Financial independence is a dream for many of us. It means that we are no longer bound by the constraints of traditional employment and can live life on our terms. One path to achieving financial independence is through property investing. In this article, we will explore how many properties you need for financial independence and why property investing can be a powerful tool for building long-term wealth.

"Don't wait to buy real estate, buy real estate and wait." - Will Rogers

Overview of Financial Independence

First, let's briefly review the concept of financial independence. Traditionally, financial independence is achieved when your investments (income-generating assets) generate enough passive income to cover your living expenses. In previous articles, we discussed the 4% rule and how it can be used to calculate your financial independence number using stock market investments. However, in this article, we will focus exclusively on property investing as a means of achieving financial independence. The goal is for you to rethink financial independence.

How many properties do you need for financial independence

So, how many properties do you need for financial independence? The answer, of course, will depend on a variety of factors, such as your lifestyle, expenses, and desired income. However, as a general rule of thumb, the figure should provide enough income to cover basic living expenses and allow for some additional discretionary spending. Once you have the amount of properties you need, go out, buy them with the bank's money, let tenants repay your loans and inflation will help you erode the value of the debt over time. A more tangible type of retirement and freedom.

Benefits of property investing for financial independence

While this may seem like a daunting goal, property investing offers a variety of benefits that can make it an attractive option for achieving financial independence. 

Using other people's money: One of the primary benefits of property investing is the ability to use other people's money to buy the asset. Banks are typically willing to lend money to finance real estate purchases, which means you can use leverage to amplify your returns. By putting down a small percentage of the purchase price as a deposit, you can control a much larger asset and generate more income than you would be able to with cash alone.

Someone else repays your loan: Another benefit of property investing is the fact that the tenant repays the loan. The tenant pays rent, which covers the mortgage payment and generates income for you as the landlord. Over time, as the mortgage is paid down, you build equity in the property and can potentially sell it for a profit in the future.

Inflation is your friend: One final benefit of property investing that is worth mentioning is the fact that inflation can work in your favor. As inflation erodes the value of the debt over time, the income generated by the property should keep pace with inflation. This means that over time, the value of the debt will be eroded while the income from the property continues to grow.

Tax deductions: In addition to these benefits, property investing also offers several tax advantages. From the rental income, you can deduct a variety of expenses related to the property, such as mortgage interest, property rates and taxes, maintenance, and agent fees. These tax benefits can help to boost your overall return on investment and make property investing an even more attractive option for achieving financial independence.

Of course, property investing does come with its own set of risks and challenges. Finding the right property at the right price, managing tenants and maintenance, and dealing with unexpected expenses are all part of the process. However, many investors find that the benefits of property investing far outweigh the challenges.

A practical example of how to find how many properties you need for financial independence 

As mentioned, the idea of this article is to rethink financial independence, especially solely using property to achieve financial independence. The tool illustrates the idea, that if you know your FI number, buy the number of flats you need and by reaping the benefits of properties above, over time the properties will be repaid and you can live financially independent! Here's a quick example:

This person, Sandile, requires R25000 per month to reach financial independence. According to the 4% rule, Sandile needs R7.5m in an investment account to reach financial independence. Sandile owns a flat that can be rented out for R8500pm. There are monthly expenses to take into account. These expenses add up to R3600pm leaving Sandile with a net rental income of R4900pm should the bond be repaid. Sandile would need 5.1 of these flats to reach financial independence. 

Summary

While the exact number of properties needed to achieve financial independence will depend on a variety of factors, property investing can be a powerful tool for building long-term wealth and creating freedom. By using other people's money to buy the asset, having tenants repay the loan, and benefiting from inflation, property investing can provide a steady stream of passive income that can help you achieve financial independence. So, if you're looking for a path to financial independence, property investing may be worth exploring further.

At Finsights, we want you, the everyday hero, to take control of your finances, become aware of financial independence, grow your knowledge, and let us be your financial independence partner.  

Onward to Financial Independence