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BP Podcast 053: Investing Without Loans and Retiring Early with Jason Hull

by Brandon Turner on January 16, 2014 · 46 comments

  
Jason Hull

On today’s episode of the BiggerPockets Podcast we have an incredible chat with financial planner, real estate investor, and an all-around great guy – Jason Hull.

Jason has a great story of how his early mistakes led to his conservative but effective strategy of building wealth through rental property… all without the use of leverage, loans, or doing any labor. Jason has some terrific insight into the way our human behavior causes us to act and invest,  - so don’t miss this entertaining and informative show that will have you looking at your real estate in a whole new light.

Listen to The Show on iTunes

Click here to listen on iTunes.

Listen to the Podcast Here

In This Show, We Cover:

  • Getting over-extended with his first deals and facing the housing collapseBiggerPockets Podcast _ Real Estate Investing and Wealth Building 9.42.11 AM
  • The “Oh Crap” backup plan
  • The only two ways to make money in real estate
  • Separating your skills from what the market is doing
  • Getting “lucky” in real estate
  • Getting to “P.I.R.E.” = Passive Income, Retire Early
  • Why Jason doesn’t use leverage (mortgages)
  • How to find an awesome property manager
  • Working with a Financial Planner
  • Stocks vs. Real Estate… Where is the balance?
  • Why you should open a Roth IRA with $100

Links from the Show

Books Mentioned in the Show

Tweetable Topics

Invest for the cash flow. The appreciation is just gravy. (Tweet This!)
I want to be lazy when I retire! (Tweet This!)
Having money problems with your spouse is a sign of bad communication. (Tweet This!)

Connect with Jason

Jason’s Website: HullFinancialPlanning.com

Email *
  



{ 46 comments… read them below or add one }

Gerald K. January 16, 2014 at 2:51 am

Jason, great Podcast. It’s really interesting to hear the different take on leverage. Also, Brandon, can totally related to your comment about all the admin work your wife does for the rentals. Same here. Couldn’t do it without her and I do my best to let her know that. Johnny’s Seasoning Salt – great stuff, but even though I’ve been all over Washington, still haven’t found that Podunk place yet ;-). Great work guys. Keep them coming!

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Jeff Jamieson January 16, 2014 at 10:55 am

Great podcast Jason. It’s great to hear from somebody who thinks leverage isn’t necessarily a good thing. I completely agree with you and will be doing my investments and finances very similar to how you are doing it. Thanks for a different and safe perspective!

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James Pratt January 16, 2014 at 11:15 am

Jason is my kind of person, covers all the bases. Would love to find someone like him in my area instead of being told to buy stock all the time. Lots of great information.

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Jason Hull January 16, 2014 at 12:30 pm

Thanks for the kind words, everyone. It was fun to do the show!

James, you know you could (cough)contact me(ahem)(cough). Technology is a wonderful thing! ;-)

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James Pratt January 16, 2014 at 6:53 pm

I would, probably should. Retired at 42 now in my 60s living off the cash flow. I love RE but kinda slowed down a bit even with all my skills and knowledge accumulated over the years.

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Jared M. January 16, 2014 at 1:07 pm

Hey Jason,

Thanks for a great another great BP podcast. I really enjoyed it and found it to be helpful. My question comes from the first question of the fire round, pay off debt or invest in real estate? I know you tried to, but could you elaborate a little on your answer? Specifically, would you have the same answer towards paying off student loan debt vs investing in real estate? Currently I have no CC debt, but a decent amount of student loans ($50,0000+). If I am able to make the minimum payment towards the loan can I use what I have left to invest or should I just put it all towards the student loan? Thanks again!

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Jared M. January 16, 2014 at 8:23 pm

Thanks Jason! That’s pretty awesome about paying off so much student loan debt in just 2 1/2 years. My wife and I have been really looking into buying a small duplex for our first property (this will also be our first home since we have been renting since I got out of school). As long as we break even or have a little cash flow from the other unit we are planning on using the money we would be spending on rent and using it for increased student loan payments/investments. Thanks again.

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Jason Hull January 16, 2014 at 1:22 pm

You’re basically describing my situation at age 30 (though multiply that student loan debt by 2). I paid off my student loans in about 2 1/2 years. Having no debt bought me real options (I have an article about real options on my site) that enabled me to pursue entrepreneurship. But, at the same time, I also did the spec house building that I discussed in the podcast. So, it wasn’t an either/or proposition for me.

Student loan debt isn’t bankruptable. If you go low on the student loan payments to invest in real estate only to have the real estate go belly up, you’re still going to have those student loans to deal with when the dust clears. As I mentioned in the podcast, we wound up eating mortgage payments on those lots for 5 years, and had I not been aggressive previously in killing off the student loan payments, that would have made things really tight for us.

Take your risks one at a time. You presumably got a student loan to increase your income, which, hopefully, happened. Clear that risk off the table before you take on the next risk. I realize that’s not the mathematically correct answer, but ask the math whizzes how much they enjoy writing another [censored] mortgage payment when the dice come up snake eyes. We, as humans, undervalue psychological satisfaction and a decrease in stress in our lives. The anxiety created by stroking Yet. Another. Check. for a naked lot that decreased in value each day was enough to tell me that I’d never want to go through that again.

Furthermore, our limbic systems have a bad time with percentages. If we seem something that has a 90% chance of succeeding, our limbic systems tell us that it’s as good as 100%. We ignore the 10% chance of failure. Multiply those risks enough, and something bad will eventually happen. When you’re already in debt and going to lever to invest in real estate, you’re tying your destiny to sequence of returns risk. If 1/10 of your deals are going to be stinkers, you better hope that deal #1 isn’t that stinker.

So, if you have an aggressive timeframe to pay off your debt, still have extra money, and that extra money won’t cut, say, another year off that debt timeline, then go for it. Otherwise, take the sleeping well at night dividend and kill the student loans first.

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Lisa Phillips January 16, 2014 at 3:21 pm

Good answer Jason!

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alex anderson January 16, 2014 at 4:39 pm

great tip on opening up the Roth and being patient in RE!!! awesome show once again guys

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Larry Brown January 17, 2014 at 12:53 pm

Jason,

Could you elaborate on why you intend to sell your real estate holdings when you are in your 60′s rather than continue to hold them for the cash flow. It seems that your real estate investments are already pretty passive since you use a property manager so I don’t understand why you would feel a need to sell them rather than continue to receive the cash flow. Also, what would you then do with the proceeds from the sale of the properties?

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Jason Hull January 17, 2014 at 1:31 pm

Hi Larry–

Good question. We don’t have kids, so we don’t have the estate bequest desires that parents would (though some would be fine cutting the kids loose, too). Therefore, there’s not a real benefit for the stepped up benefit because, hey, we’ll be dead.

There are two big considerations for us that lead me to our plan as opposed to holding on forever: 1) our property manager is our age. In her 60s, she’s probably going to want to retire. I don’t want to take on the risk of a new property manager when my rock star retires 2) As we reach age 60, our cognitive abilities start to decline, and math is the first one to go (you can check out my U.S. News Smarter Investor article for the research). I don’t want to be trying to calculate the Bigger Pockets approved numbers when I’m in my 60s if my math skills are starting to go.

Instead, we’ll invest in an investment mix that will be age and situationally appropriate. I can’t give away all the secret sauce, you know.

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Christopher McGuire January 17, 2014 at 3:28 pm

Excellent podcast as usual. Thank you Jason for coming on.

There was one segment that made me cringe though. Jason is a financial planner and is giving incorrect advice about the Roth IRA. You may withdraw your contribution at ANY TIME without penalty. Not your earnings, but what you have put in can be pulled out tax free at any time. There is no five year window. This is basic investing knowledge.

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Jason Hull January 17, 2014 at 6:07 pm

You’re absolutely right. Inexcusable brain fart during the podcast. I’d just been working with a conversion and their rules. Your direct contributions can be withdrawn at any time.
Conversions and profits need 5 year seasoning. Thanks for pointing this out!

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Christopher McGuire January 17, 2014 at 6:16 pm

I just realized how snide and condescending my post sounded… Not my intention. Sorry about that. I truly do appreciate you doing the show. Have a great weekend!

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Doug January 17, 2014 at 10:42 pm

Jason, thanks for being the first landlord (and the first personal-finance blogger) who I’ve seen with an exit strategy other than “probate”!

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Ryan W January 18, 2014 at 8:20 pm

Spending problems. This video sums up the communication part. https://www.youtube.com/watch?v=2AXf5vjQV-w

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Jason Hull January 21, 2014 at 7:36 am

NSFW, BTW.

Yeah, that’s definitely not a good budget meeting! :-)

I suspect there are guys who are just as guilty.

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Derrick January 19, 2014 at 5:05 pm

Finally… this is the first substantial conversation I’ve seen from someone that shares my view on mortgage debt. I would much rather outright own two $50k homes and save for a third than own 5 homes with 20% equity in each. Less bank interactions, fewer tenants, and better sleep at night.

Jason – where can I read more on this cash-only approach?

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Jason Hull January 21, 2014 at 7:37 am

I have a pretty detailed evaluation on the timeline vs. debt vs. retirement decision in my Winning With Money course. I can’t give everything away for free, ya know.

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Douglas S January 20, 2014 at 12:10 am

What is the market you mentioned where you can have $70k into a property that can be rented for $1000+
Thanks.

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Jason Hull January 21, 2014 at 7:38 am

Fort Worth, Texas. I’m sure that Brandon will attest that Podunk, Washington has a similar demographic profile. IIRC, with enough sniffing, that type of ROI was available outside of Fort Knox, although it’s probably changed, both in terms of population of the post, and available housing, in the 13+ years since I lived there.

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Cory Binsfield January 20, 2014 at 8:06 am

Jason, nice job on the interview. The Roth advice was spot on. I immediately started a Roth back when they were introduced in the 90′s and have used the penalty free option to purchase 3 different multi unit buildings (pulled out the down payment coupled with a commercial loan).

I cringe when I hear about real estate promoters tell people to purchase property inside their IRA’s. It strips away all the tax benefits and converts the entire asset into ordinary income.

Q: Is there a specific book or website you like for the psychology of human behavior? I’ve read a few books on the subject but most of them seem too academic.

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Jason Hull January 21, 2014 at 7:38 am

I have a ton of articles on my site. Search for Monkey Brain.

I’m a huge fan of Dan Ariely. Read his 3 books, and you’ll get a pretty solid handle on where we screw up.

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Eric January 20, 2014 at 7:17 pm

Hi Guys:
Ran across this comment section. Has anyone been associated or know anything about this Freedom Mentor program? I like that they mentor you. I have not signed up!! Any thoughts, please help, before I spend money I don’t have to loose.!!!!!!!!!!!!!!

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Joshua Dorkin January 20, 2014 at 8:54 pm

Eric – You can look for information on that or any other Guru program on our Guru Review forums.

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Eric January 20, 2014 at 7:19 pm

Has anyone participated in this program here, or know someone who has?

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Greg January 20, 2014 at 8:03 pm

Jason,
Where in the IRS code does it talk about being able to take your contributions out of your Roth tax/penalty-free at anytime for any reason? I’m unable to find it in form 590 but maybe I’m looking in the wrong area. Thanks.

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Jason Hull January 21, 2014 at 7:48 am

When I did this to purchase the first foreclosure in Texas that I discussed in the podcast, we used Form 8606 to do so. See Part III of the form.

http://www.irs.gov/instructions/i8606/ch02.html#d0e991

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Ronnie Boyd January 21, 2014 at 5:01 pm

Nice show love the Dave Ramsey ref’s during the show as well…
I have to agree on the Entreleadership book, it’s incredible.
Best comment during the show was “Just be in the middle when money changes hands”

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Jason Hull January 21, 2014 at 8:21 pm

Thanks! If Ramsey would only change his advice about what you do once you’re out of debt, I wouldn’t need to work as a financial planner.

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Tyler Haug January 21, 2014 at 6:17 pm

Great podcast and thanks for sharing your expertise and insight.
Represent Fort Worth!

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Jason Hull January 21, 2014 at 8:22 pm

Word. West 7th in the house!

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Jason Carter January 29, 2014 at 8:24 am

Thanks for doing this podcast Jason. Interesting strategy regarding leverage and stress. I’m currently debating buying another home or paying down an existing mortgage. And after dealing with 2 evictions last year I’m beginning to see the advantages of lowering stress.

I’m also very envious of your property management relationship. If there’s one thing I’ve learned doing buy and hold, out-of-state investing, it’s the importance of a good property manager. I think Ken McElroy said it’s the most overlooked component or something like that. Couldn’t agree more. I definitely overlooked it in the beginning. It’s every bit as important as location in my opinion. Sounds like yours makes your life much easier.

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Jason Hull January 29, 2014 at 8:29 am

I’d be an utter mess without her. There are times when it’s worth it to save a dollar and do it yourself, like when you’re starting out and cash poor, but, if you’re successful, somewhere along the way, there’s an inflection point where time is more valuable than money. Furthermore, a good property manager probably pays for his/herself in lowered vacancy + less time you spend messing with things like evictions.

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Michael Dorovich February 8, 2014 at 1:15 pm

Great podcast Jason!

Silly question… as far as investing $100 in an IRA, for those with no experience:

1) Do you recommend opening an IRA with a company like etrade?

2) What do you recommend investing the $100 in within the IRA?

It looks like the options include a CD or a stock fund such as in index fund.

Do you have anything against the index fund approach?

Thanks!

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Jason Hull February 10, 2014 at 9:55 am

Hi Michael–

I’m glad that you enjoyed the podcast.

As a Registered Investment Advisor, I can’t give specific advice to people who aren’t clients. That’s how I earn my keep.

You could probably draw some of your own conclusions after reading this article: http://www.hullfinancialplanning.com/do-you-have-to-be-lucky-to-beat-the-market/

Thanks!

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Jonathan Scott February 8, 2014 at 8:15 pm

Hi Jason,

Absolutely excellent show! Really enjoyed hearing a different viewpoint on REI.

Do you have an article you can link to that explains in more details the benefits of “Why you should open a Roth IRA with $100?” I listened a few times, but I still did not fully understand the rationale.

Thanks so much.

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Jason Hull February 10, 2014 at 9:58 am

Hi Jonathan –

I’m glad you enjoyed the show!

When in doubt, I go straight to the source: http://www.irs.gov/publications/p590/ch02.html

Search for “qualified distributions” on the page.

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Sharad M March 15, 2014 at 1:50 pm

Hi Jason,

I really enjoyed your podcast. I am doing same thing that you are. I am buying all my properties with cash now. It is good to see another investor using the same strategy.

I am a huge fan of Dave Ramsey and The Entreleadership is one of my fav books too.

Best wishes for your future success.

Sharad

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Steve March 27, 2014 at 11:53 am

Jason-
Thanks for the great advice. I am new to BP and am renting out a couple of homes that were my previous residences but now my wife and I are thinking about purchasing investment property. Your podcast really opened my eyes to a smarter way to “jump” into real estate investing. Having less stress and sleeping well at night (without a huge amount of debt) is definitely appealing to us – even if it means we wait until next year to make an investment purchase.

Again, thanks a ton for the great podcast.

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Jason Hull March 27, 2014 at 12:09 pm

Glad you enjoyed it. You know, every time I get tempted by a deal when I’m not financially ready to pull the trigger, I have to remember that there are great deals all the time if you have the right strategy in place. I’d rather be patient and pull the trigger when ALL of the factors align than to push something and then have Zantac moments at 3 AM.

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DL Martin May 11, 2014 at 9:12 pm

Jason;
Thanks for sitting in with Josh and Brandon. I really enjoyed your interview.
I absolutely agree with you 100% that in the early stages of RE Investing it is an acceptable strategy to trade your time for money. (doing your own rehabs, keeping material and labor costs as low as possible in order to conserve cash for the next deal).
One of my biggest disagreements with MANY Bigger Pockets members is the constant ringing of the “scale up” bell, no matter the cost.
take care,
DL Martin

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Jason Hull May 13, 2014 at 8:36 am

Hi DL–

Thanks for the kind words!

I’m not necessarily against the scale up crowd in entirety; the situation has to be right, and people have to be fully aware of and accepting of the downside. We rarely tell the tales of the entrepreneurs (be it REI or elsewhere) who max out the credit cards to start their businesses only to see the business go down in flames; yet, that’s the most likely outcome. There are many fewer people who can pass through the eye of that needle than *think* they can pass through it.

When in doubt (and we should be in doubt more often than we are…psychological biases are a bear), cash is king.

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Angela July 25, 2014 at 2:30 pm

Hey Jason! Thanks for the great podcast. I have listened to it twice now, the second time while taking some notes. I am really starting to think about my long term goals and retirement (better late than never I guess) and was interested in your comments about Roth IRAs. I’ve done some research on the subject and now have a basic knowledge. I was wondering if you have any recommendations on evaluating/comparing Roth IRA products.

Again, thank you for such an insightful and informative podcast!

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Jason Hull July 25, 2014 at 3:33 pm

Hi Angela–Thanks for the kind words! All things being equal, lower fees rule the roost.

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