And spend your days on an exotic beach? Sounds too good to be true, eh? It need not be. It’s very possible to achieve this with the right strategy and planning.
Let’s consider the event of “retirement”. There are 2 ways to “retire”, which is considered a time where we stop actively working to earn an income. This first way is to build up a corpus, so we can live on our savings. The challenge here is to know how much we may need, and for how many years we may live, especially given rising prices, medical costs, and longevity trends.
The second option is to build up streams of passive income. Rental income is the surest form of passive income, where not only do the rental returns increase over time, your capital (property value) also increases, especially in a country like India. Its also one of the most safest forms of investment.
Earlier, the stock market helped you retire. But you never really have full control of your investment. It’s often said “Try buying a stock below market value. It’s impossible.” Well, you can buy a stock that’s undervalued but not one below market value. With rental properties, you can buy the property below market value. You can choose what to repair, how to finance the property and you rent the home. You can hire a property manager to perform these tasks.
In stock markets, you do not live off cash flow. You live off interest and appreciation your stocks have made for you over some years. When you start taking money out of your retirement accounts, you stop making as much money. On the topic of retirement, it is often said that if you have to die on stocks and shares you will have to estimate with retirement calculators. With rental properties, you do not have to guess when you die because cash flow comes every month.
Even Robert Kiyosaki, a magnate who believes that people should buy ‘investment properties’ to earn monthly, as opposed to property to live in, believes that the key is multiple properties. He espouses ‘buying properties for nothing’ and using the power of equity to drive infinite returns. Literally it does not mean ‘nothing’ but of course at an abysmal cost. “For an apartment, look for one in an area where with good job growth,” says his partner Ken McElroy. Then identify operationally underperforming properties with value add ability. Once the value of the property gets increased, they refinance the property, pay back all the investors and redeploy the money into a new property. Effectively, they get the property for free because they are using equity from their other property to purchase it. Because of the increasing operating income of the previous property, they continue to realise cash flow.
All this may sound a bit uphill to you, however, we hope the guidance provided will help you feel your way in as you start to understand it better. Not all us can be a Robert Kiyosaki, but we can definitely hope to retire on rent, if we start planning early. And oh, btw, its never too early ;)
Happy retirement planning!