What it drew me to real estate investing in my 20s it was the hope of financial independence: Having enough income from investments to cover my living expenses.
I didn’t want to work for 40 to 50 years before retirement, as does the usual hard work. I wanted to reach financial independence by 30 years.
Spoiler alert: That didn’t happen. I’m 43, still working—but my job looks a lot different than it did 20 years ago.
You can reach some kind of financial freedom within a few years. But it requires both of you to think and act differently than you do today.
If you want an extraordinary life, try this extraordinary plan to achieve financial freedom within five years.
Redefine Financial Freedom
First: If you have to actually cover every dollar you spend with income from investments (true financial independence), you will have a difficult time to get there in five years. Fortunately, you don’t have to do that.
I have interviewed a number of people who have achieved financial independence and are young retirees in real estate. I The “dirty little secret” of the FIRE movement that everyone goes back to work.
Why? Because there’s only so long you can watch TV on the couch or drink piña coladas on the beach. If you’re reading this, you’re not a beach person. You are motivated enough to dream of financial independence and invest hard to get there.
Accept it: After walking the world for a few months, you will settle down and ask, “What’s next?”
Dream Job Still Pays a Working Salary
Definitely, you will go back to work. But that doesn’t mean you’ll go back to your high-stress job. You will make your own yours in terms of doing your dream job.
That could mean starting a business, working for a non-profit organization, or doing creative work. But no matter what your dream job looks like, you’ll get an active income to do.
The question then becomes, “How much does my dream job pay, and am I satisfied with living on that?” If that answer is yes, stop reading this now again go away quit your job. Seriously.
If your dream job doesn’t pay enough to pay for the lifestyle you want to live, now you know how much of a deficit you need to cover your passive income.
Most of us want what I call the five freedoms in our dream job:
- Relief from financial stress: You don’t bite your nails worrying about keeping food on the table every month.
- Freedom of time: You set your working hours.
- Freedom of space: You can work anywhere in the world.
- Freedom of action: Pursue your dreams with a fulfilling career.
- Financial freedom: Ultimately, you want to achieve true financial independence. But as long as you have these other four, this just it makes you feel better about retiring one day.
Also, you don’t need access full financial independence to be financially free and fulfilled. You just need to know to comfortably pursue the career of your dreams.
Set a Target
If you think that your dream job does not pay enough working income to cover your intended living expenses, you need to supplement it with a small income. Or you could spend less and save yourself the headache. I’m just saying.
Imagine you want to live on $6,000 a month. Your dream job pays $5,000 a month. In this case, you need another $1,000 per month on your income (assuming you won’t cover your intended living expenses).
Now, you have an income target. How much money do you need to achieve that?
It depends on the return you expect to get from your investment. If you can faithfully earn 12% on your investment, every year, you need $100,000 (12% of $100,000 is $12,000/year, or $1,000/month).
The average person does not earn 12% returns on their investmentsof course. And even if he did benefit average 12% over the long term, you can’t actually withdraw that amount each year from variable investments such as stocks. A early market crash will clear it (called i risk-return sequence).
That’s why retirees only withdrew 4% from their portfolios, even though the S&P 500 returned an average all around 10% since its inception. Retirees cannot afford the real risk of losing the portfolio within 30 years, so they should play it very safe.
Fortunately for you, real estate can help.
Take Calculated Risks in Real Estate
When you intend to quit your day job on the 30th or 40 or 50 instead of 65, you can pursue investments with higher returns. In the worst case, you can continue to work. You don’t have to switch to Treasury bonds and accept lower returns just risk reduction.
I know real estate investors who consistently earn an average annual return of over 20%. They’ve done hundreds of deals over the years, and their annual returns remain remarkably similar.
Again, the common man cannot rely on such restoration. But you and I are not ordinary people, are we?
If you know which investment has a high return and low risk (asymmetric returns) exist and that skilled investors know how to consistently find them, the conversation is once again about “how” rather than “if” or “should.”
This is something indeed what we do in our Co-Investing Club: We meet as a group of real estate investors to explore passive investments together. Then we go into them together to keep our individual investments low.
Having 30 sets of eyes on an investment doesn’t eliminate all risk, but it does reduce it. We are all trying to plug holes in this investment in as many ways as possible as we discuss and evaluate it together.
In our case, we aim for at least 10% on investments with fixed returns and a return of at least 15% on equity investments. You can decide for yourself prefer to invest actively instead.
Choose an Investment Strategy
Over the past 21 years in the real estate industry, I know:
There is no right or wrong way to invest in real estate. There is simply too Harder investment methods.
As a recovering landlord, I I’m not interested anymore in active investment. I’ve had my fill of late night and weekend phone calls, from renters who come to my front door at 9 pm I don’t want to argue with slippery contractors, property managers, or home inspectors.
Today, it’s just me plant and do nothing. I spend most of the year traveling overseas and want to make the most of my freedom of space and freedom of time.
Some investors feel differently. You do it yourself.
Your first choice comes down to whether you want to invest passively or actively. If the latter, you need to choose a niche and learn everything you have it is possible he can know about it. Be an expert in that niche, and you will be start earning permanent benefits with diminishing risk.
Or passively invest with other investors who have studied their niche well. Another advantage of this strategy is that you can spread your money between many different niches, choosing experts within each to invest your money.
Set a Timeline
You have an investment strategy, and you have a financial goal. When do you want to hit that target?
To continue the example, say I’m confident that my passive real estate investment will average at least 12% each year. I want to win $1,000 month from that passive investment, so I need $100,000 invested. If I want to quit my day job and switch to my dream job within 18 months, I need to invest about $4,850. each month to get there.
Play with numbers with Investor.gov savings goal calculator.
Your Supercharge Savings Rate
Yes, if you spend less money each month, you can invest more, and you will reach your financial freedom goals faster.
My family and I are staying again invest money from abroadenjoy free housing through my wife’s employer, I don’t have a car, and I get paid flights home to the US each year. We intend to live to the fullest on his low salary and meager benefits while saving and investing it all. of my salary. By doing so, we have increased our net worth at a record pace.
What does it take for your family to get rid of a car, a house hack to get free housing, or to stop spending so much money on eating out? To get the creative juices flowing, try these nine ways to save money you never thought.
The Fast Track to Financial Freedom
When I was younger, I used to try to be clever with similar tricks time in the market. Every time I was good, it cost me.
Today, I practice dollar-cost ratio for the investment of my houses. I invest $5,000 (or more, if I can afford it) each month as just one more member of our Co-Investing Club. Over time, I have become a part owner in thousands of units spread across the country.
I don’t need self recognition timing the market or predicting the next hot market or asset class. I just keep investing, month after month, in many different cities and types of assets.
And it works. My passive income and net worth have both exploded since I started.
With high savings rates, high returns, and controlled risk, you can build enough income to supplement the active income from your dream job—all within a few years.
Most people do the opposite: They spend almost every dollar they earn while working a job they don’t like. They do not control when or where they work, and their work does not inspire or fulfill them.
Don’t be like most people. Live a life that is unusual for you yours goals. Real estate can help you get there as an investment vehicle, but only to the extent that you make your broader life freedom goals a goal rather than just running on the earn-more/spend-more treadmill.
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A Note About BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BiggerPockets.
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