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All right, so today we're going to talk about something that I genuinely believe in, because it did change the trajectory of my life. And it's simpler than most people think it is. Now, it's not easy, but it's definitely simpler than most people think it is. And that idea is you only need eight rental properties to be completely financially free. So to be able to control your own time, having eight properties is all you need. What's going on, everybody? I'm Henry Washington, host of the BiggerPockets podcast, and today we're talking about how to actually generate financial freedom through owning rental properties. I believe this is why a lot of people start looking into investing in real estate. But I haven't really seen it broken down into exactly how many properties you need for that to be a realistic reality for you and in what timeframe you can reasonably expect for those properties to be producing enough income for you to truly be financially free. So by the end of this video, you're going to understand exactly what it looks like to be financially free, how the math works, and how you can actually get there. Most people never start, and so this is your first step to getting on your way to financial freedom. Now, before we jump into the details here, I want to define financial freedom or financial independence, because in all reality, financial freedom is a little different for each person. Everybody's got a different financial background. Everybody has different goals. But for the sake of this video, I want to give it a generic, generic definition so that we can use it as a reference point as we go through the details of how to get to eight properties. So I am simply defining financial independence as when your monthly income from your assets exceeds your monthly expenses. In other words, you know what it costs you to live month in and month out. And if you don't, then you should. That's prerequisite. Number one, financial independence is being able to have enough money to pay for those expenses without you having to show up at a job. So this means we are trying to replace our income that we have less control over with income that we have more control over. If you have a job, your income is based on things that are not in your control. It's based on decisions your boss makes. It's based on decisions the company you work for makes. It can be based on what's happening in the economy. It can be based on whether or not your customers for your business or purchasing your product or service. A lot of these factors you have absolutely no control over. So you're one bad quarter away from potentially Being laid off, and it's completely out of your control. If you replace that income with income from assets that you do control. In this case, we're talking about real estate, it gives you a lot more freedom and sense of comfort. You can control how much rent you charge, you can control what kinds of assets you buy, you can control where you buy those assets, you can control how much leverage you want to buy those assets with. You get to control so many of the factors of that piece of property. And so the money that comes into your bank account each and every month has a lot more to do with the decisions that you are making than the impact of decisions that other people are making. One of the other control factors is not only are you controlling who lives in your property, but you're controlling how you monetize. And when you monetize that property. You get to decide when you rent it, you get to decide when you sell it, you get to decide if and when you refinance it. All of these decision points that directly impact money are made by you. So having control over your income allows you to have comfort, and comfort allows you to have some freedom. So I truly believe that financial freedom, a key component of that, is the control piece, because freedom comes with peace of mind. And the more control you have over an asset, the more comfortable you can be with the amount of income that it's producing. Why real estate? Why is real estate the best vehicle for financial freedom? First and foremost, we all understand that real estate generates income while you own it, right? People think about the cash flow that an asset produces. So when you buy an asset and you rent it out, the rent hopefully covers all of your expenses and then pays you a little bit of money every month. And so it's generating income for you without you having to do a lot of work. Now, it is not a completely passive investment strategy. I'm in no way saying you're gonna have to do absolutely not, and just wait for money to show up in your mailbox. It does take some work and some effort, but it does not take a 40 hour a week work effort like a day job takes. So it is a much more passive income stream. Some of the other factors that make real estate the best option for generating financial freedom, it's a very proven business model. It has been around for decades and decades and decades, and it has been done essentially the same way the entire time. Technology has come around and made a lot of the processes involved in owning an operating real estate easier, but at its core, how to do it has not changed. You find an asset that you can buy at a discount or under its value. You add value to that asset, either by renovating that asset or by repositioning that asset, and then you monetize that asset at its new higher value. And that monetization could be rent, it could be selling it, it could be Airbnb. It's all of the exit strategies that we're thinking about. But at its core, it's just about finding an asset, buying some value, adding value, monetizing at its new highest value. We don't have to guess if investing in real estate leads to building wealth. We have decades and decades of data that proves that it does. You just have to follow the right blueprint. You have to be careful. Yes, it is risky. I'm not saying it's a foolproof plan. It is going to depend on your ability to operate your business properly. But if it is all done properly, we have tons of data showing that this will lead to building wealth. It can lead to monthly income.
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Most deals don't fall apart because of the numbers. They fall apart because of the financing. You find a property that cash flows, the deal makes sense. But then the lender looks at your personal income, your tax returns, your debt to income ratio, and suddenly the deal doesn't qualify. That's the disconnect. Because as investors, we're not buying based on our W2, we're buying based on the asset. That's why Host Financial offers DSCR loans designed for real estate investors where qualification is based primarily on the property's income, not your personal finances. So no W2s, no tax returns and no DTI requirements. And with loan to value options up to 80 or even 85% on eligible deals, you can keep more capital available as you grow. If you're buying rentals, refinancing or scaling your portfolio, go to host financial.com that's h o s t financial.com and see what you qualify for. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes 10% below market value in the best markets across the country without making real estate your second job? That's exactly what Rent to Retirement does. They're a full service turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of their down payment back at closing, plus interest rates as low as 3.75%. They've partnered with BiggerPockets for over a decade, helping thousands invest smarter. If you want to do the same, visit biggerpockets.com realty retirement to learn more. Investing in real estate has always been smart, but it hasn't always been simple. Now it's both, thanks to the Fundrise Flagship Fund the Fundrise Flagship Fund launched more than five years ago with a mission of delivering low fee access to blue chip private market real estate. Today, the Fundrise Flagship Fund has grown to manage more than a billion dollars of real estate on behalf of hundreds of thousands of investors, making it one of the largest funds of its kind. For those who believe real estate has an important role to play in their portfolio strategy, the Fundrise Flagship Fund has positioned itself as both a simple and a smart option. Whether you're starting with $10 or $10,000, the fundrise flagship Fund makes adding real estate's unique potential for both passive income and consistent growth. Just visit fundrise.com pockets to make your first investment today. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's prospectus@fundrise.com Flagship this is a paid advertisement. Some listeners may wonder why their insurance quote only took 30 seconds. Some listeners may wonder why their insurance quote took 30 seconds. A better question is how long will that policy actually hold up when you need it? At nreg, the goal isn't just getting coverage in place, it's making sure your investment property is properly protected when a real claim happens. That's why they take time to evaluate each property's unique risks and build coverage design for the realities investors face. Because anyone can sell a policy, NREG focuses on standing behind it. Visit nreig.com bpllc to learn more.
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One of my favorite reasons why real estate is the best investment vehicle to get you to financial freedom is because it pays you multiple ways. Yes, cash flow is awesome, but in my opinion, cash flow is not even the most important way that your real estate pays you. The real wealth building and wealth generation comes from appreciation, that is your property increasing in value over time and your property debt getting paid down by not you, by a tenant. Those two ways that real estate pays you compound because you have someone in there paying down your asset and simultaneously you have time working in your favor because real estate in general goes up in value over time. So these two things work at the same time. Debt goes down, value goes up, and you're really starting to build wealth through those two ways that real estate pays you. So Those are my favorite two ways that real estate pays you. That's why people say the longer you stay in the game, the more wealth you build. And that's just because time is your friend when you own real estate. Because historically, real estate goes up in value. And historically, your tenants are paying down your debt at that same time. That's why people look up and realize, oh, wow, I have a huge net worth because I've owned property for 10, 20, 30 years. And then the last way real estate pays you is through tax benefits. Yes, your real estate is going up in value over time, but the government doesn't see your physical real estate as something that is appreciating. It actually sees your real estate asset as something that is depreciating. And technically, they're right. It is a physical building. So, yes, on paper, your asset goes up in value, but the government gives you a tax deduction for the depreciation of of that asset. So that, again, helps you keep more of your money in your pocket, because you get to get a write off every year just for simply owning a physical building. And then on top of that, there are more advanced tax strategies that you can use, like accelerated depreciation. There is a tax benefit that real estate investors can leverage where you can take all of the depreciation that the government says that your property is going to have over time, and you can accelerate all that depreciation and take it up front in one year, allowing you to get a big tax deduction. Now, we have tons of other videos on this topic throughout the channel and on the podcast. So if you want to learn more about those strategies, go and check out some of those videos. The point that I'm trying to make here is real estate is the best way to build wealth. Yes, because it pays you cash flow, but also because the property appreciates over time at the same time as your tenants are paying down your debt. And then the government gives you a tax break for owning it. That's four ways that real estate puts money in your pocket. And we haven't even talked about paying off the house yet. Okay, okay, I get it. You're all sold on real estate. I understand that's why you're here watching BiggerPockets in the first place. I don't need to convince you, but I just want to set that baseline. And now I can hear you all saying, I get all that, but where do I get all this money to buy a house? Real estate's expensive. I hear you. You're not wrong. Let's Talk about it first. Let's think about how much money do you actually need to get started. Now, I'm not going to sit up here and tell you that you can do this with absolutely $0. That is not true. One of the things I always say about real estate is you can absolutely buy real estate with little to none of your own money. You can 100% finance a property, not put any money down, and then be able to own that property. There are tons of strategies for you to be able to do that. It doesn't mean that you should do that, but it is possible. It is not possible, however, to own and operate real estate with no money. You have to have money to own real estate, even though you don't need money to necessarily buy real estate. Does that make sense? Just think about it from this perspective. If you pay 0.$00 to buy a property 30 days after you buy it, because you bought it on leverage, right? You didn't use any cash 30 days after you buy it, what comes due? The mortgage payment. That money's got to come from somewhere. Let's say you buy a property with zero money down and day two of ownership, the air conditioner goes out. It's going to cost you $8,000. That money's got to come from somewhere. So you need money to operate real estate. You don't necessarily need money to buy it. But for the sake of this video, we're going to keep it very simple and think of things in terms of like a conventional loan. Typically, a conventional loan is going to require you to have about 20 to 25% down to purchase a property. So in other words, if you're buying a $200,000 rental property, you're looking at about 40 to 50 grand that you have to put down just to own that property. And remember, I said you're going to need some money to also operate that property. So for a $200,000 rental property, I would say you need to budget somewhere between 20 and 30% of the purchase price to be able to own and operate that property. So somewhere between 40 and 60 thousand dollars. Now, I understand that's a lot of money. I can hear you now. You're not wrong. I'm not going to pretend it's not a lot of money, but I'm not going to sit up here and lie to you and tell you that you can do this with absolutely nothing. And that number seems high, but it is achievable for a lot of people just through saving. So you can set up some sort of savings account and allocate a percentage of your income every single month into that account and start to save up so that you can have these cash reserves. Now, there are tons of methods that you can use to find and buy property without spending a ton of your own money. So you may not even need all of that cash for the down payment. That's going to depend on how you're going to choose to find properties, what kinds of assets you're going to choose to find, what methods are you going to use to find them? Right, that's a much more detailed conversation. But in general, try to save up between 20 and 30% of the property's purchase price and that will ensure that you have enough money to at least get started. If you have to go a conventional route, the next thing people are concerned about is, man, I got to save up 20 and 30% eight times. Because we're talking about eight single family homes is what you need to be able to replace your income and become financially free. And the answer to that is no, you don't need to save up 8 down payments, you need to save up your first down payment. And then we're going to use the strategy that we all know and love. And if you don't, you get to learn a little bit about it today. And that is the BRRRR method. The BRRRR method is where you buy a property, you rehab that property, then you rent that property out, then you refinance that property, and then you refinance it, you pull your cash out that you use to buy the property, and when you pull that cash out, you can repeat the process. So we're going to build a portfolio of eight properties by recycling the cash that we use to buy the very first one. This can be done. And a little bit later, I'm going to share with you the time frame in which I think this can be reasonably executed. And I think what you'll find is that time frame really isn't that long in the grand scheme of thinking about how long you would normally have to work your normal 9 to 5 until retirement. So to recap, the goal is to take your down payment, use that to buy an asset. You want to buy that asset at somewhat of a discount. The goal is then to add some value to that asset via renovations, and then once that asset is now worth more money, you can rent that property out and get good rents, and then you execute what's called a cash out refinance. And that means you're going to take out a loan for the new higher value of the house, allowing you to pull some of that cash out, to pull out that 30 to $50,000, put it back in your pocket, and then you repeat the process by going to find another property that you buy at a discount. And the goal is you do that until you hit eight properties. Now, there's a lot of detail that goes into all the steps of the BRRRR method. And I'm not trying to gloss over all of that detail in this video. We only have so much time. But I do understand this is going to require you being able to find a deal at a discount. It's going to require you being able to renovate that property or manage a renovation. It's going to require you to find the right lending relationships. And it's going to require you to be able to have processes in place, to be able to do it over and over again. But that's the game. That's what we're signing up for again. I said this would be simple, not easy.
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Most investors only think about insurance when something goes wrong. A tenant, injury, storm damage, loss of rent. Then suddenly the cheapest policy doesn't feel like the best one anymore. That's why a lot of Biggerpockets investors use steadily for landlord insurance designed specifically for rental properties. Whether you own one property or growing portfolio, they make it simple to get covered properly. And BiggerPockets Pro members get an extra 5% off their landlord insurance premium. Visit BiggerPockets.com landlord insurance to get a quote today. You know what changed the way I invest? Realizing that scaling rentals shouldn't mean creating more work for yourself if you're trying to build that kind of system. Baseline is giving away $10,000 to help investors build rentals that run themselves. I own and manage dozens of properties. I travel a lot and I still work a W2 job. And there was a point where I was checking multiple bank accounts, chasing rents and updating spreadsheets, just trying to stay organized. Even on vacation, I was constantly checking if rent came in. Now everything runs through baseline. It's BiggerPocket's official banking platform that automates my rental cash flow. Rents get deposited into dedicated property accounts, transactions get automatically categorized, and everything stays organized without me constantly managing it. That's the difference the right systems make. You can finally step away mentally without feeling like something's going to fall apart. Now my rentals practically run in the background, and yours could to deposit qualifying rental income into baselane for a chance to win $10,000. Trying to get started in real estate investing or wholesaling, the hardest part is finding and talking to motivated sellers before everyone else does. That's why new investors are using Propstream. Propstream gives you access to over 160 million properties nationwide, plus simple AI tools that help you find better deals faster. Use pre built lead lists like Pre foreclosures, vacant homes and cash buyers. Then let the PropStream intelligence assistant help you analyze properties and estimate opportunities in seconds. And now with Propstream Connect you can do more than just find leads, you can actually contact them. You get free skip tracing including LLC and corporate contacts. You can launch dialer campaigns, use click to dial with AI prompts, automate, follow up marketing and send postcards or all from one platform, no experience needed. You'll also get accurate comps built in calculators and step by step training through Propstream Academy so you know exactly what to do next. Start your free seven day trial and get 50 free leads at www.propstream.com bp. That's www.p r o p s t r e a m.com bp tax season reminder for all the real estate investors listening if you own rental properties, short term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about cost segregation. It's an IRS compliance strategy that lets you accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost Segregation guys is the go to firm, having done over 12,000 of these studies with with 500 million in total depreciation identified. Head to cost segregationguys.combp to get a free proposal and see your potential tax savings.
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So why is eight properties the magic number? Why not five or 10 or 25? Well, it's just a simple math problem. Think about it from this perspective. During the first phase, you're going to be acquiring the properties. So you're going to be executing that Burr method like I was talking about. You're going to be buying properties, renovating, renting them out. And after you rent them out and you refinance it, you'll have a new loan amount. And you should be, if you've done this correctly, pulling in a net cash flow of somewhere between, let's call it 2 and $400 a month per house. If you've done this, great, that's what you can expect. 2 to $400 a month if you have a leveraged property. So if you build up to eight at two to $400 a month. That's about 1600 to $3200 a month in cash flow for your portfolio. Now, is that enough to replace your day job? Probably not, but it's still great supplemental income. Phase two is now we have to focus on paying off those properties because remember I said you're bringing in 1600 to $3200 a month in leveraged cash flow. But our goal is to get to unleveraged cash flow. And so Instead of making 200 to $400 per month, you'll be making somewhere between a thousand to 1,500 dol per month of cash flow. That is a substantial increase from the two to $400 a month. So let's take the average. Let's say you're bringing in about $1,300 per month per property of cash flow. That puts just over $10,000 per month of unleveraged cash flow in your wallet. Now, that is enough for you to live comfortably in most parts of the country. Again, financial freedom looks different for everybody based on their goals, based on their lifestyle. So if you live a more expensive lifestyle or you part of the country where it's more expensive to live, then you may need a little more than eight. Or if you live in a place that is not as expensive to live or your monthly expenses aren't as high in this area, then you may not need eight properties. But on average, for most Americans, $10,000 per month is a reasonable monthly income to cover your expenses. And eight properties, based on all the math I've just shared with you, will get you just that. So how long should this take? As you start to pay off that first asset, that's when you really start to accelerate this plan. And so, based on the math that I'm looking at, it should take you anywhere between 8 to 12 years to get your assets paid off. And that's if you're aggressively paying them off, that's applying all of your cash flow that you're getting from your portfolio to one property at a time. In other words, we're going to do the debt snowball method, but we're going to do it with paying off our mortgages. So if you take the houses, pick the one you want to start with. Focus all of the additional cash flow that you're getting to paying off that mortgage more quickly. Once that one is paid off, you take all the new cash flow plus what you've been paying on that one, and you add it to the next one. You do that Snowball effect for 8 to 12 years and you'll look up and you'll have a paid off portfolio. 8 to 12 years is a long time. I'm not gonna pretend like it's just a flash in the pan, but if your goal prior to this was to work until you're 65 and you're in your 30s right now, well, that's pretty fast. 8 to 12 years isn't that long. Now, is it going to be uncomfortable? Yes. Are there going to be hiccups in the plan? Sure. Things are going to break. It's going to cost you more money than you expected to fix some things. It's going to take you a little longer. That's why we give you the window of 8 to 12 years. Nothing is going to go perfectly. You are going to have some bumps in the road. But if you follow this plan and you execute on this plan, I think you can reasonably expect to be in a place where you get to choose if you want to go to work or not in eight to 12 years. That's pretty amazing. And I don't know any other asset class that allows you to be able to get there in the same time frame with the same amount of work. Now if you're in this boat of thinking, Henry, I ain't got eight to 12 years. I don't want to take that long. Well, I'd push back on you and say why not? But I get it. Some people just want to go faster or some people need to go faster. Maybe you're a whole lot older in your journey than someone who's 30 and you're still trying to build up enough properties to be able to not have to work anymore. If you need to go faster, are there ways to do it? Yes. But it's going to require you to bring in a new or a different income stream. Here are some examples of ways that people who are in the real estate space generate additional income. Like I said, I flip houses. Some people wholesale houses. Some people are real estate agents. Some people become house inspectors, some people become home appraisers. Some people become lenders or work for a lender. Some people go and work for a brokerage. Maybe they don't actually sell homes, but they work within a brokerage because they have the experience of owning their own real estate. There are tons of income streams that you can leverage in the real estate space that you now are gaining experience in because you're building your own portfolio. Look into those things, look into the skill set that you have and pick some sort of income producing strategy. That you can generate income with some, with a little bit of time, and then you can take that additional income and you can pay off properties. We interviewed a guy recently on the BiggerPockets podcast, Neil Whitney. He drove Uber to generate extra income. He had his day job and his wife told him, you can't spend our money on real estate. So he had to go drive Uber to generate the money, money that he wanted to use to invest in real estate. And he is now paying off his properties. So this is something you can absolutely do. You just have to figure out a way to go and produce more active income if you want to speed up this process and get there sooner than 8 to 12 years. I know that wasn't some magic pill. And if you were watching this because you think you were going to get some magic pill, then you probably haven't been watching Bigger Pockets for too long. Because we try to be very realistic with you about how you, you can truly get to financial freedom. My goal with this video was to show you that it is still absolutely possible and that real estate is still, in my opinion, the best way for you to get there. But I want to be real with you about the time frame. Again, the goal is to get to eight paid off houses. How do we do that? We use the BRRRR method. We find an asset that we can buy at a little bit of a discount, we add value to it, we rent it out, we refinance it, pull out our cash. Once we pull out our cash, we go and do it again. We do that until we get up to eight properties and then we take our additional cash flow, our leveraged cash flow, and we start to pay off one asset at a time. Snowball method of paying down these assets. After 8 to 12 years, you should have the majority of those assets paid off and you should be sitting with somewhere between seven and $10,000 a month in unleveraged cash flow. If this episode resonated with you and this is a path that you want to start to go down, we would love to hear more about it. So please drop us a comment down below. Give this video a like so we can continue to send you more amazing content like this directly to your algorithm. And if you want to dive deeper into any of the topics that we covered in this video, like the Burr method, finding deals, analyzing deals. We've got episodes and videos on all of it. We'll try to link some of those below in the show Notes. Thank you so much for tuning in to this BiggerPockets YouTube video. We'll see you on the next episode of the Bigger Pockets Podcast.
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Thank you all for listening to the Biggerpockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico, content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose, and remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.