The Best Way to Retire Early: Dividends vs. Rents

Retirement WILL NOT come for us all; unfortunately, that’s how the cookie crumbles. The good part is that we can decide our retirement fate by choosing how we live.

If we spend beyond our means on clothes, renovations, vacations, jewelry, and cars, it will be challenging (and probably impossible) to retire.

On the flip side, if we live below our means while saving and investing, retirement will be easy to achieve. It all comes down to our mindsets.

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For those of us with the right mindset, we still have some choices to make. Our primary decision is how we will choose to retire early. Let’s begin.

Why should we retire early? We should retire early so that we can focus on becoming rich. That’s right; we will still continue to obtain and maintain wealth into our retirement years.

Let’s explore two concepts of retirement: employee retirement and capitalist retirement. If we understand both, we can choose the best fit for our lifestyle.

The employee retirement. The employee retirement was once the crown jewel of the nation because the company (i.e., Ford) would take care of the employees’ entire retirement plan.

I retired under a generous pension program offered by the US government. It is quite nice; however, I made a 24-year sacrifice while serving in the Marine Corps.

However, the lavish pensions of yesterday are gone. Companies transformed those programs into 401 (k) s and individual retirement accounts. This shift put the onus of retirement savings into the hands of the employee. 

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Today, the employee retirement system consists of working 30-40 years, saving as much as possible in a 401K, and praying that Social Security survives. Most people cannot even stay with the same company for over 10 years, let alone 30 or 40.

The current employee retirement mindset is fading fast. Those in the know will begin to adopt a capitalist mindset.

The capitalist retirement. A capitalist understands various markets, including housing, stocks, cryptocurrencies, bonds, and the business sector. The capitalist understands that “controlled” risk is the only way to retire early.

The capitalist retirement focuses on passive income from assets. When the capitalist acquires enough passive income to cover their expenses, they are financially free. We want to become capitalists.

There are two key points of concern for capitalists: living expenses and passive income. The lower our expenses and the higher our passive income, the sooner we can retire. 

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As capitalists, we must decide which types of passive income we want to exploit. Today, I want to focus on rental income and dividends from the stock market.

The goal of retiring early. If you keep your living expenses low enough, you can retire in 10 years or less. This doesn’t mean we stop acquiring assets.

Dividends and rents both have advantages and disadvantages, so we must consider all factors before embarking on our journey.

For today’s exercise, let’s pretend that we are 24 years old, living with our parents. We have a college degree and earn $70,000 a year as a highway patrol officer.

Why live with our parents? Only in America do we shame people for making wise decisions. Ask yourself, who gets rich if we move out of our parents’ house early? The answer is “the capitalists.”

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Why put money in another capitalist’s pocket when we can keep and invest it? But, which investment should we jump into first?

At this point, we are investing in real estate simply by living with our parents. Anytime we can lower our housing expenses to zero, we have conquered the science of wealth building.

Therefore, we should stash as much money into the stock market as possible. I would say a 50/50 split between index funds and dividend stocks.

The idea is to eventually convert the index funds into a real estate venture, while maintaining our dividend portfolio for the long term.

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My personal journey with real estate and dividends. My wife and I just bought our fifth house this month. We paid $220,000 for a brand-new manufactured home that we placed on our current acreage.

We withdrew $220,000 from our dividend portfolio because real estate is a more effective tax shelter. We currently still earn $700 a month in dividends, while rents will exceed $4,000 a month once the new house is operational.

Looking through the capitalist lens, we see that real estate leaves a legacy while dividends provide additional financial security.

We cannot live inside our dividends, nor can our families. However, providing clean and safe housing is adding value to the world. While dividend investing sees you investing in companies that provide value.

Email Money: Dividends, Rents, & Royalties

Going back to our example, we should be able to purchase a multifamily home after about six years of living at home.

Alternatively, we can purchase a single-family home and rent out a room to get roommates. Remember, we always want to keep our housing expenses at zero because that is the key to building wealth.

Focus on retirement. Let’s say we purchase a fourplex and decide to live in one of the units. The rent for the other units covers the mortgage with an additional $1,000/month of cash flow.

Therefore, if we can accumulate $3,000/month of dividend income, we can retire early. I would say by age 35, we could retire early and focus on becoming wealthy.

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We focus on becoming wealthy by optimizing our living conditions. We could add a vending machine and an ATM to our multifamily housing. 

Perhaps we can find another multifamily housing project that offers seller financing. We could rent our Tesla to make additional income.

Whatever we decide, we keep inserting more money into dividends. Our dividends grow at an unprecedented rate. At one point, I was receiving $3,000/month in dividends.

The goal of early retirement is to focus on family and wealth building. We can take care of maintenance and investing issues before they arise; that’s how we get and stay rich.

Grace and Passive Income

Conclusion. So, which is the better route: real estate or dividend investing? You can’t have one without the other. The number one priority in real estate is keeping our housing costs to zero.

Once we achieve this magic living situation, we are in a position to build wealth in real estate and dividends. We just need to maintain that same energy until it’s time to let loose.

Real estate investing leaves a lasting family legacy. I am a big family person, so owning five homes will set my two boys up to build families much earlier than other people their age.

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Dividend investing provides an additional layer of financial security beyond real estate investing. The best advice is to consider them both equal yet different.

Dividends allow us to travel anywhere in the world and bring our own income source. Real estate gives our family the power to make great decisions.

Ultimately, it’s not real estate or dividends that allow us to retire early; it’s our mindsets. We can have it all, especially if we lower our barrier of entry. Good Luck!

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