How Does Buying This Rental Help You Achieve Financial Independence?
Financial Independence Definition Star
If you’re considering buying a rental property in the next 90 days while prices are high, interest rates are high, and rents are lagging… you really should consider exactly how this helps move you toward your goal of financial independence.
Having clarity on exactly what function this property will serve in your journey toward financial independence is critically important.
It is also something I focus on early in our new Real Estate Financial Planner™ coaching program we’re launching for investors looking to buy a property in the next 90 days.
To get clarity, you first need to fully understand what financial independence means and looks like for you personally.
Financial Independence Defined
Financial independence is when the fruits of your investments exceed your expenses.
When:
The net positive cash flow from rental properties—after all expenses, plus…
Your invested assets (like stocks and bonds) times your safe withdrawal rate (for example you may be using the 4% rule as your safe withdrawal rate), plus…
Passive income from social security, plus…
Passive income from annuities, plus…
Passive income from pensions…
…when the sum of all of those exceed your expenses, you’re considered financially independent.
So, how does buying this property move you toward financial independence?
Are you buying it to contribute toward your net positive cash flow from rental properties? Another way to think about this is: do you plan to own this property when you’re financially independent and have it provide cash flow to you? This is probably the most obvious and therefore the most common application… although it can ultimately lead to a slower, more risky, lower standard of living approach to financial independence in some cases.
Are you buying it to ultimately sell it? What will you use the money for? Paying off other properties you own to improve their cash flow? Investing in stocks and bonds and living off the safe withdrawal rate from them? Buy annuities with the proceeds? Live off the sale proceeds?
What you plan to do with the property (what I call the Proposed Property Lifecycle) is important to consider when you buy because you may want to optimize one (or more) areas of return over others depending on what you’re planning to do.
Paying subscribers can check out the video I recorded for our upcoming coaching program where I go into this idea in more detail below.
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