The Free & Clear Real Estate Goal
Some people reach financial independence without real estate investing. For example, if you follow conventional wisdom, you will just save money in a 401k, get an employer match, and buy indexed stock mutual funds until a target net worth goal is reached.
I actually like this general strategy in theory, and if followed, the strategy has worked pretty well over time. But, unfortunately the actual results for individual investors over long periods are much worse than advertised (Dalbar Study: Why Investor Returns Lag Market Returns).
The Dalbar study found that most stock investors demonstrated bad habits like trying to time markets. Most sell when it’s low, and then buy when it’s high. It turns out that the big “advantage” of stocks over real estate, liquidity or the ability to sell for cash quickly, has been the downfall of most investors.
I have found that a very simple free and clear real estate goal can help you reach financial independence faster, safer, and with more certainty than with any other path.
And, because real estate is not very liquid, you’re less likely to stray from this solid plan by jumping ship at the worst times!
Let me start with an explanation.
What is the Free & Clear Goal?
The free and clear goal is to eventually own a relatively small, easy-to-manage number of residential real estate properties free and clear of all debt.
Although the plan can work with apartments, mobile homes, or commercial real estate, I would argue in most cases that single family houses are your best investments.
The end result could look like this:
- 10 single family houses owned free and clear
$1,200 = Rent per month for each house
($500) = Expenses per month for each house
$700 = Net Operating Income per month for each house
- $700 x 10 houses = $7,000 per month passive income
- $7,000 x 12 = $84,000 per year passive income
Pause for a moment.
Would $84,000 per year coming in passively, consistently, year after year change your life?
If only a few hours per week doing administrative work took care of your financial needs (yes, even managing 10 houses yourself is a VERY part-time job), could you figure out what to do with your time? Time is of course the ultimate currency.
Even if $84,000 per year doesn't work for you, just add a few more houses until you hit your number. Either way, I think you’ll agree that the end result is worth while.
The Free and Clear Plan is a S.M.A.R.T. Goal
Financial goals are best when they are S.M.A.R.T. (Specific, Measurable, Achievable, Relevant, and Timely). S.M.A.R.T. is best because it makes the path towards the goal much more achievable.
When you set a goal to own 10 houses free and clear of all debt, the goal is very specific. The goal is not 9 or 11. The goal is 10.
Whether 9, 10, or 11 is the right number is not important. The energy and enthusiasm created from a clear goal is what matters. That clarity is like a compass on a sailboat that continues to bring you back on course during inevitable storms and detours.
The specific number of houses is also measurable so that you can track your progress. When you get 1 free and clear rental, you are 1/10th of the way to your goal. You can literally check this off on a chart.
I have found this visible, measurable progress to be extremely satisfying. It creates even more enthusiasm and energy to continue pushing forward.
10 houses are significant financially, but they are a still relatively small number. Small translates into achievable. Big dreams are wonderful, but until you believe them they will never come true.
Your own belief is really the biggest obstacle to achieving something worthwhile. In Think and Grow Rich Napoleon Hill famously wrote “Whatever the mind can conceive and believe, it can achieve.”
For those high achievers, small and simple goals are not selling yourself short. A successful goal just needs to meet your personal needs. Leave the excessive goals to others who need validation by impressing themselves and others.
As I've shown with the $84,000 per year in passive income, this goal is also very relevant for your own Destination of Financial Independence. When your financial needs are taken care of, you can explore, grow, contribute, and discover what else you were put on this earth to do!
Finally, a timely goal can keep you moving forward. I don’t think you need to stress about an exact date (like December 31, 2020), but a rough time line will certainly help.
Even starting from scratch, a timeline of 15 years is very reasonable to reach the final free and clear goal if you are focused and persistent. But, If you happen to be a couple of years late, it won’t make a big difference in the long run. Just have fun with it.
What Is Your Free and Clear Goal?
Ultimately this goal is about you. So I have some questions for you to ponder:
- What S.M.A.R.T. goal will meet your needs?
- Can you get excited about this destination?
- Do you believe that you can achieve it?
- If not, chop the goal into smaller pieces until you can believe it.
- Are you willing to commit yourself to a timeline?
- How can you start moving forward … today?!
I believe financial independence is a destination worthy of your time and effort.
The ultimate payoff is personal freedom and autonomy. With these rewards you can finally break the shackles that chain you to a job or a way of life that is not fulfilling.
I also believe real estate investing is a vehicle that can carry you to this worthwhile financial destination better than any other.
The journey isn't easy. It won’t happen overnight. But, with vision and persistence you can do it, just like many have before you.
Thank you for letting me be your coach in a small way on your own personal journey.