How About Freedom 40 Retiring With Real Estate

Retiring with real estate is really appealing so we thought we would summarize some ideas from the Australian Property Investor Magazine on ways to achieve financial independence through investing in property.

One of their theories is that if you have five average- priced properties paid off completely, you should have the ability to replace your working income.

To apply that to Canada, the average priced home in Canada according to the Canadian Real Estate Association (CREA) in September 2006 was $277,470.

Hence, if you had 5 x $277,000 properties, this would equal $1,385,000 in equity. From this, the article debates the various ways you could earn income. They include:

1. Borrow some of the equity and live off that;
2. Sell some or all of the properties and invest the money in “safe” income producing stocks, bonds, and other liquid wealth products;
3. Live off the rent.

Any of these would work really. It really depends on, yes, you guessed it, your real estate investing goals!

Let’s look at living off the rent. For argument’s sake, let’s say you have a GRM (remember, your Gross Rent Multiplier we discussed a few issues back?) of 10 on all five of the properties. This would look like this:

* $277,000 divide by 10 (GRM) = $27,700 per year
* Times $27,700 by the 5 properties = $138,500 total income per year.

However, this does not include any expenses associated with renting the property. As we have discussed before, we average approximately 40% expenses on our properties (taxes, insurance, property management, maintenance, heat and hydro – where applicable). So, taking that into account, you are left with:
$138,500 in total annual income minus 40% ($55,400 in expenses) = $83,100 annual income.
Of course, the taxman has to take some of that and then you can finally start paying for your personal expenses of food, housing, entertainment etc. But, it provides you with an idea of what can be done with some forethought into your objectives, savy purchasing, and dedicated debt reduction! In future editions, we’ll discuss more about the idea of retiring using investment properties.

Published November 16, 2006

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