Financial independence is a goal for just about everyone, whether you’re working a 9-5 and dreaming about owning your own business or working around the clock to build the business you’ve started. Unless you come from generational wealth, working towards financial independence feels like a worthy ambition. It gives you a huge financial goal and a steady sense of purpose.
Real estate can help you get there.
You’ve heard before that real estate is a great way to build wealth. You’ve heard that it’s a vehicle for earning passive income. With the right portfolio of properties, you can achieve financial independence with a few strategic steps.
How Can You Get Started with Real Estate Investing?
Beware the get-rich-quick promises that you might find on the internet or late-night television infomercials. Investing in real estate takes time and requires strategy. Here are the first steps we recommend.
Educate Yourself on Real Estate Investing
If you want to achieve financial independence with your real estate investments, study those who have done this already.
Get to know the market you’re planning to invest in. Study the rental values, the home prices, and the tenant pools. You’ll want to know what the trends have been. Are tenants looking for single-family rental homes or do they tend to rent condos, townhomes, or apartments in large buildings?
Part of your education needs to be networking. Get to know other real estate investors. Talk about what they’re doing. Learn from the mistakes they’ve made. Attend networking events and join social media groups.
Decide What Financial Independence Means for You
How much do you ultimately have to keep in the bank in order to feel financially independent? This is an important number to know before you begin investing in real estate. You have to know what you’re working towards so you’ll know when you get there.
This number will be different for every investor.
There’s no finish line, but you need to understand your present financial position and what kind of money you need to earn in order to realize financial independence. This will depend largely on your lifestyle. How much income do you need to maintain the way you live?
Set Up a Financial and Investment Plan
You cannot succeed with real estate if you don’t have an investment plan. You need to know why you’re investing and what you hope to achieve.
Once you have a solid investment plan in place, make a financial plan. Look at financing options. Determine whether your credit will hold up to lenders who are likely to put all of your earnings and debt under a microscope. Get to know brokers, lenders, insurance agents, attorneys, and agents. Partner with a property manager as early as you can.
Begin to Build Your Business
Financial independence won’t happen with a single property investment, but that’s where it starts.
Decide what you can and want to buy. As soon as you own one rental property, you can leverage the equity you ultimately build to buy another. Continue investing as you look for opportunities to build your portfolio and your value.
Growing a portfolio of rental properties will depend entirely on how much you need to make to get to that point of having financial freedom.
How Do You Really Make Money with Real Estate?
Investing in San Diego real estate provides some great opportunities for earning money and building wealth. There are two important things to remember, whether you’re a new investor looking for your first purchase or an experienced investor who wants to grow an established portfolio and ultimately become financially independent:
As we’ve said, real estate investing makes money over the long term. You won’t get rich in a matter of months.
There are a lot of different ways to earn money in the San Diego real estate market; you don’t have to rely on rental income only.
Let’s talk about some of the ways you can make money with a San Diego rental property.
Capital Appreciation and Increasing Value
We wish you could cash flow your investment property as soon as you buy it. But, that’s unlikely.
Capital appreciation is the increase of a home’s market value compared to its purchase price or acquisition cost. When you factor appreciation into your investment strategy, you’ll see that it will help you earn the income you’re hoping for as the property increases in value. San Diego real estate values are high, and they will likely continue to increase.
Depreciation and Tax Benefits
It’s easy to think only about the money that’s flowing in, but you also have to consider what you’re earning by taking advantage of tax breaks and especially depreciation. This will also take you down a path towards financial independence.
You’ll need to declare all the income you earn off your rental property, but you can offset that income with any expenses related to your rental home. These may include:
Legal and accounting fees
Property management fees
Any travel expenses related to visits you made to your property
There are several others, and we encourage you to speak with your CPA or tax accountant to get an idea of what you should be deducting to limit your tax liability.
Depreciation allows you to deduct the investment and purchase costs of your rental property. Even better, you get to take this depreciation over the life of the investment instead of just in the year you purchase it. Currently the IRS has an average lifespan of 27.5 years on record for a home, so that’s the number you’ll use in your tax planning.
Increasing Property and Rental Values
Increasing your property value is completely within your control. When you raise your rents and your tenants continue to pay down your mortgage, you’re earning equity. That’s a lot of power towards your goal of financial independence.
Make improvements that will increase what you can earn in rent. A home that’s worth more on the rental market will get you towards financial freedom faster.
If you’d like some help working your way through the real estate investments that will bring you the most financial independence, we’d be happy to show you how to get started. Contact our experienced team at North County Property Group.