The Key to Early Retirement is Passive Income!

beachWe have all been told to go to college, get a good job, save money for retirement and retire at age 65. The traditional method for saving for retirement is to invest in a 401k or IRA for 35 years and hope you saved up enough money to last the rest of your life.  In order to make your money last in retirement, usually you have to be frugal and spend less money that you did before you retired.  I have more than a few issues with this plan and I chose to use a completely different plan for my retirement.

Retire at 65?  No thanks!

I don’t want to retire at 65, I want to retire at 45 or sooner! Getting an average job and putting money in the stock market or a mutual fund is not going to let you retire at 45.  You either have to get a fantastic job, start saving at 15 or live extremely frugal before and after retirement.  In order to know how much to save for retirement you have to guess how long you are going to live and how much you will need to live on. How depressing is that? I don’t want to spend my final years on earth living on a strict budget hoping I don’t outlive my savings.

There is a better way!

There is an alternative to the conventional retirement plan. It’s called passive income!  Passive income is money you make that you aren’t working to get. It can come from a business you set up to run without you, from interest and dividends or from rental properties!

If you build up enough passive income you don’t have to worry about how outliving your retirement savings. You will have income coming in by doing minimal or no work every year for the rest of your life.  The best part about passive income is you are not eating away at your principle while the money is coming in.  Rental properties provide cash flow and they usually appreciate at the same time.  The wealthiest people in the world have utilized this technique for centuries.

Rental properties can be the best route to passive income

It takes money and discipline to locate and purchase your first investment property and create passive income.  However, The more you buy and the sooner you get started the easier it gets.  In my models I project a passive income of $250k to $350k a year after 10 years.  This takes buying 3 to 4 properties a year for ten years. This can be very difficult to accomplish for many people but it is possible with hard work, a budget and being willing to act fast. Even if you can only afford one property a year for ten years that can equal $75k to $100k a year in passive income.  Try plugging your current savings plan into a retirement calculator to see how long you will have to save to provide $100k a year for retirement.

One of the reasons I can achieve these income figures is my current rentals all make at least 24% cash on cash returns.  Those returns do no include appreciation, equity pay down or tax savings.  Check out my complete guide on investing in long term rental properties to get more information on how I buy properties, how I finance them and numbers on my rentals.

I don’t want to penny pinch

Most retirement blogs are based on living frugally and making money last.  Personally I want to buy as many rentals as possible to be able to retire as early as possible with as much passive income as possible. I don’t want to penny pinch and worry about what I can afford. I want to be happy and be able to afford whatever I want for my family and myself. I hope this blog can help you get that as well.

What are you doing to retire early and are you planning on using passive income?

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12 responses to “The Key to Early Retirement is Passive Income!

  1. This site has a lot of great information. I look forward to more. How does this strategy fair in different market environments? What if housing prices drop? What if interest rates go up? These may be good topics for future articles.

    • Thank you for the comment jagesso!
      Those are very good questions and will be covered in future blogs. The short answer for now. I base my strategy off cash flow and rents coming in compared to my mortgage. If I buy a house right, I will still cash flow even if market prices drop or rates increase. Rents may drop a little bit, but on my properties I have plenty of room to account for rent drops. Rates are crazy low now and that is one reason I am trying to buy as many rentals as possible. Most likely rates will go up in time, but there will always be deals out there and opportunities to cash flow. The only way to get into real trouble is if you buy a home at market value, don’t have any cash reserves and are forced to sell the home in a down market because you need money for living.

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