Real Estate Your Way to Fast FIRE
Unless you’ve been under a rock, you have probably heard of the FIRE (financial Independence retire early) movement.
The FIRE movement is essentially the goal of planning for financial independence so that you have the option to retire early.
There is a certain appeal to the thought of starting your career and then in a methodical and (somewhat) leisurely way planning for the definite playground of financial independence and the option of early retirement when you are in your late forties or early fifties (as opposed to in your 60s or later).
How soon do you want to be free?
Are you dreaming of an alternative lifestyle?
Is your vision of this new dream so clear that sooner is better than later?
Those of you who read my blog know that I believe in enjoying your life right now. You know, the present moment, the only one we truly have!
Therefore, I am both for and against the FIRE movement. I don’t believe that you should make yourself miserable now so that you can possibly be free in some nebulous future.
Enjoy now within reason, but execute a well thought out plan that will give you financial freedom and the ability to retire (really) early!
What does that entail?
Well…I am all for moderation, which means enjoying today with a budget that allows you to plan for tomorrow’s large purchases, trips or other plans.
I am a fan of getting out of debt (staying out of debt). I also believe in diversifying your investments with consideration to your personal tolerance for risk.
The question is do you want to achieve fast FIRE?
What plans do you have in place in order to achieve fast FIRE?
I hope today’s blog will help you look at your situation and make a concrete plan for success!
What is Fast Fire?
Before you achieve fast FIRE you might want to know what it is!
It is a term coined to explain a fast way to financial independence, retire early movement that involves using real estate as a vehicle to get there.
I can hear the chorus ask “what type of discomfort are you talking about?”
I mean you may need to keep working somewhere or in some kind of work that you don’t like–maybe even hate. You do it because the rate of return is worth it.
You see passive investment strategies take time for results. In order to achieve fast FIRE, you need an action-oriented goal.
Accelerated action now (for a relatively short time), but play for a longer time at a later date.
The point is how much the rate of return is–and how fast it’s coming in.
The most important thing is that there is a plan!
The “suffering” has a point and an end date.
There is light at the end of the tunnel.
Achieve Fast FIRE: Using Real Estate Professional Status
The vehicle you are driving in order to achieve fast FIRE is real estate. Real estate is the foundation for your future.
Using real estate as a source of semi-passive income can be an extra smart financial move. The tax benefits of investing in real estate are phenomenal. One example of a tax benefit is the reduction that you deal with in taxes.
The other way to achieve Fast FIRE and benefit on the tax front is investing your time to obtain your Real Estate Professional status.
Semi-Retired MD is offering a free download for our listeners of the Real Estate Your Way to Fast Fire. Want it? You can download it here!
The point is that although a physician can use real estate professional status to shelter clinical income, there aren’t many that are doing it. It is a great way for a physician, who is given precious few deductions to recoup some of their money and rake in the returns.
Using a real estate professional status is perfect for one part of a married couple. This will be another tool in your quest to diversify your portfolio and achieve fast FIRE.
A possible scenario would look like this:
You and your spouse are both physicians. One of you cuts your hours to part-time and will be the person who establishes real estate professional status and puts in the qualifying hours on the business. This will be considered your primary job. However, it averages out to as little as 15 hours per week. The other spouse will continue working in order to fund real estate purchases.
- Do you see how that might work?
- Does it spark your imagination with possibilities?
You will need to consider a different angle when you purchase property to use alongside your real estate professional status. The properties need to be your own rental properties that you are actively managing. Just keep in mind that this averages out at approximately 15 hours per week and has huge benefits!
I know, I know…some of you are groaning anyway. Depending on your personality and how interested you are becoming a “property manager” sounds daunting!
There are some of you who become newly minted real estate investors will prefer to use a property manager. You can still take that route under your real estate professional status as long as you maintain active oversight of the property manager’s work. Meaning you are still putting in your hours and in charge of the real estate!
What does Real Estate Professional status involve? It only takes two relatively easy steps and you reap the rewards:
- A taxpayer must spend more than half their time on their real estate business (as a primary profession)
- 750+ hours working on the real estate that you personally own and participate in managing
The 750-hour qualifier is usually per property, which is very hard to do if you only own a single property. If you have multiple properties you get something of a bundle deal. This means that you are allowed to combine the work of several of your properties in your real estate business.
There are more other great reasons for investing in single-family real estate. I recently wrote a blog about investing in SFR.
Multi-family residences are also an option when you have real estate professional status.
There are a couple of disqualifiers, you won’t qualify for real estate professional status by participating in crowdfunding or real estate syndication deals. These are a great way for you to pool your resources and invest in larger projects. They are great for diversification purposes–but they don’t count in the current discussion!
Let me repeat that: Your crowdfunding or real estate syndication deals will not qualify you for real estate professional status. The reason behind that is someone else is usually doing the hands-on work or the actual term is material participation!
What counts as material participation? Let me just say there is a whole slew of activities in which you can choose from.
I will name a few of the activities: buying, selling, renting, leasing, developing, redeveloping, rehabilitation, converting–and of course management!
As with any business, it is important that you keep a detailed account of your activities…document, document, document!
When you invest in real estate and become a real estate tax professional your finances are sure to grow and you achieve Fast FIRE because you aren’t paying the tax drain!
Achieve Fast FIRE by Carefully Choosing Property
So…you want to become a real estate professional and you need to buy properties to claim the hours needed to qualify for the title.
In the game of Monopoly, a winning strategy is buying every property that you land on. In the game of real life and on your quest to achieve fast FIRE, you need to be more choosy!
This is especially clear when you are a real estate tax professional who is investing in real estate for the benefits you will get from the deal. You need to consider the type of real estate purchases you make and the location carefully.
You must consider the cost of living and the cost of the property in the area where you plan to buy.
Buying in an expensive place in a place like California, where all your cash will go on one property is not a good plan. A property in California will lack cash flow, so then you are banking on appreciation, which is a gamble.
Similar to the game of Monopoly, you want to buy the maximum amount of properties that you can afford. That may mean researching and looking at out-of-state properties.
This is a time to give meaning to spreading (your real estate) too thin, you don’t want all your eggs (or rental homes) in one basket..or property.
Buying and putting your effort into one property doesn’t justify the hours you need in order to qualify for real estate professional status. However, buying and working on several qualifies you for real estate professional status, which in turn saves you money that enables you to achieve fast FIRE!
Achieve Fast FIRE: Roll Your Sleeves Up!
There is a huge misconception lurking out there among potential real estate investors that it’s all fun and games.
People mistakenly believe that once they buy a property their work is mainly finished. While owning real estate does not have a max hours type of pursuit, it does take some elbow grease, especially when you are just getting started.
It behooves you to take the time and effort to learn the ropes. If you are investing in real estate educating yourself is an essential step. You don’t want to be sideswiped due to your lack of understanding in the process. That could lead you to making bad deals and losing your money.
Remember, the point is activating cash flow! There is something for everyone when investing in property. You can choose the way you do business by matching your goals and energy level to the type of real estate business practice you embark on.
You can activate that incoming money with a simpler method of investing in real estate. That is the method of buy and hold. This way of buying properties can contribute to your plan to achieve fast FIRE in an easy format. You buy one house per year. In ten years…you will have ten houses. Each house will cash flow of approximately $1,200 per month.
There are other creative ways you can activate cash flow with a property. The flow can happen in small or large ways. A small way might be writing off the cost of rehabilitating a new property. A large way may be finding a niche area to focus on.
I recently heard about supported housing, which is providing housing for people with intellectual disabilities. This is a way to increase your cash flow in an interesting way and achieve fast FIRE!
An example is a program will rent your house for their clients. You can rent it out to room by room, which allows you to increase the rent due. The program is mainly in charge of property management and utilities.
A bonus feature is when an individual moves out, you don’t suffer financially due to the vacancy. The program will continue to pay for the empty room until it is filled.
As you can see both educating yourself about the benefits of investing in rental properties, and taking the time to develop your real estate professional status will benefit you in the quest to achieve fast FIRE.
If you are looking to accelerate your financial independence and possibly your early retirement in a supersonic way–real estate is the key to your freedom!
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