Obtaining Financial independence with cash flowing real estate is very different and a lot simpler than what you might be hearing from your financial advisor. Retirement calculators and retirement accounts operate on the assumption that you will build a large lake of money. This lake of money will earn a conservative, safe and low interest rate.
Then once you retire, you will start drinking from the lake of money you saved. There will be a bit of growth “hopefully*, but you will need to sell approximately 4% of your investments each year in order to have sufficient money to live on. After about 25 years, you will have drained the lake of money and have nothing left.
This is a flawed approach, in my opinion, for several reasons:
Firstly, you need to cash in your investments thus draining the lake. The investments are unlikely to be large enough to let you live on the bond yield or dividend yield.
Secondly, during down markets which we have about every 7 years, you will need to cash in more than 4% of your investments in order to have the same income year over year. This can result in draining the lake faster and running out of money sooner.
Cash flow is what we need to cover our living expenses. If your investments generate enough cash flow each year, you would not need to sell your investments. Thus, you would not need to drink from the lake, but simply live off the streams filling the lake. Think of another analogy. If you had a goose that laid golden eggs, you would never eat the goose….would you?
Multi-family Real Estate is the goose that lays golden eggs. Rather than having a lake of money invested in the market and then draining the lake by 4% or more each year until it is empty, you could buy real estate with that lake.
Good multi-family real estate investments typically pays out 8% or more in distributions. Additionally, your investments do not diminish in value but actually increase. The value of the investments and the capital you have increases by the deal sponsor forcing appreciation, buying and managing correctly and the tenants paying down the mortgage. All while you earn the reliable cash distributions. It is the goose that lays golden eggs and at the same time makes more geese.
Real estate is not a get rich quick scheme, but it is get rich for sure.
What better way to take early retirement, live well off in retirement and leave a legacy for others?