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Determining Your Financial Freedom Number Through Real Estate Investing

Updated: Jan 4, 2023

Finding your financial freedom number (FFN) can feel like an impossible task, especially when you have debt, like student loans or credit card bills, hanging over your head. You can find your FFN quicker by investing in real estate to grow wealth and get ahead of the game before retiring. By calculating what it will take to be financially free, you can set concrete goals to help you reach your target. This post will explain how to determine your FFN with real estate investing and get you on the right track to eliminating debt and achieving financial freedom sooner than you thought possible.

Ways To Determine Your Financial Freedom Number

The first step is to determine your FFN. This is the Rand amount you need to have invested to cover all of your expenses and live the lifestyle you want. Once you know your number, you can start looking for investment properties to help you reach it.

In any case, determining your FFN through real estate investing means knowing how much money you need to make monthly in passive income so that someday you won't have to work anymore if you don't want to.

There are several methods you can use to calculate your FFN. One common approach is to subtract your non-passive income sources, such as a salary, from your annual expenses. For example, if your annual expenses are R500,000 and you earn a salary of R300,000 per year, your FFN would be R200,000. This is the amount of passive income you would need to generate in order to cover your expenses and achieve financial freedom.

Another method is to use the 4% rule, which states that you can safely withdraw 4% of your investment portfolio each year without running out of money. To determine your FFN using this method, multiply your annual expenses by 25. For example, if your annual expenses are R500,000, your FFN would be R12,500,000. However, in this post we will only be focusing on using the common approach without considering your non-passive income sources.

Defining What You Can Afford

Your financial freedom number (FFN) is the amount of passive income you need to generate in order to cover your living expenses and achieve financial independence through real estate investing. To determine your FFN, you should calculate your monthly expenses, including your mortgage or rent, utilities, insurance, food, transportation, and any other expenses or luxuries you hope to have, such as traveling or owning a second home. Once you have totalled your expenses, subtract that number from your monthly income to find out how much money you would have left over each month if you were to achieve financial freedom. This will give you an idea of how much passive income you need to generate in order to achieve your financial goals.

In any case, determining your FFN through real estate investing means knowing how much money you need to make monthly in passive income so that someday you won't have to work anymore if you don't want to. The monthly income you subtract your monthly expenses from comes from your cash flow positive real estate portfolio.

Key Factors That Can Affect Your FFN

There are several factors that can influence your FFN, including your age, risk tolerance, and investment horizon. For example, if you are closer to retirement age, you may need to invest in low risk investment opportunities in order to achieve financial independence. On the other hand, if you have a longer investment horizon, you may be able to take on more risk and potentially achieve financial independence with a smaller investment portfolio.

Other factors that may affect your FFN can be if you are currently paying for student loans, credit card debt, or other types of debt, this will increase your number. Likewise, if you have children who live with you and go to college, this will also increase the number since they too will require an education.

Tax Advantages Of Buying Investment Properties

The tax advantages of buying investment properties are many and varied, but they all come down to one thing: saving money. When you own an investment property, you can deduct various expenses from your taxes, including mortgage interest, repairs and maintenance, and property taxes. This can save you a significant amount of money every year, reduce your tax burden and increase your passive income which helps you reach your FFN sooner.

Building a Solid Credit History

Strong credit history is important for many reasons. It can help you get approved for loans, lower your interest rates, and make it easier to get a job or rent an apartment. Plus, a good credit score can save you money over time.

Here are eight tips to help you build a solid credit history:

  • Open at least one credit card in your name alone and use it responsibly.

  • Pay off the balance monthly, even if you have an 0% introductory offer (or higher than the annual percentage rate).

  • Make sure all payments are made on time each month. Late payments will show up on your report as 30-day delinquencies, 60-day delinquencies, etc., which will all damage your score.

  • Apply for new credit sparingly. New accounts affect your score, so try not to open more than two cards in a year unless necessary.

  • Maintain a mix of different types of credit: balances, instalment loans, and revolving debt. It's best not to carry too much of any one type of debt.

  • Ask for credit limit increases only when needed; they'll also impact your score.

  • Avoid co-signing with someone with poor credit habits, it could harm both of your scores. Instead, consider joint account ownership with them.

  • Finally, always pay your bills on time and never let them go into collections. Collections will stay on your credit report for seven years from the date of the first activity. That may seem like a long time but having them there does little to improve your score after three years.

What Type Of Property Should I Buy?

When you're ready to invest in real estate, there are many properties to choose from. You'll want to consider the location, size, and type of property that will fit your needs and budget. You can buy a single-family home, multi-let home, student accommodation, apartments, or even land to develop. The sky's the limit!

Consider the type of investment strategy that will suit your financial goals best. What type of an investor are you? Do you want to invest close to the city or closer to Universities for student accommodation? Do you want to invest in an apartment or a stand alone property? The type of property will also determine the location and rental income. Once you've narrowed down your options, it's time to talk numbers: getting in touch with investRand consultants can help make this process easier and will help give an idea of what your upfront costs and monthly payments would be if you choose a certain property investment strategy. Also, and more importantly, we show you how you can optimise your income so you can reach your FFN sooner than later.

How Do I Get Started?

You can begin by evaluating your current financial situation and knowing how much you qualify for by getting pre-qualified. If you are a first time investor, get pre-qualified online in just under 5 minutes. For seasoned investors, investing time getting in touch with a home loan consultant is the best investment you can make, as you can also have a look at your current portfolio and see if there are ways you can access capital to expand it. Once you have a realistic idea of your starting point, you can begin to look at properties. When you find a property you're interested in, crunch the numbers to see if it is a wise investment. You'll want to consider the purchase price, repairs/updates that need to be made, property taxes, insurance, and more. Once you understand all the costs associated with owning the property, you can begin calculating your potential investment return. With real estate investing, your goal should be to reach your FFN.

This number will allow you to quit your day job and live off of the passive income generated by your rental properties. This number might be R1,000,000 or higher for some people. For others, it might be R5,000,000 or less. It depends on what stage of life you are in and what kind of expenses you already have. If your monthly expenses are only R35,000 per month, but your debt payments are R68,000 per month (plus other living expenses), then reaching your FFN would take much longer than someone who has an expense budget closer to their debt payments.

The key is to make smart decisions about how much money you invest upfront to know when you'll get there. Achieving financial freedom could be as easy as buying a student accommodation house, and a block of flats that are generating great cash flow. In five years, once your mortgage has been drastically reduced, your portfolio will be generating more passive income to cover your living expenses without ever touching any of the capital invested in the property.

Ready to get started?

You can book a call with us and get in touch with one of our experts who will help you understand your investment objectives and how to achieve them here.

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