Financial freedom on solid foundations

Who among us does not dream of the financial freedom to choose on a daily basis exactly what we do and when to do it? That dream can become within reach with some sound investments – and few investments offer such a high confidence and stability as real estate.

Investing in apartments for rent is nothing new. Recently I spent some time in Toruń, where you can find centuries-old tenement houses in the old town. Similarly, elegant buildings are plentiful in many Polish cities. Aristocrats from a bygone age would arrive in a city and erect huge buildings: on the ground floor there would be an inn, a pharmacy, a shop while they themselves lived in spacious apartments on the first floor with upper floors rented to artisans or students. This was how our cities grew.

The painting vs. real estate

The tenement houses changed hands down the ages but they brought massive profits for every one of them. And these regular, monthly, quite reliable profits from rent are the biggest – as far as financial freedom is concerned – benefit of real estate. Yes, you can buy shares on the stock exchange, a painting by a famous artist or units in an investment fund and you can enjoy an increase of its market worth. You can’t, however, count on those to bring you a regular, monthly profit to help you maintain the standard of living. You could of course sell such investments but where would you be a few years later when the profit from the sake runs out?

Another benefit of real estate is that you can realistically expect it to increase in value in the long run. On the stock exchange, bust tends to follow boom and in a worst-case scenario the value of your shares can drop to zero if the company is in real trouble. And most companies eventually have some volatility as the market and technology inevitably change. How valuable are the shares of the stock exchange giants of 50 or 100 years ago, when the production of matches, gramophones or ploughs were at their peak? How valuable are the shares of the Lehman Brother bank? The value of shares in fuel companies dropped dramatically with breakthroughs in the costs of renewable energy.

A roof over our heads is always worth the money

Apartments, houses and service premises always have been and always will be needed. What is more, the number of people around the world is increasing. There are more businesses looking for places to run their activities. And there are not so many areas where new premises are available. Land prices are rising. The price of building materials and the wages of bricklayers also rise and consequently the cost of building per square metre increases and with that the price of apartments on the secondary market. Today’s price of the tenement house in the centre of Toruń is 5 000 PLN per square metre. Whatever the cost of building a tenement 500 years ago, it was a fraction of its worth today. Prices of real estate can vary in the short term but in the long run they rise with the inflation and with the rising cost of their replacement value.

Supposing you and a friend in Austria decide that on the same day, at the same time you will buy gold, shares in a bank, government bonds or units of an investment fund.  You will pay an identical price. The market price is the same for everyone. Buying an apartment, on the other hand, you can secure it for less than its average market worth if you are patient in searching for a motivated seller. What is more, after buying you could increase the worth of your estate by renovating it or creating another room. If you buy cheap and increase the worth of the apartment, you will earn more on renting.

A flat is also a sound measure against inflation. Its worth is less susceptible to rapid market changes. Insurance companies are happy to insure the risk for the complete loss of worth of your investment. Because of that and also thanks to the warranties of the land registers, banks will also readily offer you credit to buy the apartment for rent. And in this way you can quickly grow your real estate portfolio and speed up your journey to financial freedom.

A villa, wedding dresses salon or a garage?

Which type of real estate is best for investment? When writing my book “Financial freedom thanks to investing in the real estate” I had the opportunity to get to know and talk to – personally and via my blog – with many investors. These conversations assured me that there is no single way to financial freedom. I know people who buy only apartments with two rooms others only studio flats. Others buy established properties and some only new builds. A Hindu I recently got to know, who has run his own business in Poland for 10 years, accumulated a portfolio of a few exclusive apartments. Friends of the publisher of my book possess a portfolio of a few villas in Konstancin.

Of course you can also invest in non-residential real estate. One of the readers of the Fridomia blog possesses a huge portfolio of garages for rent. Other specialized in renting places for wedding dresses salons. A fellow of my friend has more than a hundred places which he rents to banks looking to establish new branches.

What connects all the people who achieved the financial freedom or strongly make progress toward it is that their real estate portfolios bring them a regular, monthly profit of passive money from rent. Real estate not rented or rented to the inappropriate tenants will not give financial freedom.

By Sławek Muturi
Photo: Maciek Fryszer