Real Estate

Early Retirement with Real Estate - FIRE

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  • Oct 22nd, 2018 10:31 pm
[OP]
Newbie
Sep 10, 2008
4 posts
2 upvotes
Toronto

Early Retirement with Real Estate - FIRE

Hi Everyone,

I have been reading a lot about FIRE - Financial Independence Retire Early on the web. And wanted to know if anyone had any good strategies on using real estate investment to retire early.

One of the ideas that I have been contemplating is in 10 years when one of investment properties will be paid off is to either ( I am hoping to retire the same time)
a) Keep the property and obtain $1,500 net of expenses each month
b) Sell the property (As without leverage, stock returns should come out ahead) - max out RRSP/TFSA
c) Sell the property and pay off remaining anticipated principal mortgage ($300K) and invest in another property.

I anticipate obtaining $500K net of expenses once sold, (except taxes, which hopefully will be somewhat mitigated as I will be retired and not earning an income)

Look forward to the feedback
14 replies
Member
Jan 27, 2018
287 posts
222 upvotes
Good strategy. I would say keep the condo once paid off and keep taking the rent and use that to pay down remaining debt faster or refinance and pay down debt. Your rent income will be double or triple in 15 to 20 years. It will be a cash cow Cow Face. Never sell.
Deal Expert
Aug 2, 2001
16576 posts
6703 upvotes
In my mind real estate alone is too risky for retirement income. Having SOME retirement income as real estate is fine, but having ALL retirement income as real estate seems a little much. It's all invested in a single type of investment stream, and one that's not as secure as most think.

When you're reading through a lot of the FIRE forums you will notice many people talk about shifting their investments into more fixed income streams the closer they get to retirement. I have seen some even say that your age dictates the percentage you are invested in fixed income (e.g. at 70 years old you have 70% in fixed income).


So what I would recommend is looking at the risk you want to take on with your retirement income and how a large investment in real estate fits into it. For example if you had a real estate portfolio worth $1,000,000, stocks worth $1,000,000 and bonds worth $500,000 that's far different than a real estate portfolio worth $1,000,000 and $250,000 in stocks. Without knowing your whole portfolio I think it would be premature for anyone to say whether this is a good idea.
Sr. Member
User avatar
Nov 1, 2001
881 posts
272 upvotes
Toronto
TrevorK wrote: In my mind real estate alone is too risky for retirement income. Having SOME retirement income as real estate is fine, but having ALL retirement income as real estate seems a little much. It's all invested in a single type of investment stream, and one that's not as secure as most think.

When you're reading through a lot of the FIRE forums you will notice many people talk about shifting their investments into more fixed income streams the closer they get to retirement. I have seen some even say that your age dictates the percentage you are invested in fixed income (e.g. at 70 years old you have 70% in fixed income).


So what I would recommend is looking at the risk you want to take on with your retirement income and how a large investment in real estate fits into it. For example if you had a real estate portfolio worth $1,000,000, stocks worth $1,000,000 and bonds worth $500,000 that's far different than a real estate portfolio worth $1,000,000 and $250,000 in stocks. Without knowing your whole portfolio I think it would be premature for anyone to say whether this is a good idea.
any recommendations for good FIRE forums
Deal Expert
Aug 2, 2001
16576 posts
6703 upvotes
ranjeet2000 wrote: any recommendations for good FIRE forums
I personally read through the Reddit one (https://www.reddit.com/r/financialindependence/) frequently - however I see people reference Mr Money Moustache all the time:
https://forum.mrmoneymustache.com/index.php

There are also FatFIRE (https://www.reddit.com/r/fatfire) and LeanFire (https://www.reddit.com/r/leanfire) on Reddit too. I don't find these as valuable - to me a lot of people are dying to "label" their FIRE plans. FIRE is FIRE to me, whether you are pulling $2000/mo or $10,000/mo as your retirement income. They have other acronynms (BaristaFIRE, CoastFIRE) but again I am finding the value of these a lot less than the general FIRE forums.


It's fun to read through the forums but A LOT are not applicable to Canadians. The Canadian one is very quiet (https://www.reddit.com/r/fican/). For Americans looking to retire healthcare is their biggest expense (it sounds like $10K+/yr for some), plus their retirement accounts are much different (Roth, 401K, etc.). FIRE is merely about making a plan as to when you want to retire, running the numbers required, then following through on the plan. You gain financial independence and can then choose what you want to do. Investing early, investing lots, and letting compounding work is the key. Which is common sense (but much harder to follow through with).
Sr. Member
Oct 8, 2003
621 posts
249 upvotes
Toronto
I’m not a mortgage expert but you can also consider a reverse mortgage and pull equity out of the property over time. If you can hold it as long as possible and if you expect rents to go up I’d say that can be one of the best options.
Realtor at RE/MAX Professionals focused on the Toronto Condo Market and Real Estate Investing
Deal Fanatic
User avatar
Jan 6, 2011
5833 posts
1358 upvotes
GTA
Keep and sell in 7yrs. Market will correct with RE, wait for correction then roll into eqt. Wait few yrs when RE bears starting to bicker about rent vs buy on RFD, roll into house, then just hold.
Deal Fanatic
Feb 1, 2006
9609 posts
818 upvotes
Muskoka
I have an AirBnB property, provides a nice side income for us. As Trevor says, we would never make it the major part of our retirement income. Maybe we will keep forever and take income, maybe we will change our mind and sell, we'll do whatever makes most sense as time passes.
Jr. Member
Sep 10, 2009
136 posts
42 upvotes
A common theme I see with investors making big cash-flow is that they all started with student housing. It seems the main markets that are still profitable is London and Windsor. I question how much appreciation is for student rental homes though. It's harder to get a loan for a student rental house, unless you buy a regular home and then convert it. Also when selling, you will only be attracting investors looking for a student home, unless you plan to convert it back to a normal house.
Deal Addict
Jan 17, 2006
2041 posts
2094 upvotes
Toronto
mtran66 wrote: I question how much appreciation is for student rental homes though. It's harder to get a loan for a student rental house, unless you buy a regular home and then convert it. Also when selling, you will only be attracting investors looking for a student home, unless you plan to convert it back to a normal house.
Student rentals are more about positive cash flow than appreciation, you should not expect appreciation at all, may be in line with inflation, more likely it will be depreciation as result of wear and tear.
Deal Fanatic
User avatar
Jan 6, 2011
5833 posts
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GTA
TrevorK wrote: FIRE is merely about making a plan as to when you want to retire, running the numbers required, then following through on the plan. You gain financial independence and can then choose what you want to do. Investing early, investing lots, and letting compounding work is the key. Which is common sense (but much harder to follow through with).
What's special about such plans? and how does it relate to RE?

Just curious.
Banned
Feb 23, 2009
1670 posts
1495 upvotes
Oshawa
ilim wrote: Student rentals are more about positive cash flow than appreciation, you should not expect appreciation at all, may be in line with inflation, more likely it will be depreciation as result of wear and tear.
While it's true any rental should be about cash flow this post is completely false.
Good student rental RE can easily appreciate as rents increase.
Rent can always be adjusted higher as tennants always leave. RE value is directly proportional to income.
Get rid of carpet and use good quality laminate flooring.
Choose good students that don't trash the place and you won't have wear and tear problems.
My Hamilton student rental has appreciated more than 60% in 5 years.
That's better than inflation.
Sr. Member
Oct 13, 2011
756 posts
481 upvotes
ilim wrote: Student rentals are more about positive cash flow than appreciation, you should not expect appreciation at all, may be in line with inflation, more likely it will be depreciation as result of wear and tear.
Student rentals are almost like bond, an increase in interest yield will have a significant impact on its value. I think the boat in getting into student rental has sailed, I will be weary for those who are getting in at this moment in time.
Last edited by Rothesay on Oct 23rd, 2018 7:55 am, edited 1 time in total.
Deal Fanatic
Feb 22, 2011
7243 posts
7646 upvotes
Toronto
I don't think a rental property is perfectly aligned with FIRE because it still requires work, unless you pay someone to manage it for you.

That said I think it's great to have different investments and diversify. Personally I would sell it when I retire so I don't have any worries.

It's really a personal preference but any investment vehicle can get you there. It's more about how much you save and how much you spend.
Deal Expert
Aug 2, 2001
16576 posts
6703 upvotes
LongLiveRFD wrote: What's special about such plans? and how does it relate to RE?

Just curious.
This is where I think the FIRE community does itself a disservice because it tries to have 38 different definitions (CoastFI, BaristaFI, LeanFIRE, FatFIRE, FIRE, etc.), so it can be hard to explain it all.

FIRE is about gaining your financial independence (FI) so that you can choose to do something like retire early (RE). Typically you associate a FIRE plan with obtaining the FI part relatively early in life, before an average person would be expected to. You are expected to do things like reduce expenses and increase savings while on your FIRE journey. You plan for a safe withdrawal rate and how many years to sustain it after retirement. This is what makes FIRE unique to people; your goal is to gain your financial independence (FI) early on by doing things "ordinary" people wouldn't so that you can decide when to retire early (RE).

Now what do I think? FIRE is really just making a plan for retirement, committing to the plan, and monitoring your progress. The FIRE community likes to think (my opinion) their difference is in the sacrifices they make for their retirement goal and the primary focus on their finances is on FIRE, whereas others don't focus on the sacrifices (as we all sacrifice something to save money) and their primary thought when dealing with finances is not about FIRE.

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