How Many Properties Do You Actually Need To Be Financially Free?
A lot of people talk about 10 properties in 10 years but how many properties do you actually need to be financially free?
a lot of people talk about 10 properties in 10 years or obviously they’re Steve McKnight’s famous book of 0 to 130 properties in three and a half years but how many properties do you actually need to be financially free do you need 10 do you need a hundred and thirty that’s all we’re going to talk about in today’s episode hey i’m ryan from on-property helping you achieve financial freedom and really excited to get down to the nuts and bolts of this topic to help you assess how many properties you actually need to be financially free because there’s a lot of different things that changes how many properties you’re going to need your investment strategy what the rental yield of that property is going to be as well as what income level you want to achieve in order to consider yourself financially free I like to think of two different income levels when it comes to financial freedom baseline financial freedom and that’s the financial freedom where look I can get by I can live a pretty good pretty happy life but I don’t have those little extra luxuries in life I don’t have a lot of extra money to travel overseas every single year etc so you got baseline financial freedom we can just live a normal everyday life don’t get your coffee once a day twice a day three times a day four times who’s judging alright no one’s judging you yeah you can live kind of a normal life on that baseline financial freedom so there’s a few ways that you can look at this and a few ways you can calculate how many properties you need to be financially free and they’re going to explain why Steve McKnight needed 130 properties and why you might only need two properties so 132 – they’re obviously very different so let’s get into it I think one of the best ways to understand okay how many properties do I need as a baseline to start with is to actually estimate owning properties without a mortgage so let’s pretend you’re investing today you’re purchasing properties you’re going to go principal and interest hopefully they’re positive cash flow but over time you’re going to pay those properties off and eventually you’ll own those properties outright so how many properties would you need to know own outright in order to be financially free now depending on how much you want to be earning and depending on the rental yield other properties is going to depend on how many properties you need so let me get my phone out and do some calculations here so let’s say we’re gonna need a hundred thousand dollars in passive income in today’s money now when we’re looking at the rental income of a property they’re still going to be some expenses in there okay we’ve got insurances council rates property manager fees etc so generally you’d want to calculate about twenty to thirty percent of that income for those expenses so a hundred thousand dollars let’s say we’re calculating twenty percent that’s actually only eighty percent of the total rental income that we need so we need a bit more than that so that when we take out our twenty percent we’re left with a hundred thousand that we can live off so to do that calculation we do a hundred thousand divided by eighty that gives us the total value of one percent and then times by 100 so that means we need one hundred and twenty five thousand dollars per year in rental income in order to achieve that hundred thousand dollars a year now let’s go ahead and divide that by 52 because there’s 52 weeks in a year that’s going to give us a total amount of two thousand four hundred and three dollars and 85 cents so let’s call that let’s just call it two thousand four hundred dollars in order to make things easier now if we’re investing in property let’s just say single income properties up here in North Brisbane you could purchase a property around three hundred eighty four hundred thousand that might rent for four hundred dollars per week so two thousand four hundred divided by 400 that means we’re going to go ahead and we’ll need six properties in order to achieve our income goal now remember that six properties completely paid off owned outright now let’s say we do the two properties to financial freedom strategy and we get that four hundred dollars rent but we also go ahead and build a granny flat on that property so actually getting to comes from the properties and our rent jumps from about 400 a week to about 710 so getting about 310 dollars for the granny flat so if we do 2,400 divided by 710 then we can see we need 3.4 properties in order to get to that $100,000 mark in today’s money now you also need to understand you’ve got inflation happening you’ve got rental growth happening over time as well so over time it’s going to get easier and easier and you need less properties to achieve the hundred thousand because that’s seven hundred and ten dollars per week over the next 15 or 20 years will likely go upwards of $1,000 per week as you increase the rents on that property so let’s say it’s been 15 years okay and the properties at each renting for one thousand one hundred and fifty dollars per week for the house and granny fact combined two thousand four hundred let’s call it one thousand two hundred dollars in total divided by one thousand two hundred then obviously you only need two properties there but you’ve got inflation there so one hundred thousand dollars in 15 years time isn’t worth as much as a hundred thousand is today so that’s something to think about so there’s a simple calculation basically you take the income that you want and you’ve got to assume a twenty percent expenses and so that’s how we got to that one hundred and twenty five thousand or two thousand four hundred per week so you work out that weekly figure and then say okay if I owned all these properties out right would I be financially free and that’s a good indicator to say okay have I finished stage one of my investment journey which is building that foundation and owning those foundational properties if you do this calculation you say okay I’ve got my properties they’re renting for fifteen hundred per week if I had paid this off how much would that be per year for me so they’re renting for fifteen hundred less times that by 52 and then remember we’re going to take in the twenty percent expenses so that would only give me sixty two thousand dollars per year if there were fully paid off so I’m not where I need to be so you know I need to keep accumulating property so that is one way to calculate how many properties you need to be financially free if they’re going to be fully paid off how much how many do you need the next way to calculator and this is how Steve McKnight got to his 130 is how much positive cash flow is this property actually spinning off so let’s say we do the two properties to financial freedom strategy okay so purchase price or total investment is five hundred and twenty thousand so four hundred thousand dollars for the property one hundred and twenty thousand dollars for the granny flat rental income of seven ten per week now in doing these calculations on property tools comte u which is an advanced calculator that I created to do cash flow analysis super quickly on property so interest rates there I’ve got five percent obviously you can get interest rates below five percent at the moment interest rates are at historically low amounts so five hundred twenty thousand seven hundred and ten at five percent the weekly estimated cash flow before tax given that we’re looking at an interest only loan here is a hundred and forty nine dollars and twenty one cents per week so for ease of use we’re going to call that one hundred and fifty dollars so now remember we want a hundred thousand dollars a year we don’t need to do the calculation of the eighty percent expenses here because in this calculation and the positive cash flow we’ve already looked at expenses in the calculator it looks at property manager fees it even looks at vacancies for the property repairs a maintenance insurance council rates bank fees water rates all of that good stuff so that’s already calculated in we’ve got a hundred fifty dollars of profit at the end of the week for that property so a hundred thousand dollars a year if we divide that by 52 that’s going to give us our total amount so we need one thousand nine hundred and twenty three dollars per week we’re now going to go ahead and divide that by one hundred and fifty and so that means we’d need to own twelve point eight properties in order to achieve that income goal now how does the McKnight get to to what do you get to thirty properties and then eventually 270 well to start with he was investing with a business partner so they actually needed twice that income so that they could each get it so twelve point eight times by two that makes twenty five properties but also he was leveraging a lot of equity in order to continue to purchase these properties so a lot of these properties were financed that like a hundred percent and the cash flow on them wasn’t as high as a hundred and fifty dollars per week a lot of them were much cheaper than this so not totally $520 invested one of the properties he invests in were much cheaper than that so the positive cash flow was a lot less so I don’t know the exact figures I haven’t read the book in a number of years but let’s say so he actually needs two hundred thousand dollars per year because a hundred thousand for him a hundred thousand for his partner to divide that by 52 that’s three thousand eight hundred and forty-six let’s say that we’re getting you know fifty dollars per week passive income from each of those properties so let’s go ahead and divide that by 50 that gives us seventy six point nine or seventy seven properties so getting closer to that hundred and thirty mark so I don’t know exactly the numbers on Steve’s investments they’re obviously you can go ahead and read his book I’ll link up to it down below if you want to go ahead and check that out about how he bought 130 properties it’s a magnificent book probably wouldn’t work in the current market especially given how hard lending is at the moment but it’s still a great book with a lot of solid basics in there about property and about cash flow as well so if you’re looking at the positive cash flow then you’re going to need more properties to achieve that financial freedom as to whether or not your properties have been fully paid off so as you can see you don’t necessarily need ten properties you don’t need 130 properties to be financially free fully paid off you know if the property is earning four hundred dollars per week we looked at only needing about six properties if we go ahead and build the granny flats and have about seven hundred and ten dollars per week coming in we need about three point four properties if we had properties where the rental income was higher with a property in a granny flat renting total for 1200 per week then we only needed to now obviously if your goal is not a hundred thousand if it’s fifty thousand then these figures are going to be different if it’s 75 thousand or 150 thousand then these figures are going to be different but I hope this shows you how you can work out how many properties you need in order to become financially free and I think you’ll be shocked that you need a lot less than you actually thought if you’re interested in the to property to financial freedom strategy in buying a property on an inner metro market with a decent rental yield and then building a granny flat out the back to get positive cash flow from day one that you can eventually pay off and then live off the rental income if that sounds like something you’re interested in then head over to onproperty.com.au/mortgage – to properties and you can check out a cheat sheet there where I outline that strategy in detail and you can learn about how you can invest in property and ideally work towards financial freedom for yourself and your family so go to onproperty.com.au/mortgage – to properties and i’ll link that up in the description down below as well thank you so much for tuning in to today’s episode I wish you the absolute best of luck in your property journey and while you’re here go ahead and check out the video that I did with Ben on how to own multiple properties so he talks in that video about how he’s able to accumulate more than one property some of the challenges that come with that how to overcome it so that you can on multiple properties and eventually achieve your goals so go ahead and check that out until next time stay positive
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