Using Real Estate for Financial Independence (Retirement)

A lot of the articles that I have seen that talk about using real estate for retirement usually comes from people who focus on investing in the stock market or other financial professionals. I haven’t seen too many articles that were written by Real Estate Investors for them. I’m not sure why that is, but I thought the best thing to do would be to change that.

I have been lucky to be investing in real estate for the last 20 years and accumulated large portfolio of assets. I also have got to know a lot of different Real Estate Investors over the years and talk to them about the ways that they have used real estate in order to give themselves financial independence and the ability to retire early from full time employment.

Depending on where you are in your real estate investing Journey you will identify with different stages as I indicated in this article titled “Phases of Real Estate Investing.” The stage that you are in often reflects how much cash flow, equity, and leverage you have on your properties.

Each of these real estate strategies are different ways I would characterize an investor as being financially independent or retired. So I would have to explain what I would consider retired. As someone who is not employed by a third party or does run an active business. I realize that some people might consider managing an apartment building as active, or a small portfolio of properties as active, but I would describe it as semi-passive.  Especially if you have the ability to hire a property management company or a property manager to do a majority of the work.

I have not included real estate strategies like short term rentals, lease to owns, or flipping as I would consider these active strategies like a job or running an active business. These can allow people to quit their jobs but often they are being replaced with a different job or a business.

If you know a real estate investor that uses a strategy that I’m missing from this list then let me know by leaving a comment at the bottom of the article, particularly if it is you that has achieved that goal.

I will be focusing on residential rentals there are real estate entrepreneurs that use industrial or retail properties but I will not be including them here. When I refer to residential rentals in these articles I will be focusing on 1-4 unit properties, if I mention commercial properties they will be multifamily properties that have 5 or more units in them. A single family home would be considered a residential property according to this criteria.

Every person’s needs and wants are different how much you require for yourself to create financial independence is personal. If you are unsure I’d suggest you track all your expenses for a year in order to see what you use for all your expenses and target a similar amount to be generated from your assets. I’m currently using a three bucket strategy to smooth out changes to the real estate market and trying to simplify some of my real estate portfolio. If you are unsure of what you will need for yourself, I can recommend some fee only financial advisors to help you that I am unaffiliated with. In the example strategies that we have here each the people using the strategies require different amounts of income per month from 10,000 to 20,000 per month.

To keep things simple I am going to avoid the discussion on tax. You would have capital gains tax and income tax depending on the strategy that you are using. You would have the opportunity to offset those taxes in different ways depending on how you are investing. I recognize that taxation is one of the biggest expenses that we all face as Canadians but with the progressive tax system it would be hard to define what this would look like for each person.

So these are the eleven ways that I have seen real estate entrepreneurs use their properties to retire. Some people use a combination of all of these different strategies. There is a lot to cover in each of these different ways, so I decided to create a series of posts.