The 17 steps to financial freedom through property investment

Achieving financial freedom is a goal for most people.

Unfortunately, the reality is that not that many people will achieve it.

So what is financial freedom?

There are lots of definitions but I like the one from T Harv Eker:

"Financial freedom is simple: it is the ability to live the lifestyle you desire without having to work or rely on anyone else for money."

Let’s look at 17 steps that can help turn your financial dream into a reality through property investing.

1. Devise a plan

What are you trying to achieve?

How much cash do you want to live off and when do you want it?

How many properties will you need to do this?

How big an asset base will you require?

Having a plan shows you where you should be heading and takes emotion and luck out of the equation.

It will tell you what opportunities to follow and which opportunities you should ignore.

Over the years, you’re going to make more money by saying “no” to so-called opportunities than by saying "yes" to all the new schemes that get offered to you.

2. Develop the right mindset

This is one of the most important steps because it is the foundation for your wealth.

If you don't get your head right then anything else you build will topple over.

Your wealth success mindset consists of your beliefs, your habitual thoughts, and your habitual actions.

But it is important that these three attributes are in-line with achieving and maintaining wealth.



3. Educate yourself

Acquire the appropriate skills and knowledge.

You'll need to become financially fluent — learn about property, finance, and tax.

And don’t be swayed by the many myths about money and wealth creation.

Luck plays no role in wealth creation.

You may have some good or bad luck from time to time, but over the long term, you accumulate exactly what you deserve based on your mindset and your application of knowledge and skills.

If you don't have the knowledge or skills to create wealth, then the first investment you should be making is in your own wealth education.

If you think getting knowledge is expensive then try investing without it.

You'll soon find out just how expensive ignorance can be.

4. Use the right strategy

Select an appropriate property investment strategy that fits with your cash flow and risk profile.

And one that suits your stage in the property game.

By the way…just buying a property is not a strategy. It is not a plan.

You need to strategy to bring your future into the present and plan for it.

Let me be clear... there is no such thing as a one size fits all property strategy or the ideal investment to suit everybody.

Instead of treating property investing as a singular game, we should view it as a collection of games, each with its own objectives and skills.

For example, a beginning investor who wants to build a substantial property portfolio over the long term, one that will eventually give them financial freedom and choices in life should invest for capital growth, because if they don't, they won't be able to build a portfolio of properties.

The problem is many beginning investors play the wrong game and invest for cash flow, and while cash flow is important and keeps you in the game, buying the wrong type of property means you will never build a portfolio of sufficient size to give you financial independence.

You can't buy the next property in the next one out of the cash flow from your rent.

You need capital growth and asset appreciation to get the next deposit.

Growing wealth through property involves going through four stages, namely:

• Education stage: many failed investors leave this out
• Accumulation stage: where you focus on growing your asset base.
• Transition stage: now you start paying down loans to lower your LVR. If you’ve invested well and your properties have grown in value, this will happen organically as well.
• Live off your cash machine

So things must be done in the right sequence – build your asset base first, then live off your cash machine – not the other way around.

5. Assemble your team

Successful property investment involves more than just you.

That's why it's vital to assemble a team of experts who can assist you in working towards your dream of financial freedom.

On your team should be the following people who are also property investment specialists:

• An independent property strategist who will instruct...
• An experienced buyers agent
• A proficient finance broker
• An Accountant
• A Solicitor

And remember...if you're the smartest person in your team, you're in trouble.

6. Save a deposit

Saving a deposit for your first property is usually the hardest part of the journey.

There is a variety of ways to do this, but one of the simplest ways is spending less than you earn.

Perhaps you can earn additional income via the gig economy as well.

Once you have a deposit, then you buy the best investment-grade property that you can and perhaps manufacture equity over time via a renovation.

Then you extract the equity and do it all over again.

7. Set up the correct ownership structures

You must begin with the end in mind

You are going to want a multimillion-dollar property portfolio and while it may seem a waste of money to set up a trust structure when you start, it is too expensive to change ownership structures later on.

So, get advice from the accountant on your team to ensure you have the correct structures from the start.

• Also read:Everything you need to know about the state of Australia’s property markets in 20 charts – November 2024
• Also read:This week’s Australian Property Market Update – Latest Data, State by State November 19th 2024
• Also read:Melbourne property market forecast for 2025
• Also read:Sydney property market forecast for 2025
• Also read:Brisbane’s property market forecast for 2025

8. Get finance pre-approved for your first purchase

When you are buying your first property, whether it's a home or an investment, make sure you have your finance organised beforehand.

Not only will this improve your bargaining power, but it will also ensure that you have all your numbers worked out well ahead of time.

Ensure you also have the sufficient cash flow to buy you time if you can’t support the negative gearing for a period of time.

This can be done via a line of credit or using an offset account or just some rainy-day money saved for the moments when you really need it.

9. Buy your first property

This first property that you buy is essential for your future wealth creation.

Why is that?

Well, that first property will act as the springboard for your future portfolio.

So it must be one that will outperform the averages when it comes to capital growth.

The problem is most people don't know how to identify such a property, which is where your expert property team comes in.

At the current stage of the property cycle, I believe less than 5% of the properties on the market are investment-grade properties – obviously, these are the ones you should be looking to buy.

10. Set up risk management strategies

Warren Buffet says the first rule for investors is to not lose money.

However, there is a difference between risk management and risk avoidance.

Every investment contains an element of risk. If you practice risk avoidance then you will do nothing.

Risk management is the skill of identifying potential risks and then taking action to minimize the potential for loss.

For example:

• Take out life insurance and income protection insurance
• Take out landlord insurance
• Have financial buffers to see you through times of economic turbulence
• Own your properties in structures that offer asset protection
• Surround yourself with a good team who will give you a level of perspective

11. Watch your cash flow

While your investment strategy should be to build equity (your asset base), you need to watch your cash flow to ensure you have sufficient to service any negative gearing on your property after allowing for the funds to live on.

This means budgeting and living within your means.

Again, ensure that you have a financial buffer that can see you through periods of extended vacancy or unexpected repairs.

This could be in an offset account or in a line of credit.

That way, you will continue to sleep well at night.

12. Allow time for your property to increase in value

Here's the thing: property investment is not a get-rich-quick scheme.

It's actually a get-rich-slow strategy.

Despite what you might have heard, it takes time to become rich through property.

It takes two or three cycles to build a substantial asset base, therefore, you need to hold your properties for the length of time it takes for the magic of compounding to work.

Unfortunately, most investors waste the first 5-10 years of their investing career buying the wrong investments, then they need to sell them off.

The good news is, with the right strategy, you can speed up the process and achieve your financial freedom sooner.

This is where your trusted mentor and independent advisors could help you immensely.

They can guide you on how to buy well in the right area and how to grow your equity quickly so you can expand your portfolio.

13. Borrow against the increased equity

Most investors never buy more than one property.

That's because they often bought the wrong one to start off with, or they don't understand that they can borrow against the increased equity in their portfolio.

And those who buy positive cash flow properties, don't always get sufficient growth to borrow more equity.

However, investment-grade properties increase in value at wealth-producing rates and the rent you receive will also increase in time.

This means you can borrow against your increased equity for your next deposit and the increased rent will help subsidise the mortgage costs.

14. Regularly review your property portfolio

One of the keys to financial freedom through property investment is to regularly review your portfolio and adjust your strategy as necessary.

Whatever stage of the journey you're at, it's wrong to adopt a set-and-forget attitude.

Every year I like to ask myself a couple of questions about each of my investment properties:

• How has this property performed over the last few years?
• Knowing what I know now would I buy this particular property again?
• Is this property likely to outperform the averages over the next decade?
• Is there anything I could or should do to improve this property and generate a better return on investment for me?

Logically, if a property has not performed well over a three or four-year period, it’s possibly a dud investment.

The answers to these questions help ensure that I only retain top-performing properties in my portfolio and that my money is working hard for me.

This means that if your property isn’t giving you the return you feel it should, then it might be time to make a change either through renovations, by changing property managers or by selling up and buying a better-performing investment property.

15. Keeping growing your asset base

Over the years, you will keep growing your asset base so that it reaches critical mass.

That mass will be a different point for different people, however, this should have been part of your long-term strategy as well as your plans for the next stage of your investment journey.

16. Instigate an exit strategy

Many investors buy properties without any idea what their exit strategy is.

Now let’s be clear …by exit I don’t mean to sell all your properties, but for most this plan would include paying  off your home loan over time and then slowly lowering your loan-to-value ratio on your investment properties as you exit the accumulation phase of your investing

There are a number of ways to do this, which your expert team can advise you on, depending on your individual circumstances.

These may include paying principal and interest or even selling a property or two, while some investors find this a great time to add some cash flow-positive commercial properties to their portfolio.

17. Live off your " cash machine"

The objective of your wealth-building plan is likely to be that the income from your assets can eventually provide you with your desired lifestyle whether or not you choose to continue working.

Interestingly most wealthy people do keep working because they enjoy it.

However, they always have the choice to stop if and when they ever want to.

If you follow these steps correctly, buy the right properties, and allow compounding, leverage, and time to work its magic, then you will arrive at this point.

In fact, you will be one of the few Australians who have achieved financial success and freedom.

And that is something to be very proud of.