How to put your property investments on FIRE in 2022

Jobs for life are long dead. But working nine to five, age twenty to seventy? Still the norm. At least until certain events of 2020. 

Prior to the pandemic, for most, even working from home was a distant dream. And not working at all was simply not an option.

The growing FIRE movement – gaining Financial Independence so you can Retire Early – is emerging as a perfect match to the shifting attitudes towards work.  

There are varying schools of thought within the movement. For some, it means working so hard (for an outsized paycheque) that you can powersave enough to retire in your 40s or 50s. 

For others, it’s characterised by frugal living or intelligent investing to engineer a much earlier exit from working life. 

The 3 types of FIRE explained 

‘Lean FIRE’ harks for a simple life where not much is spent and not much is needed. Some lean FIREers incorporate self-sufficiency or even off-grid living.

Those who ‘fat FIRE’ want the good life. The goal is not just to retire early, but to do so in luxury. 

‘Flexi FIRE’ is an agile way to balance both. You might work and save for a year, take a year to travel, then go back to work again to save.

Why FIRE?

Our relationship between work, income, our careers and lifestyle has changed significantly in the last year or so, but there has also been a slow but steady shift in attitudes over decades.

The FIRE movement was born out of the 1992 book Your Money or Your Life, written by Vicki Robin and Jo Dominguez, and you could argue that the authors’ experiences of living through other fundamental shifts in societal attitudes in the1960s and 70s pulls the birth of the concept of financial independence and ‘living the good life’ even further back.

Fast forward a couple more decades and even more of us are wanting to ‘live to earn’ than ‘earn to live’.  We equally face the prospect of living longer:  30 year olds today have a 1 in 4 chance of living to 96, and a 1 in 10 chance of living to 100. That means to retire at 60, you need enough money saved to live on for possibly 40 years.

For many, the allure of the FIRE movement is becoming even more attractive.

The 4 principles of FIRE

So how exactly do you FIRE? Naturally, there are a hundred technically possible ways to gain financial independence, and each will vary depending on your goals, skillset, and comfort levels. 

You might build your wealth by investing in education and skills development, then climb the ranks within your field. You might build wealth through a series of jobs and side hustles. Or you might choose to focus heavily on learning the markets and finding profitable investments.

But for all those seeking a life free from labour, the movement is underlined by some handy rules of thumb:

• Maximise your income while you’re in work
• Save at least 50% of that income
• Reduce your outgoings, starting with expensive debt (things like mortgages, student loans, and 0% interest credit cards are allowed)
• Follow the 4% rule: ensure your investments will return 4% over inflation, and you’ll be able to live on 4% of your portfolio annually.  

Property, passive income and FIRE

For those FIREers with enough cash to invest, property can be an attractive way to earn extra income, or passive income as it’s sometimes called. The boom in buy to let in the late ‘80s and early 90’s saw many individuals transforming their lifestyles by amassing property portfolios. However, changes in taxation and regulation for landlords has dampened growth in recent years, and many predict that the market in the UK has reached its peak.

For those who haven’t the cash reserves to buy a whole property or don’t wish to deal with the hassle and admin that managing a property brings, Real Estate Investment Trusts, or REITs, have also grown in popularity as an alternative investment to the conventional property route. The trust purchases property using the pooled funds of investors and distributes the dividends at regular intervals.  Shares in REITs can also be traded on the Stock Exchange.

Another option is fractional property investment, like those offered by Housemartin. (See our blog on fractional property investment here).  Investments like these deliver returns in the 5-6% range, paying monthly income to investors that can then be reinvested. 

Why FIREers prefer property investments

Other than being less mystifying and volatile than crypto trading and less hassle than buy to let, fractional property investments and REITs tick several FIRE boxes: 

They provide regular income, long-term. You set them up while you’re still in work, increasing your investment as you increase your earnings (if you choose). Regular returns are then reinvested to create a compound effect.  Once FIREers reach the point where they want to realise their investment, they might also gain from capital appreciation of the asset.

They can be inflation linked via their lease terms. This means if inflation rises, so does the return on your investment. This is absolutely key for FIRE subscribers. Without it, sudden increases in the cost of living can wreak serious havoc on your retirement plans and the standard of living you were expecting.  Equally, property values should hopefully rise with inflation, meaning the value of the asset in real terms does not depreciate as inflation rises.

They’re hands off.  Not only does this feel a little less like hard work, taking away the significant time it takes to manage your own property means that saved time can be spent invested in other income generating activities.

Starting your FIRE journey

Tempted to review your 9 to 5?  If you’re just starting out building a passive income stream, or if you’re unsure if you’re ready to make those sacrifices, start with something accessible, affordable, and easy to understand.

Here are our top tips:

• Be ruthless in your professional choices. FIREers don’t take lower paying jobs because they love the culture or it’s a convenient commute. Income must be prioritised at all costs. Seek raises, move companies, and always be searching for better opportunities. 

• Look for investments that deliver regular income streams, and then reinvest that income to create a compound effect.

• Make sure your investments are inflation linked. You will find it with property investments like these. 

• Don’t be fooled by high yields and quick exit promises. High yield can equate to high risk. FIRE is based on careful, considered decision-making, not moonshots.

• Remember that all forms of FIRE are sacrificial. You may need to forgo certain luxuries in the near term in exchange for financial freedom in the long term. 

Housemartin provides long term passive income through the leasing of properties to charities, care providers and housing associations who provide accommodation to vulnerable people in society. Find out how we can help you FIRE here.

If this blog has sparked your interest in this investment area or raised any further questions for you, please do get in touch at support@housemartin.co or click here to receive regular updates of our social housing investments.

Your capital is at risk and is not covered by the Financial Services Compensation Scheme (FSCS).