Skip to main content

Understanding Financial Independence and Real Estate


Visit Our Website

Let’s quickly look at some ways of defining and actualizing financial independence; financial independence by net worth and financial independence by cash flow.

Financial independence by net worth: Refers to the net worth of all your investable assets (excluding your assets that do not generate income like your primary residence, furniture, cars etc.)  divided by your annual expenses.

Financial Freedom Ratio = investable asset/annual expense

 For me this value should be greater than 40 to be financially free. This then means you can withdraw a fixed 2.5% from your asset annually (by liquidity) and your portfolio will last the rest of your life time. This will work better if you are 40 years and above. Remember that liability from children upkeep and education costs tends to decrease as you grow older, however, liabilities due to need for health-care or long term living assistance care can increase.

Financial independence by passive income: This refers to generating passive income that is more than your living expenses or life style without having to work. Note that some people’s net worth may not be very large but their investments generate a lot more cash flow than they need annually. Their cash inflow may be a combination of real estate rentals, royalties, pension, dividends and interest from investments etc.

If you are determined to become financially independent, then understanding real estate will give you an insight into how to invest wisely. There are different types of real estate and investing in any of them has its merits and demerits. If you want to invest in real estate it will be wise to study them very well before committing your time, effort and resources.

There are two types of properties, personal and real property. Personal property is movable property that is not associated with land. It can be items that can be touched (tangible) , this includes furniture, vehicles, Jewelries, clothes etc. or items that cannot be touched (intangible) like stocks, bonds, mutual funds, savings and checking accounts, insurance policies etc. Real property is fixed and cannot be moved, it is mainly associated with land and includes buildings, crops, mineral rights etc.

However, there are four types of real estate. They include residential, commercial, industrial and land. Residential real estate is built for people to live in such as apartment buildings, single- family buildings etc. Commercial real estate is built for businesses. Examples are shopping and strip malls, office complex, hotels, schools etc. Industrial real estate is built for manufacturing and warehouses. Land as a real estate can be acquired as vacant land, ranches, farm land, etc.

Some of these real estate investments may or may not be as profitable as you think. Knowing some comparison is important so that you can make the investment decision that’s right for you. Real estate investment like land may be too risky because of the exposure to land grabbers except proper documentation is obtained from the government. There is a high tendency that you may not be able to lease it out, thus net passive income from it is zero. Buying a land to keep is good for speculation and future development.

With commercial real estate it is a lot easier to get your rent because commercial tenants may not want to lose their shops where they are known by customers, you enjoy longer lease terms, you may be able to get more value for your investment as compared to residential buildings, there is more assurance of cash flow, there is lower vacancies rate. However the downside of commercial real estate investment as compared to residential real estate is higher risk of damages due to high volume of people coming in and out on a daily basis, higher risk of fire hazard and managing of more tenants and repairs.

Residential real estate perform more consistently in economic downturns because people will always need a place to stay, it has more liquidity rate than commercial property because of the larger pool of buyers. Residential real estate investor can manage their properties at their own time but you will definitely need the help of a professional when investing in commercial or industrial real estate.

Commercial real estate may appear to be more lucrative, beginner investors should know that with higher returns come higher risk.

 Real Estate Investments: The Rental Property Advantage.
 What I Which I Knew Before Investing In Rental Properties.
 Real Estate as a Store of Value.
 Investing in Real Estate Properties: Successful Startup and Growth Strategies.
 Important Considerations Before You Invest a Loan or Personal Savings in Rental Properties.

Disclaimer
Any views or opinions represented in this blog belong solely to the blog writer/owner and do not represent those of people, institutions or organizations that the writer/owner may or may not be associated with in professional or personal capacity, unless explicitly stated.
Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual. All content provided on this blog is for informational purposes only. The writer/owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.
The writer/owner will not be liable for any errors or omissions in this information nor for the availability of this information. The writer/owner will not be liable for any losses, injuries, or damages from the display or use of this information.
Comments are welcome. However, the blog writer/owner reserves the right to edit or delete any comments submitted to this blog without notice due to:
- Comments deemed to be spam or questionable spam.
- Comments including profanity.
- Comments containing language or concepts that could be deemed offensive.
- Comments containing hate speech, credible threats, or direct attacks on an individual or group.
The blog owner is not responsible for the content in comments.
This blog disclaimer is subject to change at any time.

Labels:

Comments

  1. UnknownJuly 16, 2019 at 7:56 AM

    I know much more about cash flow now. Thanks. Keep blogging.

    ReplyDelete

Post a Comment

Other interesting posts

Merits and Demerits of Building a House from Scratch

Visit Our Website Building a house from scratch for rental purposes or outright sale has its merits and demerits as compared to renovating an existing building.    Merits You can have an input on the architectural design of the house. You can decide how the external view and the interior of the house should look like. Creating an area with good and easy to move around living space can make the apartment appealing to tenants. You can decide the budget for the project. Based on your estimated selling price for the proposed property, you can decide on the budget you want to put into the investment to give you a reasonable profit margin. You can decide the number of bedrooms for each apartment. Most times with a good survey of the vicinity you will be able to tell what kind of apartment will rent faster and give higher returns. Example the difference between 1-bedroom apartment and 2- bedroom apartment or 2- bedroom apartment and 3- bedroom apartment may not be ...
5 comments
Read more

The advantage of competitive rental rates and strategy

Visit our website   In general, people prefer a good community from where they can set out for work in the morning and return home after a long day at work without any problem. A community where they will have comfort and security thus be able to spend time with their kids, family and friends. This same community should have all the necessary social amenities that will enhance a good quality of life within convenient reach. In the developing world, rental rates are determined by the location, demand, condition of the apartment, size (outdoor space, living space and numbers of bedrooms and bathrooms) ,social amenities (like good roads, drainage, schools, playgrounds, shopping destinations, health services, entertainment venues and convenient access to transportation and regular electricity). Note that the finishing fixtures used in the house may or may not add value . For example, a house located in a beautiful estate in a community with excellent social amenities and good...
3 comments
Read more

Real Estate Investments : The rental property advantage

Visit Our Website Some property developers or real estate investors may prefer to sell or flip houses than to keep the house/property and rent or lease out. They may argue that due to the misuse of rented properties by tenants, delayed payment of rent, hassles involved in collecting rent and difficulties in evicting bad tenants, they adopt the strategy to build and sell. This way, such investors get back their capital and make some profit in the short-term. However, for long-term investment purposes, building a house to sell or to buy then renovate and sell might not be an investor’s best option. In this post, we at Variance Posh Ltd. will explain why rental properties can help achieve the dreams of financial independence. Why rental investments are better in the  long term The property owner has a lot to gain from renting/leasing out especially if the property is situated in a good neighborhood. The real estate investor can get good rents monthly/yearl...
3 comments
Read more

What I Wish I Knew Before Investing In Rental Properties

Visit our website Most often than not, a lot of people seeking investments in rental properties are being discouraged due to the hassles involved in collecting rent from tenants. Some tenants are also known to have a poor maintenance culture and as such, leave the house in a deplorable state after moving out. Such tenants have failed to recognize that a lot of work, time and money went into getting the property to the enticing finished state that attracted them to rent the property in the first place. It should be noted that not all tenants are like this, but the disturbing truth is that many are.   Despite this disturbing reality of rent collection hassles and misuse of rental properties by some tenants, there are a lot of ways to minimize this:      1.  Never be in too much hurry to rent out your property Some property owners are in a hurry to rent out their apartments or commercial spaces, so do not carry out proper investigation on the prospect...
3 comments
Read more

Make Your Money Work For You

    Visit Our Website  In real estate investments, there are several options for investors. They can invest in land speculation, build and rent, build and sell, flip homes, or buy and hold. If your goal as a real estate investor is to continually invest your capital with the hope of making a 10% to 20% profit on each sale per year, you may have to consider building a house and renting it out. When you rent out your house, there is a high probability that you stand a chance of making at least 10% on investment if development is well supervised to minimize construction wastage and unnecessary spending . If your property is a multi-tenanted building, you may earn more than 15% per annum of your capital. The build and rent option surpasses other real estate options if the house is a lucrative rental with good tenants that causes minimal damages to the house, excellent rental rates, and payment on time. This means you can eat your cake and have it. By renting out your house ra...
Post a Comment
Read more

Liquidity of Real Estate and What You Should Consider

Visit our Website It is very important for an investor to consider expected yield and liquidity before investing in a real estate asset (land, buildings and estates). Any asset that can be ex-changed for money has a certain level of liquidity. During your ownership of real estate, the yield (rent) creates revenue and cash flow. However, your ability to sell your real estate at a reasonable price and in a timely manner is determined by liquidity. So what is liquidity? Liquidity describes the ease at which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Money or cash is considered the most liquid asset because of the ease of exchanging it for other goods or services, while real estate, securities, fine art and collectibles are all relatively illiquid. Typical order of asset liquidity are currency, securities (stocks, bonds and treasury bills),Precious metals (Gold, Silver, Palladium, platinum etc.), real estate and A...
2 comments
Read more

Important considerations before you invest a loan or personal savings in rental properties

Visit our website Are you thinking of investing in rental properties? If yes, congratulations, carefully planned and managed rental properties investment can be quite profitable in the long term while also allowing the investor to build wealth on the journey to financial freedom. Generally speaking, investments can be done with personal savings or loan. A loan can facilitate the ability to invest in real estate and make good profits; however, an investor has to be extremely careful before taking out loans to finance an investment in rental properties. This is because an inability to meet up with loan payments can quickly wipe out investments and leave an investor with debts and financial troubles. Here are some critical things to consider before investing personal savings or loan on a rental property: 1. Negotiate good deals on land/property purchases (buy at a price below current “fair market value”), this way, you already made a profit on the day you close-out the real e...
2 comments
Read more

Investing in real estate properties: Successful startup and growth strategies

Visit our website In general, those who embark on life endeavors with a good strategy have the odds stacked in their favor to succeed. When starting off as a real estate investor (full time or as a side hustle), a good strategy or road map is outlined below: Stage 1 : Startup  Stage 2 : Growth Stage 3 : Financial Freedom Stage 1: Startup You can start with your personal savings or with a loan. Note that you need to be careful about starting a business or real estate investment with loans. Discuss with your financial planner/adviser before making the decision to invest a loan on rental property. There are 3 options for stage 1: a.   Purchase a piece of land and resell for a profit. Reinvest the original capital and profit. Search for good deals on land/property purchases (buy at a price below current “fair market value”), this way, you make some profit on the day you close-out the real estate purchase. b.   Purchase a piece of land an...
1 comment
Read more

Periodic Visitation Of Tenants By The Landlord Is Necessary

    Visit Our Website  Scheduling and visiting rental properties are important tasks for the landlord. This has to be part of the to-do list for the landlord. If the property is entrusted to a firm, the landlord should ensure to get periodic visitation photographs and reports from the firm. It is imperative to state in the terms and conditions of the tenancy agreement that the landlord or management firm will visit the property periodically to assess the house and its surroundings for damages that need repairs. Properties should be inspected quarterly, bi-annually, or annually. A notice must be given within a reasonable time frame specifying reasons for the visitation. The visitation should be conducted within business hours except as specified and agreed upon by the tenant. However, the landlord can enter the house in the case of an emergency (fire outbreak or severe water leakage) without prior notification. This allows the landlord to mitigate further damages to the pr...
Post a Comment
Read more

The Relevance of a High Oversite Concrete/Foundation of a House

Visit Our Website Oversite concrete (often referred to as German floor by the laymen) is a layer of concrete used to seal the earth under the ground floor of a house. Before pegging and digging the foundation of the proposed building. The first thing is to determine how high the oversite concrete of the house should be raised above the natural ground level. Note that there will be many different levels on a sloped land. It is very important to check the topography of the area. More important is the level of the land with respect to the road. If the road is tarred, use it as a reference for determining how high to fill the land when the building is completed for proper grading of the yard for surface drainage. But if the road is not tarred, endeavor to put into consideration how high in the future you think the road will be filled or excavated during construction and use that as a guide or reference. Having a good knowledge of how high the land should be filled to ena...
Post a Comment
Read more