Early Retirement Through Multifamily Real Estate Investments [Beginner’s Guide]
Multifamily real estate investing can financially secure your future and pay off rich dividends, if done right. There are several other perks too besides the financial freedom post-retirement.
The idea of early retirement from an active professional life seems alluring to most of us. But, very few are able to plan for it. Reason: lack of proven ways! A large number of people fall back after losing their investment in stock markets and volatile instruments including forex and crypto-currency.
Regardless of whether you intend to cash-in early and retire, or whether you simply want to plan for a financially secure retirement, multifamily real estate investment is a novel way to go about it.
Why multifamily real estate investing is getting increasingly popular?
The most basic and pivotal idea behind a multifamily real estate investment is to have a steady source of income; one that pays off for your retirement plans of course. However, there is more to it than just that. The smartest real estate investment plans offer many financial leg-ups that not only pay for your lifestyle post-retirement but can well enough prepone your retirement should you play your cards right.
For instance, there are several tax advantages to owning a rental property that make it a lucrative investment opportunity. Some may not be aware of the fact that expenses such as price depreciation and insurance are two legitimate ways to incur tax deductions. Also, rental property expenses are tax-deductible. Tax advantages such as these contribute to your rental returns. Long term property holdings usually appreciate in value, which further boost one’s returns from investment in property. With good maintenance and after-care, the value of any realty asset appreciates manifolds over time; so, you can expect your investment to be more profitable in 10-15 years.
Does multifamily real estate investment really provide the best retirement nest-egg?
A lot of prudent investors ask the right questions to their peers and professionals before testing the water with their first multifamily real estate investment. For most, it seems too good to be true that multifamily realty investments are more profitable than single family realty investments or even investing in stocks for that matter.
First and foremost, a multifamily home is much more efficient in helping you spread out vacancy rates. A multifamily home always gives you more options to pitch to prospective tenants and thus can be much more profitable than a single-family real estate, should you finance the former. Single family homes are easy to acquire, easy to maintain, and care for, both in terms of labor and finance. However, multifamily homes raise the possibility for income even in a bad market.
Secondly, multifamily homes CAN grant you more financial security with regards to a post-retirement plan. Once you have sorted your finances, made up your mind, and sought a suitable multifamily home asset for investment, you control it by yourself or with the help of a professional real investment agent/agency dedicated to finding the best rental or resale deal for you on the market. As the principal owner you take the final call on the rental fee, the tenant, the term for rental leases, etc. Comparatively, market stock gives you much lesser control over your own investment. The value of the stock goes up and down on the whims of the market; there is a fair chance that by the time you retire in due course, the stock value might not even be worth as much as your original investment!
Three steps to smartly plan your multifamily real estate investments for retirement planning
Once you have resolved any dilemma about whether a multifamily real estate investment is more profitable than a single-family alternative or stock options, it is time to carefully chalk out how to go about the investment itself. The following few steps outline the meat and potatoes of a smart multifamily realty asset investment:
Planning involves getting you finances in order, deciding how much of a financially solvent retirement plan you want, and how soon you want it. These parameters dictate your financial goals with respect to the investment property. Make sure you set realistic goals for your property-rent control
2. Choosing the right location
Research is paramount to choosing the right real estate asset for investment. It is always advisable to invest in asset located in the same city where you wish to retire; it makes management and maintenance much more simpler. Then comes the task of choosing the optimal location for property investment. Ideally this requires researching convenience factors such as civic amenities in the area, the quality of the neighbourhood, view and orientation, nearby commercial facilities, etc.
Investor-centric real estate agencies usually maintain listings with these parameters in mind, so it may well benefit you to hire one for the task. Agents also assist you with the cap rates, occupancy rates, rental income, etc. prevalent for any given location.
Financing a multifamily real estate investment requires some careful number-crunching and foresight. Now that you have realistic investment goals and a retirement plan at hand, you need to sort out the finances. Some cogent factors to consider are- how much you need to charge in rent, how many units do you need to own and rent-control in order to meet the financial goals of your retirement plan.
Consultation with the agency can certainly play a factor in choosing an optimal location within your budget so that you do not have to turn to any lending institution for assistance. Analyzing the cash flow, CoC return, cap rate, and the rental return can certainly give you some insight about how much you can lend without worrying about interest.
Exercising caution in multifamily real estate investments for retirement
Investing in multifamily real estate for retirement financing requires you to ponder long and hard on the short-term and long-term goals. The short-term goals are that you need a steady flow of rental return to ensure you are adding to your savings account. Some of that money will have to be re-funnelled back for maintenance (tax deductible) and realty agent fees. The long-term plans will always have to be crafted such that your rental returns appreciate over time. At least to the extent that even if you do not outright meet your retirement goals with your first investment, you can still go ahead and invest it in more than one asset to double your returns.
Looking after your own investment property also requires a fair amount of elbow grease, even with a realty agent or agency handy. You will have to face a lot of tenant tantrums by yourself, mediate disputes between tenants, deal with difficult tenants, update rental contracts with appreciation in property value, marketing the property, etc. Of course, the second phase of any of these challenges is to seek consultation from your real estate agency for their experiential advisory.
Most newcomers to the field of multifamily real estate investment usually collaborate with individuals with similar goals; approaching such heft investment deals as a group collective can ease your financial burden and fortify your financial planning, and definitely the manual leg-work. Joining such a group can also give you access to a network of lawyers, agents, accountants, property managers, handymen, and other such pertinent services.
So, play your cards right; multifamily real estate investment might just be what you need to smooth sail towards a luxurious, early retirement.
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