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By Rebecca Lee
Special to the Financial Independence Hub
Financial Freedom is a way for anyone to escape the grind of the 9-5 work life to live the life they desire without relying on anyone else for money. Almost all of us trade our time for money to pay our bills, eat, travel and live in general. Without trading our time, it would be impossible to pay for the things we need and want. Many of us are stuck doing this until we have just enough to retire late in life.
Those who find financial freedom, AKA Findependence, do so by acquiring assets that generate wealth on their own. As the saying goes, “don’t work for your money, make it work for you.” One of the most popular types of these assets is real estate. Here’s how you can achieve financial freedom through real estate investment.
Have a strategy
Financial freedom, what it is and how to achieve it is different for everyone. Everybody has their own needs and wants and will require a different amount of cash flow to live on. Therefore, you must have a personalised strategy based on your income, savings and liabilities.
Without a plan, you won’t know what opportunities to take advantage of and what ones to pass up on. A strategy that’s designed for you will help take the emotions out of your decisions, avoid making mistakes and minimise risk.
Get the mindset
Wealth creation and investing requires a certain mindset to be successful. A lot of people are selling “Get rich quick” schemes but unless you get super lucky, this is not a realistic approach. Real estate in particular is a long-term investment game.
Real estate investors understand that their wealth will grow not overnight, but over years of gradual growth. Understanding this and knowing yourself enough to be able to commit to such a long-term plan is key to reaching financial independence. Investing in real estate isn’t as simple as buying property and waiting for its value to grow.
As with any investment, it takes research and knowledge. Investors must know things like the amount of deposit needed, stamp duty and other “hidden” costs.
Know when and where to invest
Again, everyone’s investment strategy will be different and depend on things like cash flow, risk profile and time for the strategy to play out. Simply going out and buying a property for investment is not a strategy. You must consider your present and future situation.
The types of property you invest in come with advantages and disadvantages, some will be good at bringing in cash flow, which is great for short-term regular income, while others will gradually experience gradual gains in capital growth.
Understanding the differences in the way property can make you money is key to your strategy. While cash flow can be enticing and seem valuable, capital growth is where you will gain real wealth and leverage. Typically, these types of investment properties are in areas experiencing, or about to experience high growth. With sites like Roofstock, it’s very easy for investors to research and find suitable areas, such as Dallas or Georgia that are ripe for growth.
When investing in property for financial freedom, lowering the Loan to Value Ratio (LVR) is fundamental to growing wealth. LVR is the amount you owe compared to the value of the property. Lenders place a large emphasis on the LVR when assessing your loan application. The lower the LVR , the lower the risk is to the bank. The lower this ratio is, the easier it will be for you to live off these assets. This happens over 4 general stages:
- Education: Where you research properties and investment strategies.
- Accumulation: Where you implement your strategy and grow your assets.
- Transition: Where you use the growth of value to pay down loans.
- Freedom: Where you can live comfortable off the gains of your asset.
Live off your assets
Once you build up your assets and pay down your loans, there will come a time when you’re able to live off the wealth they generate. You may decide to sell some of your properties, or pay off the loans until you’re debt free and can live off the rent they earn.
This gives you the freedom to work, or do what you want. You will no longer be at the mercy of your 9-5 paycheque, but will have enough income to pursue the things that interest you.
Rebecca Lee is a Content Manager at exras.com.au. She writes about finance and investing, focusing on actionable tips business professionals can use to improve their finances. When she’s not writing, Rebecca loves to spend time with her dogs in her garden, catching up with friends and trying new types of tea.
