BiggerPockets Real Estate Podcast

BiggerPockets Podcast 017 – Finding Mentors, Facing Retirement, and Note Investing with Jeff Brown

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Real estate investing is about more than just making money in the here and now – it’s also about setting up your future for a solid retirement with minimal hassle and maximum wealth. However, planning for that time in your life is not always the most easy-to-understand task. To help, we sit down with investment specialist Jeff Brown, a very common face around the BiggerPockets Blog, to discuss some of the best ways to find mentors, what you can do to start preparing for retirement right now, and how to invest in notes using cash or your self directed IRA or 401K. This show is filled with a lot of really actionable, in-depth content so be sure to have your notepad ready – you’re going to need it!

Read the Transcript

Click here to read the transcript.

Listen to The Show on iTunes

Click here to listen on iTunes.

Listen to the Podcast Here

In This Show, We Cover:

  • BiggerPockets Podcast _ Real Estate Investing and Wealth Building 9.42.11 AMHow to find mentors to help train and teach
  • Why real estate brokers make the best mentors
  • What CCIM is and why you should consider it
  • How much do you need to quit your job and go “Full Time?”
  • Why $1 million might not be enough for you for retirement
  • 3 paths to maximize after-tax income.
  • Why “cash flow” might be overrated when beginning
  • Why you should STOP investing in your 401K and IRAs – even with a “company match”
  • Investing in notes vs. property … why one is better than the other
  • How to find good notes to invest in
  • 3 Case studies – what should a 25 year old do, a 45 year old do, or a 60 year old do for retirement?
  • and more

Books Mentioned in the Show:

The E-Myth Revisited by Michael Gerber
The Basic Steps in Real Estate Exchanging by Royce Ringsdorf.

Links from the Show:

The BiggerPockets FilePlace
CCIM Training

Tweetable Topics

“The best mentoring you can get is often at the 19th hole around a plate of fries.” (Tweet This!)

“Don’t leave money on the table just because you want the pleasure of being able to drive by your investment.” (Tweet This!)

“When you retire, the one with the most options wins” (Tweet This!)

“I want to retire yesterday afternoon around 4:30!” (Tweet This!)

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Learn More about Jeff

Jeff’s BiggerPockets Account
Jeff’s BiggerPockets’ Blog Posts

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investors and other real estate professionals, who chat about failures, successes, motivations, and lessons learned.

    Kyle
    Replied over 6 years ago
    Once again, a very interesting Podcast. However, I have to point out one huge inaccuracy from the talk. Getting your employer to match your 401(k) contribution is one of the smartest investments you can make. It essentially allows you to double your investment without any risk. For example, my company will match my 401(k) contributions up to $2,000. So if I contribution $2k and invest it in a money market fund (very close to riskless with minimal yield), at the end of the year, my companies will put in another $2k into my account for a total of $4k – equating to a 100% return on my invested equity with nearly zero risk. I thought it was worthwhile to point this out. Apart from this, I enjoyed the rest of the talk.
    Brandon Turner
    Replied over 6 years ago
    Hey Kyle, Thanks for the comment. I think you are right- the math definitely works out and 100% ROI is better than most things we are ever going to get. I think Jeff was saying though (and he’ll pop in here, I’m sure!) is that despite the math – most people with employer matches still end up with very little at the end, which says something about relying on that strategy to build wealth. Just a thought! 🙂 Thanks for listening Kyle and commenting!
    Ruth C
    Replied over 6 years ago
    Listened to Podcast 17 and learned a lot of good stuff via Jeff Brown on Retirement etc. He made a profound statement when he said old school taught him many things that was invaluable of which he asked these old school Real Estate Investment Professionals how he could pay them back for their valuable free training and they replied he could not repay them just pay it forward. This payment is mentioned here. http://viooz.co/movies/3265-magnificent-obsession-1954.html
    Tony Tran
    Replied over 6 years ago
    I agree with Kyle on this. 100% ROI is an awesome. But why just stop there. For me, I use that company match as a mean for leverage. Knowing that a traditional tax-deferred 401k allows me to borrow up to half of investment dollars (that inclusive of company match funds), or up to $50k, as a loan. I can just “borrow” all the initially invested pre-tax dollars at a very low interest rate over the next 5 years and use it to purchase real property now. The benefits are: – Low interest rate (fixed). – Your “actual” money earn before tax can be used. Means more money to invest with and compound long-term. – Buy property now rather than later. – All loan payments including interest goes straight back to the 401k. Pretty much paying yourself back. The downsides are: – Loan payments must be paid with “after tax” dollars. – There is usually a trustee processing fee. Mine is $50. – Must have money to pay leveraged 401k loan back. – If you terminate with your employer, the trustee may ask for the whole loan to be paid back right away. This has worked for me, but this may not be for everyone. Just a reminder, this is not a legal or tax advice, or of such. It is just an example of what has worked for me. Any thoughts?
    Adrian Tilley
    Replied over 5 years ago
    I don’t understand why everyone says that a downside of 401k loans is that they are paid back with “after tax” dollars. Doesn’t that make sense, as the money you get out is also “after tax”? Also, every loan you get (car loan, mortgage, etc) ALL have to be paid back with “after tax” dollars. Never understood this.
    Mike T
    Replied over 6 years ago
    The podcast has become the highlight of my Thursday. I stumbled across BP about 6 months ago from a google search that kicked out one of Jeff’s blog post. I was instantly a huge fan. While not contributing to your 401 k match can be a controversial topic. Relying on 50k of pretax income for retirement is a tragedy. I have spent a lot of time reading the blogs and forums on BP. But until I called Jeff a month ago I did not realize that anyone can utilize a solo 401 k and grow money tax free. I am 33 and working my rear off trying to make enough in a side business to make max 35000 contribution in solo 401k plan for the next five years (wife and I). This was a great motivating podcast!
    Scott Meredith
    Replied over 6 years ago
    I use my 401k and company match to get loans from. They don’t require any documentation, no qualifying, don’t show up on my credit report, and great interest rates (prime +1%). I have bought one house with these funds, funded my real estate business start up costs, and getting ready to buy a second house. I only put in enough to maximize the company match though….as an investment vehicle it does suck. As a source of cash it is great.
    Ben Leybovich
    Replied over 6 years ago
    “It’s not about NEt Worth, but it’s about after-tax income” Right on!
    Ben Leybovich
    Replied over 6 years ago
    Jeff – WOW
    Ben Leybovich
    Replied over 6 years ago
    Jeff – WOW
    Michael
    Replied over 6 years ago
    Great show! I am wondering if Jeff or anyone knows how to research about population change, migration trend in major cities in the US? Thanks.
    Al Williamson
    Replied over 6 years ago
    Dr. Brown, I nearly had to pull over to listen to your interview. You hit some interesting angles that I as a 47 year old needed to hear. Thank you – I’ve got to replay this podcast a few times to soak in all the goodness out.
    karol
    Replied over 6 years ago
    Great show! Great contents always! One Podcast I wish I can hear someday is that the speaker will briefly lay out what is going to be covered and start speaking on those subjects in order of lists. At the end, summarize what was covered and offer follow-up questions by email etc. Often, great Podcast is given up due to lack up time to stay for the entire show and if one desires to replay later on, chit chats gets redundant and old. What I am desiring is like seminar type delivery on Podcast. Thanks, Karol
    Steve
    Replied over 6 years ago
    His advice on 401Ks and IRAs was horrible. Having a diversified portfolio is very important. Growing money tax free in a Roth (post tax money) IRA or 401K, then taking it out tax free is huge. As is using a 401K it lower your current tax obligation and allowing that money to grow tax free. Of course, real estate investing is additional diversification.
    Eve
    Replied over 6 years ago
    Eyes wide open episode! Will listen again just to digest the info.
    vernon
    Replied over 6 years ago
    Great show, especially me being another young whipper snapper! It sparked some more thought about retirement and the different angles to maximize my ROI.
    Sean Brennan
    Replied over 6 years ago
    I feel like Jeff could easily right a book and I would love to see these retirement strategies in print. Some complex and very interesting stuff!
    Terry H
    Replied about 6 years ago
    This podcast really covered a lot. Jeff clearly knows his stuff and makes clear that real estate investing is long term wealth building and not the “get rich quick” scheme that a lot of people may think it is. Good show! Terry
    Joshua Dorkin
    Replied about 6 years ago
    Thanks Terry.
    Mikhail Berlay
    Replied about 6 years ago
    Jeff, probably this is the book you talked about. I hope we can find copy of it. It was not mentioned in Books Mentioned in the Show The Art of Professional Real Estate Counseling by C. Charles Chatham
    Alain
    Replied over 5 years ago
    The more I listen to these podcast, the more I realize how little I know. Thank you Jeff…
    Vana G.
    Replied over 5 years ago
    This was such a great podcast! I couldn’t help but feel as if I was listening to the plot of a Hollywood movie, with his description of the old greats teaching him about real estate. I agree with him that there is no better way to pay someone back then to pay it forward, and life is definitely more fulfilling that way. Also, he clarified and verbalized what I was thinking about my IRA vs REI, and also agree that in order to maximize ROI, REI is the way to go. Thanks Jeff!
    Ryan
    Replied about 5 years ago
    I was hopoing to get more information on the E.I.E. wells Jeff spoke about a little bit more. Can anyone go into a little bit more depth about them?
    Lee @ BaldFinance.com
    Replied almost 5 years ago
    Jeff makes some good points about alternative investment options (ie: discounted notes), but his advice about equity index annuities or equity index life insurance products is absolutely horrible! These products are pushed by brokers and salespeople because they pay HUGE commissions. The reason that EIAs and EILIs are horrible investments is because your participation in the stock market appreciation is limited. Generally, you will only get about 60%-70% of the stock market’s return, up to a maximum return of 12-15%. For example, the S&P 500 return for 2013 was over 29%. If you invested in this product, you would have only received 15%, or about half of the market’s performance. There are very few years where the market goes down or the market performs at the 60-year average of 8-10%. Most years are either relatively flat or have exceptional returns like 2013, with a few negative years thrown in for market corrections. As the icing on the cake, the equity index products will charge you fees close to 2% for their services. All, in all, if you want to have the safety and security that a product like this will provide, you can achieve the same thing with a mixture of CDs and stock investments. Don’t fall for the hype.
    Frank Smith
    Replied over 3 years ago
    +1 Whole life and all it’s variations are scams. Buy TERM and invest the rest is a much better option. Frank
    Brock A
    Replied almost 5 years ago
    I need help understanding what Jeff said about discounted note investing. I listen to the podcasts as I commute, so I might have missed something here, but this is my question….he was asked why anyone would sell the note for a ~35% discount and he said he’s been asking the same question for decades. When I heard this I thought…isn’t it just discounted back to present value? I.e. $1000 today is worth much more than $1000 thirty years from now (say thank you inflation). If I run my numbers right (someone might need to clarify this as I am on my ipad and running these numbers with random online calculators I just googled). Assuming 3% inflation, the buying power or value of $1000 in thirty years in the future is $411.99. You have lost over have the value of the payments you receive due to inflation. Let’s include all the payments over the life of the note (and yes this would be different if it is paid off early, but that would be a bonus not an expectation…). If we include all the payments, then this can be calculated (again in my understanding) the same as an annuity. Equal cash payments at equal intervals for 30 years. So let’s say the note pays a $1000/month or $12000/year (I am doing this on an annual basis because that is the first calculator I opened up…) for 30 years. Without taking into account the time value of money, the value would be $360,000 after 30 years. However, as we saw earlier the value or buying power of future payments is decreased due to inflation. Assuming our same 3% inflation, that note’s present value would be $235205.3. That certainly is not $360000 (by around a sizable $125k!). And now the clincher, so what is $235205.3/$360000? 65.3% almost exactly the 35% reduction quoted on the podcast as the amount of discount at which you can buy the note. That is why it is discounted and the speculation to beat the value would be speculating on inflation rates. So if I understand correctly (please help me if I am off base or completely missing something) if over the next 30 years inflation actually is ~3%, you actually don’t gain a dime in buying power. Over the life of the note, you could only purchase exactly what you could have purchased on day one for $235k. Someone please help me understand the error of my thinking. I have never invested in notes or even looked into it. In the last few weeks, I have just started trying educate myself on real estate investing (thank you BP!). The only real estate I have is my primary residence which is a SFH. I don’t feel like I am an authority on any of the items mentioned in my post, but it seemed like a no brainer that it was just the present value of the note. Again someone who understands this please correct me!
    Frank Smith
    Replied over 3 years ago
    Equity Index Life Insurance for Everyone is Bad Advice Howdy, Like me, many others are still catching up with the podcasts. After picking a few random podcasts, I decided to start from the beginning and finally arrived to Podcast #17! It’s great to have knowledgeable people volunteer their time and provide these great podcast. BP has done a great job. BP I am very thankful for your hard work! There are great pieces of information contained within the podcast. I enjoyed it! I will share my knowledge on the following information discussed, life insurance. Life insurance is for our families to be used in case we die. There is nothing there for us. For most people, insurance should never be mixed with investments. This is a recurrent bad advice and an old school line of thought that has to change. The goal is to buy TERM life and invest the rest. For instance, see http://www.term4sale.com/ Rule of Thumb: Buy 10-15 times your income or whaterever is needed to support your family, most people need 1.0 million to 1.5 million. If you buy VUL, WL, or any of its varations, you will be supporting your insurance broker mortgage, car, and kid’s college education. Whole Life, Variable Universal Life, etc., should be considered scams. The recommended Index Vairable Universal Life Insurance discussed on this podcast is pretty much a waste of time. Who said this? Many knowledgeable investors and financial advisers. You can state this confidently as well if you run the numbers, it’s not that hard to debunk this investment strategy. The Bogleheads’ Guide to Retirement Planning – Taylor Larimore (Author), Mel Lindauer (Author), Richard A. Ferri (Author), Laura F. Dogu (Author), John C. Bogle Making the Most of Your Money Now by Jane Bryant Quinn https://infinitebanking.org/the-top-10-reasons-not-to-buy-equity-indexed-universal-life/ #10 Internal costs are not guaranteed #9 Mortality charges are not guaranteed #8 Market drops cause double pain #7 Late premiums kill any guarantees #6 Dividends from the index don’t get credited* #5 Participation ratios are often less than 100%* #4 Returns are usually capped at various interest rates* #3 Guarantees are not calculated annually* #2 All of the above can be changed by the company #1 The risk is shifted back to the insure In addition, * It takes 5 minutes to open an IRA or Roth IRA through brokerage accounts like Vanguard or Fidelity. * There is no need to find additional “tax shelters” unless you maxed out the following: $18,500 401K $5,500 Roth/IRA $5,500 spousal IRA $300,000 college education 529 , HSA, FSA, Transportation, etc. If you are a lucky enought that still have tons of cash rotting away, then Index Variable Universal Life MAY be an option. However, you can do much better investing the rest. Approximately, 85% of the people with these insurances cash out, leaving their families unprotected. Finally, you simply can’t buy sufficient coverage for your family. Try getting a quote for $2,000,000 and see where your premiums land. Best, Frank
    Michael K. from San Francisco, California
    Replied over 3 years ago
    Hi, Guys. The link to the transcript doesn’t link to a transcript. Could you please fix it? Great content as always.
    Erich McCaskill from Joppa, MD
    Replied about 3 years ago
    Tech support The link to the transcript is not working. Could you please fix it? Great content as always.
    Julie Marquez Investor from Seattle, Washington
    Replied almost 3 years ago
    I’m working on retiring yesterday too, so I better go back and listen to your podcast again. Too much information in this one!
    Willie R. from Richmond, Texas
    Replied almost 3 years ago
    The click here for transcript of this podcast does not work.
    Matt Dunn Renter from New Orleans, Louisiana
    Replied over 2 years ago
    Thanks Mr. Brown for taking some time to educate others! Really enjoyed your perspective and it broadened my view of investing.
    Jake Fama from Bountiful, Utah
    Replied over 2 years ago
    I am a newbie to bigger pockets and have been listening to the podcasts in chronological order and greatly enjoying them. Then I got to this one…….WTF!!!! this 401k / non real-estate related advice was so horrible I had to stop the episode half way through before my brain exploded. Supporting Indexed Universal Life Policies???????????? Refusing company matches????????? Investing retirement funds in discounted notes????????? No! No! No! I’m sorry, but this podcast should be taken down. Absolutely horrible.
    Venkat Reddy from New York City, New York
    Replied about 2 years ago
    Hi, The link to the transcript of the show is not working. Can you please fix? Thanks,
    Venkat Reddy from New York City, New York
    Replied about 2 years ago
    From Private Wealth Management: The Complete Reference for the Personal Financial Planner, 9th Edition https://www.amazon.com/Private-Wealth-Management-Reference-Financial/dp/0071840168 Equity Indexed Universal Life Equity indexed universal life or indexed universal life insurance (IULI) is similar in concept to equity indexed annuities (EIAs), discussed in Chapter 17, except that they provide life insurance protection. For equity indexed universal life, the returns credited to the policy’s cash value are based on the performance of an equity index (such as the S&P 500) over a specified period. Therefore, gains in the equity index will be reflected in the returns credited to the policy’s cash value. In effect, then, the policy returns will benefit from a rising stock market. However, like EIAs, indexed UL policies typically credit only a percentage of the gain in the equity index (such as 65 or 75 percent) to the policy value. This is referred to as the participation rate. Further, there is a limit on the actual percentage rate of return that can be credited (such as 8 to 12 percent). This is called the cap rate. These two limits together (i.e., participation rate and cap rate) may be called the participation limits. These limits, of course, can significantly reduce the equity indexed upside returns on these policies. In addition, most equity indexed UL policies allow the insurance company to change these participation limits at any time while the policy is in force. On the other hand, again like EIAs, there is a guaranteed minimum cash value that serves as a floor on policy values in case of a declining stock market. This guaranteed minimum value may be the premiums paid (or a percentage of them) improved at an interest rate such as 0 to 2 percent. Thus, these policies offer possible upside growth tied to an equity index, while providing a floor on the downside with the guaranteed minimum cash value. These contracts have been quite popular with insureds in recent years. However, it has been noted by some commentators that the mortality charges (cost of insurance) inside some equity indexed UL policies are higher on average than such charges for regular UL policies.
    Shaun-Ryan Batson from Frisco, TX
    Replied about 1 year ago
    This was a very motivational and insightful podcast via Jeff Brown. I wish I heard this podcast 5 years ago! I am glad that Jeff spoke highly of Texas for real estate, being that my wife and I moved to Texas 2 weeks ago from Hawaii. The move from Hawaii to Texas sound crazy for most people, but we plan on purchasing our first home here in the near future. We already notice how affordable Texas is in comparison to Hawaii. I am also interested in starting real estate investing. Before this podcast, I had no clue where to start, but now I do: Self education, finding a mentor, etc. I know this post is 5 years too late, but Jeff or any other experienced real estate broker that wants to “Pay it forward” and mentor me, please respond to this post and we can setup a meeting. I am motivated to learn and to go through the steps necessary to be successful.