Wealth Enhance managing director Michael Carman provides the following seven-step plan to achieve financial independence using property investment.

1. Get a plan
“A plan articulates your strategy and brings your goal to life,” Carman says. “It's the first step that bridges the goal with reality.”

At the start of the journey to financial independence, Carman says an investment plan might look something like this:

“Accumulate one property in the second-lowest price quartile at a minimum 15 per cent discount to market on average every eighteen months for the next twelve years, then transition to semi-retirement for one year, after which sell two of the first accumulated properties and live off the rents from the remaining properties.”

2. Pinpoint your position
Carman asks: “Ever tried using a street directory to find your destination without first knowing where you are? It's as frustrating as it is futile.

“You need to understand where you are so you can plot where you want to be. Are you in the accumulation phase or the drawdown phase? And where are you within these?”

3. Choose your weapon
“There are many ways to use property to achieve financial independence,” Carman says.

“Your method will reflect your portfolio, predilection for cash and tolerance for risk. Whatever it is, you need to be clear on it.”

4. Match your properties to your method
“This is a critical and little-commented aspect of investing for retirement – different strategies require different types of property,” Carman notes.

“You'll be better placed for financial independence if the properties that generate rental income in the drawdown phase are high-yield. On the other hand, if you're selling properties to pay down debt you'll be after growth, not yield. And if you're going to do both – sell properties and then live off rents – you'd do well to have a mix of yield and growth properties, in the proportion that matches your strategy.”

5. Work your plan
“An unexecuted plan is almost as useless as a goal without a plan,” Carman says. “Bring your plan to life by doing what you need to do, whether that be checking your borrowing capacity, hunting for your next acquisition, smooth-talking your banker or real estate agent, or preparing to list one of your properties for sale.”

6. Taper off your borrowing
Investors who are already highly leveraged need to give their portfolio a chance to “breathe” and generate equity, Carman says, once they’re getting closer to the drawdown phase of investment.

That equity “serves either to pay down debt later, if you retire on rents, increase your borrowing capacity down the track, or act as a safety buffer. Not to mention freeing up cash flow,” he says.

“Financial independence is something you ease into, not collide with. Ease up on the borrowing as you transition to financial independence.”

7. Constantly reassess your borrowing capacity and cash flow
Carman says he believes borrowing capacity is the key driver of property accumulation.

“Your borrowing capacity takes into account your income and cash flow, asset values and return on assets, and debt level – all the critical factors impacting property-based wealth-building,” he says.

“There's no external force compelling you to re-evaluate your borrowing capacity, so you need to reassess it to see whether you're able to make your next acquisition now, or soon. Mark in your diary at regular intervals – say, once or twice a year – to sit down and review your borrowing capacity yourself or meet your banker or mortgage broker.”