For many, early retirement isn’t about getting rich quick, it’s about “buying back your time.” That was the case for Akaisha Kaderli who retired at the age of 38. Using your home and your status as a homeowner is helping many ambitious individuals buy back their time and retire early.
Buying Early Leads to Late Life Savings
If you’re hoping to retire early, it pays to plan ahead. The average retiree can expect nearly 35% of their annual expenses to go toward housing. This includes mortgage, rent, property taxes, insurance, and repairs.
“If you’re able to buy a home in your mid-30s with a standard 30-year mortgage, by the time you reach retirement - or even early retirement (any age before 65) - you’ll have taken a big chunk out of this large expense,” notes Zimmerman Group agent Megan Ryan.
The earlier you can buy a home, the sooner you can begin paying down your mortgage, proving homeownership is something Gen Zers and Millennials may want to pursue sooner than later.
Downsizing Allows You to Cash in On Your Home’s Appreciation
As you close in on retirement you have the distinct advantage of selling your home and renting for less or downsizing for a smaller monthly payment. This is a chance to cash in on your equity by renting or buying a smaller, cheaper home. Then, you can use excess cash to offset your living expenses or provide some additional peace of mind for life’s unknowns.
Retirees Who Sell Can Tap Into Tax Advantages
Your home is considered, in the eyes of the taxman, as a capital asset. That means it’s subject to capital gains tax. However, the Taxpayer Relief Act of 1997 made most homeowners exempt from this tax. Prior to the Taxpayer Relief Act of 1997 homeowners had to roll the entire value of their home sale into the purchase of another home to avoid paying this tax.
Now, if you’re single at the time of your home sale you won’t have to pay capital gains on the first $250,000 of the profit and married couples are exempt up to $500,000. The Investopedia article Capital Gains Tax on Home Sales is a great resource for anyone looking for more ways to avoid capital gains tax.
Using Your Real Estate Investment as a Rental Property is a Smart Bet
Investing in the stock market can yield big returns, however, as 2020 has shown us, the strength of the market is fragile. Real estate, when used as a rental property, is a more reliable long-term investment.
History has shown us that, over time, home values appreciate even if the economy does not move upward at a steady pace. Again, we can look to 2020s trends for proof. Despite a sharp economic decline, single-family home and condo sales saw a 34.7% return on investment compared to the original purchase price which is up from 2019 and 2018.
Additionally, rental properties, when used as investments are typically unaffected by inflation. Rents may rise, but your mortgage payment remains fixed meaning your income rises while our output stays the same. That’s more money in your pocket and one step closer to early retirement.
Whether you’re days or decades away from retirement, homeownership can get you there sooner.
If you’re wondering how homeownership can help YOU achieve something greater contact us today.
