We have had the privilege of working with more than one glassy-eyed investor buying that first property with dreams of becoming rich and living off their commercial or real estate investments. We get it. Living off your investment puts you in control. It lets you decide how you want to live your life. But getting there is not always easy. It never occurs overnight, either.

There is a lot that goes into property investing. Every property represents a new set of challenges. Because circumstances differ with each investment, it would be impossible for us to give you a detailed, step-by-step process that would lead you to the promised land of living off your investments. Having said that, there are three basic steps you need to follow.

1. Buy That First Property

Obviously, the very first step toward living off real estate investments is buying that first property. Here is why we mention something that seems so obviously clear: it is not as much about the property itself as the business model behind it. Properties come and go. They can be had virtually anywhere. But buying that first property forces you to establish a business model.

It is your business model that will carry you through many years of investing. Your business model should account for the fact that you are not going to have very much cash flow from that first property. It may be all you can do to break-even. Your business model should include a solid strategy for leveraging that first property to buy a second, then a third, and so on.

2. Grow Your Portfolio with More Real Estate Investments

Play your cards right and you will gradually build equity in that first property. As hard money lenders, we love to see equity. We love to see savvy real estate investors who know how to leverage existing equity to expand their portfolios. That, by the way, is the second step.

Every property added to your portfolio represents two important things: cash flow and additional equity. The idea is to add to your portfolio in such a way as to generate a monthly income above and beyond expenses. A large portfolio capable of generating enough income lets you live off your investments.

This stage represents a good time to learn about the 1031 Exchange. A 1031 Exchange is a transaction that allows you to sell one asset and roll the proceeds over into another asset of some kind, thereby avoiding taxes. It is an excellent strategy for churning your portfolio while minimizing tax liabilities.

3. Develop an Exit Strategy

The third step toward living off your real estate investments is to develop an exit strategy. You are not going to live forever. So whether you begin selling assets in your golden years or decide to turn your entire portfolio over to children and grandchildren, you start thinking about it sooner rather than later.

We have known some investors who outright sold their entire portfolios, paid their taxes, and then lived off what was left. That is a fine strategy if it interests you. We have also known other investors who turned their portfolios over to management companies and collected their monthly income, knowing that their portfolios would be passed on when they died.

Real Estate Investment Is Long-Term

You have probably figured out by now that real estate investing is a long-term strategy. As hard money lenders, we cannot emphasize that enough to new investors. Very few property investors get rich quick overnight. Most work at their businesses for years in order to build something they can live off. That’s normal. That is good.