How Investing in Real Estate Can Help You Achieve Financial Independence
What Is Financial Independence?
Financial Independence can hold a different meaning to different individuals. Ultimately, freedom refers to being in control of your finances and life choices. For some, financial independence might mean you carry zero debt and have enough money to travel and spend as you wish.
To others, financial independence means having enough income to pay one’s living expenses without being dependent on employment income. This is known as passive income, and it allows individuals to cover their living expenses through income-generating assets.
Although the idea of financial independence may seem too good to be true, it is not unattainable. One of the best ways to generate wealth is through real estate investing. It takes time, planning and strategy, but a cash-flowing portfolio of properties can lead you to the financial freedom you desire.
This post will explain the necessary steps to achieve financial independence through real estate investing.
Educate Yourself
It is important to learn about and understand the real estate market before investing. Most, if not all, of the information you need can be found online at no cost. Being well educated on this industry will prepare you to analyze risk, promising opportunities, return on investment, and exit strategy. Additionally, if you decide to partner with someone or borrow from a lender (more on that to follow), you will want to make sure they are knowledgeable about the important factors as well.
Two aspects of real estate investing that play a role in achieving financial independence and which property investors should educate themselves about are the type of investment properties and investing strategies.
Types of Investment Properties
There are multiple property types to choose from when entering the real estate investing market. Some of the options include single-family properties, multi-family properties, apartment buildings, townhomes, and condos.
Choosing the type of property you wish to invest in depends on how long you plan on owning the rental property, expected cash flow, location, and investment strategy.
Choose an Investment Strategy
Just as there are multiple property types to choose from, there are different strategies to choose from as well. Two of the most common are the fix and flip method and long-term rental method. If you plan on holding onto the property for the long term, renting it out would make more sense. The value of your asset will continue to increase and you will attain a steady cash flow for the long run. The fix and flip method provides a quick return albeit higher risk.
Other investment strategies include Airbnb rentals, wholesaling rent-to-rent, real estate investment trusts (REITs), and residential mortgage investing; All tried and true methods to help you achieve financial independence.
Be a Borrower
One of the biggest misconceptions about real estate investing is that you must be wealthy to start. You do not have to put a 20% down-payment on a home to get into the game. You have many different options between government loans and private lenders. Both can offer you different advantages so make sure you take the time to research which path is best for your scenario.
Attain Tenants
Allowing someone to rent out a room or section of your house is a great way to ensure that your monthly income exceeds your monthly expenses. Depending on cost of rent and number of tenants you take in, you could potentially live for free in your own home.
Grow Your Real Estate Portfolio
Once you have got your first investment property under your belt, it is important to continue growing your real estate portfolio. Financial independence will not happen from just one deal. The end goal should be to build an income-generating portfolio. Additionally, the more experience you have, the more appealing you look to lenders.
image from etmoney.com
5 Reasons Real Estate is the Best Way to Achieve Financial Freedom
Inflation
The steady rise in the prices of goods and services over time is caused by inflation. This includes food, rent, wages, real estate prices, stocks, etc. The only variables that do not increase in value, because of inflation, are cash and bonds. In short, cash ends up holding less value over time, making it a less than ideal choice for long-term savings. The one asset that is almost always guaranteed to increase in value with inflation is real estate.
The cost of real estate fluctuates in response to inflation because people always need a place to live. As a result, real estate prices must stay aligned with average income, taxes, and cost of living so that people can afford to buy homes. This is a positive for investors, because if you invest in the right markets, at the right time, your real estate investment should increase in value along with inflation, at a rate of about 2% per year.
2. Immediate Profits & Cash Flow
If you are looking to generate profit from your real estate investment within the first six months, this is possible through a fix and flip strategy. This is the process of purchasing a property and making improvements that increase the value, also known as fix and flip and house flipping. The profit is considered forced appreciation because it took effort, not just timing of market cycles or inflation. Not all improvements increase value, which is why research is important.
Real estate that is purchased and kept for the long term is often considered the better investment, because it allows the investor to generate passive income for the life of that asset. In addition, the tax deductions are much more favorable.
3. Refinancing
A property you hold onto will continue to generate revenue every year, and simultaneously the value of the property will appreciate. If you choose to refinance this property – you can lower the mortgage payment, renegotiate your terms, and get cash out. You do not even need to sell the home to free up money for another investment.
4. Loan Leverage
Leverage is one of the greatest advantages available to real estate investors. Investopedia defines leverage as: “the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.” This is an important tool to help you achieve a much higher return on your investment.
5. Tax Breaks
Owning a rental property can yield similar tax advantages to owning a business. You can deduct almost all expenses incurred as part of your cost of doing business, and you can also deduct things like depreciation, property taxes, repairs, maintenance, and more.
Let’s Talk!
Given Carlyle Capital’s flexibility for real estate investors, we strive to be great partners in fulfilling your investment goals. Give us a call at 877-700-1914 to discuss financing options. Our private lending experts specialize in assisting investors who acquire real estate investment properties. We have programs available to suit various investment strategies, we know that time is of the essence, and we’d love the opportunity to earn your business!
