3 Steps to Financial Freedom in 10 Years or Less
I have a few questions: Do you love real estate? Or do you love what real estate can do for you? Do you like dealing with contractors, screening tenants, and handling maintenance calls? Or do you like the passive income and wealth real estate generates?
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I would be willing to bet that most people here on BiggerPockets like the latter. We are here to build financial independence so that we can pursue the life of our dreams. We want to travel, spend time with family, volunteer, start our own business ventures, the works! Additionally, we think that real estate is the best vehicle to achieve that level of independence in the fastest way possible.
If this is you (it sure is me), let’s dive into how you can achieve financial independence in 10 years or less in a few easy steps.
3 Simple Steps to Achieve Financial Freedom Within 10 Years
Step 1: Determine Your Freedom Number
Your freedom number is the amount of passive income you need to satisfy your basic living expenses. You don’t need a 20,000-square-foot mansion or a private jet plane (yet!). What are your total monthly expenses and how much passive income will you need to satisfy them?
You can figure this number out by using a service like Mint or Personal Capital. Upload your credit card and bank accounts, such that all transactions are flowing through the platform. Then, download your transactions for the past 90 days and see on average, how much you spend each month. That is your freedom number.
When I did this exercise my number was less than $1,000. Now, I realize that is incredibly small because I do not have a housing expense (I house hack), I have small transportation expenses (I bike to work), and I am very good about eating in versus eating out. However, I don’t want to live this way forever, so let’s say my number is actually $3,000.
How do you determine how many properties it will take to satisfy that number? In order to do that, you need to determine, on average, how much cash flow could you generate from each property? That is cash flow AFTER all expenses. If you can cash flow $100 per unit, you will need $3,000/$100 = 30 units.
Does that seem like a crazy high number? What if you received $200 per unit? That’s only 15. On all of the deals I have purchased, I receive $1,000 or more in cash flow. You know what that means? After just three deals, I have reached the most basic level of financial independence.
If I can do it, so can you! Now that you know what you need to do, let’s move on to the second step.
Step 2: Grow Exponentially, Not Linearly
Do you remember the first time you drove a car? You were probably a bit nervous—white knuckled, both hands on the wheel (10 and 2), mirrors perfectly aligned, etc. What happens after a few years of driving experience? Rarely do you adjust your mirrors; instead you’re playing with the radio, texting at red lights.
You build up confidence! Buying real estate deals works the same way.
Once you purchase your first property, you will have much more confidence to buy your second and third and fourth and so on. It probably took you a couple of years to purchase that first property. You likely had to save enough for the down payment, educate yourself, and build the confidence to take action. After you purchase that first property, if it’s a house hack, you are going to be saving on your living expenses, cash flowing a property, and actually gaining firsthand real estate experience. This will enable you to have the capital and confidence to purchase your second property in the next 365 days.
Once you purchase your second property, you’ll have even more capital and experience. Then, you can go ahead and purchase your third, fourth, fifth, etc. The point here is, just because it took you a couple of years to buy property number one, that does not mean it will take you the same amount of time for property number two. In fact, the time between purchases will decrease after each one you do. And eventually, you will have the confidence to start investing with other people’s money and providing returns for them, as well, all while you continue to increase your portfolio.
Step 3: Master the Art of Finding Deals
At this point, you have completed a few deals and are now comfortable taking other people’s money. If you continue on this route for three to five years, you will likely achieve the most basic form of financial independence—$2,000 to $3,000 of passive monthly income to satisfy life’s basic needs.
Now, it’s time to TRULY scale.
The three problems real estate investors have are: not enough money, not enough time, and not enough deals. But if you are financially independent, you have all sorts of time. You are now confident enough to ask other people for money.
There are trillions of dollars out there that are just waiting to be invested in real estate. The problem now is that you do not have enough deals. So if you can become an expert at finding deals in your area, you will have conquered the three largest problems. You’ll be an unstoppable force! You can continue to purchase property until your dream number is satisfied.
How much is that dream number? Is it $1,000 a month, $10,000 a month, $100,000 a month? You can decide. The whole point here, though, is that it all starts with the first investment. The longer you wait for the first one, the longer it will take to get to your chosen level of financial independence.
Do you have questions for me about any of the above information? Where are you on your journey toward financial independence?
Let’s talk in the comment section below.