How To Achieve Financial Freedom Through Property (Ep202)
Many Australian have achieved financial freedom through investing in property and today I want to talk about how to achieve financial freedom through property. We’re going to look at some of the different ways to achieve financial freedom and some of the different strategies that people use that.
Hey I’m Ryan from onproperty your daily dose of a property education and inspiration. If you want our free list of 10 real positive cash flow properties go onproperty.com.au/free, easy to remember. So financial freedom, what is it, how do we achieve it through property? Well financial freedom is when you‘ve got more passive income coming into your bank account than you’re actually spending. So if you’re spending $60,000 per year in living expenses, then you’re going to want more than $60,000 per year coming in passive income. Passive income is income that you don’t really need to work for it just comes in whether you clock on at work or whether you die.
So the first step that you’re going to need to take, if you to achieve financial freedom is to create a financial goal. So many people go into property and go into property investing without a financial goal without any idea of where they want to go where they want to end up financially. So creating a financial goal from the outset is really important; without a financial goal when anything to aim for. You need to know if you’re investing how much passive income do you want to make per year or how much equity do you want to have or how much cash do you want to have, what is your goal? And the reason this is so important, is that different properties deliver different results and depending on your financial goal that probably change the way that you invest.
So we know your financial goal you can purchase properties that move you towards it rather than properties that may be a good investment for someone else but maybe not for you and your goals. Also setting a financial goal, I advise, I don’t advise. I’m not a financial advisor but I have found for myself the best way to achieve, the best set your financial goals is to simply work out how much you’re earning at the moment, work out if you’re surviving, chances are that you are surviving on what you’re earning at the moment otherwise you would be dead in a gutter somewhere and if you’re watching this video you’re probably not dead in a gutter. You’re probably surviving off what you’re earning so why not just set that as your financial freedom goal.
The thing a lot of people do when they’re setting a financial goal is they say I want to earn $500,000 per year and currently you’re earning $40,000 to $50,000 per year. Yes $500,000 per year would be epic it would be awesome but the thing is financial freedom is not the end of your life and it’s not the end of how you progressed financially. Once you achieve financial freedom and you can stick it to the man, you can then I have all the time in the world to continue to grow your investments continue to learn more and continue to be an active investor and grow your income. So yes $500,000 a year would be nice but set something realistic because the truth is once you reach it and you have all the time chances are you are going to continually grow that.
So what are some different ways to achieve financial freedom? There’s many different strategies when investing in property. There’s so many different ways that you can invest, buy and hold, renovate, subdivision, development, owner finance and I can go on and on but there’s actually a few ways that people actually achieve financial freedom. So I’m going to look at those broadways that people achieve financial freedom rather than I guess the individual strategies that people use and the step by steps that go along with that.
So the first one is cash flow and achieving cash flow from your properties. So this means that you’re investing in property and you got more income coming in then you’ve got expenses going out, basically what I’m saying is that what you do is you rather than trying to pay off all properties you sell to access cash, it’s the rent that’s coming in and the profit that you still have after all your expenses that’s what you use to live off of and to generate your passive income. So to work out how many properties you need if you’re investing for cash flow is simply to have your weekly goal income so let’s say it’s $52,000 a year because that divides super easy, that’s $1,000 per week, you then divide by your weekly profit per property that would give you the amount of properties needed. So let’s say a property generates you an average of $100 per week in profit and your goal is a thousand per week well 1000 divided by 100 equals 10, so therefore you have a rough goal of 10 properties.
Strategy number two is owning property outright. This is actually similar to number one which was investing for cash flow but the fact is you have no mortgage so you have very little expenses going out of the property unless you’re buying something like a unit which has huge strata costs, body corporate fees that you need to pay for. So it’s the same strategy as positive cash flow but your goal is to not have any debt so you don’t have to worry about that. A lot of people do this they build up a large portfolio and they then as the properties grow over time eventually they sell a couple and use the profits to pay off the debt on the remaining properties that they own. The easiest way I found out to get a rough estimate of your weekly goals using this strategy is to simply have a weekly goal so let’s see it’s a $1000 again, you times that by 1.2 so times that by 20% to the top so that would give us $1200 dollars because you are going to have some expenses in that and then you divide that by the weekly rent per property. So let’s say we will be getting $300 per week per property, well 1200 divided by 300 means 4 properties paid out right.
Number three is to live off the sales profit so what this means is that your purchasing property they can be positive cash flow, they can be neutral, they can be negatively geared it doesn’t really matter. But you are purchasing them so they grow in value and then when it comes time to retire to live off those properties what you would do is overtime is that you would sell properties access the equity that you had and then you would live off that say you had five properties you might sell one, let’s say that releases $200,000 you then live off that for 4 years and then you sell another one maybe that will generate $400,000 so you get another eight years out of it another one and then so forth.
You can do this you can live off pure profit like I just looked at spending the money or you could sell properties putting it in something a lot like the bank 4 or 5% interest and could potentially live off the interest or partial interest with money that you’re spending. A lot of people advised against selling all your properties at one time because it just gives you a massive capital gains bill so the majority of people that I’ve seen use the strategy will trickle out the sales of the properties so rather than selling them all at once they’ll sell you know one and then when they need more funds then they’ll list the other one and sell it.
Strategy number four is to live off equity. So what this means it’s the same or similar strategy to the one I just talked to you about and you’re buying property so they go up in value but rather than selling the properties to access the funds you just get equity loan against the equity that you have, basically you’re getting money from the bank you’re increasing your mortgage amount and you’re hoping that the increase rents that you’re achieving through across your portfolio over time pays for those increased interest rates, not increased interest rates, they’re increased interest that you need to pay because your mortgage has gotten bigger. So basically the more properties you own the more increase in rents you’re getting and also the more equity growth you’re getting and if you can borrow against that and access it then you can live off it. The only difficulty with this is that if you decide to quit your job and you no longer have a job sometimes it can be hard to get equity loans because you don’t have an income support it. So that is something you need to consider before you go ahead and do this.
And lastly is owner finance and this is where you effectively become the bank. So rather than selling properties for cash and using the cash or rather than getting an equity loan you sell your properties but you actually sell them on owner finance and charge people an interest rate and they then pay you back over time. So the goal with this is either you own the property outright then you’re just effectively giving someone else a loan that you’re getting money back on, probably going to be more than what the banks deliver you or if you have a mortgage on the property then they call that a wrap and what that means is you’re wrapping another mortgage on top of your mortgage like this rock and your charging the person who is buying the property off of your higher interest rate than what you’re paying and probably a hire purchase price as well so then that flows off cash flow and I did a whole episode on owner finance and if you go to today’s episode onproperty.com.au/202 I will link up to that in the show notes.
So there you have 5 different ways in which people achieve financial freedom through property, obviously within these different things like live off the sales profit, there’s lots of different strategies in there like it could developmental, subdivision, a whole bunch of other things. With the cash flow could be investing for dual occupancy, organic or could be building duplexes. There’s a hole in myriad of different things intertwined in with these different strategies but this kind of gives you an over view and maybe you could look at these 5 things and say ok I want to invest for cash flow or for me I really want to own my properties outright and knowing how you want to retire, knowing what your end goal is means that you can reverse engineer that. You can work out that I have decide that I will live off sales profits so I need to own maybe 10 properties so that I can sell one and that will give me 40 years or whatever it may be.
So I hope that this has been helpful to you again if you want list of 10 real positive cash flow properties go to onproperty.com.au/free to get access to them over there. Until tomorrow remember that your long term success is only achieved one day at a time.