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 hey i’m ryan from on-property helping you achieve

financial freedom and if you don’t know what two 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

onproperty.com.au/plus two properties to check out that episode but the basis of

the strategy is that you purchase two houses these houses cost about four

hundred thousand dollars each and they rent for about four hundred and twenty

dollars per week each on those houses you then build two granny flats that

cost a hundred and twenty thousand dollars each and rent for about two ad

per week so all up you’ve invested five hundred and twenty thousand dollars per

property and each property has two incomes renting for a total of seven

hundred dollars per week or if you combine the two together then you’re

looking at 1 million and forty thousand dollars renting for 1,400 per week and

the goal here is to get you to baseline financial freedom in the next 15 20 25

years so we’re gonna 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 vacancy 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 fact but a very 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 going to do to

start with is look in this website which is property tools calm day you this is a

calculator that I created myself and we’re going to put in our total purchase

price of five hundred and twenty thousand and our rental income of seven

hundred per week we’ve got an interest rate a five percent in there as well and

a deposit of twenty percent if we scroll down we’ve also got property manager

fees vacancies factored in repairs and maintenance insurance and council rates

in there as well so this does take him to 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 up at property tools.com dot a you if you want to have a play

around with this calculator but what I wanted to look at was the weekly cash

flow before tax and we can see that the weekly cash flow before tax is around a

hundred and forty dollars estimated and this is if we were to pay interest only

on the property but obviously we also want to pay off the principal 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 cash flow turn on twenty dollars per week or let’s go four point five

percent so that’s going to give us weekly cash flow before tax of around a

hundred and eighty dollars 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 four hundred and sixteen thousand so we’re putting in a 20% deposit on

everything so four hundred and sixteen is our

remaining loan amount got a twenty five year period we’re going to change this

to 4.5% and if we look at interest we can see we’re paying three hundred

and sixty dollars per week in interests now we want to look at the difference

between principal and interests and interest only so if we jump to principal

and interest that goes out to five thirty three so we can see that that is

an extra one hundred and seventy three dollars per week approximately in order

to do principal and interest instead of interest only now what do we notice

about that figure a hundred and seventy three dollars per week that’s very close

to this figure of a hundred and eighty dollars 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 cash flow 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 its cash flow 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 it depends on how much of a deposit you put

down you can put down less deposit then you need a higher rental yield to be

cash flow neutral because if we only put down a 10% deposit then we can see our

weekly cash flow drops from 180 to 135 but if we’re putting down a 20% deposit

then we get that one hundred and eighty dollars per week so deposit can

influence it what your interest rate is it can influence it if you were to put

ten percent deposit but being able to secure a four percent interest rate then

we’re back up to that one hundred and eighty dollars per week so again

property tools comdata you 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

you spend a bit more on the granny flat or a bit less get more rent depending on

what area you invested in 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

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 you be buying we’re going to go ahead and do this twice

because it’s the two properties to financial freedom strategy and then this

is going to show us some results so if our first payment date is the first of

January 2020 then our last payment date will be the 1st of July 20 35 so this is

looking at a 15 year period okay I know I’ve been adjusting this and playing

with this 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 20 37 or December twenty thirty seven so take us about eighteen

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 set it at two and a half percent which we could change

if we invest in a good area and got 4% then that’s going to grow things a lot

faster but I’m just going to put a 2.5 percent which is roughly what inflation

is so each year we can see that what have we got here the two houses and the

two granny flats rent for a total of fourteen hundred 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 eighteen I think well let’s say start of year nineteen when we

pay everything off we’re looking at around two thousand one hundred and

eighty three dollars per week but then obviously you’ve got expenses to pay

after that so after 20 percent expenses that’s 1740

six so if we look at 1746 per week four times that by 52 that’s around $90,000

per year if we waited until year 25 then we’re looking at over $100,000 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 loan page this shows us our 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 on to the loan which is playing the basic principle and interest

but then in year two that jumps to we can put an extra one hundred and twenty

dollars per month on the loan and that comes from the growth in rental income

of thirty five dollars per week that’s about one hundred and twenty-one dollars

per month so that’s where that come from comes from so basically each year as the

rent goes up you’ll see that extra money we’re paying goes out to the point where

we’re in our tenth year we’re paying an extra nearly fourteen hundred dollars

per month off the loan now you can also add money yourself too so if we just add

the rental income here then we’ll see our final repayments our last one 215 so

two hundred fifteen months divided by 12 that puts us at seventeen point nine one

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 four and a

half percent the final payment is here at 215 that’s the same right that’s five

percent yeah because it’s a 25 year loan to fifteen okay so it ends up being the

same at four and a half percent so okay my figures aren’t destroyed but I’m just

going to change 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 on to these properties let’s

say about fifty dollars per week per property about a hundred bucks a week

let’s call that five hundred per month so slightly over a hundred dollars per

week but five hundred per month six thousand per year how does that affect

our payoff period so our final repayment was in the two

hundred and fifteen month it has now changed to the hundred and ninety fourth

fourth month so if we got one hundred ninety four divided by twelve and that

brings us down to about sixteen years now if we were to do about hundred

dollars per week per property so that would be a thousand dollars per month

okay so five hundred per month per property or that’s an extra what twelve

thousand dollars per year then our final repayment is going to be here on the one

hundred and seventy six month so if we go one hundred and seventy six divided

by twelve we can see that that’s fourteen point six seven years so

fourteen years and what eight months okay so that actually brings you in

under that fifteen year period which I know Ben loves the fifteen year goal of

trying to achieve financial freedom in 15 years so let’s say we were able to do

that well paying an extra thousand dollars per month on to these properties

for fifteen 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 eighteen year period

so let’s say at the 15 year point so start of year 16 we’re looking at around

two thousand and twenty seven dollars 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 where as a 1622 so 1622

equals 1622 times by 52 so that’s about eighty five eighty four thousand dollars

per year take home after you pay expenses assuming twenty percent of the

rent goes towards expenses people doing at the start of year nineteen so if it

took us 18 years and we’re at the start of you 19 three times that by 52 then

we’re looking at around ninety thousand ninety one thousand so and if we were to

pay it all off in the first year then we’re looking at one thousand one

hundred and twenty times that by 52 so you’re looking at around fifty eight

thousand dollars if you were to simply buy these two properties and build these

two granny flats out right you’re looking around sixty

thousand dollars 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 twenty five years it’s going to be over

a hundred thousand dollars per year but you’re going 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’ll 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 jump from two properties to four properties okay

that’s just going to double it so be around

I think that’s times that by 52 that would be around one hundred and sixteen

thousand dollars per year if bought outright on day one or by the time we

get to you twenty five we’re looking at around two hundred thousand dollars per

year but one hundred and fifteen hundred and twenty thousand is definitely enough

to live a good life and especially if you purchase your own home on top of

that and paid that off don’t have to pay the rent or the mortgage then that

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 do four or to five or do ten let’s see 10

it’s gonna be imagine view just do it slowly over time we’re not in a rush

here we’re not trying to do ten in ten 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 ten then we’re looking at poor in year 25 that’s after expenses ten

thousand dollars per month so that’s times that by 52 that’s over five

hundred thousand 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 look at the figures

between two properties to financial freedom if you’re 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 cash flow or neutral

cash flow 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 bending the team over pumped on property

are offering free strategy sessions so go to onproperty.com.au/free 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 find out what your

next steps are you can then go and do it yourself or you can hire them so again

that’s onproperty.com.au/mortgage hours 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 onproperty.com.au/session two properties

so go ahead is a book free strategy session or watch that video if you have

or ready hope you enjoyed looking at the figures seeing this sort of thing and

yeah hope that inspires you to go out there and to take action towards your

financial freedom wish you the absolute best in your property journey until next

time stay positive

First

Also would 2 duplexes work too?