Is it too late to achieve financial freedom through rentals after 50?

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Can you invest your way into financial freedom after 40? What about after 50?

It is common for many people approaching their mid-life to start re-evaluating their finances. They might question whether it is too late for them to dramatically change their financial situation, or if it is still possible for them to retire early. 

In my conversation last week with Dion Talk, we discussed what it takes to become a millionaire after 40. Dion talks about his first and second “financial lives” and how new investors who are older can have an advantage due to their experience and sense of timeliness.

However, It’s important for people in their forties and fifties who are looking to get into real estate investing to know that it's a long game—you aren’t going to see rewards one or two years in. You need time and you need to have down payment capital every year for at least the next seven years.

Last month, Chad “Coach” Carson compared the problem many fifty-something-year-olds who are getting into real estate investing have to a football game: 

If you’re losing a football game with just a few minutes left, the impulse can be to throw the ball 80 yards down the field for a Hail Mary. But that’s not how you win, and it rarely works. 

Safe, urgent—but not panicked—passing down the field is how you can turn things around. 

It’s the same for real estate investing over 50. You should be consistent, urgent, conservative, and careful. Mistakes will leave a bigger mark on you, so you shouldn’t pursue any investment hastily. If you have seven to ten years, you have time to play the long game, so don’t try to take shortcuts. 

Don’t get enamored with out-of-area or out-of-state investing. Don’t buy something just because it’s cheap. Don’t go for the Hail Marys. If I had seven years left, I would focus on single-family homes in good locations with rental demand.

ResiClub chart of the week

In April, ResiClub’s Meghan Malas wrote how despite interest rate spikes, the U.S. economy has proven more resilient than in past economic cycles. This is partly because 96% of mortgage debt in the U.S. is fixed rate and 38.5% of homeowners don’t have a mortgage at all—meaning a large chunk of Americans are buffered from the effects of rate changes. 

More Americans are protected by this “buffer” every year, as the percentage of mortgage-free homeowners continues to tick up, according to the U.S. Census. Between 2010 and 2022, the share of owner-occupied homes without a mortgage increased from 32.1% to 38.5% as the baby boomer generation has aged and paid off their mortgages. 

Number of the week: 10%

In my conversation with Bill Allen last week, we discussed the hypothetical of mortgage rates hitting 10%. I don’t think this is likely to happen—and I don’t think it should—but it’s interesting to discuss what would play out if we did see double-digit interest rates. 

Bill and I concluded that 10% rates would be troublesome for the single-family housing market as many people would be priced out of the market, inventory would drop, and transactions would plummet. The middle class would be crushed. Double-digit mortgage rates would be disastrous for commercial real estate and usher in a wave of foreclosures.

However, as I’ve said in the past, higher rates can lead to less competition and create great opportunities for creative investors. 

As of Fed Day, May 5, it doesn’t look like interest rate hikes or drops will happen anytime soon. The Fed will keep rates in their current range for the foreseeable future. That means “higher for longer” is here to stay and I don’t necessarily think this is a bad thing. After a lot of rate volatility these past few years, a flat market allows things to settle down. 

That being said, if Fed Chair Jerome Powell threatened hikes—without actually implementing them—that would shock the market and cause a lot of repricing, but it would ultimately get us to the other side faster. Healing the housing market will cause a lot of pain, but I prefer to rip the band-aid off rather than drawing the pain out.

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