How to Reach Financial Independence Through Real Estate

There are several different reasons of why somebody would want to invest in real estate. Some people simply want to supplement their existing monthly income, and build a nice portfolio for retirement. Some other investors are doing it as a full-time business. What I personally like the most with investing in real estate is that it can lead you to financial independence, meaning the moment in time when the income coming from your real estate portfolio will pay all your monthly expenses.

For me, investing in real estate crowdfunding & REITs is really an amazing way to become financially independent. Compared to ‘traditional’ real estate, your investments will be completely hands-off, meaning it will lead to real financial independence. In this article, I will tell you how you can reach financial independence using real estate crowdfunding & REITs, and show you all the parameters you need to determine to know how long it will take you to reach this point. Let’s start!

Define Your Number

The first step towards financial independence has actually nothing to do with real estate: you need to define what is your target income you want to reach every month, that will see you free.

To get this number, first take into account all your current monthly expenses: rent, utilities, groceries, mortgage payments, subscriptions … basically all the expenses you are paying month after month at the moment. I usually multiply the number I get here by 1.1, to take into account additional expenses that I didn’t plan for.

Also take taxes into account. You will most probably pay taxes on the income you get from your real estate investments, so this is definitely something you will have to think about when defining your monthly income goal that will set you free.

Set Your Real Estate Investing Strategy

Once you have your number, there are other parameters you need to define before calculating how long it will take you to reach financial independence.

The first set of numbers are about your real estate portfolio, and how you want to invest. The first number you need to set here is the yield of your portfolio. As you know, I love to invest in real estate crowdfunding deals & REITs. For real estate crowdfunding, yields are usually around 6-7% annually. For REITs, you are usually around 5%. This is up to you, for example my own real estate crowdfunding portfolio has a 7.45% annual yield.

The second number you need to set is the annual capital gain of your portfolio, so the capital appreciation on your real estate crowdfunding properties, or the annual growth of the REITs in your portfolio. This completely depends on your portfolio, but it’s usually a number you can find on real estate crowdfunding platforms or on financial websites for REITs (like Yahoo Finance).

The second set of numbers you need to set now are about your personal situation. You need to determine your starting capital, and your monthly additions to the portfolio. Your starting capital is the amount of money you already have invested in your portfolio, for example in real estate, or just money in cash at the bank.

The monthly additions is the amount you can inject in your portfolio every month, for example from your day job or business. This is completely up to you, I personally like to invest at least 500 Euros every month in real estate, with each the minimum required per deal on many real estate crowdfunding platforms.

Time for Some Maths!

Now that you have all the numbers, you can actually precisely know how long it will take you to reach your financial independence. This calculation will take into account all the numbers you set earlier. Don’t worry, I was actually teasing you with the title: you won’t have to do any maths here, as I already made everything for you.

As I am quite good in maths but also in programming, I created a simple calculator that you can find on this page:

Financial Independence Calculator

On this page, you’ll be able to input all the numbers that you determined before, and the calculator will give you the number of years it will take you to reach financial independence.

Let’s take an example to end this article. Let’s say you have a starting capital of 20.000 (for example dollars), and you add $500 every month. You want to invest in deals with a 6% annual yield on average, and a 3% annual capital appreciation. Finally, let’s say your goal is to get $2000 per mont from real estate alone. Using the calculator, you will see it will take you 19 years to reach financial independence. For example, if you start when you are 25, it means you will be completely financially independent at age 44, way before the usual retirement age of many countries!

Is it your goal to reach financial independence as well? Or have you already reached it? Don’t hesitate to share below!