[arve url=”https://www.youtube.com/watch?v=NoJQI7cP6vs” mode=”lazyload” align=”center” /]

In this episode I go through some of the numbers behind the 2 Properties To Financial Freedom Strategy so you can get an idea of how the numbers could work out in theory.

Book a Free Strategy Session – https://onproperty.com.au/session

2 Property Strategy – https://onproperty.com.au/2properties

0:00 – Introduction

0:41 – The basics of the strategy

2:28 – Looking at the basic cash flow of the strategy

6:34 – What sort of income can this create when fully paid off

9:14 – How long does it take to pay off these properties

12:53 – What’s the rough annual income after expenses?

14:57 – What if you buy more than 2 properties?

Resources Mentioned in the Video:

Property Tools – https://propertytools.com.au

Recommended Videos

2 Properties To Financial Freedom – https://www.youtube.com/watch?v=Pj8gLiDEz8Y

### Transcription:

We’ve talked a lot about the two properties to financial freedom strategy and in this episode I want to go through some of the nitty gritty and the numbers behind this strategy so you can see how it works in action. Hi, I’m Ryan from on-property helping you achieve financial freedom and if you don’t know what to properties to financial freedom is, I’ll quickly explain that before we jump into the numbers, but I have done a full video on it with Ben Everingham where we talked for about an hour. I will link that up in the description down below or you can go to on property.com.edu forward slash two properties to check out that episode. But the basis of the strategy is that you purchase two houses. These houses costs about $400,000 each and they rent for about $420 per week each on those houses. You then build to granny flats that costs $120,000 each and rent for about two 80 per week.

So all up you’ve invested $520,000 per property and each property has two incomes renting for a total of $700 per week. Or if you combine the two together, then you’re looking at 1 million and $40,000 renting for 1400 per week and the goal here is to get you to a baseline of financial freedom in the next 15 2025 years. So we’re going to have a look at the numbers behind this, see whether or not this works so you can work out whether or not you think this strategy is going to be right for you. I think it goes without saying that this is not financial advice. We’re going to be looking at, you know, just an excel spreadsheet of how the numbers could work out in theory. But in real life stuff happens. Sometimes properties rent for more than what we’re talking about. Sometimes you get more rental growth, sometimes you have vacancies, sometimes you have more maintenance, sometimes you have issues with your rental manager.

There’s so many different things that can happen. So these numbers are not to be considered actual facts, but a very rough guideline of what could be possible. Okay, so this is not what everyone’s going to achieve, but it’ll give you a rough idea and then obviously you can then apply your own discipline and your own analysis when it comes to investing in a property. So what we’re gonna do to start with is look in this website which has property tools.com.eu. This is a calculator that I created myself and we’re going to put in a total purchase price of 520,000 and our rental income of 700 per week, we’re going to interest rate of 5% in there as well and a deposit of 20% in. We scroll down. We’ve also got property manager fees, vacancies factored in, repairs and maintenance, insurance

and council rights in that as well. So this does take into account a bunch of the fees associated with owning a property and renting it out. And again, these are rough figures you could go through and do this yourself to get a more accurate result. You can sign [email protected] dot. A U if you want to have a play around with this calculator. But what I wanted to look at was the weekly cashflow before tax and we can see that the weekly cash flow before tax is around $140 estimated. And this is if we were to pay interest only on the property, but obviously we also want to pay off the principle on this property and 5% interest rates are kind of high for what you can get at the moment. Realistically it’s probably more around 4% which would then give you a weekly cashflow turn in $20 per week or let’s go 4.5% so that’s going to give us weekly cashflow before tax of around $180 per week.

Now this is assuming interest only. This calculator only does that, one of the limitations of this calculator. So we’re going to go to this mortgage calculator here and we’ve got our total loan amount of 416,000 so we’re putting in a 20% deposit on everything. So 416 is our remaining loan amount. You got a 25 year period, we’re going to change this to 4.5% and if we look at interest only, we can see we’ve paying $360 per week in interests. Now we want to look at the difference between principal and interest and interest only. So we jumped to principle and interest. That goes up to five 33 so we can see that that is an extra $173 per week approximately in order to do principal and interest instead of interest only. Now what do we notice about that figure $173 per week. That’s very close to this figure of $180 per week.

So what I’m going to do is basically call this even and say that if we go principal and interest, this property is going to be cashflow neutral, which means it’s not going to spin off large amounts of extra positive cash flow, but it’s highly unlikely to cost us money either. So it’s cashflow neutral, it’s completely paying for itself. So that’s kind of the figures there. When you initially purchase the property, if you can get the rental yields that we’re talking about, and again it depends on the property, depends on how much of a deposit you put down. If you go down less deposit, then you need a higher rental yield to be cashflow neutral because if we only put down a 10% deposit, then we can see our weekly cashflow drops from one 80 to one 35 but if we’re putting down a 20% deposit, then we get that $180 per week.

So deposit can influence it while your interest rate is, it can influence it. If you were to put 10% deposit by be able to secure a 4% interest rate, then went back up to that $180 per week. So again, probably tools.com.eu if you want to have a play around with this so you can look at your own figures, you also might purchase a more expensive property. He spend a bit more on the granny flat or a bit less get more rent depending on what area you invested in. And so these numbers can completely change. I just want to put out that disclaimer that we’re having fun here. Looking at the figures, general educational purposes only. This is not to be considered a real result, but it’s very helpful to look at. All right, so now that we’ve done that, we’re going to go to this spreadsheet here and we’re going to actually look at this property.

So if we purchase it for $400,000 and 24 for 20 per week, and we’ve got the granny flat at 120,000 renting for 280 per week. So how many properties will we be buying? We’re going to go ahead and do this twice because the two properties to financial freedom strategy and then this is going to show us some results. So in our first payment date is the 1st of January, 2020 then our last payment date will be the 1st of July, 2035 so this is looking at a 15 year period. Okay, now I’ve been adjusting this and playing with us. So let’s set that extra payments back to zero and we can see that if we just rely on the rent increases, then it’s going to take us through to 2037 or December, 2037 so take us about 18 years in order to pay off this property. If we weren’t going to use extra rent to pay it off, then we would more be looking at that 25 year loan period.

So these are our basic details here. This is also our approximate income after expenses if the loan is completely paid off. So we’ve obviously got inflation happening, which is going to increase the rent. So if we have a look over here, we’ve got our rental growth here, I’ve said at two and a half percent, which we could change. If we invested in a good area and got 4%, then that’s going to grow things a lot faster. Phone is going to put a 2.5% which is roughly what inflation is. So each year we can see that. Um, what have we got here? The two houses and the two granny flats rent for a total of 1400 per week. And then in year two it goes up two and a half percent so that it’s going to 1435 by the end of year 18 I think, let’s say started the year 19 when we pay everything off, we’re looking at around $2,183 per week.

But then obviously you’ve got expenses to pay after that. So after 20% expenses, that’s 1746 so if we look at 1746 per week, we times that by 52 that’s around $90,000 per year. If we waited until year 25 then we’re looking at over a hundred thousand dollars per year. Obviously you’re taking inflation into account as well. So this is baseline financial freedom. It’s not excessive wealth. Now we’re going to jump over to the loan page and I hope you guys are following along with this and it’s making sense. But on the line page, this shows us a loan amount, shows us our term of 25 years interest rate we can play around with here, and we’ve got our monthly and weekly repayments. Now we’ll see in the first year there’s no extra repayments onto the loan. We’re just playing the basic principle and interest. But then in year two that jumps to, we can put an extra $120 per month on the loan, and that comes from the growth in rental income of $35 per week.

That’s about $121 per month. So that’s where that come from, comes from. So basically each year as the rent goes up, you’ll see the extra money we’re paying goes up to the point where we’re in our 10th year, we’re paying an extra nearly $1,400 per month of the loan. Now you can also add money yourself too. So if we just add the rental income here, then we’ll say our final repayment is here. This is our last one, 215 so Turner, 15 months divided by 12 that puts us at 17.91 years. So about 18 years to pay off these properties.

Okay. So we were actually looking at that at 5%. We were talking about getting four and a half percent. Let’s have a quick look at how that changes things. So if we’re at four and a half percent, the final payment is here at two 15 that’s the same, right as 5%. Yeah. Cause it’s a 25 year loan. Um, two 15. Okay. So it ends up being the same at four and a half percent. So, okay, my fingers aren’t destroyed, but I’m just gonna change this to four and a half percent anyway, because that’s what we were talking about when we were doing our calculations. So let’s now say that we’re going to add some extra money onto these properties. Let’s say about $50 per week per property. About a hundred bucks a week. Uh, let’s call that 500 per month. So it’s slightly over $100 per week, but 500 per month, 6,000 per year.

How does that affect our payoff period? So our final repayment was in a 215th month. It has now changed to the 194th fourth month. So we got 194 divided by 12 and that brings us down to about 16 years. Now, if we were to do about a hundred dollars per week per property, so that would be $1,000 per month. Okay, so 500 per month per property, or that’s an extra what, $12,000 per year. Then our final repayment is going to be here on the 176 month. So if we go hundred and 76 divided by 12, we can see that that’s 14.67 years. So 14 years and what eight months. Okay. So that actually brings you in under that 15 year period, which I know Ben loves the 15 year goal of trying to achieve financial freedom in 15 years. So let’s say we were able to do that.

We’ll paying an extra thousand dollars per month onto these properties for 15 years. The properties are also paying themselves. The extra money is going into it. It’s going to gain us an extra three years. Or if we don’t do that, then we’re looking at about an 18 year period. So let’s say at the 15 year point, so start of year 16 we’re looking at around 2020 $7 per week in rental income. If we get that two and a half percent per year growth, so then you have to pay some expenses. So you’re looking at, whereas at 1622 so 1,622 equals 1,622 times by 52 so that’s about 85 $84,000 per year. Take home after you pay expenses, assuming 20% of the rent goes towards expenses. If we’re doing at the start of year 19 serve, it took us 18 years and we’re at the start of year 19.

Um, and we times that by 52, then we’re looking at around 90,000, 91,000. So, and if we were to pay it all off in the first year, then we’re looking at 1,120 times that by 52. So you’re looking at around $58,000. If you were to simply by these two properties and build these two granny flats outright, you’re looking at around $60,000 per year in passive income. So that’s not something that’s going to make you extremely wealthy, but that’s something that’s going to give you baseline financial freedom. If you’re able to purchase your own property on top of this and also pay off your property so you’re not paying rent, you’re not paying a mortgage, then this baseline financial freedom is definitely something that you can live off in 25 years. It’s going to be over a hundred thousand dollars per year, but you’ve got to take into account inflation.

So you’re more looking at around $60,000 in today’s money. So it’s not going to make you excessively wealthy, but it is going to give you that baseline financial freedom in terms of income. And then you’ll have your super on top of that as well. So don’t forget that you have your super as well. And then you can go from two properties you could go ahead and do for now. Let’s say we jumped from two properties to four properties. Okay, that’s just going to double it. So be around. I think let’s Times that by 52 there’ll be around $116,000 per year if bought outright on day one or by the time we get to year 25 we’re looking at around $200,000 per year, but 115 hundred and 20,000 is definitely enough to live a good life. And especially if you purchase your own home on top of that and I paid that off, don’t have to pay the rent or the mortgage, then that is a decent figure.

So two properties to baseline financial freedom combined with your super should give you some very good security later in life. But if you want to jump it up and do three or two, four to five or do 10 let’s say 10 what’s going to be, imagine if you just did it slowly over time. We’re not in a rush here. We’re not trying to do 10 and 10 years or anything like that, but we purchase a couple, we’re paying them off, find out it’s simple. Then we go ahead and do 10 then we’re looking at um, whore in year 25 that’s after expenses, $10,000 per month. So let’s times that by 52 that’s over 500,000 per year. So obviously the more you do, the more money you’re going to make. But I think two properties is probably achievable for most of us. Give us that baseline level of financial freedom that we could then live off or that we can combine with our super.

And yeah, that’s kind of a look at the figures between two properties to financial freedom. If you are interested in learning more about this strategy, there’s two things that you can do. The first thing that you could do. If you want that one on one help and you want to talk to someone about how you can start purchasing houses like this and building the granny flats on them so that you can get that positive cashflow or neutral cashflow and start paying these properties off. If you need some help getting started, getting going, you’re ready to buy, but you want someone to help you find the properties. Then Ben and the team over at pumped on property are offering free strategy sessions. So we’ve got on-property dot com dot a u you can read about those and you can book a strategy session time that suits you.

Get on the phone with them, talk through your situation and you know, get, get started to find out what your next steps are. You can then go and do it yourself or you can hire them. So again, that’s on property.com.you to check that out. Or if you want to learn more details about the two properties to financial freedom strategy, then I will link up to the video, me and Ben did on it down below. Or you can go to on property.com dot. A U four dash two properties. So go ahead. Either book a free strategy session or watch that video if you haven’t already. Hope you enjoyed it. Looking at the figures, seeing this sort of thing and yeah, I heard that inspires you to go out there and to take action towards your financial freedom. We should actually invest in your property journey. Until next time, stay positive.