Updated: Jan 13
We all dream of success and eventually becoming wealthy in life. It is the natural pursuit of happiness that drives us to pursue our goals each day. Have you ever considered an actual dollar figure you could live off of monthly to support your family and live the life you’ve always wanted? Here's a different approach rather than just saying “I want to be wealthy."
Let’s dive a bit deeper and explore your “Freedom Number.”
Your freedom number represents the amount of money you can make passively on a monthly basis in order to support your lifestyle. This includes your dream home, cars, family expenses, vacation homes etc. By calculating this you are putting a realistic number on your goals instead of simply stating, "I want to be wealthy."
So how much money do you need to satisfy your desired lifestyle? Do you need $7,500, $10,000, $25,000 or even $50,000 a month? Well let’s just say $7,500 a month after taxes can satisfy your lifestyle.
This $7,500 a month will be passive income. Passive income is money being made without you being physically involved. The sources of passive income can come from investing in real estate, stocks, mutual funds, bonds or businesses. Once you have set up passive income streams they begin to work for themselves.
Now that we have a set number ($7,500) how many real estate properties will you need to live this lifestyle? Let’s say you purchase a home that is $100,000 and the mortgage on the home is $800. You own this property and you are able to rent it out for $1400 a month based on the location, small renovations to the home and demographics. Renting this property you will make a profit of $600 a month (Rent $1400- Mortgage $800). If you repeat this step and acquire 12 rental properties at that amount in your portfolio you can reach your goal of $7500 in monthly passive income!
Also note your mortgages for the other properties may possibly be lower than $800 and assuming you could rent at the same price of $1400 there is room to realize greater profits. Every real estate deal is different but the constant in any deal is earning profit monthly.
How do you purchase a property? Normally for first time home buyers they require as little as 3.5% down payment to acquire your first home. That is $3,500 on a $100,000 property. With closing costs and other fees you will need to bring around $5,000 to the table to be safe. There are many different first time home buyer programs which you can look into. The FHA (Federal Housing Authority) loan is a very popular loan which you can view more information in the link below. The Home Ready loan program is another first time buyer program which allows you to put as low as a 5% down payment on a property as well. The next article will go in further depth on loan requirements for these programs and how you can purchase your first property.
Ultimately, investing your money in real estate is a long term wealth building strategy. Acquiring the 12 homes to meet our goal of $7,500 will take time! However with due diligence and strategy it can be done. Remember owning real estate is a marathon not a race, and the best way to get started is to acquire your first property!
- Malcolm Mallory