Formula: FF = PI > TME
You achieve Financial Freedom (FF) when your Passive Income (PI) is greater than your Total Monthly Expenses (TME).
FF (Financial Freedom): Achieving a state where your income covers all your expenses without actively working.
PI (Passive Income): Income generated without direct and continuous effort. It continues to flow even when you’re not working.
TME (Total Monthly Expenses): All monthly costs and expenses.
Examples:
- Real Estate Investment:
- PI: Rental income from properties.
- TME: Mortgage, maintenance, taxes.
- FF achieved when: Rental income > Mortgage + maintenance + taxes.
- Dividend Stocks:
- PI: Monthly dividends from stocks.
- TME: Living and personal expenses.
- FF achieved when: Dividends > Living and personal expenses.
- Online Course:
- PI: Sales from an online course.
- TME: Marketing costs, platform fees.
- FF achieved when: Course sales > Marketing costs + platform fees.
FF w/ Real Estate:
Achieving $10,000 Passive Income Through Residential Real Estate Investments:
1. Facts & Figures:
- Home Price: $285,000
- Down Payment (20%): $57,000
- Loan Amount: $228,000
- Rental Income per Home: $2,995
2. # of Homes Needed:
- Monthly Goal: $10,000
- Income from One Home: $2,995
- Number of Homes: $10,000 ÷ $2,995 ≈ 3.34
- So, you’d need to invest in 4 homes to achieve or exceed your goal.
3. Initial Investment:
- Down Payment for 4 Homes: 4 x $57,000 = $228,000
4. Monthly Gross Income:
- From 4 Homes: 4 x $2,995 = $11,980
5. Estimated Expenses (Approximations for Columbus, Ohio):
- Mortgage (30-year fixed at 4%): $1,088 per home x 4 = $4,352
- Property Tax (1.25% of home price annually): $237.08 per home x 4 = $948.32
- Insurance ($800 annually per home): $66.67 per home x 4 = $266.68
- Maintenance and Repairs (8% of rent amount): $239.60 per home x 4 = $958.40
- Property Management (8% of monthly rent): $239.60 per home x 4 = $958.40
- Vacancy Rate (5% of monthly rent): $149.75 per home x 4 = $599
Total Monthly Expenses: $7,082.80
6. Monthly Net Passive Income:
- Income: $11,980
- Expenses: $7,082.80
- Net Income: $4,897.20
7. Conclusion: To achieve a net passive income of $10,000/month, the updated data suggests you’d need to invest in approximately 9 homes (a bit more than doubling the 4-home model). This would require an initial investment of $513,000 in down payments. As always, actual expenses, rental demand, and other factors can vary, so always consult with a local real estate expert before making investment decisions.