Financial Freedom. Don't you just love that phrase? I hear it a lot - mostly when I ask people what they want to achieve by becoming a property developer.
But there's a problem - what exactly IS financial freedom? And it's when I ask that question that people start to stammer, and look confused, and don't really know what to say. They’ve heard the phrase mentioned, they know they don’t want to work in their job anymore, but don’t have any actual numbers or plan to make that happen..
So let's take a look at what you need to do if you want to transition from your day job into a property development career.
Step 1 - What's your starting position?
This step is crucial - how can you achieve financial freedom unless you have a clear definition of what it looks like for you? The answer is really quite simple. You need to be earning enough passive income to pay your bills and expenses (debts) on a monthly basis. That's it.
Even better, that number really isn't as high as you'd think. So if you're serious about achieving financial freedom, sit down and work out exactly how much passive income you need each month to get by. Then multiply it by 12, and you have an annual income you need to earn.
Now, notice I said "get by". I didn't say buy a new Ferrari every year, or spend 6 months travelling overseas, or dining out at expensive restaurants every night, or buying yourself a massive mansion on the waterfront. That's a whole different level, and while it might be nice, you can escape your day job long before you reach that level.
Financial freedom is only about covering all the regular stuff - mortgage, rent, groceries, electricity bills etc.
So spend some time assessing where you're starting from financially. This includes reviewing things like:
From this you will be able to work out what your magic financial freedom starting position is.
Step 2 - Learn your Trade
Now you know where you're at, you need to do a deep dive into learning the skills you need to execute your chosen strategy. This is NOT a step you can shortcut.
Smaller chunk deals can bring in $50-150,000 per project, and larger deals go up from there. So the easiest path is to start with smaller deals to build your skills and confidence, and grow into bigger deals. That may mean you do multiple small deals at the same time, or move into larger deals - your choice. And while this is happening, you still have your day job.
Generally speaking, running a deal part-time takes around 15 to 20 hours a week, so it can be done in conjunction with your standard 40 hours a week job. The good thing is that even with small deals you can effectively be doubling your income while you're still working full-time, which makes it easier to tuck that extra chunk deal profit away as your nest egg.
The ultimate goal is to have a nest egg that's big enough for you to be able to pay yourself the equivalent of your current wage for 2 to 3 years while you focus full-time on development projects.
Step 3 - Swap your Day Job for your Property Job
This is the point at which discipline is crucial. Now you've grown your nest egg big enough to support you for at least 2 years, and you have plans in place to fund your future developments, you have to resist the temptation to spend your nest egg on anything other than drawing down the equivalent of your weekly wage. So no blowing it on an expensive new car, for example. If you're confident you can do that, then you can write your resignation letter.
For some people, they may be able to transition out of their day job a bit more gently. So they may be able to go from full-time to 3 days a week as their property development business ramps up, then 2 days etc. Some may even choose to keep working part-time because they enjoy it. Everyone is free to create their own path.
At this point you have time freedom, but there's still a few more steps to take for complete financial freedom.
Step 4 - Build Your Capital Base
Once you can focus full-time on projects, rather than only part-time, you can move from doing one project at a time to running 2, 3 or more, and so accelerate your progress.
Remember to factor in how you're going to finance future development projects. Banks are addicted to job income, so as you transition across to property development income, they're not going to be as keen to lend you more money. Make sure you have plans in place, whether it's enough of your own capital to fund deals, or JV partners you can work with, so that you don't find yourself meeting a brick wall when you're looking to finance your next deal.
Step 5 - Convert your Capital Base into Passive Income
To earn passive income you need to own assets that generate income, generally rent. You can achieve this either by buying income-producing assets or keeping income-generating assets from your development projects.
Keep in mind that paying down debt can help accelerate this stage. The lower your expenses, the quicker you can reach financial freedom. So make sure debt reduction is part of your journey.
Step 6 - Financial Freedom
Once you have enough passive income to cover your debts you have achieved true Financial Freedom. From this point forward you can choose whether you want to keep going, slow down a bit or stop. Additional capital and income you build up beyond the point of financial freedom can go towards improving the quality of your lifestyle (can I hear you say "Ferrari!!") or having the funds for whatever dreams you want to pursue.
So there you have it - 6 steps to financial freedom. As a side note, another approach I often hear bandied about is to quit your day job on day one in order to set your motivation level to sky high, forcing you to get incredibly uncomfortable and get it done fast, because if you don't you won't be able to pay your bills.
Well, maybe for a few people that's a good approach, but quite frankly, I think it's completely wrong. I don't know anyone who makes their best decisions when they're pressured, fearful and stressed out of their brains about making ends meet. So if you ever hear a spruiker encouraging you to take that path as part of the spiel about their product or course, then run... as fast as you can in the opposite direction.
It may not be sexy, it may even sound boring, but not giving up your day job until you've put in place everything you need to move forward without the stress of financial worries is better in every possible way. That's financial freedom in action.
But there's a problem - what exactly IS financial freedom? And it's when I ask that question that people start to stammer, and look confused, and don't really know what to say. They’ve heard the phrase mentioned, they know they don’t want to work in their job anymore, but don’t have any actual numbers or plan to make that happen..
So let's take a look at what you need to do if you want to transition from your day job into a property development career.
Step 1 - What's your starting position?
This step is crucial - how can you achieve financial freedom unless you have a clear definition of what it looks like for you? The answer is really quite simple. You need to be earning enough passive income to pay your bills and expenses (debts) on a monthly basis. That's it.
Even better, that number really isn't as high as you'd think. So if you're serious about achieving financial freedom, sit down and work out exactly how much passive income you need each month to get by. Then multiply it by 12, and you have an annual income you need to earn.
Now, notice I said "get by". I didn't say buy a new Ferrari every year, or spend 6 months travelling overseas, or dining out at expensive restaurants every night, or buying yourself a massive mansion on the waterfront. That's a whole different level, and while it might be nice, you can escape your day job long before you reach that level.
Financial freedom is only about covering all the regular stuff - mortgage, rent, groceries, electricity bills etc.
So spend some time assessing where you're starting from financially. This includes reviewing things like:
- Assets & Liabilities
- Available Equity
- Debt being Serviced, both tax deductible and non tax deductible
- What passive cashflow do you have already
- Other cashflow eg wages, profit from projects
From this you will be able to work out what your magic financial freedom starting position is.
Step 2 - Learn your Trade
Now you know where you're at, you need to do a deep dive into learning the skills you need to execute your chosen strategy. This is NOT a step you can shortcut.
Smaller chunk deals can bring in $50-150,000 per project, and larger deals go up from there. So the easiest path is to start with smaller deals to build your skills and confidence, and grow into bigger deals. That may mean you do multiple small deals at the same time, or move into larger deals - your choice. And while this is happening, you still have your day job.
Generally speaking, running a deal part-time takes around 15 to 20 hours a week, so it can be done in conjunction with your standard 40 hours a week job. The good thing is that even with small deals you can effectively be doubling your income while you're still working full-time, which makes it easier to tuck that extra chunk deal profit away as your nest egg.
The ultimate goal is to have a nest egg that's big enough for you to be able to pay yourself the equivalent of your current wage for 2 to 3 years while you focus full-time on development projects.
Step 3 - Swap your Day Job for your Property Job
This is the point at which discipline is crucial. Now you've grown your nest egg big enough to support you for at least 2 years, and you have plans in place to fund your future developments, you have to resist the temptation to spend your nest egg on anything other than drawing down the equivalent of your weekly wage. So no blowing it on an expensive new car, for example. If you're confident you can do that, then you can write your resignation letter.
For some people, they may be able to transition out of their day job a bit more gently. So they may be able to go from full-time to 3 days a week as their property development business ramps up, then 2 days etc. Some may even choose to keep working part-time because they enjoy it. Everyone is free to create their own path.
At this point you have time freedom, but there's still a few more steps to take for complete financial freedom.
Step 4 - Build Your Capital Base
Once you can focus full-time on projects, rather than only part-time, you can move from doing one project at a time to running 2, 3 or more, and so accelerate your progress.
Remember to factor in how you're going to finance future development projects. Banks are addicted to job income, so as you transition across to property development income, they're not going to be as keen to lend you more money. Make sure you have plans in place, whether it's enough of your own capital to fund deals, or JV partners you can work with, so that you don't find yourself meeting a brick wall when you're looking to finance your next deal.
Step 5 - Convert your Capital Base into Passive Income
To earn passive income you need to own assets that generate income, generally rent. You can achieve this either by buying income-producing assets or keeping income-generating assets from your development projects.
Keep in mind that paying down debt can help accelerate this stage. The lower your expenses, the quicker you can reach financial freedom. So make sure debt reduction is part of your journey.
Step 6 - Financial Freedom
Once you have enough passive income to cover your debts you have achieved true Financial Freedom. From this point forward you can choose whether you want to keep going, slow down a bit or stop. Additional capital and income you build up beyond the point of financial freedom can go towards improving the quality of your lifestyle (can I hear you say "Ferrari!!") or having the funds for whatever dreams you want to pursue.
So there you have it - 6 steps to financial freedom. As a side note, another approach I often hear bandied about is to quit your day job on day one in order to set your motivation level to sky high, forcing you to get incredibly uncomfortable and get it done fast, because if you don't you won't be able to pay your bills.
Well, maybe for a few people that's a good approach, but quite frankly, I think it's completely wrong. I don't know anyone who makes their best decisions when they're pressured, fearful and stressed out of their brains about making ends meet. So if you ever hear a spruiker encouraging you to take that path as part of the spiel about their product or course, then run... as fast as you can in the opposite direction.
It may not be sexy, it may even sound boring, but not giving up your day job until you've put in place everything you need to move forward without the stress of financial worries is better in every possible way. That's financial freedom in action.
