Many people aspire to leave the workforce ahead of their peers, and at a relatively young age. But doing so requires a lot of careful planning.
Not only do you have to start saving and investing from an early age, but you also have to make sure you're putting your assets into accounts that will be accessible to you when you need them. Funding a 401(k) or IRA, for example, is a smart move due to the tax benefits involved. But you can't tap one of these plans without penalty until age 59 1/2. If your goal is to retire in your early 50s, you'll need another income source to rely on.
That's where real estate comes in. If you're willing to take some risks and put in some time, you may enjoy a lot of success with real estate investing -- so much so that you're able to end your career on your preferred timeline.
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How to get wealthy with real estate
There are different ways you can dabble in real estate, some of which involve owning physical properties and some of which don't. Buying actual properties can be risky. You never know what sort of maintenance a home might need over time or what costly repairs might pop up. You also run the risk of your property taxes rising, thereby adding to your expenses.
But the great thing about real estate is that it has a tendency to appreciate in value over time. And sometimes, property values can increase in a relatively short amount of time.
Take home values over the past year. During the third quarter of 2021, home prices rose 18.5% on a year-over-year basis, according to the Federal Housing Finance Agency's House Price Index. Of course, right now there's a reason home values have soared so rapidly: low supply and high buyer demand fueled by historically low mortgage rates.
The point, however, is that buying income properties could be your path to an early retirement. You can purchase homes, rent them out to tenants to cover your mortgage payments, and then, ideally, sell those homes at a profit down the line. You can then invest those sale proceeds, all the while tapping them as an income source if you're ready to retire but can't yet access your 401(k) plan or IRA. You could also just hold onto those properties and use your rental income to pay your bills once you wrap up your career.
Now if you don't have the appetite for owning physical properties, REITs, or real estate investment trusts, are a good option to fall back on. REITs are companies that derive income from real estate. Industrial REITs, for example, operate warehouses and distribution centers and bring in revenue from those operations.
The great thing about owning REITs is that they're required to pay out at least 90% of their taxable income to shareholders as dividends every year. And because REIT movement doesn't always mimic stock market movement, they're a good way to diversify your asset mix.
An early retirement could be yours to enjoy
Retiring early is a goal a lot of people aspire to but don't achieve. If you're serious about leaving the workforce at a relatively young age, it pays to consider how real estate might help you do that.
