The best way to create passive income is to buy real estate once and get paid for it forever.
Didn’t get the point. Let me draw a picture for you!
We have always been taught that ‘’work hard and save money in the stock market’’… do this for 40 years, and enjoy your retirement for the rest of your life.
Oh! And all you need is a pile of cash (maybe $2M would do), hope and luck. Hope for the price of the share will increase and luck for the market doesn’t crash.
If this is all that was needed to become strategies and planning. Unfortunately, this is the reason that today not everyone is a millionaire today because they are depending upon hope and luck.
My friend, hope and luck are not strategies!
You are thinking about your future here, you need planning and strategy for it. And the best strategy to make your retirement beautiful is to invest in the real estate market. It’s not that easy, but with the perfect planning, you can win this game.
Why Real Estate?
Because you can get the right cash flow from your real estate assets, capital preservation and great tax benefits, you can create a level of certainty and control for yourself in your later years.
There are some ways in real estate to decide your retirement plan like:
- Own your own home
- Invest in real estate investment trusts (REITs)
- Buy, improve, and flip a property
- Purchase commercial property and rent it out
- Purchase commercial property and run your own business
- Buy a vacation home and rent it out part-time
- Crowdfunding
Don’t get me wrong, all of the above are valid ways to enter the real estate game. However, consider these four questions for each of the above strategies:
- Does the asset preserve capital?
- Does the asset create cash flow now?
- Does the asset have the potential for appreciation (but not depend on it for success)?
- Does the asset yield any tax benefits?
Do the answers surprise you? I bet you find that these strategies aren’t actually so conservative after all.
So, let’s dive into other ways to supercharge your retirement through real estate investing.
What are the Other Strategies to Retire from Real Estate?
There are four ways you can leverage rental real estate to fund your retirement, especially if you are just starting or have limited capital to invest.
House Hacking
House hacking helps you to generate extra income through roommates or renters and you can use this money to pay down the home or save to invest in other places. The cool thing about househacking is that it allows you to invest in such a way that it preserves your capital, capture tax benefits and position yourself for the appreciation while significantly reducing (or eliminating) your largest expense… your housing bill. Now you can save even more for your next down payment! Additionally, you can take advantage of low down-payment programs such as FHA of VA programs. BONUS!
Repeat this process every two years for five years, and in the end, you could have a nice equity nest egg and multiple cash flow streams to live off.
Turnkey
Another strategy for your retirement is that you purchase turnkey rentals, you continue to convert saved capital or re-positioned equity into multiple streams of cash flow. Like house hacking, you would purchase in such a way to preserve your capital, capture tax benefits, and position yourself for appreciation… the “icing on the cake.”
BRRRR (Buy, Rehab, Rent, Refinance, Repeat)
This is the best strategy (IMHO). In this strategy, you accelerate your wealth and access to capital through forced equity. You buy the property at a low price and then you rehab the property to minimize your capital expenses for a few years and then you rent it to create positive cash flow and after that refinance out your initial investment and repeat the process.
This strategy will help you to create infinite cash-on-cash returns. The only limits to the number of projects you can do at one time is how much upfront capital is required, dealflow, and the amount of time you have to do the projects! Like house hacking and turnkeys, you would purchase in such a way to preserve your equity position, capture tax benefits, and continued appreciation (you see the pattern here;).
BRRRR-Key
In BRRRR-key, you’re combining the two methods: turnkey and BRRRR. You still have all the work done for you (the turnkey part), but you’re the one financing the distressed property and rehab (the BRRRR part)
The main advantage of this strategy is that unlike with the standard turnkeys, you can force appreciation. With a standard turnkey, you’re already paying market value and there’s nothing you can improve on the property, so there’s nothing you can do to increase the equity in the property. But since you’re the one funding the project with the BRRRR+turnkey model, now you are the one who gets to keep the forced appreciation that comes from that rehab (and you are leveraging someone else’s systems to complete the deal).
All of these types of portfolios take time to scale to the point you can retire off the income—unless you have the capital and network to purchase a portfolio of projects all at once. (Yes, it can be done!)
Let’s Supercharge Your Retirement Plan
Now that you know about four of the core real estate investing strategies for your retirement, let’s build off these strategies and cover four ways to supercharge your scaling efforts and retire much quicker.
Buy 1 Property Each Year for 30 Years
In this strategy, you buy one property with a 30-year mortgage and your tenant pays that mortgage. Once the mortgage is paid, you can sell the property and you can live off the proceeds of the sale or reinvest all or part of this money back into future investments. This is a grow-slow approach, but entirely doable. You have multiple properties that are giving you cash flows to cover your expenses.
The Buy-3-Hold-2-Sell-1-Strategy
In this strategy, you buy three properties and then roll two properties into your portfolio and sell the third to live off of. In five years, you will have 100 cash flowing properties and a huge pool of capital for investing. It would be like living your dream!
The Stack Strategy
In this strategy, you are taking a glide path on scale. This strategy is composed of six years. It looks like this:
- Year 1: Buy one single-family home
- Year 2: Buy one duplex
- Year 3: Buy one fourplex
- Year 4: Buy one eight-unit building
- Year 5: Buy one 16-unit building—hitting hyper-growth mode now!
- Year 6: Buy one 32-unit building—you get the point!
In six years, you have 63 cash flowing units under your belt (with only six buildings to manage). Now that is a nice little nest egg!
The Syndication Strategy
When you reach a certain point where you no longer want to add more units, you can shift that cash flow and invest as a limited partner into someone else’s deal. Such a strategy is called a syndication strategy.
I LOVE this strategy, because:
- You can grasp other people’s time, knowledge, expertise, money, and credit.
- If you get the right partner, which definitely you would, you get similar cash flow, appreciation, and tax benefits.
- You get access to the economies of scale with multifamily, greater leverage, and greater diversification of geographical areas and asset types like multifamily, self-storage, mobile home parks, residential assisted living etc.
How do you fund a strategy like this if you aren’t a high-income earner or have a cool million in the bank? A simple question with a very simple answer.
One way is to use your single-family and small multi-units as a mini-ATM, printing cash for yourself to invest in larger projects… then you live off the cash flow of the larger project. This may take some time to execute but you can pair it with any of the above strategies and have a secondary exit plan for your retirement. Simple!
Final Words
Before jumping into the real estate game, make sure you are evaluating yoru deals for the following:
- Does the asset preserve capital?
- Does the asset create cash flow now?
- Does the asset have the potential for appreciation (but not depend on it for success)?
- Does the asset yield any tax benefits?
Don’t jump blindly.
And remember that there are two most powerful warriors who can give you success: a plan and time. If you have both… nothing can stop you.
So, get in the car, put on the seat belt, and cruise on the road to success!
Check out the original post here.
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