How To Find Your Financial Freedom Number

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We've been lied to. Plain and simple.

They've told us to work hard, drive a two-hour commute to work, put some money in a 401K and everything will be rosy for retirement. It's a lie. Working harder over longer hours is not the answer and putting money in a 401K will lead to mediocre results. After all the average 401K at retirement age is $70,000! Can you live off of that for the rest of your life? Of course not.

Everything changed for me when I discovered what I call The Freedom Number. The Freedom Number is the foundation of building legacy wealth For you and your family. Without it you don't know where you're going or where you've been. It's the single most important guide post along your journey to financial freedom.

Before we get to the formula it's important to understand the foundation of the formula. And it all starts with owning rental real estate. In my opinion rental real estate is the single best investment you can make. I have yet to find a better passive income model than owning cash flowing rental properties in some of America's most affordable areas. Rental real estate is stable, it's predictable, it's passive, and the stock market can't hold a candle to it.

When I learned this simple Freedom Number formula it changed my life. Because for years I threw around arbitrary numbers, like "I want to be a millionaire," without any idea as to "why." When you run this simple Freedom Number formula you will be shocked to find that you don't need to make a million dollars at all. True financial freedom is quickly attainable with passive income generated through real estate investing.

I also guarantee that you'll be shocked at just how few rental properties it'll take for you to reach Freedom. I know I was. So without further ado, here's my Freedom Number formula.

Step 1:

Open your bank accounts and look over the last 6 months of your expenses.

Expenses are what it takes to run your family every month. They may looking like this: Electric bill, cable bill, groceries, gas for the car, Netflix subscription, tuition, taxes, mortgage or rent, a few dinners out, a movie. Don't leave anything out and don't cut corners. If you're reading this during the holiday season then you'll want to leave that out. Skip the holiday's because they'll throw everything out of whack.

Take those six months worth of expenses and find the average of those months. Let's say for the sake of argument that your number is $4,500 a month.

Great. Now I want you to pad it a little. So add about 10% just to give you some extra Freedom. In this example 10% of $4,500 is $450... just round it up so we have an even $5,000.

So $5,000 is our Freedom Number for this example. If we had an additional $5,000 a month coming into our house we'd have everything covered. We would have achieved financial freedom. Doesn't sound like a lot does it? It's not, and you don't need to be a millionaire to achieve it.

 

Step 2:

The next step is the fun part. This is the part where we figure out how many rental properties it would take to cover our $5,000. Most of the rental properties that I fix and sell to my investors, or keep for myself, are 3 bedroom 1 bath houses in states like Indiana, Mississippi, Pennsylvania, Etc. And most of them rent between $600-$900 a month. Each of these houses cost roughly $29-40,000 after they've been rehabbed. But for now we're only concerned with the rent. For the sake of this example lets use an easy rental average of $700 per month.

 

Step 3:

Then I like to be super conservative in my estimations so I take $700 and I want to account for an additional 40% for vacancies and repairs (both of which are rare especially since we just renovated the house).  700 x .60 = $420. In a worst case scenario we'd be making $420 per month on this house. Again, I do it to be conservative and safe.

 

Step 4:

Now here's the magic moment to find our Freedom Number. We now simply take our expenses number of $5,000 and divide it by $420. We get 11.9. let's round that up to 12.

12 properties cash flowing $700 (minus repairs, vacancies, etc.) or $420 a month is all it would take for us to achieve our Freedom Number. Isn't that remarkable?

 

Recap:

To recap: Add up your monthly expenses and pad it by 10%. Then take the average single family rental $700 X .6 (vacancy and repairs) = $420. Take your monthly expenses and divide that by 420. You're left with 12. It would take simply 12 rental properties to achieve financial freedom.

If you want a free PDF Version of this Freedom Number that you can print out click the button below. If you’re ready to take action right now to build passive income for you and your family, to cut down on your commute to work, to spend more time with your family and less time worrying about money. Then book a call with our team today. Our consultation is totally free. We’ll spend 30 minutes on the phone helping you to start taking action to build passive income talking through real estate investing. Book a call today by signing up here and claim your PDF copy of our Freedom Number. 

Clayton's Guest Appearance on BiggerPockets Podcast

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The great guys over at BiggerPockets.com were kind enough to have me on The BiggerPockets Podcast recently. We had a wide ranging discussion about getting started with rental real estate and I talked through my tool for finding your 'Freedom Number'. Your Freedom Number simply is the number that you need to hit to achieve financial freedom. I loved this interview. Listen here:

Using a Home Equity Loan to Buy Your First Rental Property

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I love talking to my empowerment community. Here was an email from John:

“Hi Clayton,

I would like to know about using a home equity loan to purchase an investment property. ”
— John

Alright, let's talk home equity lines of credit or HELOC's as they're known. 

Using a home equity line of credit to buy a rental property is a fantastic way to get started creating legacy wealth for your family. The first step is to make sure your current home will appraise well, so that means getting the house ready. Let’s say your house is worth 100K make sure the house looks like it is worth 100K. 

 
 

Next you need to shop around at a few local banks for the best rate. Many will offer an introductory 1.99% loan for the first year. Make sure you’re asking for a home equity line of credit not a home equity loan. The line of credit is revolving and evergreen. If you get a loan they’ll write you a check and then that’s it. So make sure you’re getting a home equity line of credit.

Many banks will give you 80-90% Loan to Value on your equity on your primary residence. So let’s say you owe 50K on your loan and the house is worth 100K… that’s 50K in equity. Well the bank will typically give you 80-90% of that equity. That’s $40,000 to $45,000. Which is a perfect amount to buy your first rental property. 

The next step is to identify a rental property and we can talk about that next. And the next next step is to take out HELOC’s on your rental properties and begin to explode your legacy wealth. Bam!

Click below to download my Freedom Number Cheat Sheet. It's the first step in your journey to build passive rental income. It's free!

How to pay off your house within 5 years using these awesome ninja tricks

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“Those who understand interest earn it, those who who don’t pay it.”
— Anonymous

A few years ago I discovered an amazing way to pay off the house you live in with virtually no time at all. I'm talking 3 to 5 years. And the best part is you don't need to use any of your own money to do it. All you need is a home-equity line of credit, some form of income, and a little discipline.

Let me start off by saying that I'm going to be using round numbers to illustrate my point. For the sake of argument let's say you owe $100,000 on your primary residence. Let's also say that your house is worth $130,000. And you make $3000 a month. The basic premise of this ninja trick will work for anyone even if you owe $500,000 on your house or $50,000 on your house, it doesn't matter.

With the above numbers you can see that the difference between $130,000 and $100,000 is $30,000. That means in this example you have $30,000 of equity in your house. Follow me?

Step one: call up a few local banks and tell them that you're interested in a home equity line of credit and ask them if they have any introductory specials. Our local bank recently had a 1.99% interest rate special for the first year. Important, when they ask you this question: Would you like a home-equity loan or a home-equity line of credit? You need to make sure that you're asking for a home equity line of credit also known as a HELOC. The difference is very important because in a home equity loan the bank will write you a check for the total amount of the equity in your home. So in this example they would cut you a check for $30,000. With a home equity line of credit they're extending a credit line of $30,000 which you can use for a number of years. Don't get bogged down in these details just make sure you get a home equity line of credit.

Because you're getting a home equity line of credit on your primary residence you're likely to get 80 to 90% loan to value ratio. This means that of the $30,000 in equity you're going to get 80 to 90% of that. And that's a value of $24,000-$27,000 depending on the bank.

Again for the sake of argument let's say the bank gave you $24,000 to work with. Most banks will give you a checkbook and debit card associated with this new account. You're going to need this checkbook for step three.

Step Two: Treat this new bank account as your primary bank account. That means you're going to do everything with this account. You'll use this account to set up your direct deposit at work, pay for groceries, pay for gas, everything. Forget about your old bank account. Pretend it longer exists.

Step Three: Grab one of those shiny new HELOC checks and write up a payment to your primary mortgage company. Make the check out for $10,000. Be sure to designate that you're making a payment to your principle balance. 

Now it's time to update our numbers. Your primary loan amount is now $90,000 and the balance on your HELOC is now $10,000. You just paid down 10% of the entire balance your primary mortgage with one check. Now you might be saying to yourself that sounds great why wouldn't I just save up $10,000 and make that payment? You could do that of course. But how long will that take you to save that cash? With this strategy the moment the bank approves your HELOC you get to cut a check to pay down the principal balance.  See the difference?

Okay I can sense your skepticism. You're probably saying to yourself, "Wait a second that doesn't help me because all I'm doing is shifting money around." Yes that's exactly right. Except it's not your money, it's the banks.  You're completely altering the amoratization schedule of your primary mortgage. And instead of paying it off in 25 years you're paying it off in under five years.

The reason the ninja trick works so well is because you set up your HELOC as your primary bank account. Remember your balance is now $10,000. For now. Then your paycheck from work arrives as a direct deposit and your HELOC balance is suddenly $7000. You buy some groceries, you pay for gas, you go to the movies, and your balance goes up to $7250. When you get your next paycheck your new balance is? You guessed it, it's $4250. In a few short weeks or months your HELOC balance will be back down to zero. The reason this works so well is because the remaining money from your paycheck is not sitting in a random bank account doing nothing for you, with this model it's actually paying down your loan balance.

A few short months later your HELOC balance is zero. Then all you need to do is get out the checkbook once again and write another $10,000 check to the primary balance on your mortgage. Now suddenly that loan has dropped to $80,000. Within virtually no time at all you paid down 20% on the principal balance of your loan.

The system will only work if you are diligent about utilizing the HELOC as your primary checking account. The moment you start keeping multiple bank accounts the system will fail. 

I know it seems complicated. That's why I want you to go back and reread this article two or three more times until it sinks in. The real fun will begin once you figure out how quickly you can pay off your mortgage. 

If you have any questions about the process go ahead and click the contact me button here to download my Freedom Number Cheat Sheet PDF.  

How to buy a rental property with your 401(k)

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Most people have a bunch of money sitting in their 401(k). And in almost every situation and it's sitting there collecting dust. What if you could borrow some money out of the account to buy a cash flowing rental property? You can. Here's how you do it without any penalties. 

Have you downloaded my free Freedom Number Cheat Sheet yet? It's exactly system I used to start investing in real estate. Click the button to grab it for free now.