Real estate enthusiasts like to say that the best investment on Earth is earth. If you’re serious about making money, you’ll come to the same conclusion sooner or later. Building a portfolio of rental properties is a ticket to passive income that could set you up for life. With some strategy about how to use real estate to gain financial freedom, you can be your own boss—with plenty of days off.
What Is Financial Freedom?
Before you dig into the numbers, it’s a good idea to think about your goals. Define why you’ll be researching real estate in your spare time and taking on the responsibility of ownership. It can keep you focused and motivate you when you feel overwhelmed. Here’s what financial independence could look like for you:
- Becoming debt-free.
- Working less.
- Working for fun.
- Retiring with enough money to enjoy it.
- Never worrying about money again.
- Spending more time with your family, your community, or your travel plans.
- Paying for college tuition.
- Creating generational wealth for your children.
- Setting aside money for health emergencies.
- Having a financial cushion to see you and your loved ones through any disasters ahead.
- Commissioning tasteful statues of yourself in cities all over the world.
Buy Your First Property
If any of the above sounds good to you, and if you look great in bronze, you know what you have to do—take the first step! While real estate is one of the most reliable ways to build wealth, it will take some time for you to fully reap the benefits of your investments. In that case, the sooner you get started, the better.
You’ve heard that it takes money to make money. Your first rental property is going to generate income that you can invest in the next property, and by repeating that you can steadily assemble a diverse real estate portfolio. The more you can spread out any risk, the safer your money. Owning one rental property can be a challenge and a handful, and it’s the way you’ll learn the business. It may even give you enough cash flow to make you happy.
But it won’t give you financial freedom. So, however much money you’ve managed to put aside, work with a bank or lender to get that first slice of real estate. Remember that it’s not where you’re going to devote all your energy; it’s just the first step. At some point you’ll need to build a support team to manage your properties, maintain and improve them, and find you more great deals. Assemble that trusted team as soon as you can, because you’ll need them.
Grow Your Rental Portfolio
Learning the ins and outs of being a landlord with that first property is no small feat. There’s a lot of hands-on learning and trial and error. A huge part of the equation is human and unpredictable: you’ll be providing tenants with a home, and that’s a full-time job. That’s why you need to delegate what duties you can. You’re thinking about that statue of yourself you want to add to the wonders of Rome, and you know that one property will barely pay for the marble base.
Keep moving forward. You need more. Use what you’ve learned, network with like-minded investors and experts, and educate yourself. Take a modest risk in another market and add a second property to your portfolio. Start calling it an empire. You can more realistically crunch the numbers now to find out how you’ll get to that magic number: your target monthly passive income, the number you need to earn before you can go into work one day and announce, “I quit.”
How do you choose a number? $10,000 a month, $15,000? You can start by replacing your salary with rental income. How many properties will that take? Every property is different, so it’s difficult to say how many you’ll need to own before you get to that number. Let’s say your target is to make $100,000 a year in rental income. If you go by the national averages for rent, you’ll probably need to have between five and seven units before you’re ready to go burn any bridges with your boss.
The income won’t be entirely passive, of course. Overseeing your empire will come with its own responsibilities, and you shouldn’t rely on anyone else to run it. But if you want to learn how to use real estate to gain financial freedom, you’re after something even more important than money: control. You want control over your destiny, control over how you spend your day. You want to be your own boss. And each new property will give you more control.
Capitalize on the Benefits
Investing in real estate isn’t just about accumulating land, of course. It’s about continually maximizing your profits so that your property will continue to grow in value. No matter how much of it you have, you can’t let it stagnate. And remember those people you’re renting to? You have a responsibility to watch over their homes. Much of their quality of life depends on you. When they’re happy, you’re happy—and it’s good for business, too. So, take care of your growing wealth by:
They’ll need maintenance like any home, but if you go beyond the minimum you can attract better tenants and even charge higher rent. Sometimes even small perks and amenities are enough to give you an edge over the competition.
Keeping Tenants Satisfied
Your reputation will grow, and tenants will sign on for longer leases, resulting in reliable rent and shorter vacancy periods.
Buying and Selling
You might not want to hold onto every property forever. Know when an investment isn’t working, or when it’s an optimal time to cash in. Learn about more markets and types of properties and diversify more.
Investing in real estate is about playing the long game, and at R. Russell Properties, we’ve been managing rental properties since 1982. We specialize in property management in Orange County, Florida, and the surrounding areas, and have learned a thing or two about a healthy portfolio. We’d like to partner with you on your journey to financial independence. Contact us to find out more.