Have you ever wanted to be free from punching the clock everyday? If you are anything like me I’m sure you have. If you have the will, guts and mindset you can actually achieve income freedom using the real estate income vehicle.
Real Estate Investing has made more first time millionaires than any other industry in the United States. Investing in real estate is a tried and true method for building long-term wealth. What’s great about real estate is you are investing a small percentage of you own hard owned money and borrowing the rest to purchase an income producing machine. This income producing machine will actually make you money while you are resting your head on a pillow each night. Real Estate is a hard tangible asset that appreciates over time and is much less volatile than the stock market.
I have been involved in real estate investing now for about 10 years. I’ve bought and sold raw land, flipped houses and now currently building a rental portfolio. Buying and selling properties can make you large sums of money if done right but it comes with several disadvantages such as large investments in construction work to make the property market ready and tax consequences if not managed properly could sink your real estate investing career quickly.
I’ve learned from experience and research that the key to building wealth long term with the goal of retiring and making income while you sleep is to build your investment portfolio with rental properties. Developing a rental portfolio is a long term strategy that requires proper planning and focus to execute successfully. It’s all about purchasing the right property in the right neighborhood at the right price with the goal of never selling the property. If you sell then it’s possible you can pocket a decent pile of cash but what are you going to do with that cash? You see cash in the bank is great but if it’s not invested then guess what, every year it sits there the cash is worth less and less. About 2% less each year on average so why sell for cash? The answer is don’t sell for cash unless it’s a true emergency but if you execute the investment strategy properly then you will have emergency cash stashed away. Always keep your cash invested in real estate if you want to grow wealth.
Some investors will buy cheap properties but be careful because the price tag alone is deceptive. It’s very possible to find cheap properties but you don’t want to buy cheap properties that are old and run down. These properties are a huge headache due to the amount of constant repairs required to get them in rental condition and the cost to maintain them. Old properties typically have old systems like plumbing, electrical and HVAC units. Houses that are built on elevated foundations can be a problem due to sagging floor joists and beams. These types of issues you want to avoid especially if you are just starting out. Focus on finding properties built on concrete slabs no older than 25 years. Structures built in the last 25 years were built to modernized building code standards and were most likely inspected by a local code authority.
When building an investment rental portfolio it’s all about attracting good tenants and building your cash flow with rental income. Cash flow is king if you want to make money while you sleep at night. Punching the clock everyday is a good solid method for making income but you are limited to getting paid for the number of hours you can work in a day. You are also limited to how much your employer is willing to pay you. Once you decide that building a rental property portfolio is what you want to do the sky is truly the limit. The income you generate has no ceiling based on how many hours you can work or how much your employer will pay you. For example lets say you purchase your first property and you can rent it out for $1,400 per month. Your expenses are $1,000 per month to hold the mortgage on this property. After all expenses like mortgage principle, interest, insurance and taxes your net income on the property is $400. That’s $400 a month in your bank account every month the property is rented. From the $1,000 mortgage expense a portion of that money goes to principle pay down so over time the principal on the loan goes down. This is building equity in the property and adds to your net worth. It doesn’t sound like much but multiply that $400 X 10 properties. Now we are getting somewhere with $4,000 per month in net income (cash flow). Multiplied to 20, 30, 40 you can do the math. The monthly cash flow adds up quickly.
In Post#2 I will layout the basic strategy for identifying a solid long term rental property and touch on the financial aspects of investing in real estate for the long term like profit margins, cash flow, equity building and financing.
Thanks for reading and be on the look out for my next post Real Estate Finance
J.L. Herrington,
Income Freedom
Income Freedom 