Category: Financial Independence

Financial Independence By Investing In Multifamily Real Estate

One of the reasons for going into business, particularly the multifamily investment niche of real estate, is solely to create wealth and passive income. Current investors in this niche have made it known over and over again, how multifamily real estate investing has done that for them. However, one fundamental question to consider is how one can create wealth, satisfying a need in the process without financial independence? If you are a real estate investor, now more than ever is the time to escape the corporate rat race and become financially independent. Based on the main goals of any investor, the main aim of this content is to highlight the tips you can make use of in achieving this sole objective. However, it is only reasonable we inform that achieving financial independence is not as easy as we would be stating here. You need to be intentional about being financially independent. Learning how to create wealth and improve your business dealings can be very challenging.
If we were to conduct a poll today amidst real estate investors on why they chose the real estate sector to invest their resources, sure we would have lots of reasons to consider. Although some might treat it as a partial source of income, others commit fully to it with financial independence becoming the unifying goal. This has been the dream of many, and real estate has been one of the best ways of achieving it. Financial independence is achieved by an investor when the passive income, the returns from activities in the real estate sector, is more than their monthly expenses. In such a way that you have lots to spare. Although this might sound risky or seem like a very long process that can only be achieved in years, one uphill climb, it is achievable and very realistic, giving the factors involved. It has even been confirmed that rental property investors make cool cash, achieve financial independence through investing in real estate. As mentioned earlier, here are a few tips we advise the reader to strictly adhere to if one is so particular about achieving financial independence. These tips include:

• Get Educated:

One of the best things one can do to improve oneself is to get educated. It does not cost a thing to stay updated with the latest developments in the real estate world. As a real estate investor with your eyes on the goal, you need to be abreast of all the back and forth going on between the bigwigs in the industry, and you need to have an idea of the latest moves to make that are sure to bring in the needed profits. In line with achieving financial independence, although there is no real need for formal education or a college degree, one still needs to dedicate lots of time to reading and to grow at the same time. Successful real estate investors have achieved financial independence by knowing how to play the right cards at the right time. Investors are constantly educating themselves about the best investment strategies and investment properties. With investment property types including either single-family homes or multifamily settings while strategies include rental properties, commercial real estate investing, with the inclusion of Airbnb rentals. They seem to be growing in value every day, and you should consider investing in them.

• Financial Planning:

How can one achieve financial independence without top-notch financial planning? For most real estate investors, there is always a template more like a written plan as to how to achieve financial independence. It was observed that having a plan makes you more likely to achieve the set-out goals and objectives. Financial planning in the real estate investment niche is said to refer to all the processes of determining all that is related to the financing of your rental property. In plain terms, it solely involves anything that settles all your real estate concerns; the acquiring of a mortgage that fully suits your real estate investment. It also supports the calculating of your expenses and the cash flow through the rental property in focus.
In terms of mortgage and mortgage payments, they are referred to as the foundations of real estate financial planning. Having debts is not bad, but continuously piling up the debts to such an extent, it starts to impede your ability to save, that is a source of concern. This development, in the long run, tends to affect your ability to achieve financial independence as early as you would have wanted. While in terms of expenses, optimum financial planning should involve defining your passive income. To determine this number, real estate investors should consider all the monthly expenses, which should include repairs, maintenance, utilities, electricity and water bills, taxes, vacancy rates, property management, etc. For a real estate investor to achieve financial independence with all that has been listed out, an estimate of the expenses must be made to determine the extent by which they affect the odds of achieving financial independence through real estate investments.

• Endeavor to Grow Your Real Estate Portfolio:

This is no rocket science, but the more your investments, the higher the passive income you can derive from it. Growing your real estate investment portfolio is one sure way of attaining financial independence. The more you invest in real estate properties, the more passive income you earn. That is not all therein, and you are likely to earn more passive income from diverse real estate holdings. This also protects the real estate property investors from the dynamic economy and real estate investing market fluctuations, which ultimately allows for financial stability regardless of the conditions around.
To achieve this talked about financial independence, we have a lot to discuss about strategies one can apply to attain it in no distant time. Some of these are discussed as follows:

• Calculate Your Freedom Number:

This is one of the first things to do; the freedom number is not a unit or a property count. It refers to the amount of income you need to cover your current expenses or the amount of passive income. Which is more or less equal to the amount you are receiving from your current active full-time job, or that which can fully afford your full lifestyle. The best way to arrive at this number is to open up an excel spreadsheet and make a list of all current expenses. If you also intend to replace the current income and become a full-time real estate investor, then your freedom number automatically becomes your pre-taxed income. If you intend to improve or keep your current lifestyle, then you need to determine how much it would cost you, and that is referred to as your freedom number. To make this clearer, imagine a scenario where you currently earn $50,000 a year at a job, and you make calculations that you would need an additional $10,000 to maintain your current lifestyle. Your freedom number is about $60,000 yearly.

• How Much do I need to invest in real estate to achieve my calculated freedom number?

The next thing on the list is to calculate how many rental properties a real estate investor needs to be involved in before you achieve the calculated freedom number. This calculation is solely based on specific investment criteria as a real estate investor. For example, if your investment specification is only to purchase certain properties that are sure to achieve a 10% cash-on-cash return. Then you will need more money to achieve your $60,000 a year freedom number, Roughly about $600,000.

• Creating a Freedom Timeline:

After calculating your freedom number and the amount, you would need to invest in real estate to get that much as passive income, which caters to all the expenses that maintains your current lifestyle. Next is to create a freedom timeline, which is all about how often you will purchase properties to achieve your freedom number. These timelines do vary with all depending on current situations, investment strategies adopted, market, etc. the best recommendation is to have a freedom date then backdate a timeline.
For example, if you already have it in mind to quit your active paying job in the next 10 (ten) years to focus on real estate investments, following from previous examples of your freedom number is $60,000. You need to purchase about 60 units for a start and a cash flow of about $100 a month. The money that would be available as a rising real estate investor to be used as down payment will be any amount of money you have saved up, which is money you have set aside from your full-time job.
After purchasing your first housing units, you will have an additional stream, which is the $100 a month; and how long can you wait before you purchase your next property? And as from that point, you will have an additional $200 a month towards the next payment. At some other point, you will ultimately have enough equity in the earlier rental unit purchases that will be able to be refinanced and, in the long run, buy more units.

• Implementing your Freedom Timeline:

The last thing to consider after calculating your freedom number, determining how many units you need to buy, is to create a timeline. As it is the time to start making high-level purchases like a new real estate entrepreneur. One of the strategies that have been adopted in recent times is the BRRRR strategy superbly coined by Brandon Turner at BiggerPockets. The named acronym stands for buy, rehab, rent, refinance and repeat. By buying, you can purchase old or distressed properties, which translates to the level of distress you are capable of managing, and this will go a long way in you achieving the financial independence you so much want. By rehab, you only need to subcontract to someone who is a great general contractor to carry out random property repairs and general renovations.

As for renting, you need to lease your newly renovated asset to great residents who, to an extent, share your ideas. Individuals who would adequately make use of your property; as their use would not make you accumulate unnecessary expenses on repairs. Then on to refinancing, you can choose to obtain a new loan on the property in a bid to pull out the equity created from the rehabilitation carried out. By repeating the entire process, by using the money from refinancing, you can achieve financial independence. Honestly, we can only outline these steps and hope they work for you. The number of obstacles you are likely to face as a real estate investor or entrepreneur varies in a lot of ways, as achieving financial independence can be very daunting without mincing words. However, this is not to discourage you. Still, with consistent effort, partnering with reliable individuals, patience and resourcefulness are one of the positive ways to work through the many obstacles you are likely to face.
Many professionals or veterans in the real estate sector have spoken on some tricks that worked in their favor. Some of these tricks have helped them to quickly navigate the many obstacles that have barred others on their way to achieving financial independence from real estate investing:

• The use of Tax Benefits.

• Appreciation:

You must have heard of the common term in real estate that units with proper management appreciate over time. It is certainly one factor that comes into play in the real estate sector. For these individuals, they have been able to do an equity strip from the properties, and they do not have to pay taxes when they borrow money against the properties. The equity that was created by the appreciation of the properties acquired can be pulled out and used as a down payment to purchase other properties.

• Leverage:

Financial independence can also be achieved by leveraging properties with debt; in this way, they were able to control virtually 100% of the property by putting less than 100% down while also compounding the benefits of inflation. There are many ways to arrive at financial independence, but one central factor is the diligence and patience to see the processes through. We can only wish you the very best on your journey.

Picture: Pixabay

Achieving Financial Independence With Real Estate

Real estate investing is one of the most powerful mechanisms to achieve financial independence. Financial independence, or financial freedom, is the concept whereby a person does not need to work a typical day job in order to survive; they instead make money in a passive manner and are able to support themselves solely through passive means. Financial freedom equates to the ability to support your lifestyle (which includes your living space, car payments, tuition payments, food, healthcare, and all other daily expenses) without having to go to work every day, and this is done by securing an investment which earns you money on a periodic basis. So, in the same way that many people earn a paycheck every two weeks, a person can own an investment that pays out quarterly dividends, annuity lump sums, or monthly profits – any periodic sum of money which completely supports a person’s financial needs.

There are multiple ways to achieve financial freedom, and real estate investing is just one of them. Many people choose to invest in the stock or bond market, or to work hard at building a company which eventually gains so much success that they are able to live off of the company’s proceeds. Recently, many people have tried their luck in the “bitcoin” or electronic currency markets. These are all means to obtain a steady stream of money on a periodic basis. However, the main concern with these methods of investment is the volatility – it is somewhat difficult for a person to predict how much money they will earn, or whether they will one day lose it all. Real estate investing provides a method to achieve financial freedom that is structured and conducive to long-term financial planning.

Using Real Estate to Gain Financial Independence

Investing in real estate is a broad concept, and there are multiple avenues that you may choose to go down. Buying a property “wholesale” requires a bit of start-up capital and a healthy understanding of a property’s resale value, but this is meant for investors who are looking to turn a quick profit. Similarly, “rehabbing” a property, or fixing and flipping a home, involves buying a property that needs a fair amount of repair or replacement. Once the property is “flipped” into a marketable living space, the investor sells the property at a profit, over and above what he or she paid to purchase the property as well all the expenses associated with renovating a rundown property. Once you get into the realm of renting a property out for an extended period of time, you’ll begin to build financial independence. This can be done through the buy-and-hold strategy of both residential and commercial real estate. Let’s explore each of these.

Passive Income from a Residential Property

The buy-and-hold strategy of real estate investing involves buying a property and holding it for the long-term. One example of this is a real estate investor purchasing a single-family home and renting it out to a family for fair market value. The savvy real estate investor understands the amount of rent that he or she can charge based on comparable market analyses and understanding the level of demand at play in the real estate market for that area. When an investor builds out a financial plan, he or she understands how much needs to be paid towards the mortgage (if there is one), property insurance, real estate taxes, and the homeowner association (if there is one). The total amount of expenses is subtracted from the fair market value of rent that the investor can charge for a home of that size and stature, and with any luck, the investor will have a healthy chunk of profit left over.

Once this investor secures a tenant, the tenant will likely sign a one-year lease. This secures 12 months of profit for the investor, which is helpful for him or her to financially plan and budget for additional investments. This investor may also work a day job, earning a paycheck every two weeks. But their rental property is now bringing in a monthly check – this is the equivalent of earning an extra paycheck a month, who wouldn’t want that? Sure, it will take some initial capital to secure the property, but a quick financial calculation will help determine how much time it will take for the investor to recuperate those funds. Plus, buying a property and holding it for the long-term has the added bonus of potentially selling the home for a healthy capital gain several years down the road. So, not only does the rental property provide a healthy flow of money each month, but it can be sold later on for a lump sum. Another benefit to the buy-and-hold strategy is that the tenant is paying down your mortgage for you and building equity for you in your house. You’re essentially earning equity each month without having to use your own money, and you’re providing your tenant with a lovely place to live. It’s a win-win!

Passive Income from a Commercial Property

There are several differences between investing in residential rental properties and dealing with commercial rentals. For one, the requirements of a residential tenant are quite straightforward. Ideally, you’d secure a tenant with a healthy credit score, enough income to cover the rent each month, and a clean background check. These are the baseline requirements for most landlords of residential rentals. On the other hand, the tenant in a commercial transaction is a business, not a person. Evaluating a commercial tenant entails reviewing a company’s financial statements, bank statements, and even tax returns. There are many more metrics that go into determining a business’ profitability and, therefore, ability to pay their rent that a commercial landlord needs to consider than for a residential tenant.

Another major difference between residential and commercial tenants is that commercial tenants typically have a longer time horizon and often sign multi-year leases. In addition, commercial rents are almost always higher than residential rents, given the many facets that go into determining market rent compared to neighboring tenants and competitors. Both of these factors are appealing to the investor who owns the commercial property, as a higher rent equals a higher profit and a longer time period to collect this profit. This is a solid way to build financial independence as commercial tenants are often a stable and high-quality tenant.

The Math Behind Financial Independence

Let’s conduct a brief thought experiment to really drive home the point behind financial independence. For starters, let’s say you work a normal, 9-to-5 job and you earn $39,000 per year after tax. You get paid every two weeks, which equates to 26 paychecks per year. Each paycheck is $1,500 in income.

$39,000 annual salary / 26 paychecks per year = $1,500 per paycheck

Now let’s say you’ve saved up a fair amount of money and you’d like to invest in real estate and start on your path to financial independence. You find a two-bedroom condo in your area that doesn’t need any major repairs or improvements, just a fresh coat of paint. With the help of your mortgage broker, you obtain a loan and within 45 days you close on your first property. Congratulations!

Here’s a breakdown of your monthly costs for this property:

Mortgage payment $600

Property insurance $50

Real estate property taxes $50

Condo association fees $150

Total monthly expenses $850

With the help of your real estate agent, you determine that you can charge $1,350 per month for a two-bedroom condo in your area, and you secure a qualified tenant who agrees to the stated monthly rent.

When the 1st of the month rolls around, you collect a rent check for $1,350. After paying your mortgage and condo association, as well as funding your escrow account for the annual property insurance and real estate property tax payments, you are left with $500 in profit.

$1,350 rental income – ($600 mortgage payment + $50 property insurance + $50 property taxes + $150 condo association fees) = $500 profit

After one year, this amounts to $6,000 profit. This profit figure does not convey the benefit to you, the property owner, of having a tenant pay down the mortgage each month and essentially building your equity in the property at no cost to you.

Remember that, in addition to this rental income of $500 per month, you earn $3,000 per month ($1,500 per paycheck) at your day job. Let’s figure out how many properties you would have to own in order to earn the same amount from rental income that you do at your day job. For the sake of simplicity, let’s assume that you only buy properties with a $500 estimated profit margin.

$3,000 monthly wages / $500 monthly rental income = 6 properties

or

6 properties * $500 monthly profit each = $3,000 monthly rental income

At this point, owning just six properties would provide you with the same level of income that you earn from working 40 hours a week at your day job. These six properties are essentially replacing your full-time job, and this is the true motivation behind financial independence – achieving a level of income that enables you to live at your current living standard without being tied to a paycheck. This may sound like a massive goal, and it is, but it’s by all means achievable with the proper planning and dedication. Even if it takes you 10 years to amass six properties which all achieve the desired level of profit, that’s ten years until you gain financial independence.

One of the luxuries of starting to amass real estate investments while you’re young is that there isn’t any rush for you to gain financial independence for the purpose of retiring early. You can choose to continue working as long as you want to, earning additional money from your properties on the side and funneling that money back into your investment business by buying even more properties. In this way, you’re not dependent on the income from your properties but instead can support yourself with your day job. On the other hand, if you’re a bit older and have your sights on retirement in the next few years, real estate investing is still a viable option to achieve financial independence. You’d likely have some money put away in a retirement fund which would supplement any additional income from real estate.

Financial independence is an empowering concept that is within everyone’s grasp with the proper planning and, most importantly, execution. Real estate investment is just one of the many possible vehicles to achieving financial independence, and it has many benefits in addition to the financial aspects. When you amass properties that provide you passive income over the course of your life, you also have the opportunity to pass these properties on to your heirs. In this way, you can instill the concept of financial independence in your loved ones at a very early age and facilitate this for them to an extent until they can manage their finances on their own. The key to achieving financial independence is to find a means of earning passive income. This money will flow to your bank account whether you’re working or lounging on a beach on a remote island – and then you’ll truly feel financially free!

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