Think of real estate as a retirement plan - Retire earlier than 65
It's difficult to determine exactly how much money you need to retire at or before the age of 65. Is $1 million enough or do you need $2 million? What if you retire at age 60 with $2 million in your 401K with an exact plan of how to disperse it over the years, but then the stock market drops by 40% over the next 2 years? Do you have a plan for that too?
Real estate makes it much easier to think about the monthly income rather than the exact market value of your 401K, Google or FaceBook stock, etc. You could decide to start collecting the dividends instead of reinvesting them, or to start collecting 4% of the total sum in hopes to continue making an average of 10%, however those are guesses and hopes.
Real estate income is set up when you set up the lease. Before looking for a real estate investment, start by looking at the rental rates in your area. If you want a 2 bedroom flat with one bathroom, then search for those rentals as if you are going to sign a lease yourself. If the average rental for that type of condo is about $1000 then you know you need to have costs below $750-800 to make a profit.
The monthly profit should be determined based on the amount you're investing. For example, invest $20,000 into a $100,000 condo and you will need to make $2,000 per year to yield a 10% interest rate, without including appreciation. If you also need $10,000 worth of renovations, then you need to make $3,000 per year for a 10% return. If you find a lender that allows you to put 10% down then you need to make $1,000 per year to return 10% on $10,000. Likewise, if you have $100,000 to buy the condo in cash, you'll want to make $10,000 per year to make 10% on the invested amount, however, you won't have a mortgage payment in this case so it will automatically increase your monthly profits.
Continue running the calculation to find a condo or house that yields 10% or more. Start with the first home on the market within the town or city of your choice. As you continue to run the calculation you'll find the best annual rate of return in your favorite city and there is almost always a condo or house available for 10%+ returns.
Finally, how much do you need to make per month to quit your job (retire)? If the number is $5,000 then multiply that by 12 to get the annual amount, then multiply it by 10. In this case, ($5000 x 12 x 10 = $600,000). If and when you're IRA, for example, reaches $600,000 then you know that you could use that money as down payments and renovations for condos and houses that yield 10% per year ($60,000) and divide that by 12 to find that $600,000 in cash should give you $5,000 per month in real estate rental income, in which you can retire.
The earlier you start the faster it compounds. For instance, instead of waiting for your IRA to reach $600,000, buy your first home much earlier than that. Then the rental income can be reinvested into your second home, and then the 2 rentals can be reinvested into your 3rd home, and so on.
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