Financial Freedom Foundation

Financial freedom doesn’t have to take decades of hard work and active investing. By building a financial freedom foundation you can secure your financial freedom and then get on with your life.

Transcription:

A lot of people think that achieving financial freedom takes decades of hard work and solid investments over those periods of time, but what I want to talk to you today is about something that I’m going to call your financial freedom foundation. Now, this is a foundation of a couple of properties that if you just leave them, if you just let them sit, they will go on to pay off themselves and eventually achieve financial freedom for you. So it’s a set, a small amount of properties that will achieve financial freedom for you. So that’s your financial freedom foundation. So we’re going to be talking about that, a really simple concept in today’s video and how you might want to focus your investment efforts around getting those foundational properties first. So getting that financial freedom foundation set so that you know that overtime you will eventually achieve financial freedom.

This gives you the flexibility to go and work in a job that you love rather than saying the job that you hate because you need to keep accumulating loans and you need to show the bank that you can borrow money. So getting this foundation allows you to then know that your financial freedom, your future is set up, and then it’s up to you as to whether you want to accelerate that and make it work faster, or if you want to grow that and make yourself have a wealthier financial freedom rather than just maybe the income that you’re on at the moment. So that’s what we’re going to be talking about in today’s lesson. If you don’t know me, I’m Ryan. I’m from on-property dot com dot a U. I help people find positive cash flow properties. And this our idea, this core concept of the financial freedom foundation came out of a video that I did with Ben Everingham, the buyer’s agent.

So we did a video called for properties to financial freedom. If you haven’t watched that video yet, I highly recommend that you go ahead and check it out. Go to [inaudible] dot com dot EU for such for eight, and then you can watch that episode over there. But in that episode we talked about a really simple investment plan where you purchased to capital growth properties, followed by two cashflow properties. You then hold those properties for 15 years and after that period of time, you sell off those first two capital growth properties, you pay off the cash flow properties outright and so now you own two properties outright with granny flats and the money that you were paying towards your mortgage and all that sort of stuff that now goes into your pocket so you achieve financial freedom through those two properties and so what the Financial Freedom Foundation does is this takes it a step further and simplifies it even more so in the four properties to financial freedom strategy.

You purchase for properties and in the end you sell to. So you end up with two properties and on each of those properties you also have a granny flat, so you’ve got four incomes coming in, but you’ve got two properties and I was thinking today when I was in the surf, actually I had this idea, the whole point of the full property strategy is to end up with two properties that generate you passive income that give you financial freedom. I’m like, okay, so the first two properties actually superfluous. You don’t actually need them in order to achieve financial freedom. If you just purchased those second two properties, the cashflow properties where you build granny flats on them. If you just purchased those and then paid them off over a period of time, you might not achieve financial freedom faster, but you’ll end up with the same result as the for property strategy, so you’ll have to cash flow properties generating you for incomes and you’ll have achieved financial freedom so that that is it.

That is the kernel right there. That is the financial freedom foundation. Those core properties that are going to be the ones that you stick with that are going to be the ones that will pay your way and deliver you financial freedom in the end. So rather than a for property strategy, we have a two property strategy where we just need our foundational properties and what’s going to happen is those properties going to be positive cashflow or they’re going to be neutral. Good. Which means that don’t actually cost you money and then overtime as rents go up, then they’re going to become positive cashflow. But basically over time those properties will pay off themselves. Now that might be a loan period of 25 years, 30 years, you might pay it off faster, but if you just purchased those two properties, get them to pay themselves off. Eventually over time you’re going to own them outright and you’re going to be financially free.

So you build that foundation first and then you go about trying to either accelerate the process so you have financial freedom faster, or you go about trying to grow that portfolio so that when you do achieve financial freedom, you’re wealthier. So that’s the kernel of the idea that is the essence of what I’m trying to get across today. And so what we’re going to do now is going to jump into some numbers. So I’m going to play a quick snippet from that episode I did with Ben on four properties to financial freedom where he talks about some of the numbers around these core properties, these foundational cashflow properties that are going to deliver us financial freedom in the future. So here we go. I’m going to hand it over to Ben Everingham.

So now we go and buy two houses, now the first house should be, in my opinion, something around about $400,000 mark that rents for 400 bucks a week. And what we want to do with this house after we bought it is we want to build a secondary dwelling or a granny flat, um, which you know, might be a two bedroom dwelling. You could build it for $110,000 for example, and it will rent for 300 bucks a week. Now again, all this, all the assumptions aside, that is ultimately what we’re looking for. And once you’ve got the house and the granny flat, that’s now giving you a seven percent rent return and that means that that property is covering itself and after tax probably giving you based on a five percent interest rate, a little bit of extra money in the pocket await to cover properties that you bought, which are probably still costing you a tiny bit each weight. Yup. So that’s properties three and four. It’s, it’s very simple. It’s just a house with a granny flat. So the reason we do that is we’re looking for cash flow, um, and we’re also not sacrificing grove, so still remembering that you want equality markets, you see the Melbourne’s, you, Brisbane’s type thing when you’re looking for those third and fourth properties, that’s the accumulation phase over. That’s it, that’s the hard work done. That’s all the hard work. That’s 95 percent of what you do.

Okay, so there we have some figures around it purchasing a property around that $400,000, building a granny flat for around 110,000. So that’s total costs of $510,000 and getting weekly income of approximately $700 per week. So what I’m going to do is go over to property tools.com dot a u, which is a cashflow calculator tool that I’ve created and I’ll punch in 510,000 purchase price and a rental income of $700 per week. Now this calculator takes into account things like a deposit. So that’s going to lower your loan amount. So loans only 408,000. It also takes into account things like property manager fees, vacancies, repairs, insurance, all those, all that good stuff, right? All that expenses that you need if you’re going to own a property, so it takes all of that into account and is giving us an estimate of weakly positive cash flow before taxes, about a hundred and $50 per week, which annually is about $7,700 per year to start with.

Okay, so this is looking at interest only at five percent. So let’s have a bit of a juggle with this. And let’s say that we want these properties to pay themselves off. So we’re going to go principal and interest. So I’ve got this calculator here from ing, which is a loan repayment calculator. So I’ve put in that total amount of 408,000, over 25 year period at five percent and it’s showing us 2000, approximately $2,400 per month, which I put into Google is about $550 per week is our repayments. Now if we look at the interest only repayments on this calculator, where are they? It’s about $390 per week versus 550, so that’s an extra one, hundred and $60 per week that will need to pay in order to go principal and interest. Now as I’m recording this, if you go principal and interest on some of these properties, you get better interest rates than if you go interest only anyway, so it could be in your best interest to do this, but obviously speak to a mortgage broker, so about $160 per week.

If we want to go principal and interest rather than interest only and so we can see that are positive cash flow is about $150 per week. So we’re looking at kind of in that neutral zone where it’s not making us any money. It’s not positive cashflow, but it’s not really negatively geared either. Especially if we can take depreciation into account. If we can potentially offset against unemployment income, you know, we could really see ourselves in that neutral or positive position rather than, well we might be $10 per week behind, which is not that big a deal. As we’ll see as we go on with this, alright, so we can purchase these properties, be in a roughly neutral position and be paying them off over a 25 year period. So buying those two properties that Ben just talked about, $400,000 property, $110,000 in building a granny flat rental income of about $700 per week.

So I just recently looked at this article on cancels website where they talked about rental increases. So if the property market continues to go the way that it has gone in the past, and obviously I don’t have a crystal ball so it won’t necessarily do that, but rents have a tendency to increase over time. We’ve got inflation working in our favor right here because money is becoming less valuable so rents kinda naturally increased as a result of that as well. As you know, the problem is the market growing and rents increasing. So if we look at this article here, then we can see some growth changes for rents in these markets. So looking at Sydney, we can see that in the last quarter, rents have gone up by one point nine percent in the last year, rents have gone up by five percent. Melbourne again, that’s five percent hobart, five point seven percent over the last year and Canberra seven point five percent growth over the last year.

So that’s for houses. If we look at units we can see it’s slightly smaller with the exception of Canberra, but we can say Sydney’s had a one point nine percent growth in units, three point nine percent in the rental income in Melbourne and five point three percent in Hobart. So we can see that rents have been going up over the last year. So what I want to do now is take this property that we talked about that 510,000 renting for $700 per week and we’re going to do some math on the growth here of the rental income of these properties. So I’ve created a spreadsheet here looking at the rental income. And so in year one, we’re starting at $700 per week and let’s just assume we’re getting five percent growth each year. Now obviously five percent is not going to happen every single year. Some years you might get more, some years you might get less.

But I’m just using five percent as a rough example because in this article, you know Sydney was around five percent, Melbourne was around five percent. Hobart in Canberra, we’re over five percent. So let’s just use five percent as an example here. So we can see that at the start of year to our rental income for the property’s gone up to approximately $735. So if we go back to our calculator and we adjust this to $735, then we can see our weekly cash is gone up from. What was it? It was about $150 per week. Again, looking at interest only, we go 7:35. Then it jumps up to about $180 per week. If we keep going each year, we’re getting rental increases to the point where after five years, so at the start of year six, we’re looking at rental income of $893 per week. So if we punch that into the calculator, $893, then we’re looking at a weekly cashflow before tax of about $320 per week.

So that weekly cashflow has gone from about $140 to $320. And so what you can do is you can use this growth in rental income to pay off your mortgage. So these properties that you’re buying, these financial freedom foundational properties, a pain for themselves, but they’re also increasing in their cash flow each year. And so they’re self contained entity, so they’re earning enough to pay for themselves. And rather than taking money out of these properties, as the cashflow increases, what you can do is then take that extra money and put it in an offset account against that property. Or you can use it to pay down the debt on that property. So each year as the rental income goes up, you’ve got more and more money to pay off the mortgage for that property. So when we were looking at 25 years and in the first year we’ll kind of break even there.

It was really looking neutral, maybe slightly negative, maybe slightly positive, but we were paying it off over time. As we’re getting more money to pay for these properties, we can reduce that 25 years down. And so if we go a jump ahead again, the start of year 11. So it’s been 10 years that we’ve been owning these properties. We started at $700 per week, five percent growth per year. We’re now looking at 1000, $140 per week. If we punch that into the calculator, $1,140 per week, then you’re looking at weekly cashflow before tax of $540 per week. So as you can see you’re getting more and more money freed up that you can use to pay down the debt faster on your property. Or You could build up a safety net for expenses, repairs and things that need to happen like that as well. But over time as rental income goes up, you’ve got more money to pay off, so you really could whittle down this 25 year period and maybe make it a 20 year period or maybe even make it a 15 year period as well. So that’s the whole concept behind the foundational properties is that you buy those foundational properties that Ben talked about and then you hold onto them. So I’m going to jump back to ben now to talk about this consolidation period where you’re holding onto these properties. So remember I talked about the rent’s going up. Let’s now hand it over to Ben.

And so what you do once you get to consolidation is you’ve got your full houses, two of them with granny flats, hopefully bought smart in an area where you’re not getting absolutely smashed from a rental perspective and your portfolio is not costing you a thing. So he can just keep living. Now, what I do during consolidation phases, I dislike, I don’t like debt personally. And I know there’s a lot of other people that don’t feel comfortable listening to this for all of those people that loved it, you know, teach me. But

what I do is I start paying principal and interest off the first two properties that I bought, the ones with the worst cashflow without the granny flats on them. And then what I started doing is I set up offset accounts, which is basically just a savings account attached to the property and I’ll start putting my extra savings into the offset account against one of those first two properties, which means I just effectively pay a little bit less interest over the 15 year period on that property. So we can talk about offsets in another video. Anyone can google it who doesn’t understand it, but I know most people listening to this will already get it. Um, and so all it’s about over that 15 year period is consolidating, reducing your debt. But that’s also the opportunity to change careers or you know, do something you love or cut down your wage or you know, because you don’t need the income like you did during the first phase of accumulation.

So it’s pretty boring. You just sit there, you just pay off debt, you focus on living it out with your family or whatever you want to do for the 15 year period. And then the third phase, and the final phase is obviously before you jump into the third phase. Okay. So basically ben is kind of reiterating what I’m saying, but he’s adding something onto that. So he’s talking about this consolidation phase where you’ve purchased those first two properties, you’ve purchased your foundational properties. Obviously in this video we’re talking about a for property strategy, so you would have purchased for. But let’s just imagine we’re purchasing those two foundational properties. So in that period you’re just paying down debt as we already looked at the self contained properties, they’re paying for themselves, plus giving you extra money as well, which you can use to pay down debt and accelerate that debt reduction.

And so we’ve got these properties that are self contained and the concept that I wanted to share here that Ben Touches on is that now you’ve got these foundational properties. You’re not yet financially free, okay, then not completely paid off, but you likely don’t need a super high income in order to survive, in order to get by. You’ve got these properties that are building wealth for you. They’re going to achieve financial freedom for you in the future. You don’t need to stay in a job that you hate right now. Okay? You don’t need that income to build your wealth. You now have an opportunity to look outside of what you’re currently doing and say, what would I love to do? What would make me happy in my life? What would be a good career for me to work on? You’re not financially free so you can’t give up on work completely, but you don’t need to be earning excessive amounts of money.

You might be in a career that you don’t enjoy. Now’s the time where you can say, alright, well maybe I’ll take a pay cut. Maybe I’ll take it a lifestyle cut and they’ll start pursuing a career that I feel really passionate about that I think I’m going to enjoy. So you’ve set up your financial freedom foundation that is working for you in the background. You can now get on and live your life and you don’t have to wait. You’re financially free in order to make a change and to start living happier. So this is a really big concept that I wanted to get across and why she had this snippet of the interview with Ben is that so many people think they have to wait until they’re financially free before they can go ahead and make a change and have a better life. I’m here to say that if you build this financial freedom foundation, you know that over time they’re going to pay themselves off in know that you’ve got that set, your financial freedom set.

You can now go and start enjoying life and start doing work that you love. There’s also opportunities within this period to then go and improve the properties that you got. So maybe you could do a renovation on the main house of the property and increase the rental income that way there might be some things that you can do to increase the value of the property. So this is where you can start really looking at ways to both maximize your income, but also try and reduce your expenses as well. So you might be able to find a better property manager who doesn’t charge as much. You might be able to negotiate your mortgage repayments and get less interest on your properties, et Cetera. You might want to refinance there. So through this consolidation period, you’re increasing the rents over time, which is going to help you pay down that debt faster, but you can also actively do things to improve the property or to reduce your expenses. So then you got more money to pay down the debt faster as well. So the whole goal here is to get to the point of owning these properties outright as quickly as possible. So let’s just jump over to banner once more to talk about phase three, which is where you own these properties outright. And then I’m going to go and talk about the acceleration or actually increasing your financial freedom foundation. If you want to be richer, you want to be wealthier,

and we get to phase three, which is this lifestyle, you know, I call it debt reduction, lifestyle phase, which is where we all want to be in, which is what really pulls you along. Like this division of, you know, I get to live my life on my terms for the rest of my life. Um, and at that point it’s very simple. You sell properties one and two and you pay off properties three and four completely outright. And if you’ve done this right, you might even have some extra money leftover. And then you, you know, decide whatever you want to do, you’ve got choice at that time, whether you keep working or take a year off or do whatever it is that’s meaningful for you.

So Ben’s talking about obviously the full property strategy you sell to, but you get to the same point where you’ve paid off those financial freedom foundation properties. And then you can go on to live the life that you want. So I just want to show you some figures about this. So again, we’re going to look over this 28 period. I mean 25 year period. Hopefully you can pay it off faster than that and achieve financial freedom faster than 25 years. But let’s just assume it takes 25 years. Now remember we’re looking at those rental increases five percent per year over that time. That’s gonna. Give us rental income at the end of $2,258. Now remember we’ve purchased two of these properties. So let’s just go ahead and we’ll times that by two. So that’s $4,515. So we’re going to go back to the calculator now.

So our purchase price was $510,000, but obviously we times by two. So that’ll be 1 million and $20,000. So I get it right? Yep, I did. And now we’re going to have the rental income of $4,515. Now we want to look at our weekly cashflow before tax, but before we do that, we need to completely remove this loan amount because we’re now paid off our loan, so I’m just gonna do that by putting deposit at 100 percent so we can see that our total loan amount is $0. Now after this 25 year period, a weekly cash flows looking at about $4,000 per week or about $200,000 per year. Now remember we’ve got inflation as well, so over that 25 year period, money is going to be worth about half as much, so have that. It’s about $100,000 in today’s standards, so just those two properties with two granny flats.

You’re looking at an income equivalent of approximately $100,000 in today’s money. So that’s just kind of to give you the figures behind it. Once you’ve paid off the debt, now all of this extra money is going into your pocket and you can use that to live off. So they have the core concept of the financial freedom foundation. Now let’s quickly touch on the idea of increasing that or accelerating that. So the four properties to financial freedom is the perfect example of accelerating this strategy. So rather than just purchasing those two foundational cashflow properties and just starting there and paying them off over time, Ben suggests that we buy to capital growth properties. We hold them for 15 years and when then pay them off, pay them. No, we then sell them after that 15 year period and we use the extra money to pay off the debt on the foundation properties.

So that’s one way that you could do it. You could do deals where you purchase a property, renovate it, sell it, and then you get a chunk amount of money, maybe $100,000 you made on that deal or whatever it is. You can then put that hundred thousand dollars to pay off the loan on your foundation properties and achieve that faster and speed that up. Or maybe you start a business on the side and you earn extra income separate from your job and use that to pay it off your loan so that you can achieve financial freedom faster. So there’s this idea that you can accelerate it. We kind of looked at it already when we said as rents go up, let’s go ahead and use that money to put in an offset account. So we’ve got that security there for maintenance, but also that’s going to allow us to pay off our properties faster.

So we kind of already touched on it in terms of the growth of rental income, but you can also do it external to your property portfolio. You can go ahead and earn more money either through property investing or through businesses or growing your employment wage, etc. To pay off these properties faster and to get there faster. So That’s acceleration is just paying off that debt faster so you own it outright and then you don’t have to pay the bank anymore. You don’t have to pay a mortgage anymore. All that money can go into your pocket, into your lifestyle. So that’s acceleration. But then there’s also this idea of growth as well. So we looked at this idea of two foundational properties where you build a granny flat on each. So you’ve got four incomes coming in, let’s say instead of two you did for. So let’s say you purchase for foundational properties and you’ve built granny flats on each of those or basically now you can just double these numbers.

So you’ve got four properties and you’ve got four granny flats, you’ve got eight incomes coming in in total. And so then by the end of it you’ll have, you know, double what we talked about. We talked about $100,000 in today’s money, you’ll have double that. You’re looking at 200 thouSand dollars in today’s money. So you can start with you two foundational properties, but you can then expand that if you want. So if you want to be wealthier in retirement, if you want to be wealthier when you’re financially free, then you can go ahead and purchase more properties in order to do that. So you can take this same concept, but you can expand it if you want to be wealthier or maybe you have a higher income than the average australian and as a family you’re earning $300,000 per year and you have more money to buy more properties or to buy more expensive properties so you can then expand this and grow it.

Or let’s say that you live a very simple life. You don’t need as much money. You could drop this down to that one property with one granny flat and then you’d have the equivalent about $50,000 per year in today’s money. So you can expand or contract this based on your circumstances. You can also try and accelerate it as well. So that’s it for today’s episode. I’m going to do a quick summary and then we’ll close it up. So this idea of a financial freedom foundation is a group of foundational properties that you purchase that will go on to pay off themselves and we’ll go on to allow you to achieve financial freedom. At some point in the future, you’ve already purchased them, they’re working for you. They just need that 10, 15, 20, 25 years in order to get paid off so they can start paying you, but you own them.

They’re doing that work for you. They’re progressing towards that point where you will be financially free. So you’ve got these properties, it’s going to happen in the future. You just need to give it time. So that is the core concept. You get those properties, you can then either choose to expand that and go from two properties, two, maybe four properties or three properties or 10 properties or whatever it is that you want to do. You could expand that or you could focus on accelerating that and earning more money on the side through a business or something so you can pay down your loans faster or investing in property and then selling properties to pay down your loans faster. So you could accelerate. That is another thing that you could do. Um, but yeah, so that is the core concept of the financial freedom foundation. And that just, I think, allows you to look at property investing extremely simply, look at what you need to buy that will achieve financial freedom in the future.

Don’t overcomplicate it. And then if you want, go onto accelerate it or go on to grow it and develop it. So I hope that you enjoyed this episode. I hope that you liked this strategy. I would love to hear what your thoughts are. Please leave them in the comment section down below, or head over to on-property dot com dot a u four dash five. Oh, three. In order to see the full transcript of this episode, if you’d rather read it or check out the links over there. So again, that’s on property.com.eu four dash five. Oh, three. Now, if You think that this is a great idea, but you feel like you would struggle to do this yourself, you don’t know how to find a property that you can purchase, that you can also build a granny flat on and get those jewel incomes coming in.

Or that’s where ben from pumped on property comes in. If you want to do this strategy but you don’t know how to do it yourself and you want to hire someone who can find these properties for you, help you with the granny flat build. That’s like basically what ben does and what his company specializes in. So if that’s you, then ben is offering free strategy sessions to listeners have on property, so if you head over to on-property dot com, forward slash session, then you can book a time with one of ben’s team over there and do a free strategy session with them where you talk about your current situation, where you’re at now. You talk about where you want to be in the future, and then you can look at how you can go ahead about purchasing those financial freedom foundation properties. So again, that’s on-property dot com, forward slash session.

If you wAnt to book one of those free strategy sessions and you think that you just need some help making this happen, and then obviously the team over there can go and find these properties for you. Do all the legwork, do all the hard work to help you purchase them. You can get those two properties and then you can move on with your life and decide if you want to grow it or if you want to accelerate it or what you want to do from there on because something that me and ben have definitely learned is that once you achieve financial freedom, you don’t stop there. That’s when your creativity comes out. That’s when your excitement for life comes out. That’s when you look at expanding your income, expanding your world, and seeing how you can do better things for the world. So financial freedoms. The first step, I hope that this concept of the financial freedom foundation is helpful to get you there and then I’m really excited for the amazing things you’re going to do in the future and the amazing things that you’re going to do on top of that for yourself, for your family and for the world. So thanks so much for watching today guys. And until next time, stay positive.

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