2 Properties to Financial Freedom: Looking At The Numbers

[arve url="https://www.youtube.com/watch?v=NoJQI7cP6vs" mode="lazyload" align="center" /] In this episode I go through some of the numbers behind the 2 Properties To Financial Freedom Strategy so you can get an idea of how the numbers could work out in theory. Book a Free Strategy Session - https://onproperty.com.au/session 2 Property Strategy - https://onproperty.com.au/2properties 0:00 - Introduction 0:41 - The basics of the strategy 2:28 - Looking at the basic cash flow of the strategy 6:34 - What sort of income can this create when fully paid off 9:14 - How long does it take to pay off these properties 12:53 - What's the rough annual income after expenses? 14:57 - What if you buy more than 2 properties? Resources Mentioned in the Video: Property Tools - https://propertytools.com.au Recommended Videos 2 Properties To Financial Freedom - https://www.youtube.com/watch?v=Pj8gLiDEz8Y Transcription: 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. Hi, I'm Ryan from on-property helping you achieve financial freedom and if you don't know what to 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 on property.com.edu forward slash two properties to check out that episode. But the basis of the strategy is that you purchase two houses. These houses costs about $400,000 each and they rent for about $420 per week each on those houses. You then build to granny flats that costs $120,000 each and rent for about two 80 per week. So all up you've invested $520,000 per property and each property has two incomes renting for a total of $700 per week. Or if you combine the two together, then you're looking at 1 million and $40,000 renting for 1400 per week and the goal here is to get you to a baseline of financial freedom in the next 15 2025 years. So we're going to 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 vacancies, 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 facts, but a very rough 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 gonna do to start with is look in this website which has property tools.com.eu. This is a calculator that I created myself and we're going to put in a total purchase price of 520,000 and our rental income of 700 per week, we're going to interest rate of 5% in there as well and a deposit of 20% in. We scroll down. We've also got property manager fees, vacancies factored in, repairs and maintenance, insurance and council rights in that as well. So this does take into 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 [email protected] dot. A U if you want to have a play around with this calculator. But what I wanted to look at was the weekly cashflow before tax and we can see that the weekly cash flow before tax is around $140 estimated. And this is if we were to pay interest only on the property, but obviously we also want to pay off the principle 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 cashflow turn in $20 per week or let's go 4.5% so that's going to give us weekly cashflow before tax of around $180 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 416,000 so we're putting in a 20% deposit on everything. So 416 is our remaining loan amount. You got a 25 year period, we're going to change this to 4.5% and if we look at interest only, we can see we've paying $360 per week in interests. Now we want to look at the difference between principal and interest and interest only. So we jumped to principle and interest. That goes up to five 33 so we can see that that is an extra $173 per week approximately in order to do principal and interest instead of interest only. Now what do we notice about that figure $173 per week. That's very close to this figure of $180 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 cashflow 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 it's cashflow 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, depends on how much of a deposit you put down. If you go down less deposit, then you need a higher rental yield to be cashflow neutral because if we only put down a 10% deposit, then we can see our weekly cashflow drops from one 80 to one 35 but if we're putting down a 20% deposit, then we get that $180 per week. So deposit can influence it while your interest rate is, it can influence it. If you were to put 10% deposit by be able to secure a 4% interest rate, then went back up to that $180 per week. So again, probably tools.com.eu 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. He spend a bit more on the granny flat or a bit less get more rent depending on what area you invested in. And 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 at 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 we be buying? We're going to go ahead and do this twice because the two properties to financial freedom strategy and then this is going to show us some results. So in our first payment date is the 1st of January, 2020 then our last payment date will be the 1st of July, 2035 so this is looking at a 15 year period. Okay, now I've been adjusting this and playing with us. 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 2037 or December, 2037 so take us about 18 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 said at two and a half percent, which we could change. If we invested in a good area and got 4%, then that's going to grow things a lot faster. Phone is going to put a 2.5% which is roughly what inflation is. So each year we can see that. Um, what have we got here? The two houses and the two granny flats rent for a total of 1400 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 18 I think, let's say started the year 19 when we pay everything off, we're looking at around $2,183 per week. But then obviously you've got expenses to pay after that. So after 20% expenses, that's 1746 so if we look at 1746 per week, we times that by 52 that's around $90,000 per year. If we waited until year 25 then we're looking at over a hundred thousand dollars 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 line page, this shows us a 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 onto the loan. We're just playing the basic principle and interest. But then in year two that jumps to, we can put an extra $120 per month on the loan, and that comes from the growth in rental income of $35 per week. That's about $121 per month. So that's where that come from, comes from. So basically each year as the rent goes up, you'll see the extra money we're paying goes up to the point where we're in our 10th year, we're paying an extra nearly $1,400 per month of the loan. Now you can also add money yourself too. So if we just add the rental income here,