How Many Real Estate Investments Do You Need to Retire?

The smart goal when you start working is to plan and secure your future, which is why most people turn to investing in real estate. While this is a good plan, simply having one real estate property to profit from when you’re in retirement might not be as workable as it is, especially if you factor in the lifestyle you want when you retire.

In short, what you need to do is to run the numbers to get an accurate estimate of your day-to-day and annual expenses in retirement. Then, you can determine how to fund that lifestyle using your investments in real estate. Using this projection, you can know as well how many rental properties you’ll need to have a comfortable retirement.

READ ALSO: Retirement Properties in Cambodia: Where is the Best Place to Settle Down?

While you can use retirement calculators online to get an estimation of what you’ll need to retire, you can easily calculate it if you consider the following:

  • Housing costs (Maintenance, repair, rent, etc.)
  • Food
  • Clothing
  • Leisure
  • Miscellaneous (Hobby costs, etc)

Once you get the estimate, you can start determining how many real estate properties you will need. Continue reading below to know the right formula for rental projections for your retirement.

The real estate retirement formula

Determining how many rental properties you need for a comfortable retirement depends on your lifestyle. This means for some, one property works while others need two or more. To figure it out, you need to get an estimate of the profit you’ll get from a property as well as the money you’ll have to invest in real estate for this. The basic retirement formula then looks like this:

Retirement expenses = Money invested x total rental profit

Using the formula above, it’s easy to determine the total retirement expense money you’ll get from your real estate properties after deducting your property expenses from it. This formula works best if you’ve already invested in a rental property so you know the total retirement income you get from your current investments.

For example, if you have invested $500,000 into real estate properties and you get a total net rental yield of 10%, then the total money you can spend in retirement using this is $50,000, following the formula above. The computation looks like this:

$500,000 x 0.10 = $50,000

Take note that in the formula above, you need to calculate for the net rental yield, where you’ve already deducted property costs, rather than gross rental yield which doesn’t include expenses. 

Additionally, if you move the variables above, you can determine exactly how many rental properties you’ll need to get the retirement income you want and the formula then would look like this:

Money invested = Retirement expenses / total rental profit

For example, you’ve determined that you need $80,000 annually for your retirement and you found properties where you get 10% rental yield, then the amount you need to invest in properties would be $800,000. The computation following the formula above looks like this:

$80,000 / 0.10 = $800,000

In this case, it’s up to you if you want to make this investment in one, two or more properties. Take note though that while Cambodia has the highest average rental yield at 5.33% in Southeast Asia, you would need more than just one property to get around 10% return on profit. You can also get higher rental yields depending on what properties you invest in and where they are located so make sure to make wise investment decisions in real estate.

Take the first step towards securing your retirement by investing in real estate! Contact us here or via Telegram or visit our website to schedule a consultation with one of our property experts today.

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