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

Effective Strategies To Increase Your Property's Value

  Visit Our Website  Improving a property to make it more appealing to potential buyers or renters is a sound investment tactic. There are several cost-effective ways to add value to your home, from simple cosmetic updates to more significant renovations.   One of the easiest ways to increase a property's value is by enhancing its curb appeal. Freshening the exterior with a new coat of paint can instantly make the house look more inviting. Additionally, well-maintained landscaping, including neatly trimmed lawns and colorful flowers, can leave a positive first impression. If local regulations allow, consider adding extensions for an extra room, bathroom, garage, or carport, which can significantly boost the property value.   Key areas within the home, such as the kitchen and bathroom, are crucial to potential buyers. Upgrading the kitchen with modern countertops, cabinets, and appliances can be a wise improvement plan. Similarly, renovating the bathroom by replacing ...
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

How to prioritize your budget to get back the best sale or rental value

Visit Our Website In general, considerations for the location of a building comes first when choosing a house or building to stay or invest in. An excellently finished house interior can however make a huge difference on the perceived and true value (satisfaction of occupants or rental/sale value). When putting finishing touches to your building, consider using quality tiles, doors, cabinets, windows, electrical fitting, plumbing fixtures as well as beautiful and inviting paints. If the cost versus benefits of using expensive top quality finishing is not properly considered, you might increase your budget for the house but this may not translate to higher sale value  or rental rates. If the building or house is for rent, an investor should also note that this does not guarantee better maintenance by the tenants. It is wise to spend more of your budget in areas of the house people are most interested in and therefore value more. I would recommend that the most importa...
Post a Comment
Read more

Real Estate as a Store of Value

Visit Our Website Store of value is a function of an asset that can be saved, retrieved and exchanged at a later time without any risk of losing it and also retains its purchasing power into the future. Wealth is the total of all stores of value monetary and non-monetary assets. The most common store of value in modern viewpoint has been currency, precious metal (Gold, silver etc.) and real estate. The underlying reason for using this storing medium is that it has a better way of managing the risk associated with it. Most people would say money is one of the best ways to store value because of the ease of exchanging it for other goods and services without time wastage, but it can quickly be affected by hyperinflation mostly in developing world. However, real estate is a better means of storing value for investors if the property is strategically located in choice areas, well-built (architecturally and structurally) and free from any form of disaster. A good house will gain ...
8 comments
Read more

What You Should Know About Real Estate Speculation

Visit our website Real estate speculation  is the purchase of a real estate asset (building or land) with the hope that it will become more valuable in the future. It is a passive approach to making profit based on forecasts  and educated guesses of future real estate market trends not substantiated by firm evidence . Speculation leaves no room for the speculator to influence the profit outcome,  because there is not much you can do as a speculator to drive, influence or accelerate the appreciation of the land or building(s).  Real estate speculation can be likened to investments in stocks or sports betting in this respect. On one hand, real estate investments generally involve a degree of speculation on the potential for appreciation in the value with time due to changing market conditions (demand versus supply) and/or improvements in face value (infrastructural, social, economic, security) in the locality. On the other hand, it is important to note that ...
Post a Comment
Read more