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Achieving Financial Independence Through Real Estate Investing

Read here to learn how real estate investing can help you achieve financial independence.

Max Menzel
Max Menzel

What Is Financial Independence?

Financial independence is a goal that many people strive to achieve. Being financially independent means you are no longer dependent on income from a job where you trade your own time for money. Financially independent individuals are able to cover their living expenses through income-generating assets. The biggest draw is that once attained, it offers you the freedom to have control over your own time.

Although the idea of financial independence may seem improbable, it is not a feat that is unreachable if the proper time, effort, and planning are put in. Real estate is one of the greatest investments you can make to generate wealth. It won’t happen overnight, but a cash-flowing portfolio of properties can bring you the financial freedom you’ve always wanted. This post will explain the necessary steps to achieve financial independence through real estate investing.

Educate Yourself

Successful real estate investors educate themselves before entering the investing market. The knowledge that you acquire will guide you through each step of the investment process. Nowadays, there is a ton of easily accessible information on real estate investing available online. Being well educated on this industry will allow you to mitigate risk, recognize promising opportunities, realize higher returns, and choose the right exit strategy.

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 many investment property types available to a real estate investor. A single-family home is usually the first type that comes to mind for first-time investors. Other types include duplexes, multi-family homes, apartment buildings, townhouses, and condos.

Many expert property investors state that single-family homes are the best option since they’re typically rented out for longer periods of time, which guarantees steady income. Although, the choice really depends on variables like how long you’re planning on owning the rental property, the amount of income you plan to generate, the location of your investment, and which investing strategy you choose to follow.

Choose Your Investment Strategy

Just as there are numerous investment property types, there is also a variety of investing strategies.

Two of the most common methods are renting out your property and house-flipping. Renting out a property is more of a long term strategy, while house-flipping provides quick gains with higher risk.

Related: BRRRR Method for Real Estate Investing Beginners

For a first-time real estate investor, it can be hard to understand how much value renting out a property can bring in the long term. Once you’ve found tenants and started collecting rent, the process is somewhat passive, especially if you utilize a property management company.

On the other hand, flipping a home is riskier than investing in a rental property. This is especially true if you’re planning to make major changes to the property, like adding additional rooms or updating the electrical and plumbing. However, you can accumulate much larger sums of money in the short term which can be further invested in your portfolio.

Other investing strategies include Airbnb rentals, wholesaling rent-to-rent, real estate investment trusts (REITs), and residential mortgage investing. All of these strategies have proven to be successful in helping one achieve financial independence.

Financial Planning

There is no universal number that each person hoping to achieve financial freedom needs to obtain. Each situation is unique and how much money you need to make will depend on the lifestyle you hope to live. Having a specific target for your passive income goals will give you an idea of how much income you need to generate to realize financial freedom.

To accurately set this number, investors must take into account all their expenses such as mortgage payments, repairs, maintenance, property management, utilities, taxes, etc. You should always ensure that your monthly income exceeds expenses in order to have positive cash flow and ensure financial independence.

A good rule of thumb is to look at your current financial situation. If you are comfortable with your current income, your goal can be to bolster it with a portfolio of revenue-generating properties.

Growing Your Real Estate Portfolio

Making your first investment is a great first step toward financial independence. However, it can’t possibly be achieved with just one deal. Investors should strive to continue completing deals until they are financially stable enough to build an income-generating portfolio.

Most investors will utilize loans to continue growing their investment business. Debt is not necessarily bad, as it will be necessary to grow your portfolio. However, it is a problem when it exceeds your cash flow.

As you acquire more properties, you will earn greater amounts of passive income. A more diverse portfolio will protect you from fluctuations in the economy and real estate markets. How big you need to grow your portfolio will depend entirely on how much is required for you to realize financial freedom.

Final Word

The path to financial independence through real estate investing requires patience. It can take years to acquire the assets needed to generate enough income to live off of comfortably. However, it is a reachable goal for a focused investor who sticks to a plan to grow their investment portfolio. With a mind for due diligence, financial independence may only be a few rental property acquisitions away!

Personal Finance