Q: I just finished “You Can Retire Sooner Than You Think”. I have a question regarding how we go about deciding if we should invest our extra savings (above our 20% per year, $35,000 in my 457 and 403B) in the market versus purchasing rental real estate property. We are a couple in our mid 40’s with 5 years left on our mortgage and $700,000 of savings in the market (Brokerage accounts, 403B and 457 plans. We hope to reach financial independence within the next 5-10 years, so that I can leave my high pressure job.
A: Thanks so much for reading, “You Can Retire Sooner Than You Think.”
The decision to invest discretionary savings into either a rental property or securities takes several factors into consideration.
Given that you are so close to retirement (5-10 years), the most relevant factor for you will be your retirement budget.
Between the down payment (from savings), monthly payment, and periods of vacancy when your rental is not rented, what can you truly afford?
There are other options that don’t require the substantial upfront costs such as investing in publicly traded Real Estate Investment Trusts (REITs).
If you are looking for a consistent guaranteed income stream you can always consider a deferred fixed annuity.
It is important to start with the end in mind, ask yourself what it is you are trying to accomplish by investing in a rental property. Then develop options and a plan around that.