By Suja Shyam
Luxe Capital
sujata@luxe-cap.com

The two terms, financial independence and financial freedom are used interchangeably, but what does financial independence really mean, and how’s it different from financial freedom? 

 

Consider a toddler learning to walk. Once they figure out how to pull up and take a few steps on their own, they have achieved a new mobility level. They may not need their parents to carry them from room to room as often. 

 

However, you wouldn’t expect that same toddler to walk the entire Zoo visit or walk all the way to the park the following day. They haven’t achieved full FREEDOM yet, although that subject will be revisited around the age of 18. 

 

Money works the same way. Let’s dissect what it means to be financially independent vs. financially free and how investing in real estate can help get you there.

 

Financial Freedom vs. Financial Independence

 

Think about that same toddler who just learned to walk. Maybe your finances have reached “mobility,” and you have enough passive income (outside your salaried job) to cover your basic expenses. Can you lose your job and not sweat it? Do you have a fully-funded emergency fund? Will your passive income fund your current lifestyle indefinitely?

 

Savings is highly recommended and all, but it will eventually run out if it’s funding your lifestyle for any extended period. However, ongoing passive income is created while you sleep. 

 

To achieve financial independence or financial freedom, you’ll need to build multiple streams of passive income over time. Thus it’s called a financial journey.

 

Milestone #1 – Financial Security

 

If your salary disappeared for some reason right now and you still had enough money coming in from other sources to cover your basic living expenses, that would be financial security. 

 

Sure, you might have an emergency fund, but what if finding new employment takes longer than expected and that stash of cash runs dry? This is precisely why external sources of income are critical. 

 

Becoming financially secure is the first step toward financial freedom and early retirement.

 

Milestone #2 – Financial Independence

 

Being financially secure means you can cover all the bare-bones basics to survive. Still, being financially independent means you can cover those basics plus a few conveniences or luxuries like dining out, family vacations, and some Amazon Prime. 

 

Financial independence allows you to retire early and maintain your current lifestyle without working ever again. Multiple streams of passive income can fund your lifestyle while you choose what you want to do day-to-day. 

 

Milestone #3 – Financial Freedom

 

True financial freedom is one step beyond financial independence. Financially free individuals’ passive income can fund the luxurious, travel-inspired, do-what-I-want lifestyle.

 

Financial freedom means you can make choices like flying first class, upgrading to the ocean-view suite, and bringing a friend pro-bono without worrying about where the money is coming from. 

 

Your Path to Being Financially Free

 

Everyone’s financial journey begins from a different place, with different numbers and circumstances. However, the ultimate goal and the milestones along the journey are the same.

 

You know that living paycheck-to-paycheck is not for you. You’re aware of the possibilities for your future and your financial situation as a result of carefully planned budgeting and investing. This also means you’re going to need some passive income goals against which to measure and gauge your progress down the path.

 

Financial Security Number

 

Take a look at your current expenses (bills + anything else you pay for), and extract the costs for the basics of day to day living. How much on average do you spend on food, shelter, clothing, and other basics?

 

That’s your financial security number – the amount you need in passive income to become financially secure. 

 

Financial Independence Number

 

Next, take a look at your current finances and lifestyle in totality  What does it take to fund the whole enchilada? The basics (those covered by the financial security number) plus all the enjoyable conveniences and comforts you spend money on in total, equals the monthly amount you need in passive income to achieve financial Independence. 

 

When you build enough streams of passive income to completely cover your current lifestyle, that’s financial independence. You’re financially independent from needing to work.

 

Financial Freedom Number

 

Once you have calculated your financial independence number, take a step back, and consider the things you WANT to afford. Find out how much money the lifestyle you dream of will cost. This dream lifestyle number is your financial freedom number. 

 

Your final steps along the financial journey path include building multiple streams of income so that the passive income you earn is enough to fully fund this dream lifestyle and help you achieve true financial freedom. 

 

How to Achieve Financial Freedom Through Investing in Real Estate

 

There are a million ways to generate passive income streams. You might become an author, design an app, or start a business, but all of those require significant skills and knowledge the average Joe doesn’t have. 

 

However, more people have become millionaires through investing in real estate. Why? Because it’s so simple!

 

You buy a property and rent it out. Sounds like the game of Monopoly – pretty simple, right?

 

Investing in Rental Properties

 

Let’s pretend you’ve saved up $20,000 for an investment. You put $15,000 down on a rental home and use $5,000 to boost curb appeal and refresh the paint. A nice couple rents the place and their consistent rent payment more than covers the mortgage payments so you’re earning cash flow each month. 

 

$250 per month in excess cash flow after the mortgage and taxes are paid isn’t much and won’t create financial freedom on its own, but it’s a step in the right direction! Add a rental home like this to your portfolio every year and within 5 years, you’ll be up to $1,250 per month in rental income. 

 

It’s not fast, and there’s no magic pill, but if you take the time to build slowly, you’ll get there. 

 

Investing in Real Estate Syndications

 

An alternate way to invest in real estate and avoid the messiness of remodels and tenant woes is to invest in real estate syndications.

 

In these types of group investments, several investors pool their money ($50,000 – $250,000 each) and the money is pieced together to cover the down payment and the cost of renovations on a much larger-scale property. 

 

You would be a limited partner (passive investor), while the general partners (also called sponsors) are responsible for property management, renovation coordination, and occupancy rates. Sponsors do receive a cut of the returns for their work, but the majority of the profits go to investors. 

 

As an example, a $50,000 investment into a real estate syndication with a 10% return, will produce about $400 per month in cash flow. Syndications are truly passive because your money makes money and you have no active responsibilities. 

 

Real estate syndications are available in different markets and asset classes, which allow you to diversify and build multiple streams of income quickly. 

 

Enjoy Your Journey to Financial Freedom

 

There’s no one right or wrong path to financial freedom just as there’s no single type of real estate investment that will accelerate your journey the fastest. 

 

Real estate can be the easy, slow and steady approach to financial freedom no matter which stage of financial security you’re at now. You’ll enjoy the journey most if you focus on the lessons, relationships, and surprises you’ll experience along the way. 

 

To learn more about real estate investing and syndications, join the Luxe Capital Investment Club to see our upcoming opportunities. 

By Tia Politi, Oregon Rental Housing Association President

We’re in the last couple of months of the session and politics is at a fever pitch. Recently HB 2001 was signed by the Governor, at the end of March, substantially changing the time frame for eviction for nonpayment of rent. Read the article by Eugene attorney Brian Cox for a full run-down of the changes, and check out the legislative update elsewhere in this newsletter for the latest news coming out of Salem. Thank you for helping by submitting testimony to your elected representatives. It really does make a difference!

Because it will now take much longer to evict a tenant for nonpayment, I want you all to think about changing a couple of things. First, I think it is wise to start requiring a minimum base deposit of two months’ rent because that’s how long it could take to evict for nonpayment. As restrictions get tighter, I also recommend tighter screening standards. No more second chances.

I also want to draw your attention to a little-known landlord option: increasing the security deposit. What? You can do that? Yes, you can!

ORS 90.300(5)(a) Except as otherwise provided in this subsection, a landlord may not change the rental agreement to require the tenant to pay a new or increased security deposit during the first year after the tenancy has begun. Subject to subsection (4) of this section, the landlord may require an additional deposit if the landlord and tenant agree to modify the terms and conditions of the rental agreement to permit a pet or for other cause and the additional deposit relates to the modification. This paragraph does not prevent a landlord from collecting a security deposit that an initial rental agreement provided for but that remained unpaid at the time the tenancy began.
(b) If a landlord requires a new or increased security deposit after the first year of the tenancy, the landlord shall allow the tenant at least three months to pay the new or increased deposit.

We have a newer form, Notice of Security Deposit Increase – ORHA form #O14, that can help you accomplish this. Like the law says, you must provide a minimum of 90 days to pay the increased amount and you can always give more time if you wish. I recommend that landlords consider this option if you have renters who chronically pay late. This is also a good tool to cover damage caused by the tenant that doesn’t make sense to repair now. Just increase the deposit to cover the damage so you have enough at the end to cover the costs.

Having said that, it’s always important to remember that everything we do under landlord-tenant law must be reasonable and we must act in good faith. When you’re looking at doing something like increasing the security deposit, you should always imagine yourself standing in front of a judge explaining your decision-making process. What is the basis for the increase? Is the additional amount you are requesting reasonable based on the factors at hand? If you feel that you can justify the increase, then do it.

The good news about HB 2001 for landlords and tenants alike is that the state is creating a rent assistance fund that will be administered through Oregon Housing and Community Services. As someone who’s in eviction court a lot, there are people for whom this is going to make a huge difference. Assistance may be able to bridge the gap between losing a job and getting a new one, overcoming an illness, or repairing a broken vehicle. Remember that you must cooperate with an assisting agency, or your tenant will have a defense to eviction. If the tenant’s application is successful, you should be reimbursed for all costs incurred to that point and maybe some forward rent as well.

By: Tia Politi, ORHA President
Date: 07/01/2022

In a perfect world, residents give notice to vacate, move out at the exact date and time agreed, and leave the property in great condition. It’s fantastic when that happens. But while many move-outs go something like that, many do not. Perhaps the most difficult scenario for the end of a tenancy is when a tenant just stops communicating, you have no idea what’s going on or where they are, and no idea whether they are still living in or claiming a right of possession to your rental unit. 

Landlord-tenant law does provide for the re-taking of a rental unit upon tenant abandonment. According to ORS 90.147(2)(b)(c) a landlord may infer abandonment based on a tenant’s actions that imply relinquishment:

After the expiration of an outstanding termination of tenancy notice or the end of a term tenancy, the landlord reasonably believes, under all the circumstances, that the tenant has relinquished or no longer claims the right to occupy the dwelling unit to the exclusion of others; or the landlord reasonably knows of the tenant’s abandonment of the dwelling unit. 

But how can you really know whether your rental property has been legally abandoned, and, if necessary, how do you prove it in a court of law? First, what are the circumstances? Has a notice to terminate been issued by one party or the other? Have the residents been gone for more than seven days without notice? Have the utilities been taken out of their name? Do neighbors report seeing activity consistent with moving away? If so, that can be some indication of abandonment. 

The other information you need is inside the dwelling unit, but because your tenant still has legal possession, you need to provide a 24-hour notice to enter before you can go check it out. Once inside, what do you see? Are there items present that might indicate residency such as food in the kitchen, a bed or bedding, and toiletries in the bathroom? If so, it’s likely they have not abandoned the property. If those things are absent, it’s likely that the tenant has left; however, just because you don’t find food, bedding or toiletries in the unit doesn’t mean they don’t intend to return, or have willfully surrendered their right to possession. Maybe the tenant was almost done moving, but suffered an accident or injury, or maybe they intend to come back to retrieve some final items or clean up. How can you know? 

It’s hard to be certain, and it’s risky to re-take possession by claiming legal abandonment – mainly being sued for unlawful ouster, with the associated financial penalties.

90.375 Effect of unlawful ouster or exclusion; willful diminution of services. If a landlord unlawfully removes or excludes the tenant from the premises, seriously attempts or seriously threatens unlawfully to remove or exclude the tenant from the premises or willfully diminishes or seriously attempts or seriously threatens unlawfully to diminish services to the tenant by interrupting or causing the interruption of heat, running water, hot water, electric or other essential service, the tenant may obtain injunctive relief to recover possession or may terminate the rental agreement and recover an amount up to two months’ periodic rent or twice the actual damages sustained by the tenant, whichever is greater. If the rental agreement is terminated the landlord shall return all security deposits and prepaid rent recoverable under ORS 90.300. The tenant need not terminate the rental agreement, obtain injunctive relief or recover possession to recover damages under this section. 

Operate in bad faith and the penalties could rise from there. A forcible entry and unlawful detainer (FED) action provides a tenant with due process, and a chance to present their side of a case. When you just take the property back without notice they are deprived of that right, and that’s not something to be taken lightly.

If you serve your notice to enter and find that all the tenant’s belongings are there, there’s no sign of moving, and no sign of them, before you assume abandonment, there’s a few places to check, starting with the local jail. If you do confirm that the tenant is incarcerated, to my mind they have not willfully abandoned the property. You may serve whatever termination notice is appropriate to the situation, and proceed to court on that, or move forward on a previously issued notice of termination by you or them, once it expires.

If you check the jail and your tenant isn’t there, another possibility is that your tenant may have suffered a medical emergency. Reach out to their emergency contacts to alert friends or family to the fact that you haven’t had contact and are concerned about their welfare. They may know something or not, but it’s a place to start. You can call the local hospitals, but likely won’t get any information based on the HIPPA privacy laws. You may also call the police to alert them to the potentially missing person and ask about recent accidents. 

It’s also possible that your tenant is deceased (what attorney Brian Cox describes as, The Ultimate Act of Abandonment !), and you may enter only to find their body. You may see their obituary in the paper, or be notified of the passing by a friend or relative. One of my residents died in her unit just after rent had been paid for the month, so I had no idea there was a problem, but after a couple of weeks of not seeing her the other tenants in the complex gathered together to talk about it, and took it upon themselves to call the police to do a welfare check, where she was found deceased inside. They then advised me of the situation. Calling the police to perform a welfare check is the correct way to handle this type of entry in these types of circumstances. 

Even after confirming the passing of your tenant, there could still be obstacles to re-taking possession by asserting legal abandonment. For example, a lawful caregiver, a temporary occupant, or a guest and their dependents may still be occupying the unit. Or there could be family members who are in the unit going through and disposing of personal property. In the case of a caregiver or temporary occupant, once the lawful tenant has passed away, their right of possession terminates, and this person becomes a squatter in the eyes of the law. Any other unauthorized occupants, even family members or guests, are also considered squatters under the law. 

ORS 90.100
(44) “Squatter” means a person occupying a dwelling unit who is not so entitled under a rental agreement or who is not authorized by the tenant to occupy that dwelling unit. “Squatter” does not include a tenant who holds over as described in ORS 90.427 (11).
(48) “Tenant”:
(a) Except as provided in paragraph (b) of this subsection:
(A) Means a person, including a roomer, entitled under a rental agreement to occupy a dwelling unit to the exclusion of others, including a dwelling unit owned, operated or controlled by a public housing authority.
(B) Means a minor, as defined and provided for in ORS 109.697.
(b) For purposes of ORS 90.505 to 90.850, means only a person who owns and occupies as a residence a manufactured dwelling or a floating home in a facility and persons residing with that tenant under the terms of the rental agreement.
(c) Does not mean a guest or temporary occupant. 

I once had two tenants pass away. The first was a very long-term Section 8 tenant, who had raised her two now-adult daughters in the unit and they were still residing there. We worked with them and HACSA (now Homes for Good) to continue the tenancy. In the other case, we had a single-person tenancy for a man who had given his notice to vacate effective January 31st, but he passed away in early January. After he gave his notice, but before he died, he had tried to get other family members to take over the tenancy, but they didn’t qualify and their applications were denied, so once I read of his passing in the paper, I was concerned that we would have unauthorized occupants to deal with. 

I contacted his son and emergency contact, who said they were staying there temporarily to pack and move his father’s things and would turn in keys as scheduled. Because rent had been paid for the period, I agreed, and they did turn in keys as promised. If they hadn’t, we would have served a 24-hour Notice for an Unlawful Occupant – ORHA form #39 and proceeded to eviction court because they had no right of possession. (If you find yourself in this situation, don’t accept rent and take timely legal action or you could create a tenancy by waiver – read ORS 90.412.) 

Another sticky wicket is when you show up to inspect, and find the locks have been changed, all the window blinds are drawn, you can’t see anything, and you can’t get in. A reasonable person might assert that you could take a chance and drill out a lock to gain entry, or would they? I don’t know, but see how quickly things get problematic from a legal standpoint? If you are risk-averse as I am, you might instead serve a Notice of Termination with Cause – ORHA form #38, for changing the locks without permission and evict if there’s no response. You could wait and see if rent gets paid, and evict for non-payment of rent. Sometimes, there’s just no risk-free option, but if you want to take your chances and take the property back without an eviction, be sure to consider the Reasonable Person Standard in your decision-making process and document every step you take along the way. 

The reasonable person standard denotes a hypothetical person in society who exercises average care, skill, and judgment in conduct and who serves as a comparative standard for determining liability. So it’s essential to consider how a theoretically objective, rational, uninvolved person would view your reasoning and the objective evidence that led you to make that decision. More importantly, it’s essential to consider how a judge in court would view it. If you are trying to decide whether or not to take a property by legal abandonment, you should carefully review your actions in that light, and make sure you can back up your decisions with evidence or witness testimony in the event you are challenged. If you can’t be sure the property has been legally abandoned, and want to play it safe, then the FED process is the only way to be certain that you have the legal right to regain possession of your rental unit. It will be somewhat costly in time and money, but potentially far less costly than the alternative. 

This column offers general suggestions only and is no substitute for professional legal counsel. Please consult an attorney for advice related to your specific situation.