There are numerous reasons why so many people enter the real estate investing market. Some might only be interested in making an additional passive income through rent, while other property investors treat it as a full-time business. Still, no matter what motivates a real estate investor, the main purpose of real estate investing is to make money and create wealth.
Financial independence is the dream of many people, and one of the many advantages of real estate investing is that it allows property investors to achieve this goal. A real estate investor achieves financial independence once the passive income coming from his/her investment property exceeds his/her monthly expenses. Though this might seem like a long, risky uphill climb, it is definitely possible and common. In fact, many rental property investors achieve financial independence through real estate investing!
So, let’s skip any further introduction and jump into how you can become one of those people.
Steps to Achieve Financial Independence With Real Estate Investing
1. Get Educated
Though you don’t need a formal education or a degree to achieve financial independence through real estate investing, knowledge is still a requirement! Any real estate investor who dedicates a huge amount of time to learn and grow can do it. Today, there’s more information about real estate investing available online than ever before and you can easily get access to it. Successful property investors who achieve financial independence are those who start educating themselves and set a plan before entering the real estate investing market. Two important aspects of real estate investing that play a role in achieving financial independence and which property investors should educate themselves about are the type investment properties and investing strategies.
Investment Properties Types
The real estate investing market is filled with plenty of investment properties types that a real estate investor can choose from. A single-family home is the first type that comes to mind for new property investors. Other types include multi-family homes, apartments, townhomes, condos, etc. Wondering which investment property types make the best option for achieving financial independence through real estate investing?
Expert property investors claim that single-family homes are the best option since they’re rented out – thus guaranteeing an additional passive income – for a long period of time. Nonetheless, the answer really depends on many factors like for how long you’re planning on owning the rental property, the amount of passive income you plan on gaining from it (return on investment), the real estate investing market you’re interested in, and the investing strategy you’re following – which leads us to our next point.
Investing Strategies
Just as there are plenty of investment properties types, there are also various investing strategies! As a real estate investor, the first investing strategy you have to decide on is whether you want to be part of the real estate investing market for the long term or the short term. Both investing strategies have proven to be successful in achieving financial independence, and each falls into a number of specific investing strategies.
When investing for the long term, the most popular investing strategy is the buy-and-hold. Other investing strategies include rent-to-own, rent-to-rent, investing in real estate investment trusts (REITs), and even commercial real estate investing. Many actually believe that investing in REITs is the best and easiest way to make passive income and achieve financial independence through real estate investing. As for short-term investing strategies, they include fix-and-flips, wholesaling, and Airbnb rentals. Airbnb rentals are dramatically growing each day and are becoming the optimal investing strategy for many short-term property investors to make a passive income.
It’s important to note that what works for one real estate investor probably won’t work for another. Thus, property investors must understand what each investing strategy entails and leads to in order to determine the best one for them and increase the odds of achieving financial independence through real estate investing.
Note: Mashvisor’s investment property calculator helps you identify not only the best investment property in any neighborhood in the US real estate investing market, but also the optimal investing strategy to follow based on accurate calculations of the return on investment, rental income, cap rate, and cash on cash return for every rental property in that neighborhood.
Click here to start analyzing and comparing different investment properties and determine the best one in a matter of minutes!
2. Financial Planning
Property investors with a written plan are far more likely to succeed in achieving financial independence than those without one. In real estate investing, financial planning is the process of determining all aspects related to the financing of your rental property. Financial planning involves anything from acquiring a mortgage that suits your real estate investment, to calculating the expenses and cash flow of your rental property.
Financial Planning: Mortgage
Most property investors – especially beginners – rely on acquiring a mortgage to finance the purchase of their rental property. As a result, mortgage and mortgage payments are cornerstones of real estate financial planning! Debt is not necessarily bad. What’s bad is when your debt overweights your ability to save, which lowers the chance of achieving financial independence.
As a general rule in real estate investing, property investors must always ensure that monthly income exceeds monthly mortgage payments in order to have positive cash flow, thus ensuring financial independence.
Financial Planning: Expenses
The next step is to define your target passive income. To accurately set this number, property investors must take into account all their monthly expenses such as mortgage payments, repairs, maintenance, property management, utilities, water and electricity bills, real estate taxes, and vacancy rate, in addition to unexpected additional expenses. Furthermore, a real estate investor should make an estimate of these expenses to determine how they may or may not affect their odds of achieving financial independence through real estate investing.
3. Grow Your Real Estate Investment Portfolio
Growing your real estate investment portfolio is key to achieving financial independence through real estate investing. The more investment properties you buy, the more passive income you earn – simple! Not only that, but a more diverse real estate investment portfolio also protects rental property investors from the changing economy and real estate investing market fluctuations and allows them to remain financially stable regardless of what’s going on around.
A real estate investor can have a diverse real estate investment portfolio by investing in different investment property types, trying a different investing strategy, and investing in different locations. It should be mentioned, however, that making smart real estate investing decisions and finding good deals that guarantee a secure passive income are key to a successful real estate investment portfolio.
Final Thoughts on Achieving Financial Independence Through Real Estate Investing
While achieving financial independence through real estate investing might seem like a challenge, in reality it is not as difficult or as complicated as one may think. It takes a little while, but for a focused real estate investor who sticks to a plan that grows his/her investment portfolio, it’s definitely possible.
Mashvisor offers property investors a number of real estate investing tools to help them make the best investment decisions and increase their odds of achieving financial independence, such as Mashvisor’s investment property calculator, investment property finder, and more!
For more information on anything real estate, check Mashvisor’s blog regularly and sign up for Mashvisor to start your real estate investing journey with confidence.