How to Build Wealth and Retire Early By Investing in Real Estate: Part 1 of 3

For many people, the thought of retiring early is nothing more than a pipe dream. But with a smart investment strategy, it can become a reality. And one of the smartest investments you can make is in real estate.

Real estate has proven to be a sound way to build long-term wealth and stability. And you don’t have to be a millionaire to get started. In this series we’ll cover the BRRRR method, Buy, Rehab, Rent, Refinance, Repeat. A tried and proven approach to buying, improving, and leveraging property in order to expand your real estate portfolio and grow your wealth. With these tips, you’ll be on your way to financial security faster than you might expect!

1. Plan out your finances and get disciplined

Like any investment, there is risk involved in real estate. But you can minimize your risk by planning ahead and getting disciplined with your finances. You’ll need to have a solid plan in place and stick to it, but what does that mean? Well first you’ll need to figure out what your monthly living expenses are. Determining your living costs will tell you how much you need to make in passive rental income in order to retire, or be in a position where you are job optional. It will also help you to make a game plan for how you can save up for a downpayment on your first rental property. You can start by adding up your expenses in the way that suits you best. This could be excel, google sheets, or a pen and paper. However you do it, figure out how much rental income you need based on your regular living costs, (i.e. house expenses, food, internet, car, gas, etc.). In addition to adding up your basic necessities, you’ll also want to include a category for discretionary expenses (i.e. vacations, restaurants, entertainment, etc.). Keeping these categories separate will allow you to easily account for both your basic needs, and those additional expenses you may want in order to live comfortably. It will also tell you where you can cut down on monthly expenses to save up your down payment much faster. If you don’t already own a property then your primary goal should be to save up 5-20% for a down payment to get into the real estate market. The first property is always the hardest, so in addition to cutting down expenses and saving every dollar you can, you may also want to get a second job, or pick up a side hustle in order to save up more money faster.

2. Invest in a (rental) property – Buy

One of the best ways to build wealth through real estate is to invest in properties that will generate rental income. This passive income can help you accelerate your path to financial independence. Especially if you leverage your first rental property to get into the second and so on. This is known as the BRRRR strategy Buy, Rehab, Rent, Refinance, Repeat. We will discuss this strategy as we go along, but at a high level the intention is to purchase a rental property, fix it up, rent it out, refinance so you can pay off the original loan and pull cash out of your appreciated asset. Then you can use your additional cash and cashflow to turn around and do it all over again.

Before we get into all of that lets look at your first property/rental property. Ideally once you’ve saved up your down payment the best goal would be to purchase a property that has 2+ units. This way you can live in one of the units while renting out the other(s). However, Victoria is an expensive market, so many people who are looking to buy their first property will probably be looking at a 1-2 bedroom condo rather than a 1-2 suite house or half-duplex. However, there are lots of real estate markets where this is still viable. For example, even on the island you can find reasonably priced 2+ suite homes in places like Sooke, the Cowichan Valley, Nanaimo, Courtenay/Comox, and elsewhere. Ultimately your real estate options and goals will be largely informed by where you live and what you intend to prioritize. If for example, you live in Victoria then your first step might be to save up $25k to purchase a 1-2 bedroom condo for around $500k or less, and then work you’re way up from there. Based on an annual average historical appreciation of around 7% you can expect to generate a healthy return on the increase in your property’s value over the long term. However, since Victoria is a more expensive market, and you aren’t benefitting from the cash flow of an additional rented suite, appreciation and equity growth are your main opportunity here. Alternatively, in a market like Nanaimo you can find healthy annual appreciation and homes with a second rentable suite within a similar price range ($500-$600k). Of course this still isn’t necessarily cheap for a home, so although now you may have a mortgage helper, this probably isn’t going to generate net cashflow. A third option is to buy a home in a more affordable market like Calgary. The benefit of this option is that the potential for cash flow is a lot greater, but these kinds of markets tend to be slower growth markets, so don’t expect a lot of annual appreciation on your property’s value. No matter what market you’re in there will always be trade offs, but since the BRRRR strategy depends on high cash flow properties we are going to use the Calgary market as our example. This is a market where it’s still possible to find a 2 suite home for $300-400k. However, feel free to adjust this to match your own unique market and circumstance, and keep in mind that just because you live in one real estate market doesn’t necessarily mean you can’t invest in another.

Now that you have saved up a down payment, you’re ideally going to want to buy a 2+ suite home that you can move into. Since you’re purchasing a primary residence rather than just a rental property your down payment requirement is lower, and your interest rate may be lower as well. The reason being is that if you are buying a home that you intend to live in, the banks view this as a lower risk than if you are buying a property that is strictly a rental/investment property. When looking for a home, the ideal property you want to find is one that is a bit run down, and tired looking so that it’s not very attractive to most buyers. At the same time though, you want to make sure the property has good bones so that it won’t require any major renovations that will make it a money pit (i.e. needs a new roof, new furnace, new electrical, new siding etc.). If you can find a home that’s in good structural shape, but cosmetically tired looking then you’re likely to get a good price for something that’s solid, but probably undervalued in the market. Once you’ve found and purchased this first property, you’re now set up to start leveraging home ownership and start building your wealth, something we’ll talk about in part 2.

That’s it for now. Next time we’ll look at the numbers and show you how a simple home purchase can grow your wealth substantially. This will include:

• Demonstrating how renovating your property can help you rapidly build equity
• Outlining the kinds of cost savings, cashflow, and equity your rental can generate; and
• Discussing the reinvestment potential you can generate by refinancing

Stay tuned for part 2!

I am a Victoria based local realtor with eXp Realty. My commitment to honesty, integrity, loyalty and hard work have been important pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!

I service Vancouver Island, but my focus is on: Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.

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