How to Become Financially Free with 5 Small & Simple Rentals

a lot of people think that using rental properties to Achieve Financial Freedom is either too hard or it takes too long it's too hard because they think they have to have dozens or even hundreds of rental properties and it's going to take all of their time and be a lot of Hassle and it takes too long because they think they're going to have decades and Decades of sacrificing delaying gratification until they can finally enjoy their life now as someone who's actually used rental properties to Achieve Financial Freedom in my 30s and who wrote a book

called the small and mighty real estate investor I found these concerns to not be true and in the rest of this video I want to give you a very simple plan for Building Wealth using rental properties so you can get out of the financial grind and spend your time doing more of what matters you can think of this as a blueprint or a step-by-step guide and I'm actually going to draw it out just like you're sitting here right next to me so it's easy to understand and so you can apply it to your own [Music]

life now I want to start by talking about the big picture of how you actually Achieve Financial Freedom because if you want freedom which basically means being able to do whatever you want with your time you've got to separate this idea of just working for money instead you have to have investments in this case rental properties that produce enough cash flow or income every single year to cover your personal expenses so you don't have to go to work and in my book the small Mighty real estate investor I borrowed this term but I called it

your fi number or your financial Independence number and it's basically just a number that you choose as your goal to replace all of your expenses a number that you would feel comfortable with saying hey this would be enough money that I wouldn't have to work a job even if I want to keep working a job I wouldn't have to so maybe that number for you is $60,000 maybe it's $120,000 whatever your number per year is that's your business but the concept is you need to have that cash flow coming in in the end as your

goal in order to have that freedom that we want now here's a mistake though that I see a lot of people making when I'm having one-on-one conversations and helping them think about this big picture is they think okay well cash flow is obviously one of the most important things I need to have that for Financial Freedom therefore I'm just going to go out and buy a bunch of cash flow properties I need to buy in a market that meets the 1% rule I need to buy cash flow and so let's say I could buy properties

that make $200 per month and cash flow and 200 is not enough I need to stack up even more cash flow so if 200 if one property is not enough if I buy 10 properties then I would make $22,000 per month if I buy 20 properties then I would make $4,000 per month and you can see how you kind of keep stacking and keep stacking in order to get 60,000 120,000 240 but the numbers get a little bit ridiculous and this is where going big often seems to make more sense you have to start getting

20 30 50 100 properties in order to make those small cash flow numbers make sense to have a lot of cash flow in the end now there's nothing wrong with buying cash flow properties I've done it myself but what I recommend is thinking about this in a little bit more simple way of just measuring the amount of wealth you have in the end because there's a relationship between having wealth so in this case let's say you had a million dollars or $2 million or $4 million if you can build that much wealth with your real

estate or really any other Investments you have you can always translate that wealth into cash flow if you have a certain amount of money in the bank you can buy Investments that produce cash flow so the game isn't just stacking up cash flow properties per se although you could do that it's just whatever way you can do it build enough wealth so that you have this bigger amount of wealth so a million dollars would produce about $60,000 per year if you could make a 6% return in real estate and this is kind of a rule

of thumb that I like to use there's nothing magic about this I just feel confident that if I go out and buy conservative single family small multif Family Properties I feel confident that even with no debt on those properties I could produce about a 6% cash return on those properties whatever that number is for you you can change these numbers but the math here and the reason the point I'm trying to make is that if your game is to build wealth so if you have $100,000 you're trying to turn that into a million dollars if

you have2 200,000 and you want to make $120,000 per year someday your G your game is to turn that 200,000 into 2 million or if you want to make $240,000 per year and today you have a half a million dollars your game isn't necessarily stacking up a bunch of cash flow today it's building that $500,000 into $4 million so that you can then reshuffle your portfolio which I'll talk about a little bit later in the video so that that 4 million produces $240,000 per year that's an unlock because a lot of people get stuck only

looking at cash flow properties and ignoring other Investments which could be a property that's in a good location that you buy for $100,000 below its full value because you just got a good deal on it but even though it doesn't produce cash flow maybe today you hold on to that 5 years from now the rents go up the price goes up maybe you sell that property maybe you refinance it so that it opens up a lot of other Investments including real estate but also including stock market Investments or other ways of investing it doesn't matter

how you build this wealth as long as you have it at in the end you can then reinvest that money into rental properties to produce the cash flow you want now I want to show you how you can actually achieve this big picture Financial Freedom goal using rental properties now remember I said earlier that you don't have to go big or have hundreds of rental units in order to achieve Financial Freedom and in this case I want to show you an example where you would only have five rental properties five typical rentals and the way

I've done this in my case this is a typical rental property in my area of Clemson South Carolina a single family house now I know every Market every city has different prices and different rent so you have you have to adjust this but the concept works because what I'm trying to say here is if I have a typical rental which in my area today in 20124 would cost about $230,000 the median price of of houses in my area is over $300,000 so this is not the most expensive property it's a little bit below the median

price but still in a good neighborhood that attracts a good quality tenant and this property would rent for about $1,800 per month and in my big picture planning and setting a goal what I recommend is figuring out how many rentals would you need if you own those rentals free and clear of any debt now if you owned it free and clear if you eventually paid it off I know you might not have enough money to do that today but if you paid the property off you you wouldn't have a mortgage payment that's kind of by

default but you would still have some expenses You' have taxes You' have insurance you would have maintenance on the property you'd have to replace the heating and air in the roof every once in a while that's called Capital expenses you have some vacancy and so whatever that number is let's say you subtract those expenses from $1,800 1,800 and you have 1,170 left over to put in the bank in your rental checking account well if you have one rental property that's $144,000 per year but if you have five rental properties that's just over $70,000 per year

and so this is the way you can work it backwards and you can say well how many rentals would I need to have a goal for in order to achieve my financial Independence number and so you can start with this and you can say here's a typical rental in my area that cost $230,000 rent for $1,800 if I owned it free and clear I'd have to have five of them if your number were over let's just say $70,000 now if your number is not $70,000 you just need to get bigger so maybe your numberers $140,000

you need to have 10 rental properties instead of instead of five rental properties you need to get a bigger number so you can you can change the math here but the concept is the same is that you probably need a lot less rental properties than you thought especially when you have a really conservative goal of owning free and clear rentals now I'm not saying you should always have your properties free and clear I actually in my own personal portfolio have a lot of them free and clear but have some of them still with some debt

and in my book the small Mighty real estate investor I suggested that when you're setting a goal like this if you do want to keep debt on your brenal properties but let that grow over time and live off the cash flow in that scenario you might need to have about three times as many rentals in order to have the same amount of cash flow so instead of five rentals I might have to have 15 rentals that have some debt on them or you can kind of grow that number from there so not exact math but

you don't need exact math when you're doing big picture planning you just need to know approximately hey I need to buy five rentals I need to buy 10 rental properties and I'll talk in just a second about a plan a step-by-step plan for how you start from a small amount of money so you might not have a million dollars like $230,000 times five is $1.15 million so you might be saying well even with five rentals that's a lot of money and I only have $100,000 right now well that's the beauty of rental properties is that

you can start with a smaller amount of money and if you invest wisely in your patient over a 5 to 10 year period or maybe a little bit longer you can grow that $100,000 into a portfolio that's worth $1.1 million and so let's talk about how you would do that next now we spent a lot of our time in the future with a future goal of how can we build enough wealth how many rentals do we need to have but I want to bring this all the way back to today wherever you are in your

financial Independence Journey whether you're brand new whether you're a little bit more advanced let's talk about how you can actually turn your wealth you have today into that Financial Freedom goal that we were just looking at and I'm going to give it to you in four steps you can think about this as a small and mighty investor strategy to Achieve Financial Freedom and the first step is one that I borrowed from my Mentor John sha who wrote the book Building Wealth one house at a time and he has a strategy he has a recommendation to

at least just buy one property per year and I really like this goal because Simplicity pays off many of you are investing part-time many of you have full-time jobs you have a life you have other things going on and it can feel feel pretty overwhelming to achieve this goal but if you just concentrate and if you just buy one property per year you can accomplish this like let's think about our five rental property strategy that we just looked at if you could buy five rentals how many years would that take if you were buying one

property per year it would take five years what if you want to buy 10 properties it would take you 10 years to buy 10 properties now if I I have one plus because I think as you get better you're going to find there's going to be some years where your skills improve where your financing improves where the first deal is a lot harder than the other deals but you get better and you might buy two properties in a year maybe even three properties or maybe you are more ambitious and like I in my past in

my growth as a real estate investor I bought many many properties in one year I was a full-time real estate investor but the point is just have a goal to buy a certain number of rental properties per year I like the one property per year goal and if you do that good things are going to happen but number two you can't just focus on buying rental properties one of the keys and kind of the promise that I made you here at the beginning of the video is that if you want to have a rental business

that doesn't take over your life that actually produces free time for you instead of taking all your free free time you've got to build excellent Management systems and you got to build a management team now this could look like different things for different people John sha who I mentioned earlier he manages all his own properties he's been investing for over five decades and he invest he manages all his single family houses himself with a very very very light infrastructure I think he has an office because he's had one for years but it's the kind of

thing you can do from your house you can do it part-time I have a lot of students who invest in rental properties who tell me once they reach this kind of maturity phase of Ral property investing not where they're acquiring it and fixing it up but they're just managing those rentals it takes several hours per month for me it takes me 2 hours per week some weeks more some weeks less but I have apartment units and we have student rentals and we have 99 units instead of um you know instead of 10 units I have

a business partner so the two of us own those together um we have some multi-unit properties but the only way you can do that and still travel like I did living in Spain for a year having a life doing other things is you have to have systems and you have to have team so systems are just checklists their processes this is how we rent a property this is how we do things you make mistakes and you learn and then you make a checklist to fix that thing doctors have checklist Pilots of airplanes have checklists Real

Estate Investors have checklists as well so this is something I teach a lot in my rental property Mastery coaching group is how do you build systems how do you build these processes talk about that in my book as well um but then you also systems aren't enough this is a team sport this is a people sport so in my own case I have really good property managers helping me out and have two different three different property managers for the number of rentals we have in vetting them getting the right person getting to know them not

just being a surface level relationship really vetting them and getting to find a team member who's a core part of your team to help you out those aren't those aren't shortcuts but those are critical pieces and that's step number two that you can build over time and then number three is maybe the hardest one because it's not something you can do you just have to wait you've got to hold on and be patient this is a patience game and I know this is a hard one for me because as a as an entrepreneur as someone

who likes to get stuff done you want to do something with it you want to Tinker with your portfolio you want to mess with it you want to change things you want to buy and sell and time the market and really this game is a Buy and Hold strategy if you just hold on if you buy the right properties in the first place which is something I talk a lot about on this channel and you just hold on then you're going to benefit from the growth of the neighborhood the growth of the community you're going

to benefit from the land that your property sitting on growing in value the demand for that rental growing and value but it takes patience you can't mess with it and change things you just got to be patient and hold on then number four is once you've held on for a while and we're talking 5 10 years down the road then there's this key step which I don't hear a lot of uh Educators talking about I hear a lot of people talking about buying properties but step number four once you get to this phase where you

have a certain amount of wealth it's time to start harvesting your Equity so it's a little different strategy where you take this wealth you have whether it's a million dollars million and a half $2 million and you start as I mentioned earlier kind of reshuffling your portfolio and there's a few different ways I talk about it in the book of doing this if you want more details on this or if you want me to do more videos on this in the future let me know in the comments that you want me to talk more about

harvesting your Equity but there I'll just give those a few tips right now number one is you start doing strategic refinances this is something my business partner and I did over over time because what you're going to find is the value of your property goes up so you might have had a $200,000 property that's now worth $300,000 and then the debt of the property keeps going down so maybe you start off with $150,000 in debt and now you owe $90,000 so you have a lot of properties with a lot more equity which is the difference

between what you the value of the property and what you owe and you might have old interest rates like right now a lot of people have been buying properties with 7% interest rates 8% interest rates well what happens if 5 years from now interest rates are lower they're 5% or 6% again well you could refinance strategically just to save yourself some cash flow so that's something you should be doing all along the way and if you're your patient Buy and Hold investor you can do that whenever the time is right um but you can also

I found refinance some properties to pay off the other properties so you might have like a bunch of properties with smaller amounts of debt that are later on in the cycle of that mortgage you could refinance one and like kind of pull out more Equity pull out more cash from that property and then pay off another rental property so you have one property free and clear and one property with with debt on it and what you'll find like do the math on this watch do the math for yourself but found that I often increase the

cash flow and reduce my risk because I now have a pre- and clear property to go along with a property that has debt on it by just making a simple refinance so those are a couple different ideas having to do with refinances we've done a lot of that over the years you can also start paying your debt off though and there's a couple strategies we have used to do that one is kind of a tried andrue old personal finance strategy called the the debt snowball where you can save all of your cash flow instead of

spending the cash flow on your rentals or instead of getting 15year mortgages all your rentals what you can do is get the the longest mortgage you can like a 30-year mortgage or an interest only mortgage and then you use all the extra cash flow from your rentals and you put all that cash flow towards one rental at a time so let's say you could save $5,000 a month from your rentals plus some extra money you could save you would pay off one rental you put all that money towards one rental and instead of taking 30

years to pay the mortgage off you pay it off in a couple years because you're aggressively paying that debt off and so that's called a rental debt snowball because you pay off one rental and that frees up the cash flow from that one that you used to pay now you're adding some cash flow to that snowball then you pay off the second one and it happens a little bit faster and you pay off the third one it happens a little bit faster and it's a fun psychologically satisfying game to pay off your rentals and it

kind of snowballs and accelerates over time so we've done that but we've also found that we've had another strategy that accelerates this if you really want to do it faster is if your goal is to own five rentals make a goal to maybe own more rentals than that so maybe you own seven properties or 10 rentals and when you get to this harvesting phase you have some equity in all seven to 10 of those rental properties but you want to end up with five you could sell off the excess rental so the sell off the

extra ones or maybe the ones that don't perform as well there aren't as optimal and maybe you could sell it to your tenant let them become a homeowner um have that tenant get a loan on the property and they could be they could own the house that they've been renting which could be a win for them um and then you take the money and typically people when they're growing they try to do a 1031 exchange or they try to buy another rental with that but what I like to do in that case is to pay

the tax and then use the profits left over after the tax to pay off debt on the other rental properties so if you if you own 10 properties and you sell five of them then you'll use the proceeds from those five to pay off the five that you still own and then you keep them and it could be like that example that I gave you with that $70,000 per year it could look like that in the end but you bought more than you needed and and then you sold some excess off in order to generate

some profits in addition to doing a rental debt snowball in addition maybe doing to doing some strategic fin refinances along the way all of those are in your final step of harvesting your Equity now those four steps that I've given you to buy one rental property per year to build excellent Management systems and then just to hold on step number three and then step number four Once you build some wealth to harvest your Equity strategically those are pretty simple steps in owning five rentals or 10 rentals is a lot simpler than having these big go

big thousands of units apartment complexes that you might have heard out there so I hope this is giv you a small and mighty approach to real estate investing one that you can get your head around one that you can apply and I would love to hear from you in the comments if you plan to do this what your goal is what your financial Independence number is and I also want to encourage you if you like this style of looking over my shoulder to figure out how many rentals you need to retire and what Financial Freedom

looks like you might also have the question of something we didn't cover today is how do you actually run the numbers on particular rental property how do you figure out what formulas make sense how do you figure out what the expenses are and my next video is one that is been very popular over two million people have watched it on YouTube and is how to run the numbers using back of the envelope math so very simple it's just me showing you on a piece of paper how you run the numbers without a calculator without fancy

math so you can buy rental properties like we talked about in this video so to check that out there'll be a link a thumbnail above me here in the YouTube video or if you're listening on the podcast or if you just want to check out the YouTube description there'll be a link below me in the description as well thanks for watching best of luck and I'll see you in the next episode