In this chapter I show you can become your own boss and financially independent through investing in property. This is something that I am doing right now and something I can attest is the best way, at least for me. First I want to tell you how I came to investing in property.

My Story

When I graduated from University, I didn’t have a clue about what I wanted to do with my life, but I knew I needed money, though. I got a job, I took the very first job I could get, deep in the recession of 1993. Within a few months of working in this job, I knew jobs weren’t for me. I needed to be my own boss. Jobs and employees, I thought were stupid. One problem, though, I didn’t know how to be my own boss (this was eons before Google) and I didn’t know anyone who was there own boss. I did the next best thing in my eyes and that was hunt for another job that paid more money. Wrong.

Deja Vous All Over Again

Once I secured a new job with more money, I repeated the process again and again. Finally ten years later, the penny dropped and I realised that I needed to be my own boss. To own my own company. By this time I was selling for a living and devouring self help books. I came across a book about Life Coaching which really resonated with me. This was it, my path to freedom. I was going to be a Life Coach. So without any experience, never mind any clients lined up, I handed in my notice and set up shop as a Life Coach. What happened next? Well suffice to say it was disaster. One that would take me years to recover from financially and emotionally. I didn’t get one single client. I used up all my savings and got into debt.

Rich Dad Poor Dad

Eventually I found my way back into the security of a well paid Job. Like a swimmer who gets back to shore gasping for breath, having gone out of his depth.
There were several positives to come out of this episode, one of which was that I read a book – Rich Dad, Poor Dad by Robert Kiyosaki. My only regret is that I didn’t find this book earlier. If you haven’t read this book and are striving for financial freedom, you must buy it now. I changed my life and I haven’t looked back. Property is the bedrock of my financial freedom machine. Yes I have pensions and savings, but property is the engine. In this post I share with you what I have learned through my experience and that of my mentors.

Dreams

Have you achieved everything you want to this year? Then why not? Find your reason why and do something now. Don’t let the year slip into next year and another missed opportunity. What is your WHY? What is your reason for doing this?

Financial Freedom

Let’s just recap and define financial freedom again. This is where your passive income exceeds your expenses. Put another way it is when you don’t have to work for money, because the income from your investments and businesses covers all you requirements. Once this is in place, you can define yourself as financially free.
The common model to get financially free is to get a good job, max. out your pension and then draw on this when you’re older. This isn’t for me I want my freedom now.

Your Action Plan

The next thing you need to get clear on is your action plan for financial independence. You need to come up with a figure for what your basic outgoings are and also what you need per month to be comfortable. This is your first freedom number; the amount of passive income you need per month to be financially independent.
Next you need to give this a deadline. When are you going to achieve this – ten years, five years, two?
Once you have your plan written down keep this somewhere where you will see it through the day. This is your motivation to succeed.

Assets and Liabilities

So you want to gain financial freedom and you do this by buying assets and minimizing liabilities. Another thing we need to get straight in our heads is exactly what assets and liabilities are. Basically you want to use the money you earn in your job to buy assets, which pay the passive income, whilst minimizing or even avoiding liabilities. Liabilities suck money from you.
Examples of assets are: property you let out, stocks and shares, businesses you work on (not in) and commodities. I will argue in this that property is the best asset class.
Liabilities are anything that takes money out of your account. These are things like credit card debt, car payments. Some would argue that your house is a liability because it costs you money in repairs, but doesn’t actually pay you anything, unless you rent out rooms.

Property as an Investment

There are many reasons to invest in property:

1. Low volatility: the price of property does go up and down but the pace at which this happens is extremely slow, compared to say the Stock Market. This means you can invest your money and know it won’t be lost over-night. It is also easier to time the market ie buy low sell high.
2. Long term Capital Gains: over the long term the cost of housing will increase as a result of inflation and higher demand.
3. Rental Income: By buying property to then let it out (Buy to Let) you can earn monthly profits.
4. Bank Leverage: The exciting thing about investing in property is that the Banks will lend you money in the form of a Buy to Let mortgage, to buy a property and then let it out for monthly profit (even in a recession – I know – I did it)
5. Flipping: short term capital gains. I did say above that the price of property has low volatility but that is not to say that you couldn’t buy a property and sell it quickly for immediate profits. This process is called flipping and can be lucrative. You buy property that is either distressed (in need of modernising) or from motivated sellers (banks from repossessions) at a low market price. Quickly do the necessary repairs and modernisation at a low cost and then put the property straight on the market to sell for a profit.

Goal

The goal is to get to own ten properties or more as quickly as possible. The tipping point will come at around 7-9 properties, where there is safety in numbers. If some properties are empty, the rents form the others will more than cover the costs.
Write out your five year plan. What is Monday morning like in five years time.?And what is your dream of freedom? What does it look like? What will you be doing?
Then what will it cost in today’s money per month to fund this life?
Then how many properties will you need to fund your dream lifestyle?

The three keys to success

The opportunity – IE the house? Property.
Your knowledge – your know how.
Action – doing something with what you know, when the opportunity arises.

The post How To Retire by Early Investing in Property appeared first on Mike Holden Sales.

Invest for Security and Growth

Only once you have control of your cash-flow, insurances and control of your debts, which will be shrinking, can you think about what to do with your growing nest egg. The answer is to invest for security and growth.

One Month Emergency

From your 10% pay-yourself-first-money, find a decent high interest savings account and save up 1 month’s expenses. Once you have achieved the amount leave it in there and forget all about it. Only, (I repeat) only ever touch this if there is an emergency (boiler breaks down, roof leaks, medical care etc).

3-12 Month Contingency Fund

Once you have your emergency fund, then work out 3-12 month’s worth of expenses. Use the 10% pay-yourself-first-money to start putting the excess into a second high interest account. This account could be one with a notice period; It will offer higher interest in exchange for not being able to gain instant access to it. This money should only ever be touched if you lose your job and should cover you before any Income Protection Policy kicks in.

Invest for Growth

Once your emergency and contingency cash funds are full you can start to look for more ambitious investments. These investments will provide the growth you need to combat the effects of inflation. Yes, there are more risks to your money but you cannot afford to let your money (in real terms) wither away over time. A great way to invest is to use your regular 10% pay-yourself-first-money to buy Managed Funds. Managed funds can invest in Bonds, Stocks and Shares. There are thousands on the market and can be equity funds, Index trackers, Investment Trusts. The reason I suggest buying these is because of the phenomenon of Pound or Dollar Cost Averaging. It is next to impossible to time the stock market, so this is a way in which you can take advantage of fluctuating prices.

You will be setting up a regular Standing Order, for the same amount every month. The reason for this is that when the stock market or share price goes up you will be buying less ‘units’, but your previously bought shares will be worth more. When the stock market or share price goes down, the units are cheaper so you will be buying more. Instead of trying to time the market you will be, in effect, buying at an average price over the period of your investing. I would also advise that you do set up an automatic payment method, using your 10% Pay-Yourself-First-Money. You should also use a Tax efficient vehicle such as an ISA (UK).

Defined Contribution Pension schemes operate in the exact same way; If you have followed Step 2 Protecting Your Wealth and Income you will have your company pension in place. If your company does not provide one, or you are self-employed, there are Personal Pension schemes that will give you the same tax benefits. Consult your Independent Financial Adviser before investing.

Asset Allocation

As your assets increase in value, your next consideration is Asset Allocation. The theory behind this is that the proportion of your assets should be balanced, specific to your needs. What proportion your assets are in depends on your age and your attitude to risk.
Basically, the younger you are, the longer you have to grow your nest egg. Your focus should therefore be on growing your pot as much as you can. You can afford to allocate more of your assets to higher risk products that have higher returns, as you have longer to recover if and when the markets drop.
As you approach the age at which you will need to draw off your investments you will probably have a lot more to lose, so your focus should be on more secure investments. The three major assets classes are Cash, Bonds and Equity.

These examples are purely for illustration:

Under 45 age Cash – 30%, Bonds – 35%, Equity – 35%
Over 55 age Cash – 60%, Bonds – 15%, Equity – 15%

Cash

This is the safest asset but has the lowest return. Interest rates are currently very low and do not even keep pace with inflation. However your money is virtually safe; even in this day and age of financial chaos banks very rarely go bust. (They tend to get bailed out by Governments – another story for another book!). In the UK your cash deposit is also protected up to £85,000, at the time of writing.

Bonds

Bonds can be Government Bonds or Corporate Bonds. You are in effect lending money to the Government or Company and they in turn pay you interest in the form of a dividend at the end of the investment. These are also relatively safer investments. They are however long term and the returns are currently low.

Equity (Stocks and Shares)

These are the highest risk category of the three, but over the longer term, can give the highest returns.

So now you have an automatic system for investing your 10% Pay-Yourself-First-Money. Now it’s time to think about accelerating your push for Financial Independence, by increasing your income. The quickest way to get some more money is to sell your unwanted stuff. This will be the subject of our next chapter.

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