If you're hoping to retire early, you'll need to make smart investments to have the funds you need. Investing in real estate is one option you should seriously consider to help enable an early departure from the workforce.
Here are a few big reasons you'll likely want to put some of your money into real estate investments if you're hoping to have enough saved to enjoy a comfortable retirement at a young age.
1. You can diversify your portfolio and maximize returns
Since early retirement necessitates relying on your investment income for many more years than most people do, it's absolutely crucial that you amass a generous amount of income-producing assets. This means you'll want to maximize your potential investment returns while minimizing risk.
Building a diversified portfolio is key to doing that. If you invest in the broadest possible mix of different assets, you stand a better chance of earning healthy returns without suffering outsized losses during all the different types of economic conditions you'll likely experience during your many years of retirement.
Adding real estate to your list of investments is a great way to provide the necessary diversification. Whether you buy investment properties that you rent, flip and resell houses, or invest in REITs (real estate investment trusts) that give you exposure to real estate without requiring you to take physical ownership of property, you'll be gaining exposure to a different asset class that may perform well when other investments fall short.
Since REIts or even exchange-traded funds (ETFs) that give you exposure to the real estate industry are generally easy to invest in and require a minimal financial commitment, there's little reason not to add some to your investment mix when you're trying to build a portfolio that will see you through many years of retirement.
2. You can develop multiple income streams
If you're planning on relying on your investments to support you for many years, you definitely don't want to have all of your eggs in one basket, because if one income source doesn't pan out, you could find yourself in dire straits and struggling to get back into the workforce or live on less. The more sources of income you have, the greater the chances that you'll have plenty of money to live comfortably.
Real estate investing allows you to develop an additional income source that can help you to cover costs as an early retiree.
REITs are known for paying high dividends, so you can benefit from having regular income that helps you pay your bills as a retiree. Or if you directly own rental properties, the rent you earn from them will also be a good source of funds that can supplement the money you get from your brokerage accounts and future Social Security.
Ultimately, you'll need to evaluate what types of real estate investments you're comfortable with and make an informed choice about how much of your retirement funds should be invested in the real estate sector. But most people will find that putting some of their funds into gaining exposure to real estate is a smart move that maximizes the chances early retirement will become a reality.