What is your plan to financial freedom? 

No really, mathematically how will you get there?

There are many ways you can plan to arrive at your goal. 

However, you need a vehicle to get you there that brings in enough cash flow to support your goals.

• Cash flow is the net income minus your debt.

Many have a plan to gain real estate assets, but don’t have a plan that shows how to get to their end-goal.

Let’s not forget about leverage and how your debt paydown plan also coincides with this plan.

Afterall, retirement should mean little or no debt service.

Today, we will review how this plan can be accomplished.

Let’s get started.

Real Estate Assets

Although, its great to have a cash flowing strategy, let’s talk about the double meaning of “cash flow”.

Version 1 –

One aspect of cash flow, is the traditional method everyone is used to. This is your profits each month, being net income minus debt service. Most people will think of this monthly income perspective when they hear “cash flow”.

Version 2 – 

However, there is another form of cash flow that is equally important in order to sustain the first version of cash flow. This is where you can implement investment strategies that provide a return on investment that is liquid. These are particularly large lump sums of cash flow. This cash flow will directly support the purchasing of cash flowing assets.

Version 2 Example –

Fix and flips, wholesaling and whole-tailing are examples of receiving a return that is liquid and does not include the holding of any debt service. 

These investment methods directly support your ability to perform version 1 of the investment strategy mentioned above.

Afterall, you need a 20% or 25% down payment for any performing asset.

• If you are using the BRRRR strategy, and you are receiving all of your cash invested back, you can accomplish executing version 1 and version 2 simultaneously. 
• However, every BRRRR strategy may not return all of your cash invested, and there will be deals that are good long-term investments that won’t require the BRRRR strategy.

Being prepared to execute any strategy, based upon the opportunity presented, would be ideal. 

Your flexibility and capability to perform is based upon your preparation and understanding.

Prepare accordingly.

Now, let’s get into how you can reach your goals mathematically implementing what we’ve covered so far.

Mathematics

After you’ve structured your business to be in the best possible position to perform any strategy mentioned so far, you are ready to begin executing your long-term goals.

Whether you have monthly cash flow goals or net worth goals, a debt payoff strategy must be included in your long-term plan. 

Regardless if the property is a BRRRR or a performing buy and hold property, there is usually debt involved.

Being too highly leveraged is not a good long-term plan for retirement. Your debt paydown strategy is very important.

Be sure to incorporate this into your plan.

If you haven’t, here is a baseline example on how to do so…

Acquisition Example – 

Let’s say you purchase a $200,000 asset that brings in gross monthly income of $3,000. You also continue to buy assets with this same criteria, in addition to the data shown below.

• You pay a down payment of 20%. 
• Your interest rate is 6.5% over 30 years.
• Your transactional costs are 4%. 
• Your operational expenses are 40% of your effective gross income. 
• Your vacancy rate is 5%.

Based upon these numbers, your cash flow would be $7,898 per year, per property.

• This is $658 of cash flow per month, per property.

Now, let’s target reducing and evaluating your debt leverage…

• For every 6 properties you buy, the target will be, to have the first property paid off.

How you allocate cash toward principal is your choice. 

However, if you pay half of the cash flow from all six properties toward the first property, the first property would be paid off in 5.5 years.

• This means $329 (half of $658) multiplied by six properties, is $1,974 per month going toward principal only of the first property.
• With this strategy the first property would be paid off in 5.5 years.

Snapshots from Asset Management Investment Calculator. 

Portfolio Projection Totals from Asset Management Investment Calculator.

Once you pick up your seventh property, you could perform the same strategy for property number two.

Once you reach your goal amount of properties, you can implement this same payoff strategy across all properties that carry debt, one buy one until they are all paid off.

• For ability to calculate how you can perform a strategy like this, check out our Asset Management Investment Calculator here. 

This is what was used today to determine this exact plan.

Conclusion

You can alter your payoff strategy according to your preference.

Ultimately, you want to have a plan for how you will arrive at your goals.

Being methodical is the best way to plan ahead.

Even if you need to alter your cash flow per door, entrance price, or anything at all, you’ll have a guideline. 

This way you’ll have a basis and you’ll know how much you’ve strayed from your plan (if/when applicable).

Not having a plan can cause you to stray more than you’d prefer (or are aware of).

Be sure to set your plan as soon as you can.

Thanks for joining us today faithful readers – future leaders.

Love ya and continue to strive for growth.

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Please comment your strategy for meeting your income goals through real estate investing.