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