The Financial Freedom Formula Has Changed (2025 Update)

Dave:
You’ll be able to obtain monetary freedom by actual property. You simply must be sensible together with your expectations of what monetary freedom even means to you and about how we’re going to get there. I’m Dave Meyer from BiggerPockets and I’m right here with my pal Henry Washington. We’re each actual property buyers who’re on that monetary freedom path proper now, however because it seems, we’ve taken totally different approaches to realize monetary independence. Henry stop his company job to purchase leases and flip homes. I haven’t executed that and I most likely by no means will. At the moment we’re having an actual sincere dialog about what monetary freedom even means, the professionals and cons of various approaches to reaching it and which may very well be proper for every of you. So Henry, I’ve what I feel is kind of a scorching take about monetary independence and retired early that I wish to share with you, however first lemme simply ask you, what do you think about monetary independence? What does that truly even imply to you?

Henry:
Effectively, once I first bought began, I believed I used to be going to purchase some properties and they might pay me each month after which I’d not must work,

Dave:
Didn’t work out that approach.

Henry:
It didn’t fairly work out that approach. However monetary independence, what it means to me now and what I’m working in direction of is to not must have lively earnings. In different phrases, if I don’t wish to work anymore, then I don’t must, however my earnings wants are met by air quotes, some kind of passive earnings and actual property’s not actually passive, however the concept is that I may work lower than 10 hours every week if I wanted to and survive. That’s what monetary freedom actually means to me. Now that I’ve began doing this enterprise for a little bit bit,

Dave:
So it’s not totally retiring and truly simply not working in any respect based mostly on proudly owning some rental properties,

Henry:
I feel individuals have gotten a number of these buzzwordy actual property objectives intertwined as a result of monetary freedom is one factor after which making sufficient earnings by actual property to stop your W2 is one thing fully totally different than monetary freedom. And typically I feel individuals form of take these two objectives and say or use them interchangeably. I vividly keep in mind someone telling me, Hey, I simply hit monetary freedom. I left my day job, however that doesn’t imply you hit monetary freedom. It simply means you made sufficient lively earnings in no matter else you’re doing in actual property that changed your W2 earnings,

Dave:
Proper?

Henry:
You’re nonetheless working, you’re simply now working in actual property, which is superb.

Dave:
That’s an important level as a result of So monetary independence, monetary freedom, interchangeable phrases in my thoughts, however retiring is form of a distinct factor such as you have been saying, however I’m curious since you may say that you just stop your job, proper? You stop your company job, what was it six years in the past now?

Henry:
That’s proper. 2020,

Dave:
Yeah. So a pair years in the past, however would you say you’re retired?

Henry:
No, no, no. I’m not retired. I’ve to do one thing to make lively earnings to outlive,

Dave:
However I feel that’s form of the new take, but it surely sounds such as you kind of agree is I assume I simply really feel like this stuff have develop into conflated to the purpose the place it’s actually detrimental and folks begin taking a look at actual property and say There’s not sufficient cashflow today for me to retire from my job in three to 5 years.

Henry:
There wasn’t 5 years in the past both.

Dave:
Yeah, except you’re beginning with 5 million bucks that I may simply purchase rental properties, all money, you’ve at all times wanted that lively earnings after which you may select whether or not you need that lively earnings to come back by actual property like Henry has, or you may select from that lively earnings to be by a ten 99 or a W2 job I’ve executed. And that’s kind of the truth of the scenario. And what? It’s nonetheless nice. You’ll be able to nonetheless use actual property investing to develop into extra financially unbiased and possibly transfer your retirement date up by 30 years, however the concept you may retire and do nothing in 5 years is just not very sensible.

Henry:
No, that’s completely not sensible.

Dave:
Okay, good. I’m glad you agree.

Henry:
Might somebody do it? I’m positive there’s a approach somebody may pull it off.

Dave:
Positive.

Henry:
However that’s prefer it’s a teeny minority of individuals. Most of us are going to must generate some kind of lively earnings to be able to complement our life-style, and I feel we simply must be extra clear about what it means as a result of I feel you completely can spend money on actual property and in a course of a 5 yr interval, decide up some rental properties after which work out tips on how to make sufficient lively earnings inside the true property area of interest to go away your W2.
And that I imagine is totally potential, however that doesn’t make you financially free. It makes you financially depending on one other earnings stream that you just like extra and that you may leverage a life-style that simulates extra freedom. Such as you stated, I’m not air quotes totally retired from any lively earnings. If I don’t flip homes or assist out on BiggerPockets or do a few of these different issues that I do to make lively earnings, then my household could be in a troublesome place. We can not and don’t wish to stay off of our cashflow from our rental properties, not the life-style that we get pleasure from. And so I’ve to have the lively earnings, however as a result of I’ve constructed this muscle and discovered this skillset inside the true property business, I now have a device or a number of instruments that I do know I can use to go generate money and I can try this alone time and alone schedule.
And since I can try this, I can simulate freedom. If I wished to go to Europe subsequent week, I imply I may most likely work out a method to make that work. Dave, I’ve executed sufficient offers the place positive I may go purchase a ticket and my household and I may go and we may very well be gone for every week or two and my properties would proceed to get renovated and labored on and get listed available on the market and I may get pleasure from my life and I may come again. Might I try this without end? No, I couldn’t. However the life-style and the skillset that I’ve obtained in actual property permits me to have this semblance of freedom throughout the lively earnings stream that I’ve in the true property business. I couldn’t try this with a W2, so I get to expertise what appears to be a complete lot extra freedom than I had earlier than. However yeah, it’s a must to have some stage of lively earnings.

Dave:
I feel what you stated is simply so vital, and also you’re saying it’s simulating freedom, however it’s actual freedom. I feel that the issue is that we deal with monetary independence as binary. It’s like both you’re financially free otherwise you’re not. When actuality it’s a path and the purpose, a minimum of for me has at all times been to only develop into extra financially unbiased. Each deal you do, each monetary determination you make will hopefully put you in a greater monetary place so you’ve got extra flexibility. For some individuals like Henry, that flexibility is likely to be going to Europe and simply not working for a few weeks. For me, I relaxation straightforward understanding that if BiggerPockets determined to fireplace me tomorrow, I couldn’t work for a few years and be very snug and to me, wouldn’t think about myself totally financially unbiased as a result of if I left my job as we speak, I would wish to determine lively earnings identical to you Henry. However I’m extra financially unbiased than I used to be 15 years in the past earlier than I began investing.

Henry:
Completely.

Dave:
And I’m extra financially unbiased this yr than I used to be final yr and the yr earlier than that and the yr earlier than that. And I really feel like that actually must be, the purpose is simply to maintain shifting in that path as a result of actually, your definition of what monetary independence goes to alter the amount of cash I believed that I’d’ve wanted to really feel snug once I began 15 years in the past. I handed that quantity some time in the past, let’s be sincere.

Henry:
Sure, sure.

Dave:
And my expectations, I strive to not have life-style creep, however once you grow old and also you simply have a extra refined life, your bills simply go up. And in order that’s why I really feel like setting this purpose and saying I’m monetary unbiased or not is simply not sensible. The purpose is simply to maintain making progress.

Henry:
Yeah, that’s completely true. I used to be a kind of individuals once I bought began that I believed I’d purchase sufficient rental properties to supply sufficient cashflow in present days
That I’d have the ability to take the cashflow from the rental properties after which when that variety of cashflow hit the variety of cash I made per 30 days in my day job, that I may go away my day job and stay off of my cashflow. However as I began to purchase properties, I began to appreciate that that wasn’t essentially going to be a factor. I used to be completely shopping for properties that cashflow. However your corporation and your properties, they don’t operate linearly. It’s not such as you purchase it after which it money flows and nothing ever occurs or goes improper. It simply makes you simply prints that cash each month and it’s excellent and the world is nice, however that’s not the case. The extra properties you purchase, issues break at totally different instances. Issues break all on the identical time. Folks transfer in, individuals transfer out. There’s this fixed move of cash that it’s arduous for you to have the ability to say, okay, effectively I purchased 10 properties and every property money move is $500 a month, and so now I’ve $5,000 each month that I simply will take out of this account and spend on my payments and the cash is flowing too fluidly for that to be a actuality.
And so I spotted that if I really need these properties to pay me cashflow that I may stay off of passively, then it’s going to occur far into the longer term

Dave:
When

Henry:
These property are paid off. And so I needed to pivot my technique to suppose, okay, effectively how can I exploit actual property to nonetheless purchase leases but additionally make money now in order that I can proceed to develop my portfolio but additionally stabilize my portfolio after which begin to aggressively repay these properties so I can hit that purpose sooner. That wasn’t what I believed beginning out.

Dave:
Completely. Yeah. And I wish to ask you about the way you’ve pivoted your corporation, however I’m simply curious, first was that disappointing to you realizing that?

Henry:
That’s an fascinating query. I don’t keep in mind feeling dissatisfied about it simply because I used to be actively within the enterprise at that time and knew, knew I had the foundational talent, which is I understand how to go purchase a great deal. All I needed to change was the best way I used to be monetizing that deal, which was flipping it and getting extra cash upfront versus holding onto it and taking a pair hundred {dollars} right here or there. So no, it wasn’t disappointing as a result of I simply love the enterprise of actual property.

Dave:
Alright, we bought to take a break, however on the opposite facet, extra of my dialog with Henry Washington about what monetary freedom means to us. Thanks for sticking with us. Let’s soar again in with Henry Washington. Seems like persons are avoiding stepping into actual property as a result of people who find themselves actual property educators, BiggerPockets as a part of this have been saying, Hey, you may get actual property monetary freedom in a few years. And like I stated, in the course of the 2010s, it was at all times tough, but it surely was simpler than it was as we speak. It was

Henry:
Simpler

Dave:
For positive, however I assume I nonetheless really feel just like the prospect and the worth of actual property investing remains to be so robust that it frustrates me when persons are like, I’m not going to get in as a result of now it’s going to take 10 years to be financially freedom or 15 years to monetary freedom. That’s unbelievable common. It’s superb. The typical profession in the USA is like 45 years. You’re saying you chop it into a 3rd if that doesn’t get you excited. I don’t actually know what would, however I do really feel like, I don’t know in case you hear this too, however I hear individuals saying like, oh, I can’t discover cashflow. I’m not going to get into it. However the fundamentals haven’t actually modified. That is form of at all times the way it’s labored.

Henry:
The basics are they haven’t modified. They’re extra vital now than they’ve ever been, proper? It’s the basics it’s a must to stick with now to be able to achieve success, however that is one of the best ways to speed up that path in any method {that a} regular particular person may. Are you able to do it in different pathways? Are you able to do it within the inventory market? However you bought to get actually good at buying and selling shares. Completely. However the common particular person in actual property can do that with out being knowledgeable actual property investor and that’s unbelievable.

Dave:
Given this, given the truth, it appears like we agree that it’s going to take you 12 to fifteen years to do it, in my thoughts, that’s implausible and you’ll kind of be agnostic, a minimum of to me, about the way you pursue that lively earnings. I feel there’s a great argument to be made that it is best to simply pursue no matter lively earnings makes you essentially the most cash, and for me, that’s persevering with in a daily job. But it surely appears like for you, why did you make that alternative understanding that you just wanted lively earnings to do it by actual property quite than you had a great job, you had a great company job and also you selected to go away that.

Henry:
Sure, I did have an important company job and I loved my job. That’s why I saved it so long as humanly potential. I used to be going to do each till I couldn’t do each anymore till somebody was going to cease me from doing each. And I did. That’s what occurred is I stop when it value me cash to have the job after they wished me to work extra hours and I simply couldn’t give them extra hours, it could take away from what I used to be doing in actual property. However the reply to your query is I had to decide on the true property as a result of I imply, I’m going to throw all of it out right here. I used to be making $110,000 a yr, which isn’t a ton of cash, but it surely’s good cash, proper? It’s good cash. It’s arduous not to decide on actual property as your full-time earnings path once I’d must commerce 40 hours every week for 12 months to make $110,000 in case you rely my bonus, I used to be most likely making nearer to $140,000 once I may flip two homes and make that and I may flip two homes in the identical month

Dave:
If you put it that approach,

Henry:
Proper? We simply offered a deal and made 70 Okay final week. So yeah, it took us 5 months to make 70 ok, however that wasn’t the one home I used to be flipping. I had to decide on the true property. It made extra monetary sense and in addition I find it irresistible a lot greater than I liked my day job. I preferred my day job. I like doing this.

Dave:
Clearly I’ve chosen the opposite, proper? I proceed to work full time at BiggerPockets and I feel there are execs and cons, however for me simply I like having a gradual paycheck. I like understanding that my payments are coated. I like having advantages.

Henry:
That’s the factor nobody thinks about after they go away that W2, that insurance coverage is silly.

Dave:
As , I simply moved again to the USA and I’m like, holy crap. Yeah,

Henry:
It’s no joke.

Dave:
The insurance coverage prices are insane, however that’s identical to my psychology. I like having that as a result of what I really feel like is it permits me to really feel snug taking threat in actual property as a result of I do know that if I spend money on a syndication and it doesn’t do effectively, I’ll be superb. I stay inside my W2 earnings and actual property is simply gravy for me.

Henry:
So stated otherwise. If BiggerPockets went away tomorrow, would you go discover one other W2 since you just like the constant earnings or would you determine a approach to make use of actual property full time?

Dave:
I assume most likely the latter. I feel it’s fairly arduous for me to consider working at one other Corpor company proper now.

Henry:
I don’t suppose me or James Dard would allow you to go get one other job. We’d simply feed you offers till you bought ok to do that by yourself.

Dave:
Effectively, the humorous factor is I bought into my job at BiggerPockets as a result of I actually preferred actual property. I bought into actual property in 2010, kind of on a whim. It was a pal of mine was doing it, and I used to be like, that appears enjoyable. I’m going to try this and I may actually use 250 bucks a month. So I began doing that after which I went again to grad faculty and I used to be like, I actually identical to the true property factor. And so I googled actual property tech jobs and located BiggerPockets. It was down the highway from the place I used to be residing. It was simply form of coincidence, however I’ve at all times actually preferred the true property facet of it. So I feel I’d discover a method to both do personal lending or flip homes or simply be much more concerned in my rental properties. I do suppose I most likely surrender three, 4% money on money return a yr. Greater than that, I pay 8% to the property supervisor. However even on prime of that, there’s simply an inefficiency of it. I can’t spend sufficient time on it, and I’m okay with that. It permits me to make my earnings, however
I’d most likely do one thing like that. I don’t know. It’d be arduous to consider simply beginning a brand new company crew.

Henry:
Sure. Sure, sure. That was the place I discovered myself in.

Dave:
Yeah, I get that. Are there any, I imply advantages, you simply introduced that up as one of many trade-offs, however are there trade-offs?

Henry:
Yeah. Effectively, firstly, it’s simply scary. So what helped me soar off the cliff really was we have been promoting a flip. So this was 2021. That was when issues have been going loopy. And what had occurred was we have been promoting two properties and we ended up getting over asking on each properties and the quantity over what we had underwritten them to promote at ended up being a yr’s wage

Dave:
From

Henry:
The W2. And I used to be like, look, we’ve bought this extra cash we weren’t planning on. Let’s simply squirrel that away into an account and that provides us 12 months. We’re used to this earnings, we’ll simply pay ourselves out of that account for 12 months and if this actual property full-time factor doesn’t work, then I’ll go get one other job. And in order that was what gave us the arrogance to essentially pull the set off.

Dave:
Yeah, I imply I’d think about that it’s more durable for individuals now to try this, however I feel it’s additionally vital to keep in mind that was the anomaly, not now. And other people suppose I can’t stop my job in actual property instantly as a result of it was simpler again then, however that was uncommon. The forms of returns and the forms of offers that you just see as we speak are literally nearer to historic norms
And actual property was nonetheless a great funding within the nineties when it was nonetheless these sorts of returns or in the course of the early 2010s when the returns have been stable, however not spectacular. Nonetheless higher than another asset class, a minimum of for my part. So I simply suppose it’s vital to recollect, regardless that you hear these tales about implausible returns, you don’t want that. It’s nice. I hope it occurs to everybody, however you don’t want that to develop into financially unbiased or to pursue monetary independence by actual property. We bought to take a break, however on the opposite facet, extra of the BiggerPockets Actual Property podcast are again with the remainder of the BiggerPockets Actual Property podcast.

Henry:
I’d say the largest commerce off to reply your earlier query is it’s not immediate cash once I’m flipping homes. It may be faster in case you do assignments, however I don’t do assignments, so if I’m earning profits, I’ve to seek out one thing, I’ve to purchase the one thing, after which I’ve to get it to some extent to the place someone else desires to purchase that one thing from me, and I additionally depend on someone else needing to wish to promote to me. It’s not like I can simply go to this open market

Dave:
And

Henry:
Purchase properties which are going to make me a bunch of cash. Sure, the MLS exists. Sure, there are offers on it, but it surely takes a number of effort to try this in quantity and use it sustainably. So as a result of I’m shopping for off market and since I’ve to flip a home, I’m doing work as we speak that I gained’t receives a commission for a minimum of 60 to 90 days, and that’s quick, but it surely’s most likely nearer between 4 to 6 months. And so in case you slack as we speak, that doesn’t harm you now. It hurts you down the highway. And if you end up in a lull the place you couldn’t discover a deal over 30 to 60 days or one thing, you’re going to be on this place down the highway the place you’re like, I don’t know the place cash goes to come back from. Proper?

Dave:
Yeah. That’s scary.

Henry:
That’s a scary commerce off. So that you’ve bought to be actually good about your cash and budgeting your cash so to have earnings all year long as a result of it’s not a sustainable supply. In order that’s what I envy about what you’ve got. You bought cash each two weeks and it’s not like that right here. Sure, I make them in greater chunks, however then it’s a must to be extra financially accountable with it in order that it’s not all gone on the identical time.

Dave:
See, that’s why I can’t do what you’re doing. I’m not financially accountable. I really at all times joke with my spouse as a result of I’ve develop into a monetary educator and I’ve by no means had a price range in my whole life. Even once I was broke, I by no means had one. I didn’t neither. I’d simply spend cash till I didn’t have any. After which I’d eat ramen for just a few days and then you definitely’d wait and also you’d determine it out. I’ve by no means executed that, and that’s most likely one of many causes I like having this regular earnings. I can’t mess up that badly in two weeks. Proper?
I’m simply kidding. I’ve clearly found out a method to be financially accountable, however there’s a psychology component of that that may fear me. If there was a lull for a month, regardless that it’s not sensible, I’d be superb. It could kind of weigh on me a little bit bit. And it’s additionally once you have been speaking about that, it made me notice or take into consideration the way you virtually must be accountable, do each on the identical time. If you happen to’re going to transition into it as a result of you’ve got gotten to some extent the place you do sufficient flips and you’ve got such a great pipeline that even in case you miss on one month and also you don’t get an acquisition, you’re like, I’m going to get one subsequent month. You’ve a fairly good concept of that. However in case you simply stop your job and also you’re like, I’m going to go flip homes, then you definitely higher have that deal move work out actually fast. Simply assuming you’re a median one that doesn’t have months and months and months of emergency

Henry:
Reserves

Dave:
That might get dangerous rapidly. So that you kind of must develop the pipeline of deal move when you’re nonetheless working full time.

Henry:
You must construct some stage of consistency into your corporation earlier than you stop as a result of somebody has to wish to promote me a home. Now I understand how to go search for these individuals. I understand how to assist these individuals. I’ve positioned myself in a approach that I can construct a enterprise round that, but it surely’s not like I’m counting on someone else to resolve that they need me to purchase their dwelling for me to earn cash. That’s

Dave:
Powerful for positive. And also you’re excellent at it, and also you’ve practiced quite a bit to have the ability to have that confidence, and it simply doesn’t come that rapidly. And I’m having fun with this dialog as a result of I actually simply need individuals to appreciate two issues that Henry and I are speaking about right here. At the beginning, the concept you’re going to to only do nothing within the subsequent few years, impossible except you’re ranging from a really advantaged place with a number of money. And in case you’re going to do what? I don’t know, it’s most likely 95% or extra of actual property buyers nonetheless work for lively earnings. I feel it’d even be larger than

Henry:
That. I feel it’s larger than that.

Dave:
I feel it’s everybody, and in case you’re going to do this stuff on the identical time, earn lively earnings and make investments long run in order that finally you may actually do nothing, you may select both the trail I’ve gone down, which is to work a extra conventional profession and make investments on the facet. Or you may do what Henry’s executed. And there have been kind of simply trade-offs and execs and cons between each of them, however each are fairly frequent. You do want lively earnings and also you don’t must stop your job. The extra frequent approach to do that is to discover a method to earn earnings proper now and make investments that into passive property for the lengthy

Henry:
Time period. After we discuss our approaches to actual property, they sound totally different, however the framework is ideally the identical of what you and I are doing, which is we’re shopping for property, so we’re rising our portfolio to no matter comfortability stage we’re with that, after which we’re stabilizing these property, after which we’re specializing in getting these property paid off and throughout all three of these buckets, you and I each have lively earnings coming in to assist us fulfill what’s taking place in these buckets in order that we are able to lastly end off that third bucket of paying off the property in order that we might be financially free. Our framework is precisely the

Dave:
Similar. Yeah, that’s

Henry:
Proper. How we’re producing the earnings and the place inside our course of we’re is totally different, however the body is identical.

Dave:
That’s a extremely good level. I hope that’s encouraging to individuals as a result of I’m positive you hear this on a regular basis. This expectation that it is advisable stop your job or to be in actual property or really feel the stress, actually, to retire and do nothing, simply isn’t vital. And I feel you have been saying you suppose it’s larger than 95%, however do you really even know anybody who is actually retired from actual property?

Henry:
Perhaps one investor possibly of all of the individuals I’ve ever met.

Dave:
Yeah, proper. Everybody retains doing stuff.

Henry:
That dream of going and sitting on the seashore and retiring and residing. Look, I do know loads of buyers who moved to the seashore, however they work in in the future there.

Dave:
Completely. Yeah, precisely. Precisely. Yeah. So hopefully this dialog helps normalize this for individuals and simply notice that actual property is implausible, superb. It’s unbelievable what it does for you. Simply go into it with sensible expectations and never solely will that make it easier to get in and recover from a number of the concern, I really suppose it makes actual property investing simpler. Lemme simply give an instance. I’ll purchase a deal proper now that makes three or 4% money on money return as a result of it’s an important asset in an important neighborhood, and I don’t want greater than that. I don’t want 8% cashflow as a result of I don’t want the cash proper now and lets you take this long-term view. Deal choice and portfolio technique turns into a lot simpler once you’re not hyper-focused on how do I change my earnings by tomorrow?

Henry:
Sure. That man, the stress that you just don’t must really feel to be able to do that’s superb. Yeah. It’s simply purchase a great asset in a great appreciating neighborhood that pays for itself and simply don’t give it some thought for the following 15 to twenty years. That’s fairly cool.

Dave:
I simply need individuals as we, particularly getting into a brand new yr to enter issues with sensible expectations as a result of actual property simply pretty much as good the asset, simply pretty much as good as a enterprise because it’s ever been. If you happen to simply have sensible expectations about what is possible with this asset class and acknowledge that a number of the advertising and marketing that was happening in BiggerPockets is a part of this during the last couple of years is just not the most typical approach, the extra frequent approach to make use of actual property is to take 10 or 12 or 15 years to construct out a portfolio and provides your self most monetary freedom simply over an extended time period.

Henry:
Couldn’t agree extra.

Dave:
Effectively, thanks. This was a really enjoyable episode. I recognize you being right here.

Henry:
Hey, man, thanks for having me. I like placing a practical spin on issues. That is nonetheless the best monetary determination that I’ve ever made, regardless that I nonetheless work on a day-to-day foundation in an actual property enterprise. So it’s modified my life in additional methods than I may have ever imagined, and I feel that there must be much less concern round getting began. There ought to completely be schooling and preparedness, however there’s a technique that may work for actually virtually anybody,

Dave:
And

Henry:
You don’t have to be knowledgeable air quotes actual property investor to hit that stage of monetary freedom inside 10, 12, 15 years. You’ll be able to simply be a daily Joe Schmoe with a job and get there.

Dave:
All proper. Effectively, thanks all a lot for listening. We’d love to listen to your opinion about monetary independence and what it means to you. So both hit Henry or I up on BiggerPockets or on Instagram or within the feedback under in case you’re watching this on YouTube. Thanks all a lot for listening or watching to this episode of the BiggerPockets Podcast. We’ll see you once more quickly.