homeowners in the kitchen

Looking to Retire Early? Here’s How Homeownership Can Help

By Tanya Svoboda
September 2020

The early retirement movement is a fast-growing trend among young Americans. Financial Independence, Retire Early (FIRE) is a concept that was started over 20 years ago with the publication of the best-selling book “Your Money or Your Life.” For many FIRE pursuers, homeownership is a key part of their early retirement plans.

The coronavirus has revealed the fragility of investing in the stock market, and while the pandemic has also affected people’s abilities to pay their rent, low mortgage rates have helped keep real estate a viable long term investment option.

Investing in Real Estate Now Early Can Pay Off Down the Road

Over time, homeownership, when leveraged as a rental property, reveals several benefits to help you achieve your early retirement goals.

1. Mortgage Paydown

Paying for a second home in cash and renting it out will obviously yield the highest returns. But there are few among us who have the ability to do that. Even with a mortgage, if you buy the right property, you will see gains over time. Using your rental income to pay down your mortgage is one result of a smart home purchase.

Mark Ferguson, real estate agent, entrepreneur, and author explains, “If you get a loan when buying rentals, you only have to put 20 percent to 25 percent down, not the entire purchase price. Now, instead of spending $100,000 to $250,000 in cash to buy that rental, you are spending $20,000 or $50,000.” He continues, “Your payment would be about $400 a month with the $80,000 [loan].” In the right market, your rental may bring in $500 per month which may not seem like much, but for a $100,000 purchase, it’s a 30 percent return.

2. Cash Flow

Using the money you make from your rental properties, after all the expenses are paid, is your cash flow. This is money you can use toward retirement without chipping away at your savings.

While having access to cash flow is a great incentive for homeownership, it can be unpredictable. There may be times when your rental property lies vacant or unexpected maintenance issues pop up, which is why relying solely on cash flow from a rental property alone is not a guarantee for early retirement.

However, getting into the homeownership game early on allows you, as a homeowner and rental property manager, to understand the average cost to maintain the property and the average cash flow earned over time. Using this information, you can make solid decisions about your early retirement timeline.

3. Appreciation

While the real estate market will fluctuate over time, and appreciation cannot be guaranteed, it is likely that if you make a smart purchase, you will see the added value as the years go by. Data from Realtor.com’s Real Estate Data Library shows the median home price in March of 2019 was $309,000 nationwide which is more than 70 percent growth in less than 20 years. So, while appreciation can’t be guaranteed, history supports its likelihood.

4. Inflation

Rental property investments are unique in that they tend to hold up against inflation. Although rents do rise with inflation, your mortgage payment is fixed over time meaning what you pay stays the same while what you bring in increases. Where the inflation deteriorates the value of your money in the stock market, it actually works in your favor in real estate.

5. Tax Advantages

There are also tax advantages that come along with rental properties that support the idea of homeownership as a path to early retirement. According to the Internal Revenue Service (IRS) there are expenses that can be deducted on your tax return if you are receiving rental income from the dwelling. You can deduct:

  • Managing expenses such as advertising.
  • The cost of materials and supplies needed to maintain the rental property.
  • Necessary expenses such as interest and taxes.

Becoming a homeowner as a way to achieve your early retirement goals is possible. Working with a REALTOR® who has experience in your area can help you find a property that will work for you.


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