The Freedom Formula

Let’s be honest…

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We’re all after the same thing:

Escaping the Rat Race and living life on our own terms.

This happens when we no longer NEED to trade our time for money.

We can finally escape the Rat Race once we have an army of income-producing assets working for us 24/7, even while we sleep.

Some call this passive income...

Others call it the Holy Grail of Investing.

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When your passive income exceeds your monthly expenses... YOU ARE RICH!

This is your Freedom Number.

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Think about it…

What does achieving your Freedom Number mean to you?

• Maybe it’s traveling more frequently... and in style.
• Maybe it’s spending more quality time with family and friends.
• Maybe it’s playing golf whenever you want or pursuing your hobbies.
• Maybe it's having the freedom to work by choice, not by necessity.
• Maybe it’s being able to provide for your family for generations.
• Maybe it’s taking on meaningful projects and business ventures while still sleeping well at night...
• Or maybe it's finally being able to take a deep breath and figure out what you really want to do in the next stage of your life.

Whatever your reason, achieving this level of passive income is a worthwhile pursuit.

Now that I've got your attention…

Let's break down the 3 core principles of passive income investing.

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Principle 1: The 4 Levers of Expected Returns

1. Activity Required:
   • The more active an endeavor, the higher the returns should be.
   • The less active (more passive), the lower the returns.
2. Skill Required:
   • The more skill required, the higher the returns should be.
   • The less skill needed, the lower the returns.
3. Risk-Reward Curve:
   • The riskier the endeavor, the higher the returns should be.
   • The less risky, the lower the returns.
4. Liquidity Premium:
   • The harder it is to sell an investment, the higher the returns need to be to compensate.

Key Takeaway:

• Activities that are highly active, require significant skill, are highly illiquid, and involve more risk (like building a startup) offer the highest potential returns but also the highest potential losses.
• Conversely, completely passive, low-skill, and low-risk activities (like buying US treasury bonds) typically have the lowest potential returns but also the lowest potential losses.

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Principle 2: Build a Nest Egg of Capital First, passive income Second

Before focusing on passive income, it’s crucial to build up a substantial capital base.

• Every day, inflation chips away at our money's value, increasing our Freedom Number.
• passive income activities are not ideal for generating capital quickly.
• These endeavors are too slow, and the yields are too small to make a significant impact unless you already have a large nest egg to invest.

Why Focus on Active Income First:

• You’ll get a much higher return on investment by investing in yourself and building your earning capacity early on rather than investing small amounts of money in lower risk, passive investments like index funds or bonds.
• Learning high-income skills or building a business that provides significant income is how most investors actually get started on the path to reach financial freedom.

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Principle 3: Boring is Better

As a rule of thumb, the more boring a business model is, the easier it is to turn into a passive income vehicle.

• Most real estate investing is not flashy and you won’t get rich overnight, but it’s stable, proven, and the concept of needing space to live in won’t be disrupted anytime soon.
• Other avenues like lending, bonds, certificates of deposit, low-risk dividend stocks, and index funds aren’t flashy either, but they’ve stood the test of time.
• real estate investing is the poster child for passive income because it’s one of the simplest, most stable, and most boring business models around.
• If you’re investing in a business to turn into a passive income stream, the simplicity and predictability of the endeavor makes it easy to hire a manager and remove yourself from the day-to-day operations.

The Sweet Spot:

• A passive income investment with a boring, simple business model that’s low risk and likely to still be around 30 years from now is ideal.
• It will require some setup time, but once it’s running, it should take little to no time and energy aside from a few touchpoints each year.

So… What Does This Mean for real estate Investors?

We built Virtual Investor Pal for real estate investors because we believe it’s the most achievable method for the highest number of people to build wealth and achieve financial freedom.

Why real estate?

• real estate is in a class of its own when it comes to the versatility of risk/return profiles.
• It’s also the easiest and cheapest asset class to finance.
• You can pursue high activity/high skill/high risk activities like ground-up development or highly distressed redevelopment deals.
• Or you can pursue low activity/low skill/low risk activities like investing in long-term AAA credit tenant NNN leased properties, and everything in between.

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Additional Opportunities:

• Wholesaling within real estate requires little capital (but makes up for it in skill required) and has a fast sales cycle. It’s a great way to build seed capital.

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Why Virtual Investor Pal?

• We built Virtual Investor Pal with buy-and-hold and value-add residential rental investors in mind.
• This niche of real estate investors can most effectively hit that sweet spot of activity, skill, and risk to achieve financial freedom for the highest number of people.
• If you’re looking at our 3 levers—Activity, Skill, and Risk—we help you maximize the Skill lever, allowing you to outsource management, moderate risk, and still pursue high returns.

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How We Help:

• Identify promising unsaturated markets.
• Discover the best deals within those markets using technology.
• Traditionally, deal discovery involves hours of sifting through properties, analyzing comps, estimating rents, and determining the right price. We handle this instantly for you.
• Build lists of thousands of properties in your target markets.
• We provide initial rent estimations, expense estimations, vacancy rates, tax benefits, and max financing potential based on market data.

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If you want to see a real-world breakdown of passive income opportunities, check out our post on: The Math Behind passive income Investing: Why real estate Investing is the Gold Standard for passive income

See what we’re all about and try Virtual Investor Pal for free.

That’s it from me for now. Thanks for reading.

Until next time!

-Nate

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