When I told my friends and family I was leaving my corporate sales career, most scratched their heads and asked, “How will you support yourself?”

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When I explained that the income from my rental property investments was now sufficient to cover my everyday living expenses, the common refrain was, “How did you replace your salary so quickly?”

After all, I’m still in my 30s.

But the truth is I didn’t have to.

There is an unfortunate, often intimidating misconception among those who aspire to reach financial independence through cash flowing real estate. Many believe that to reach the “Promise Land,” your passive income must be equal to or greater than what you earn at your W-2 job.

This fallacy seems especially pervasive among my friends living paycheck-to-paycheck.  If they earn $50,000 per year and spend every dollar, they must need $50,000 of passive income in order to retire, right?

Unfortunately, they conclude that the only path forward is to somehow save $500,000 and invest it at a 10 percent annual return. In turn, this imposes such a steep mountain to climb, such a herculean savings task, that many abandon the financial independence journey before they even start.

And all because of a myth—one that I’m going to destroy right now!

The truth is much kinder and one that puts financial independence in closer reach for everyday Americans. The beautiful reality is that the strategic and intentional pursuit of financial freedom through income-producing real estate means that several of life's largest expenses can be eliminated altogether.

Consequently, you will not need nearly the income you earn now to sustain yourself indefinitely!

Here are the four biggest expenses you can eliminate when you pursue financial freedom through residential income property. As I go through them, I’ll also show you why this means you can retire from a $50,000 job on just $25,000 of rental income.

Related: Stop Living Paycheck to Paycheck—Here’s How

4 Big Expenses Eliminated by Replacing Your W-2 With Rental Income

Expense No. 1 – Housing Payment

If you’re like most Americans, housing is your largest expense. While the generally accepted measure of housing affordability is 30 percent of gross income, according to Business Insider, most Americans are now spending nearly 40 percent!

However, if you’re like those who are pursuing or have achieved financial freedom, housing might well be your smallest expenditure.

Volumes have been written on BiggerPockets about the strategies and benefits of house hacking, so I won't belabor it here. What's important to realize is that there's a strategy that works for any lifestyle and even in the most expensive locations.

It truly remains the most viable, actionable way for a modest wage earner to permanently eliminate housing expenses. For those in pursuit of early retirement, house hacking is a cornerstone strategy.

Now consider the impact of house hacking on the income required to retire from a $50,000 job.

Let’s assume a scenario where this $50K wage-earner spends $1,250 per month on rent, the 30 percent threshold of affordability. That’s $15,000 per year spent on housing. But let’s not forget, to earn $15,000 of post-tax income, that person would likely have had to earn about $18,000 in pre-tax W-2 income.

However, if that same person instead house hacked a well-purchased fourplex with a low down payment FHA loan, their effective rent could potentially be zero.

Our conclusion: the $50,000 wage-earning renter would achieve an equivalent financial position with a house hack and just $32,000 of gross income.

Related: House Hacking 101: How to “Hack” Your Housing and Get Paid to Live for Free

Expense No. 2 – Retirement Savings

When you’re financially independent, your passive income equals or exceeds your expenses—forever. This means that the years of deferring 5 percent, 10 percent, or more of your gross income to a retirement plan are over.

Let’s conservatively say that the same $50,000 wage-earner had been contributing just 5 percent of gross earnings, or $2,500 pre-tax, to a retirement account. Once financial independence is achieved, no longer are those contributions necessary.

So now, the $50K renter who traded for a $32K salary and a house hack can lop off another $2,500 of gross earnings required to be financially free.

Do you contribute 10 percent of your gross income to a retirement plan? In that case, you can subtract $5,000 of gross annual earnings required to achieve financial independence!

But for this exercise, let’s stick with just 5 percent. We’re down from $32,000 to $29,500 at this point.

Expense No. 3 – Income Taxes

Discussions about taxes are best held between you and a qualified CPA, which I am not. What follows is for general educational purposes with a shared understanding that everyone’s specific tax situation will be different. This is not tax advice, but a conceptual framework to help you understand that active income is generally taxed at a higher rate than passive income.

Ah, that feels better! And with the obligatory disclaimer out of the way, here we go.

One of the great benefits of owning income-producing real estate is the series of incentives bundled within the U.S. tax code. Depreciation, deduction of operating expenses, and the new 20 percent pass-through deduction are a few of the tools available that can greatly reduce or eliminate one’s tax liability on rental property income.

Because of these and other tax incentives, it is quite possible that investors with $25,000 of rental cash flow may show zero net income (or even a loss!) on their tax return.

Let’s be clear: I’m not saying that every rental property investor with $25,000 in cash flow will show a net profit of zero on their taxes. I’m only saying that the U.S. tax code provides the tools necessary to legally achieve this with a strategically constructed, leveraged portfolio.

Conversely, a $50,000 wage-earner is going to pay some level of income and FICA taxes. And while contributions to retirement plans and health savings accounts (HSA) can help reduce one’s taxable W-2 income, the opportunities to mitigate W-2 taxes are far fewer than those available to rental property investors.

Let’s assume the best-case scenario of the single wage-earner who lives in a state that does not impose income tax. Let’s also assume aggressive contributions to a 401(k) and HSA. Given that marginal tax brackets start at 10 percent, it’s very unlikely that the savviest of tax planning strategies would produce an effective income tax rate of less than 5 percent of gross income ($2,500).

For our purposes, it’s important to simply recognize that the rental property investor with $25,000 in cash flow might pay zero taxes, and the $50,000 wage-earner is likely to pay at least $2,500.

The house hacking rental property investor has again reduced the amount necessary to become financially independent from $29,500 to $27,000.

Expense No. 4 – Job-Related Expenses

Finally, there are all those job-related expenses to consider: the clothing, the transportation cost, and the extra meals eaten out because you’re too busy or too tired to cook at home.

What is the incremental cost? It’ll vary.

So again, let’s be super conservative and say you spend just $500 per year on clothing and shoes for work that you would not have otherwise; $1,000 per year in gas and extra wear and tear on your car; and another $750 per year eating out more than you would have if you did not have a job.

That’s just $2,250 per year, or $43.27 per week. Can we agree that this is a low-ball estimate?

Even so, to earn $2,250 of W-2 income might mean $2,500 of gross pay is required. And while $2,500 might be a laughably low estimate for this category, it’s all you need to subtract to bring our total income requirement down further still from $27,000 to $24,500.

Do you see what we did there? In two paradigm shifts—where you live (house hack) and how you earn your income (rental portfolio)—we’ve proven that you can live just as well on $25,000 of rental income as you did working a $50,000 job!

Related: The Ultimate Guide to Real Estate Taxes & Deductions

Financial Independence Is Truly Within Reach

If you’ve been following closely, two things should be readily apparent:

1. Any level of W-2 wage earnings can likely be offset with a house hack and a rental portfolio that generates 50 percent of said W-2 income. 

A $100,000 wage-earner who spends at the 30 percent threshold of housing affordability can potentially save as much as $30,000 per year with a house hack—twice the house hack savings of our $50,000 wage-earner. So while the amount of rental income you require will increase proportionately to a higher W-2 income, the amount of savings you generate when you eliminate your housing cost, retirement contributions, income taxes, and job-related expenses will decrease proportionately, as well.

2. The value of a raise at your W-2 job was just cut in half! 

Let’s say that you earn $60,000 as a junior accountant and know that senior accountants at your firm earn $70,000. However, senior accountants have at least five years of experience and tend to be the go-getters who put in 60 hours per week. Great, you’re just 15,600 hard hours away from that $10,000!

But we just proved that you’ll likely require just $5,000 of income from a rental property in your early retirement. That’s just $416.67 per month, or a well-purchased duplex that cash flows at $208.33 monthly per door.

So, should you spend 15,600 hours going after that raise? Or maybe 1/100 of that time to identify and purchase a duplex?

Career aspirations aside, the decision is easy. And it gets better.

Back to the example of the $50,000 wage-earner.  Instead of needing to save $500,000 and invest at a 10 percent return as originally feared, that savings goal has also been cut in half to just $250,000 invested at a 10 percent return.

This means you can turn that $15,000 annual house hack savings into the $250,000 you require in just 15 years, assuming a 1.5 percent compounded return.

While 15 years may not be considered early retirement in some F.I.R.E. circles, it’s lightning fast to those who are taught to expect to work 30 years, 40 years, or more. But 15 years isn’t your best-case scenario either. In fact, 15 years should be the longest amount of time you should expect the financial independence journey to take.

How do you get there even faster? Maybe you bear down and go after that promotion after all. Maybe you change employers to one that will pay you more or promote you faster. Maybe you find a side hustle that will put another $10,000 per year into your pocket? Or maybe you flip or BRRRR a property along the way.

Any one of these decisions can increase that $15,000 of annual savings into $25,000, and  now you’re just 10 years away. Combine these strategies with the power of goal setting and lifestyle optimization, and you might get there even faster.

If you’re reading this in your early 20s, you could be financially free by age 30!

Financial independence is more achievable than most think. Eliminate big expenses and get there faster with a house hack and an income-producing rental portfolio, and you’ll have your friends and family scratching their heads, too!

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Need a way to up your real estate investment game? Author and investor David Greene shares how he expanded his real estate business from two houses per year to two houses per month with the BRRRR strategy. Pick up your copy from the BiggerPockets bookstore today!

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Are you pursuing financial independence? How’s it going?

Let me know below!