We’re in our early 50s with $4 million liquid and $1.1 million tied up in a vacation rental – can we truly retire soon or should we sell?

Owning a vacation rental is a dream for a lot of people. And in some cases, it could be your ticket to an early retirement.

But physical real estate can be a risky investment. So at some point, you might find yourself questioning that decision — and thinking about unloading that risk.

In this Reddit post, we have a couple in their 50s that’s doing quite well financially. They have roughly $4 million in liquid assets, plus a paid-off primary home worth $1.3 million. They also own a $1.1 million vacation rental that brings in $50,000 a year that’s mortgage-free.

The couple is thinking of unloading the vacation property since they’re looking to retire soon. And they’re wondering if that’s the right move. The answer? It depends on what they want from that property.

There’s risk in physical real estate

In some regards, a rental property can be a riskier investment than your typical stock. The reason? Once you own stock, you don’t have to pay more to own it. But the same can’t be said for a rental property.

If you own physical real estate, things can break. The property can sit vacant. The tax bill can go up, and so can the cost of maintenance and insurance.

When you’re retired, you may not want an investment that has the potential to cost you money year after year. So if the couple doesn’t want to take on that risk, then they may want to dump the rental.

Right now could be a good time to sell because real estate inventory is still fairly low on a national scale. If their home is in a desirable location, they might walk away with a nice profit — a profit they can add to their nest egg for even more long-term financial security.

When it pays to hang onto physical real estate

On the other hand, hanging onto the rental property could benefit this couple in retirement.

For one thing, it gives them a way to diversify. If the stock market takes a tumble and they don’t want to liquidate investments for cash when they’re down, they could simply use their rental income or, if needed, tap some of the equity they have in that property.

The couple says the rental home brings in $50,000 a year in income. Does their stock portfolio bring in that much income? Maybe, if the stocks they own have generous dividend yields. But $50,000 in income is a lot to give up.

The couple should also consider that if they like the location of their rental property, they may eventually want to live there themselves.

The couple could reach a point where they no longer need the income the property is generating. In that case, they may decide to use it when they please for a change of scenery, or allow family members of theirs to use it and take joy in that.

It’s a good idea to consult a professional

All told, it’s a tough decision. So the couple may want to consult a financial advisor for guidance. An advisor can help them figure out how the property fits into their retirement income strategy, or if it’s better off being sold.

The couple may also want to talk to a local real estate agent to get a better pulse on the market. If an agent thinks the market is headed for a downturn, selling now, before property values decline, could make sense. But if an agent thinks the market is about to get even hotter, that’s reason enough to hang onto the property for the time being and see how things play out.