I’m 25 with $500k in index funds and 11 rental units generating $3,500 monthly. Am I actually financially independent?

Cody Berman went on The Personal Finance Podcast and described hitting financial independence right before his 26th birthday. He held about $500,000 in a Total Stock Market Index Fund, plus 11 rental units purchased with $200,000 in down payments. The real estate produced “between $3,000 and $3,500 a month in cash flow after everything was said and done, after all the mortgages were paid, after we set aside money for reserves.” His monthly spending was $2,500 to $3,000.

The stakes for anyone copying this blueprint: if you call yourself financially independent before the arithmetic supports it, you stop building the cushion early retirees need most. Sequence-of-returns risk, vacancies, and capital expenditures show up first, not last.

The verdict: Lean FI, not classic FI

The classic FI test comes from the Trinity Study and the 4% safe withdrawal rule. Take your annual expenses, multiply by 25, and that is your FI number. A portfolio that size has historically survived a 30-year retirement under most market conditions.

Run Cody’s numbers. A $500,000 index fund portfolio at a 4% withdrawal rate supports $20,000/year. The rental cash flow he describes, $3,500/month at the top end, equals $42,000/year. That stack comfortably covers his stated $30,000 to $36,000 in annual spending, with room left over. At his actual lifestyle, he is FI. Push his spending to $5,000/month and the picture shifts hard.

Here is where most readers will miscount. Cody’s $3,500 figure is unusual because he already netted it out. For a typical landlord, $3,500/month in gross rent across 11 units is closer to $1,750 to $2,275/month after vacancy, maintenance, capital expenditures, property management, and insurance. The “50% rule” used by real estate investors assumes operating expenses (excluding mortgage) eat about half of gross rent. Copy the structure but skip the discipline, and your “passive income” is a fantasy until the first roof goes.

The variable that decides everything: your spending

At $30,000/year in expenses, you need $750,000 invested at a 4% withdrawal rate to be FI with zero rental income. Cody short-circuits that by letting cash flow cover expenses, so his $500,000 portfolio can keep compounding untouched.

At $60,000/year in expenses, the FI number jumps to $1.5 million. The same $500,000 portfolio plus $42,000/year in rent gets you roughly $62,000 of combined income, barely covering spending and leaving no margin for a bad year. That arrangement is a job with extra steps and more tenants, not financial independence.

This is why his framing matters more than his net worth: “The best side hustle isn’t the one that’s gonna make you the most money the fastest. The best side hustle is the one you’re gonna keep up with over years and decades.” Persistence compounds. So does leaving a $500,000 portfolio alone. Vanguard Total Stock Market ETF (NYSEARCA:VTI | VTI Price Prediction) is up about 9% year to date and about 26% over the past year, against a backdrop of roughly 2% annual inflation. A portfolio untouched in years like that is what carries someone from Lean FI to full FI without extra work.

The Realty Income comparison

If running 11 doors sounds exhausting, the passive alternative is instructive. Realty Income (NYSE:O) pays monthly, currently $0.2705 per share, with a 5.2% yield at about $62. Replicating $3,500/month in dividends would require approximately 12,938 shares, a capital outlay far beyond a $500,000 portfolio. That gap is the real cost of truly hands-off monthly income, and it explains why Cody chose leverage and tenants.

What to do this week

1. Calculate your true net rental yield. Take gross rent, then subtract vacancy (assume 8%), maintenance and capex (assume 15%), management (8% to 10% if outsourced), insurance, and property taxes. What remains is what counts toward FI.
2. Multiply your real annual spending by 25. That is your portfolio-only FI number.
3. Subtract reliable net cash flow (rentals, dividends, pension) from annual expenses, then multiply the remainder by 25. That is your blended FI number with side income included.
4. Stress-test for one year of zero rent collected and a 20% market drawdown happening together. If the math still works, you are FI. If it does not, you are Coast FI or Lean FI.

Financial independence is arithmetic, not vibes. Run yours before you quit anything.