficial pleasures and entertainment, to achieve your goals.
Of course, “early” means different things to different people. If you’re only interested in retiring at 55 instead of 65, you won’t have to put as much work in as someone who wants to retire by the age of 35. Much depends on your personal disposition, your current assets, and your overall goals.
How to Invest in Texas Rental Property for Early Retirement
If you’re interested in investing in Texas rental property for early retirement, these are the best strategies to follow:
- Know your targets. First, you need to know what you’re working for. How much money are you going to need to retire comfortably? Retirees often optimize for the 4 percent rule for retirement withdrawals; under this rule, you’ll only withdraw 4 percent of your principal each year to cover your living expenses. For example, if you want an annual income of $40,000 a year, you’ll need holdings of at least $1 million. Because you’ll be investing in rental properties, instead of principal, you can aim to generate a specific amount of monthly gross revenue; accounting for things like emergency repairs, fluctuating expenses, fees, and taxes, how much monthly revenue will you need to generate from your rental properties to make ends meet?
- Live (way) below your means. As you prepare to invest for early retirement, start living below your means. Make a budget so you can understand what you can technically afford, then aim to live far below that line. Your goal is to save as much extra money as possible, so you can put that money toward investments.
- Buy a home as soon as possible. While there are scenarios in which renting is better than buying, for most people, it’s important to buy a house as soon as possible. Even if your monthly mortgage payment is more than you were paying in rent, you’ll be putting your money toward home equity – and you’ll benefit from property appreciation over time.
- Minimize your down payments (when appropriate). When buying your primary residence and other rental properties, aim to provide the minimum down payment when interest rates are favorable. This way, you’ll be able to borrow more money and take advantage of greater financial leverage, which can increase your buying power even when you have limited capital. Additionally, you’ll be able to save down payments faster, enabling more rapid purchases to expand your rental property portfolio.
- Keep a robust emergency fund. Unplanned expenses can introduce chaos into even the best-planned portfolios. That’s why it’s important to keep a very robust emergency fund, so you can cover any and all expenses that arise, regardless of whether you specifically see them coming.
- Continuously increase tenant retention. Tenant retention is one of the most important variables for long-term success in managing rental properties. It dramatically cuts down on both vacancies and recurring expenses, while improving the consistency of your cash flow.
- Prioritize consistent cash flow. Cash flow isn’t always the most important consideration when buying a property, but it is very important for people looking to retire early from these investments. Early on in your early retirement journey, the consistent income will give you more money that you can reinvest in future properties. As you get closer to retirement, the consistency of the income will make it easier for you to plan your budget.
- Purchase both single family and multifamily units. Single family and multifamily houses both offer unique advantages. Single family homes are simpler, more accessible, and more available, but multifamily homes offer greater consistency, more revenue, and more potential upside. Consider adding both to your portfolio to capture the best of both worlds.
- Get exposure to different cities. Similarly, start diversifying your portfolio when you accumulate more properties. Houston, Austin, Katy, and other Texas cities may share some DNA, but they carry different risks and opportunities. If you have some exposure to multiple different cities, you’ll be better insulated from volatility and you’ll see much more consistent returns overall.
- Reinvest your proceeds. Finally, be prepared to reinvest your proceeds (and nearly all of them). It’s tempting to reap the profits and splurge on things you enjoy or upgrade your lifestyle, but if you take all your profits and reinvest them, your wealth is going to snowball much faster.
Whether you’re interested in retiring at 35, 65, or any age in between, rental properties in Texas can be valuable additions to your portfolio. Under the direction of a property management company, you can rest assured that everything is being taken care of properly. If you’re ready to learn what a Houston property management company can do for your real estate investment strategy, contact Green Residential today!