Key Points
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It’s important to diversify your assets ahead of retirement.
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Real estate can be a great retirement investment, but make sure to understand the risks involved.
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If you decide you don’t want to own a rental, there are less risky ways to invest your money in real estate.
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Most people who aim to retire early have to start planning for it ahead of time. And it’s clear that this Reddit poster is thinking ahead.
They’re in their early 40s with a $3 million net worth. Of that, $750,000 is in their 401(k) plan and another $750,000 is in stocks, presumably in a taxable brokerage account since the poster doesn’t say otherwise.
The poster also owns a $1.5 million home that’s paid off which brings in $35,000 a year in rental income. They want to know if they’re able to retire in a few years based on this asset mix, or whether to unload the rental.
If they work another few years, they’re expecting a nice exit package of around $2 million in stock, which will help, too.
It’s a good position to be in. But the poster may not want to rush to get rid of that rental.
Why real estate is a great retirement investment
One thing the poster has clearly done right is diversify their portfolio. They don’t share how their 401(k) is invested, but at the very least, they own a bunch of stocks and physical real estate in the form of a rental home.
Real estate has the makings of a fantastic retirement investment, especially in the case of a paid-off home. That’s because it offers two opportunities to make money.
First, if you own real estate, the value of your property can increase over time. When you finally sell, you could end up with a nice payday.
Secondly, real estate can serve as a steady source of ongoing income. Here, the poster gets an impressive $35,000 a year out of their rental. That’s a nice chunk of income, so they may want to hang onto the home and continue to collect that money while the value of the property keeps appreciating.
The case for selling real estate
One thing the poster does not share — and it’s a big piece of the puzzle — is how much the rental home costs to own.
A $35,000 yearly paycheck sounds impressive. But if the home costs $20,000 a year in property taxes and another $12,000 in insurance and maintenance, that changes things quite a bit.
Also, once the poster retires, they may not want the risk of owning physical real estate. Stocks can lose value, but they won’t force you to shell out thousands of dollars to fix the heat or replace a roof. Once the poster starts living off of savings and investments, they may want to lower their risk profile and sell the rental.
If they do, they can stay invested in real estate by switching over to REITs, or real estate investment trusts. They could specifically buy into residential REITs, which make money from rental income. This could be a good way to remain diversified without having to take on the risk — or work — of owning actual real estate.
Either way, the poster should talk through their options with a professional who can help them weigh the pros and cons. A financial advisor can review their portfolio broadly and make suggestions based on the poster’s spending goals and appetite for risk.
The post Early 40s with a $3 million net worth, but heavily invested in one rental – what should I do right now to ensure a successful retirement? appeared first on 24/7 Wall St..
