Investment properties can provide a road to early retirement. Here’s a fairly typical scenario:

A married couple begins investing in rental properties in their late 30’s. Each home they rent brings in $500 to $700 in net profit per month. By the time the couple hits 45, they own several properties which earn close to $3,000 per month after expenses. Rather than spending this money, they reinvest it in other types of low- and high-yield investments. The combined property and investment income virtually ensure that they can retire completely before the age of 55.
The above scenario sounds ideal, but there are risks involved. You can avoid most of them by asking yourself three fundamental questions:

1. If something goes wrong with the property, will I have the money to fix it?

Even after a careful inspection, you might discover problems. A roof leak could cost thousands of dollars to repair. Make sure you have the extra money to cover unexpected costs.

2. Will I be able to find good tenants?

Making money on a rental property depends on finding tenants who pay their rent each month and don’t damage the property. Don’t assume that you’ll always be able to find them. Keep enough cash on hand to deal with tenant issues and to cover the mortgage if the home has to sit empty for several months.

3. How important is it to balance rental income against capital growth?

Sooner or later, you’ll probably want to sell your rental property and re-invest the gains. While beginner investors tend to think only in terms of rental income, more experienced investors consider the appreciation of the home over the long-term. Buying a lesser house in an area where demand is high could actually earn you more.

Live the Dream, Not the Nightmare

Smart real estate investments can put you on the road to early retirement and a great life. But hasty investments can turn the dream into a nightmare. Balance the risks of investing against the rewards, and be sure to follow the three tips above before making your first property investment. To learn more, take a look at our guide to property investment.