My husband AJ and I are in our 30s and debt free, including our mortgage. After starting her FIRE movement pursuit in 2019, we paid her back $300,000.
Then we did something that none of our friends or family expected. Sold the 2,200-square-foot home and shrunk it down to his two-bedroom apartment that was half the size.
We’ve long considered our American dream to be homeowners, but there are a few reasons to consider renting if you want to retire well before the traditional retirement age.
You don’t need a huge emergency fund for home repairs
A rule of thumb by many financial experts is to set aside three to six months’ worth of expenses in an emergency fund. So if monthly expenses are $4,000 for him, he should save $12,000-$24,000 according to this rule.
Early on as homeowners, we experienced firsthand how emergency funding is needed for unexpected home maintenance and repairs. This includes replacing washing machines, leaking roofs, and removing large trees in the yard for safety.
We always erred on the conservative bounds and set aside 6+ months of savings. This gave me peace of mind in the event of an unexpected expense.
After moving into a rental, I felt more comfortable maintaining only three months of savings instead of six. Our rent is predictable and the landlord is responsible for any electrical or system failures in the apartment.
Renting also saved me from a lot of the do-it-yourself projects I was doing to prevent future problems in my previously owned home.
Take your surplus cash and invest it in passive income
By September 2022, 54% of active listings on Airbnb since 2020 have been added to the platform, according to short-term rental industry research and analytics firm AirDNA. Her husband and I want to join that trend in 2021 and have decided to buy a small condo to live in and rent out a larger home as passive income.
We made close to $5,000 in revenue in the first few months, so we were very happy. Our first guests rented our house for a few weeks while home repairs were being completed and they needed very little assistance. But since then it has become even more inconvenient to maintain the house to keep renting it out to short term residents, especially since we didn’t live in the same area.
After a particularly challenging Airbnb guest, we began to wonder if renting a home was as passive as we’d like. We started having the idea of selling the house and investing the assets elsewhere.
Our house had already been paid off, so we received the full net proceeds from the sale. I only needed a portion of it to pay off my small condo, and I was able to put the rest of the money into investments.
We have selected income-producing investments such as real estate investment trusts, dividend ETFs and sovereign money market funds. These investments have resulted in a steady income of approximately $2,000 per month without the need for tenants or property management.
You can save a lot of money on taxes too. We don’t have to pay thousands of dollars a year in property taxes, and thanks to investments like treasury bills, our unearned income doesn’t get taxed as high as our rental income.
Letting go of the idea of going home forever opens the door to retirement abroad
After selling the house we intended to live in for the rest of our lives, we started enjoying living in other parts of the world, not just in another region. We both love to travel and thought we would have to wait until conventional retirement age to explore an international life.
However, the FIRE movement has led us to seek out other countries where healthcare is cheaper, safety is a priority, and cross-cultural access is easier.
The exact number of Americans who retired abroad is unknown, but the Social Security Administration said about 450,000 had received retirement benefits outside the United States by the end of 2021.
Many of our friends and family don’t understand life abroad, but we started to make more friends living abroad on social media and ask for their opinions. This year we plan to travel to Portugal, France, and South Korea, and I feel more confident in my adaptability than I did later in life.
I also realized that by downsizing my home and going back to renting, I was able to maintain a happy and purposeful life by significantly reducing the furniture, clothing, materials and other possessions that previously cluttered my larger home. . Thanks to making this shift, our retirement is much different than we imagined and our future looks much closer.
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