2 Properties to Financial Freedom: Looking At The Numbers

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

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