If you’re hoping to retire early, you’ll need to make smart investments to get the money you need. Investing in real estate is one option that you should seriously consider to help enable early departure of the workforce.
Here are some important reasons why you might want to put some of your money into real estate investments if you’re hoping to save enough to enjoy a comfortable retirement at a young age.
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1. You can diversify your investment portfolio and maximize returns
Since early retirement requires relying on your investment income for many more years than most people do, it is critical that you accumulate a good amount of income-producing assets. This means that you will want to maximize your potential investment returns while minimizing your risk.
Building a diversified portfolio is the key to doing this. If you invest in the largest possible mix of different assets, you stand a better chance of earning healthy returns without experiencing huge losses during all the different types of economic conditions you’re likely to encounter during your many years of retirement.
Adding real estate to your portfolio is a great way to provide needed diversification. Whether you buy investment properties to rent, flip and resell, or invest in real estate investment trusts (REITs) that give you exposure to real estate without requiring you to acquire physical ownership of the property, you will gain exposure to a different asset class that may perform well when other investments are short.
Since real estate investment trusts or even exchange-traded funds (ETFs) that give you exposure to the real estate industry are generally easy to invest in and require minimal financial commitment, there is no good reason not To add some to your investment mix when you are trying to build a portfolio that will see you through many years of retirement.
2. You can develop multiple income sources
If you plan to rely on your investments to support you for many years, you certainly don’t want all of your eggs in one basket, because if one source of income doesn’t work out, you may find yourself in a bind of struggling to get back into the workforce or live on less. The more sources of income you have, the more chances that you will have a lot of money to live comfortably.
Real estate investing allows you to develop an additional source of income that can help you cover costs as an early retiree.
REITs are known to pay high dividends, so you can benefit from having a regular income that will help you pay your bills as a retiree. Or if you own direct rental properties, the rent you earn from it will also be a good source of money that can supplement money you get from Mediation and Social Security accounts in the future.
Ultimately, you will need to evaluate the types of real estate investments you feel comfortable with and make an informed decision about how much retirement money to invest in real estate. But most people will find that putting some of their money into dealing with real estate is a smart move that increases the chances of early retirement becoming a reality.