Log In Sign Up
BiggerPockets Money Podcast 178: Finance Friday: From $33k in Debt to $100k+ in Net Worth Through House Hacking & Smart Saving with Budget Girl

BiggerPockets Money Podcast 178: Finance Friday: From $33k in Debt to $100k+ in Net Worth Through House Hacking & Smart Saving with Budget Girl

52 min read
The BiggerPockets Money Podcast

As a Guest you have free article(s) left

Join BiggerPockets (for free!) and get access to real estate investing tips, market updates, and exclusive email content.

Sign in Already a member?

Last time we talked to Sarah, AKA Budget Girl, she was on Episode 6 of the Money Show. If you haven’t listened to that episode, here’s a quick recap. Sarah was $33,000 in debt from student loans, but she was able to pay it off while making less than $30,000 year! For most people, this would have taken decades to pay off, but Sarah was able to crush her debt in only a few years!

Now it’s time to check in on Sarah, and see what she’s been doing since clearing herself from debt. Currently, Sarah has a net worth of over $100,000, she took some advice from the BiggerPockets community and bought a duplex to house hack! She purchased the duplex within the “path of progress” around Texas A&M University. She’s seen some solid appreciation over the past 10 months and cash flows a small amount off the property. She’s not only living for free, she’s getting paid to live in her own property!

Sarah has also hoarded a serious sum of cash and investments sitting on the side. She has retirement accounts, brokerage accounts, and a large surplus of cash that is slowly building so she can buy her next property. Sarah is able to do this by keeping her expenses very low, while making money from her full-time job and her side hustle as Budget Girl. She proved that even with a low income, you can get out of debt and hit financial milestones!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 178, finance Friday edition, where we check in with Sarah Wilson, the Budget Girl, and talk finances and real estate investment.

Sarah:
My basic plan above that was to save for the next property because I would like to keep buying myself more sources of income. That’s really fun. Didn’t know about that when I started all this trying to pay off debt a few years ago. I really enjoy it.

Mindy:
Hello, hello, hello, my name is Mindy Jensen, and with me as always is my calculator loving co-host, Scott Trench.

Scott:
That about sums it up, Mindy.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting, and today’s episode proves us right.

Scott:
Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or get out of the conservative mindset and start playing to win, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, today we welcome back Sarah Wilson, the Budget Girl, and we talk to her and catch up with what she’s been doing, and look at what she’s doing with her finances. Remember, when we had her back on episode six, she had just paid off $33,000 in student loan debt while making $30,000 a year, and that scarcity mindset has really affected her opinion of money, not opinion, her relationship with money, which I find very fascinating. Now she finds herself in an enviable position, but she didn’t realize it I think until she spoke with us.

Scott:
Yeah, this was a great episode. I just can’t wait to get to it because she is just so impressive. She started off in a really tough spot, $30,000 in debt, 30,000 in income, paid it off, got to zero a few years ago when we last talked to her, and now she’s built a significant net worth, is house hacking, and I believe that she has very high probability going to become very wealthy very quickly in the next couple of years. We had a fun discussion about how to maybe accelerate that today.

Mindy:
I agree with you. She is very impressive and she is on her way to generating massive wealth. Before we bring in Sarah, let’s talk about what my attorney makes me say. My attorney says the contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott, nor I, nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax, and financial implications of any financial decision you contemplate.
Today, we sit down with Sarah Wilson Budget Girl to review her finances. We first spoke with Sarah all the way back on episode six, and she shared her story of paying off $30,000 in student loan debts in years while making $30,000 a year. Today, we’re going to look over … Stop sighing. Today we’re going to look at her overall financial picture, and specifically at her recent rental property purchase. We’ll review her numbers in the BiggerPockets Rental Property Calculator, and for those of you listening when this episode airs, this weekend, March 12th through the 14th, 2021 is all you can analyze weekend on the Rental Property Calculator on biggerpockets.com.
This weekend only March 12 through 14, get unlimited access to our rental property calculator and property insights. No limits, no credit cards, no commitment. Plus, share your analysis in the forums for a chance to win a one-on-one mentorship with our rookie podcast co-Host Ashley Kehr and Tony Robinson.

Scott:
And if you share your analysis in the forums, you will get feedback from other community members on your analysis to tell you if you’re crazy or not, which I think is very powerful.

Mindy:
That is fantastic. I forgot about that part. Thanks Scott. Sarah, welcome back to the show. I’m so excited to see you again.

Sarah:
Thank you so much. I’m so thrilled to be here.

Mindy:
Tell us what you’ve been up to the last three years. I can’t believe it’s been three years since I last spoke with you online. I’ve spoken to you offline.

Sarah:
Yeah. So, last time I was on the show, I had just paid off $33,000 worth of student loan debt on an average $30,000 income. I started at 26, and since then, I have saved a bunch of money. I now have an over $100,000 net worth and I am the owner of a duplex, very freshly a hundred thousandaire over here.

Scott:
Love it. Congratulations. That’s awesome.

Sarah:
Thank you.

Scott:
Mindy mentioned this earlier, but if you haven’t already, go back and listen to episode six, because it’s just incredible. I mean, it’s not the most debt we’ve heard paid off in the show, but it’s the most debt have seen paid off in the shortest amount of time relative to the income level that you had. It’s a truly remarkable and impressive feat, and no surprises that you’re becoming wealthy a few years later after achieving that.

Sarah:
Thank you. It’s a lot more fun to build up the wealth than to pay off the debt, I’ll tell you that, and a lot faster too. That’s really fun.

Mindy:
Yeah, watch that just grow.

Scott:
Compound interest is working for you rather than against you with that. Can you tell us a little bit about, just to catch up everybody’s story before we get into that review, could you cover us a little bit of a catch-up on the duplex potentially or any other highlights of the journey over the last three years?

Sarah:
Yes. The duplex purchase, I actually have only had for 10 months, so I bought it right when the pandemic started. I was renting and I was saving up for a property because I knew I wanted to do multifamily, and I found the perfect place after shopping for a year, right as the world went to hell. It came at a very good time because my rental apartment was actually going to increase $300 a month, and so I started really seriously thinking like, if I find the deal where the numbers work, let’s go ahead and do this. So, it was a $230,000 property in College Station, Texas. It has three beds, two baths on each side, a little backyard, little three parking spots for each unit.
Very cute little thing in a little subdivision near the campus, the Texas A&M University campus in the direction that the campus is growing. So, I very much anticipate that, that will increase in value, and it already has. It’s actually already worth 250 after 10 months, because I just refied.

Scott:
All right.

Mindy:
I want to point out that somebody else on this call also purchased in the path of progress, and that would be Scott, not me, because we have different investment styles, but that is a really great thing that I think some people don’t realize or take into account. If the path of progress is going North, you need to be looking North, because those are where the properties are going to appreciate at a faster rate than outside the potential path of progress. Nothing’s guaranteed, but Scott had a really great way to choose his property too, and it was smack in the path of progress.

Scott:
Yeah, parallel, also my property is worth $240,000. So, a very similar type of deal for us, and even our cabinets are the same I saw on Instagram. Yeah, same exact cabinets that my property had. But let me ask you this, is your property located … Would you say the path of progress in the best area you could be living in right now if you were to purchase anywhere in a 30 mile radius?

Sarah:
No, not even close, but it’s also not in the worst. It’s in kind of a medium area. There’s some older homes nearby and there’s also … They just built like a Walmart and a shopping center there. But more importantly, Texas A&M owns so much of the surrounding area and they keep building in that direction. I mean, the university plans are on the website for free. You can go look at them. They’re planning on growing in that direction. So, I could be just like a spit from one of their giant new, enormous buildings in a couple of years.

Scott:
Awesome. My understanding is you’re house hacking this, is that right?

Sarah:
Yes. I am renting out side A. Originally, I inherited a HUD tenant who was paying 1050 a month. Her lease ended at the end of February. I am doing some fix-ups on the project this month in March, and I have a new tenant moving in in April at 1250 a month.

Scott:
Awesome. I understand that you’re crowdsourcing feedback on your remodel on Instagram, so you can follow her @gobudgetgirl, and she really wants more opinions on what color she should paint the kitchen cabinets in the second unit. Is that right?

Sarah:
Definitely. Yeah. The other parts of the house hacking, of course, is I actually … I have renters on A, I live in B, but my boyfriend also lives with me, and I charge him $500 a month in rent, because I’m nobody’s sugar mama.

Scott:
All right.

Mindy:
I was going to say, how did that conversation go?

Scott:
That’s still a good deal for him. That’s less than the other half the other side.

Sarah:
It is. It’s a three bedroom unit, so we both have an office and we share a bedroom. He has a lease that I worked for him and we’ve both signed with contingencies for things that might happen. He didn’t have a deposit, he doesn’t have pet rent, and he essentially gets way more space than he would anywhere else in town for that price. Due to that, he’s helping me with the A unit right now. He was mopping yesterday while I was at work.

Scott:
All right.

Mindy:
Perfect. It works out, but I’m glad that there’s that conversation.

Scott:
What’s your mortgage payment on this?

Sarah:
It was originally just under $1,700 a month. I was paying $150 a month out of pocket, but I just refied, and I was able to go down almost a whole point. So, my new mortgage is going to be 1,564, so just under 1,600. I’m going to be making a hundred dollars a month.

Scott:
That’s fantastic. So, why did you refi generally? Was it because of the interest mostly, or was there like PMI that you were able to shed or what were some of the things around that?

Sarah:
Unfortunately, I wasn’t able to shed PMI quite yet, but I saw that interest rates were dropping. I was pleased with my rate. I got a 3.65 right around the time that everything was going down and then it bumped up a little bit. I did an FHA loan, so I only put 3.5% down, even though the property had appraised for 10 grand more than I paid, and even though it’s now worth 10 grand more than that, I’m still not quite to the level where I can shave off the PMI, but that’s $150 a month, and I find that to be worth it.

Scott:
Are you still with a conventional loan or FHA loan?

Sarah:
No, FHA loan. I was able to do an FHA streamlined refi, which I just found by kind of looking into any refinance options, it costs me $0 to refinance and it shaved $150 off of my interest payment. $50 of what used to be my interest payment is now going to the principal, and my escrow, and taxes, and PMI all stay the same, but overall, my loan went down a hundred dollars, and $50 more is going to principal each month because I refiled. I went from 3.65 to 2.75.

Scott:
Awesome. Just a slight tangent here. We had a guest on recently who talked about some of the drawbacks of FHA being the appraisers can be real sticklers, which can make some sellers not want to sell to you if you have an FHA loan. We talked about how the FHA loan comes with that PMI, how you have to refinance out of it. This is an interesting tidbit that actually makes the FHA loan look a bit more favorable than I had thought coming into this call. I did not know this before, but it looks like there are some really cool options to continuously refi the FHA loan if interest rates drop, that you were able to take advantage of with very low costs. That’s fantastic. Did not know that.

Sarah:
Yeah. The FHA streamline program essentially took some of the costs of it. I didn’t have to do an appraisal or pay for that. Then the lender costs were pretty much absorbed into that as well. It was really great. It would have been stupid not to do it.

Mindy:
Yeah. I haven’t had an FHA loan for a few houses, but that is a really interesting program. People ask, is the FHA streamline refinance worth it? While it may sound too good to be true, the FHA streamline is a perfectly legit refinance program backed by the FHA. Can offer a simplified low doc application process and below market rates, but you have to be a qualified homeowner with the current FHA loan to use this program. That could be the difference between getting a conventional or an FHA. Very interesting.

Scott:
I bet you, one additional trade with this is that you’re probably committing for at least another year to living in the property, I imagine, with that.

Sarah:
Actually, there were no qualifiers for that. I kept asking lenders. There was no original qualifier for the first FHA loan, and there’s no for the refi either. I checked and double-checked, because a year from now, I might be in a different property, potentially.

Scott:
That’s a powerful tool then, that I think opens FHA back to folks listening as a potential consideration for your first or second house hack with this. That’s awesome.

Mindy:
That’s very interesting.

Scott:
Thank you for sharing that. I’m learning a lot here with this. Okay. We’ve got a good house hack underway. Let’s get into the finance review with this kind of stuff. Since we’ve already got the duplex, which looks like it has … How much equity do we have in that duplex? Maybe we could start with that.

Sarah:
I’d have that number if he didn’t tell me … Current loan amount’s 221, and it’s worth 250, though I’d have to get an official appraisal to double check that, but that is what the internal systems that the new mortgage lender appraised it at.

Scott:
Okay, great. So, we got about 30K there. Where else are you building wealth right now?

Sarah:
I have a teacher’s retirement savings account or retirement system. I work at Texas A&M. I’m not a teacher, but because I work here, I get to use that, and that has about 15K in it. They have a really wonderful match program for my day job. I put in 7.7% and they match it to 7.5. I have a Roth IRA with about 13 grand in it, and an old IRA for about 10 grand, and then I have about three grand in a just regular brokerage account. I am working on increasing investing right now, but I wanted to save for the house and then stock up some savings as well, just in case first.

Mindy:
Don’t make apologies. You are doing fabulously. Don’t make apologies.

Scott:
Sorry. I missed one part of that. Do you have cash savings right now or is that really your 3,000 in the after-tax account?

Sarah:
I have $44,000 in cash.

Scott:
Oh, well, that is a great position. You have a lot of options with that.

Mindy:
Yeah. We’ll talk about that. When you say cash, does that mean sitting in a bank account, earning 0.01% interest cash or?

Scott:
I mean, it’s in high yield savings accounts. Yeah.

Mindy:
0.2. Okay. Well, that’s still good. It’s easily liquidatable, but not currently invested. So, if you’re going to be using that soon, you don’t want it to be currently invested in anything that could be rather volatile.

Scott:
How does it feel to have more liquid cash than you had debt a few years ago?

Sarah:
It feels really wonderful. I consider it my little goblin hoard, and I just like to go look at it sometimes, because coming from the place where I was, where I started on my journey, unemployed, in 33K worth of debt, not knowing how it was going to pay my rent or feed myself, that feels like a security blanket, and it feels like a box of options in case anything bad happens.

Scott:
That’s fantastic. Yeah, I can’t argue with that at all, and that’s a solid emergency reserve. Is that going to be like a year or two of expenses, or what does that equate to you?

Sarah:
The breakdown is $10,000 in a personal emergency fund, $10,000 in an emergency fund, just for the duplex, about 9K in sinking funds, which I am starting to think maybe that money might be better invested. I keep about five grand in my personal checking account and in my property checking account where rent comes in and out for regular expenses.

Scott:
I think that’s really smart. I like that a lot. We’ll revisit that I’m sure in a little bit, but I think that, that’s actually … I think that’s really good. That’s incredible, and that’s just a testament to another several years of great hustle and discipline. I’m sure is what contributed to that.

Mindy:
Okay. Let’s talk income.

Sarah:
I make $50,000 a year now at Texas A&M. I’ve been blessed to get several raises since I’ve been here, and I make about three to five grand a month off of my Budget Girl business, so that’s … YouTube, AdSense website ads, sponsorships, affiliates, etc. Last year I made $35,000 off of Budget Girl, which was my best year yet, and I grossed about 25 this year. I have plans to make at least $50,000 with it.

Mindy:
So, you could be living off of your Budget Girl salary and investing in saving your day job salary, right?

Sarah:
I’ve been kind of doing the opposite. For the past several years, I’ve been living off of my day job salary, and well, I was saving and investing 40% of that, but now the mortgage is in there, but I also make money off of the mortgage now. It gets a little muddied, but I’ve been living off my day job income, and then since Budget Girl’s a little bit more flex, I save from that towards whatever my next money goal is.

Mindy:
Okay.

Scott:
This is awesome. We’re looking at about 75K in net income per year right now, and that’s expanding rapidly, maybe increase this year, and no cost of housing.

Sarah:
Right, and that’s not including the rental income, which yes, for the most part is just going to the mortgage, but I made $18,480 off of that in 2020 and anticipated income for this year will be 22, just under 23.

Scott:
That’s phenomenal. For our purposes today, I think it would be good to just think of that as a wash, where your housing is effectively zero, and that you’ve got 75K in income disposable, but no housing expense, so that should go really, really far, which is really exciting on that. What about the expense side?

Sarah:
My expenses are about five grand a month, including the mortgage. So, about three grand a month, realistically, and 15% of that five goes to investings, and 20 goes to savings.

Scott:
You’re sending 750 bucks a month to your investments, and you’re sending a thousand dollars a month to your savings account, your various savings account, and you’re considering that spending?

Sarah:
Yes.

Mindy:
I love that you consider that spending.

Sarah:
That’s how my budget breaks down. I actually show my budget every single month on YouTube, so it might be easier to see it in practice. It might be a little funky. No one ever taught me how to do this. I just kind of figured out what worked for me in my brain.

Scott:
That’s awesome.

Mindy:
I was just going to say, does it work for you?

Sarah:
Yeah. Then any extra I make on top of that, I’m able to sort out. Any business income I make each month, I do the income expenses for that, save a portion for taxes and then maybe save a little bit for future expenses and then apply the rest of that to whatever I want and subtract any additional like housing expenses for the property.

Scott:
I heard 3,200 a month in spending after the mortgage payment.

Sarah:
Yes,

Scott:
1750 of that 3,200 is going to investing or savings, so you’re effectively living off of 1,250, is that correct outside of the housing payment?

Sarah:
I just brought my budget up. Before savings and investings total expenses, including the $1,700 mortgage are 3,347. So, 70% of my 5K take home, 930 goes to savings each month, about 550 goes to investments. The rest is electricity, groceries, some personal spending, clothing, Kindle unlimited is important.

Scott:
You live off of $1,600 a month at this point. That’s how I’m reading it.

Sarah:
Is that math right? Maybe I should crunch these numbers more often. I just convinced my … Yeah, that’s 1,600, that is.

Scott:
That’s a realistic number with no housing expense. That probably feels pretty good. It feels like you have plenty on the zero housing expense.

Sarah:
Oh yeah. That’s living large for me. When I started this journey, I was making $1,600 a month, and 500 plus of that was going to debt.

Scott:
That’s awesome.

Mindy:
Wow. That’s a great quote.

Sarah:
I had to do the math.

Mindy:
Now you’re spending 100% percent of your income from seven years ago.

Sarah:
Yeah.

Scott:
You’re really spending too much. We’re going to have to spend the rest of the call there. Attacking that I think is going to be the advice.

Sarah:
Honestly, I just went over to my budget and I’m like, ah, I mean, I’ve got $300 a month for personal spending, $150 a month for restaurant, 300 for grocery, 60 bucks for clothing. That is more than I need, and I don’t normally spend all that each month, and that’s out of that 1600, so I’m living large.

Mindy:
What do you do with the extras?

Sarah:
Everything rolls down to what’s leftover, so anything that I don’t spend in my budget combines with any additional income that I got, that I didn’t have the expense for, and that goes to my big honk and money goal.

Mindy:
What is your big honk and money goal?

Sarah:
Right now, it’s the next property.

Mindy:
Okay.

Sarah:
Sometimes it’s $1,000 to $5,000 in a month that I’ll be able to throw at that.

Scott:
Let’s talk about that then. I think you have a phenomenal cash accumulation rate relative to your situation. It’s fantastic. I think best we might’ve heard ever on the show with this. I think you have a really good match. It sounds like you’re taking all of that and maximizing that. I’d be interested to hear if Mindy has some thoughts on the retirement accounts piece specifically, I think that there’s some optimization with you being a teacher that we could play with. Then I think the rest of the meat of the discussion after that will be on the next investment piece, and put yourself in position for that. I think you’re very close. You’re capitalizing very intelligently from what I can see so far.

Mindy:
Yeah, the first thing that I thought of when I saw your numbers, and I do get these numbers in advance. I don’t just get these numbers right here and try and figure this all out. I get them in advance, that I said. Oh, TRS is teachers retirement system. That’s great. I didn’t realize you were a teacher. Do you have a 457 plan? And your response was … I don’t know, let me go look into it. You looked into it, and not only do you have the TRS, which I am assuming is the same contribution limits as a 401(k) or a 403(b), the 19,500 every year?

Sarah:
I think so. I’m not sure. I just put in the max that they allow me to, to get that match.

Mindy:
Okay. Oh, they only allow you to put in 7.9 or whatever your number was.

Sarah:
I can’t swear to that, but they make you put in 7.7 to get the match, so that’s what I did.

Mindy:
Okay. The 403(b) and the 457 plan, do you have to take the TRS or the 403(b), or can you do both?

Sarah:
I checked it. I can do it in addition to up to 19,500.

Mindy:
Up to 19.5 across both, like a total of 19.5 across both?

Sarah:
No, I think it was an addition to. You mentioned it earlier and I looked it up. I was like, I’ve literally never heard of the 457 before. I had to look up, do I have this? And I got to the benefits book, and there were two optional plans that I could put an additional 19.5 into.

Mindy:
Okay. The TRS you are maxing out, great. The 403(b)-

Scott:
Well, she’s not maxing it out. She’s taking the maximum match, right?

Mindy:
Taking the maximum match. Oh, that’s an important consideration.

Scott:
We have a high level strategy issue here, because she’s taken the match, but she’s also house hacking with a phenomenal ROI, which I think we have to discuss, and the next investment repeating that might have a tremendously higher ROI than the pre-tax savings that she would get from maxing out one of these other options. That’s going to be an interesting strategic discussion because she’s got good income and good savings, but she can’t max out both of those accounts and buy more property at the same time in the short run. Right? That’s going to be fun. I don’t know what the right answer is there.

Mindy:
I don’t know what the right answer is either, and we are not giving advice. We are making suggestions for Sarah to look into.

Scott:
This just for entertainment purposes only.

Mindy:
However, our friend, The Millionaire Educator wrote a fantastic article on the 457 plan. It’s called Seven Reasons to Love Your 457, and I will include a link to that in the show notes. It’s also in the show notes for The Millionaire Educator episode, but I can’t remember what that is off the top of my head. I’m failing in my old age. The 457 plan basically is the same as the 401(k), 401(b), where you’ve got the 19,500 contribution limits, but when you separate from service, you can take all of that money out of the 457 plan penalty free, not tax-free, but penalty free.
So, you can pay no taxes now, kick that down the road until you want it out, but that’s a great way to save and invest as well. It’s like an additional option. If you’ve just got $1,000 to $5,000 a month sitting around looking for a home, that could be a good idea. Do you have plans to separate from service, or do you enjoy your job?

Sarah:
I really liked my job and they treat me really well here. Much better than journalism.

Mindy:
Okay. So, maybe separation of service isn’t something that you want to consider, although I like the 457 plan more than the 401(b). The 401(b) and the 401(k) are kind of the same, but different, but the same. But the 457, should you decide down the road that this is not the place that you love, you can get that money penalty free, whereas with the 401(b), I’m almost positive, you would have to pay a penalty to remove that money.

Scott:
Does the 401(b) come with a match and the 457 not come with a match?

Sarah:
I wouldn’t get a match for either of those. That’s just an additional option for me not to pay taxes on that money.

Scott:
You’re getting a match in a third thing called the TRS, is that right?

Sarah:
Yep, the TRS is where I get my match, and that’s the preferred savings plan that has my retirement benefits in it. My 457 is an option for me to put X amount of dollars in pre-tax and for it to grow from that, but I had never really thought of it because I didn’t know about it. I figured I would maybe dunk more money into just regular index fund investing at some point because you can get that out. I’m trying to figure out if that would be better than the tax thing or what?

Mindy:
I do think it’s important to have both pre-tax and post-tax investments. As you start getting into a new tax bracket, it could make sense to contribute to the 457 just to bump you back down to the previous tax bracket. It’s a lot of things to consider and you don’t know about the 457 plan until somebody tells you about it, and you’re like, wow, that’s amazing to me. [inaudible 00:28:18] told us, and I was like, Holy cow, I can’t believe that exists. I want to go work in public service. Not really.

Sarah:
I am maxing out my Roth.

Mindy:
Yes. I love that.

Sarah:
Would it be better, do you think, to put that money in the 457 or the Roth?

Mindy:
No, the Roth?

Sarah:
Yeah. So, this would be above that.

Scott:
Yeah, I think these other options now that I’m … Here’s what I see when I’m taking a look and digesting your position. I’m seeing someone who is highly disciplined, has complete control of spending, is expanding income steadily and rapidly now in a geometric fashion, and your monthly saving average is continually increasing, and I see intent to invest in ridiculously high ROI house hack real estate on the horizon, and you just can’t do that in the retirement accounts, the 457s and those types of things. I think the Roth is great and employer match is great, and the TRS, and that’s it. That’s what all I did in similar circumstances.
I think, yeah, you can lose if you do it that way, but the odds on that are just so much higher in building wealth if you stay focused on the real estate path, I think, in this particular case in the short run. In two years, what’s going to happen is you’re going to be so rich and have so much income coming in because you’re continuing to expand that and cashflow, that you’re going to be able to do more the above, and that’s when the retirement account contributions and the 457 contributions and those types of things can probably continue to scale up.
But I like what you’re doing right now and I don’t know if I would be putting way more in the retirement accounts. I think it’s a sound strategy. Again, you’re taking leverage and taking risk, but I think it’s the right bet, even though who knows what the market will do over the next couple of years.

Mindy:
One thing you said Scott was rapidly accelerating income. I believe that the single taxpayer income limit is $135,000 to still be able to contribute to the Roth. I love the Roth at your age. You’re very young. You have all this time to grow tax-free wealth. I would continue to max out the Roth. Of course, get the free money with the match, and then max out the Roth, and then as you hit up on this, oh, I can’t contribute to the Roth anymore, throw as much money as you need to in the 457 plan so you can continue to contribute to the Roth as long as that’s an option.
Again, just a suggestion, but now that you know about the 457 plan and the 401(b) plan, you can go and do research and make sure that all of the stuff that I’m guessing at is actually true. I think it’s pretty close to true.

Scott:
If you need the money in Roth, you just take it back out, right? So, that’s not the issue if you need it for real estate purposes.

Sarah:
I did do the math, and currently, including the match, which vests after a year, so I pretty much have it.

Mindy:
A year?

Sarah:
Yeah. I was all up in my benefit system this morning when you sent me that email. I didn’t realize that. I figured it was three years, and I’ve been here three years. So, I’m currently, including their match, investing $13,636 and 68 cents a year between TRS and my Roth, which seems like a decent amount to me for hopefully longer term wealth building.

Mindy:
Yeah.

Scott:
The return on the TRS stuff is going to be like the 10% market average or whatever your assumption there is, plus 100% with the match on that as long as you stay there and invest into it. The return of the Roth is going to be way lower than that. It’s going to be whatever the average long-term return is going to be on the index stuff, but it’s growing tax-free so it’s fantastic with that. I want to get to talk about your ROI on the duplex as well, because that’ll be a fun one.

Sarah:
Yeah. Once I moved out of there and written both sides, I should be making $700 to $800 a month off the unit above all expenses. That’ll be fun.

Mindy:
And finding a duplex that you can live in for free and make $100 a month, plus your 700 or 800 on the other side, that’s …

Scott:
Here’s what’s going on in that duplex is, previously, how much were you paying in rent?

Sarah:
665 a month, so I had a pretty good deal.

Scott:
Now you’re paying zero effectively, or maybe a hundred bucks a month. You could say you’re paying a hundred bucks a month if you covered utilities and maintenance and all that kind of stuff. I don’t know, I’m making that up. You’re saving six to seven grand a year. How much did you put down?

Sarah:
8,500.

Scott:
All right. You put down 8,500. Let’s say you’re making $7,000 a year in rent savings that you wouldn’t be having. That is absolutely ROI attributable to your duplex. You’re amortizing that loan probably like three grand a year. Is that probably in the ballpark?

Sarah:
Yeah, because it’s very early in the loan too, so interest is kind of high.

Scott:
Yeah, so great. Now we’re at 10 grand in ROI. Your property has appreciated by what? 10 grand?

Sarah:
It was appraised at two 40 when I bought it, and I bought it for 230, and now it’s worth 250, so 20 actually.

Scott:
Great. So, you’ve made 20 grand in appreciation. That’s a $30,000 gain effectively in the first 10 months, it sounds like. I’m rounding on a couple of these. On 8,500. That’s a 340% ROI. That’s not outrageous. Maybe not everyone can buy a property for 10,000 less than it appraises for. Someone had some real guts to buy this property and follow through during the COVID whole deal.

Sarah:
I was really scared.

Scott:
You deserve every bit of that, given the terror that you must’ve gone through and betting affirm on this property at that moment in time. So, congratulations.

Sarah:
That’s why I did the FHA instead of a conventional. I had almost pretty much enough saved to do a conventional, but I wanted to hold back some money in case the world burned.

Scott:
Yeah, it makes perfect sense. That’s 340% ROI on this property and you’re not getting that in your other … I think on average you could expect, hey, that property wouldn’t have gone from 230 to two 50 in one year, but maybe it goes from 230 to 238 in a year. That would be a more average and reasonable assumption. In that case, it would have been eight grand plus 10 grand, which would have been up 200-ish percent return. Regardless of whether you’re taking the great return of the market that we got last year or an average situation, that’s just so much better than the alternatives that it’s not even close. What do you guys think? I know there’s closing costs so we can factor those in and talk through it, but where do you think I am generally with this analysis?

Sarah:
Just one fun fact that I found out. After I bought the place, because there’s an area of all identical duplexes. I made friends with the lady across the way. She told me how much her parents paid for that unit 10 years ago, and they just sold it again. I did the math. Actually the houses in that area appreciate nine grand a year.

Scott:
Nine grand a year. Nice. That’s probably like 4% a year, four and a half, something like that.

Sarah:
Something like that.

Scott:
Yeah. That’s fantastic with that. And it sounds like you didn’t just buy a willy-nilly and airy, you found … You feel comfortable with the area and know where the path of progress is and where you think odds are, the appreciation is going to flow in the next couple of years. Is that right?

Sarah:
Yeah. I shopped for a year. I saw maybe 13 or 14 multi-family properties, and I know the area really well. I definitely did my research and drove a real estate agent nearly crazy.

Scott:
Let me throw one additional thing into the mix here. You also have a business that you’re running and you said you bring in 33 or 30 … How much do you bring in from the business gross?

Sarah:
Last year, 35. This year, I’ll probably make 50.

Scott:
You said your net was 22.

Sarah:
There were about 10K in expenses, so 25.

Scott:
Yeah. So, you’re investing 10K in the business. You’re probably going to think of that, because it’s probably all cost of goods sold or cost revenue perhaps, but you’re investing 10K in that business and generating a 300% return on that as well. So, you have some phenomenal investment approaches here going on across your portfolio. I’m having fun with this. This is great, complementing you.

Sarah:
Yeah, let’s do it. And I discount the office space on my taxes of course in my home for home office.

Scott:
There you go. Absolutely. You have two phenomenal investments here that are just way, way, way better than your index funds or retirement accounts. I want to point this out, because there’s probably other people in your shoes who are also intelligent, driven, charismatic, capable people who are in this expansionary phase in their career, and I believe aggressively, arrogantly for myself, that it’s far better to bet on myself and keep that cash available the way you’re doing, than it would be to stick it in a long-term average investment profile in this situation. What’s your reaction to that?

Sarah:
I like that I can keep my cash hoard. I’m just kidding. That’s kind of what I’m thinking, and especially when I was thinking about retirement, I didn’t max out my Roth last year. I just wanted to put more towards the house and everything like that. This year I decided to max that out, and then my basic plan above that was to save for the next property because I would like to keep buying myself more sources of income. That’s really fun. Didn’t know about that when I started all this, trying to pay off debt a few years ago. I really enjoy it.

Scott:
Great. I guess, what’s your next plans? What are you intending to do? You’re probably not intending to sit on your cash hoard indefinitely. What’s the strategy right now?

Sarah:
Well, right now I have about three grand saved for the next property. I’m working from there and I’ll save up for the next one. I know I can’t get another FHA while I have one so I’ll have to save up a little bit more for the next place. I’ve also considered getting a little bit of land in the area and plopping like some little tiny houses for Airbnbs on it. I’m very interested in that Avenue right next to a college, can easily book out stuff for all the game day weekends. I think that could be an even higher ROI than long-term rentals. I’d love to get in the short term rental market, but I’m trying to do it smart and slow.

Scott:
Let me ask you this. You have 44 in cash, but you only have three grand saved up in the rental property. Let’s go through those again, because I believe you have an overwhelmingly conservative position, and I’d love to know how you’re thinking. I think your 10K for the property reserve is fantastic. That’s a fantastic minimum. Maybe even beef that up a little bit. I think your personal expense reserve is maybe good as well, but I’m interested in the other kind of half of that, that extra 25 grand that’s sitting there and what the thought behind that is.

Sarah:
Okay. I started doing some sinking funds when I was getting out of debt for obvious reasons. It really helped to break down annual or semi-annual expenses into smaller portions and I paid off those each month. I just kind of kept Adam after. I have about 1,500 in a travel fund, 600 bucks in a car insurance that’s billed annually so that’s just me saving money by paying every six months $779 in a car repair or replace fund in case anything happens to the car, $273 in a pet fund, 800 bucks in a Christmas fund, 400 bucks in a medical fund, and about three grand in YouTube tax savings fund. That comes out to 11 grand in sinking funds savings that I’m just kind of sitting on.

Mindy:
Some of those funds I wouldn’t touch, the car insurance, the YouTube tax. I didn’t get a chance to start typing them all down as you were reading them off, but the one for travel, are you going anywhere in the foreseeable future? I mean, we’re in the middle of COVID. Do you have a big trip that you’re saving for? Oh, in 2022, I’m going to go to Australia or something, or is that just a place that you put money?

Sarah:
It’s a hundred dollars a month that has grown a lot because I haven’t traveled in so long so that’s why that’s so high. Usually, I use that for, maybe I’ll go visit a friend once a year or FinCon expenses kind of thing, though I guess I could take that out of my YouTube earnings.

Mindy:
I would definitely. That’s a business expense. What kind of car do you have? You have almost a thousand dollars in car repairs and yes, car repairs are expensive, but what kind of car do you have?

Sarah:
I drive a 2016 Nissan Versa Note that is a salvage vehicle that I bought for five grand cash.

Mindy:
Ah, okay.

Sarah:
And it’s an excellent condition, drives like new.

Scott:
You’re a legend.

Sarah:
It has a backup camera. Oh, thank you. It has a backup camera and like clicky locks. I can play music on my phone through the car, which is … It’s like I have a limo or like a private plane. When I was paying off debt, I drove a 97 tracker without air conditioning in Louisiana.

Mindy:
I had a no air conditioning car too. That’s where the true sacrifice come.

Scott:
I’ve never had that. I’m spoiled.

Mindy:
Snob. That’s okay.

Scott:
My girl has great air conditioning.

Mindy:
What I’m trying to get at is I see a lot of money that you maybe, I don’t want to say, could borrow from, but you could borrow from it if the right property popped up on the market and you wanted to hop on it. I’m wondering if you’re continuing to watch the market because you want to buy another property, you could … it’s been 10 months since you originally bought, and I’m really surprised that your documents don’t say you have to live in it for a year. I would definitely encourage you to go back and read that one more time.
But if it doesn’t say it, it doesn’t say it, but for the purposes of the advice that we’re giving in general, most mortgages will say, you have to live in it for a year if you say you’re going to be an owner occupant. Let’s say, in two months, you’re available to go and buy a new property, if you are finding something now, you could just write the deal to close in 60 days. Are you keeping track of it? And if not, why not? I’m sorry, not keeping track, watching the marketing and looking at properties.

Sarah:
Yes, constantly. It’s my favorite hobby. In fact, I went and toured a $60,000 A-frame from the 1930s the other week, but oh, it needed a lot of work, but oh, I love an A-frame.

Mindy:
Yeah, that’s a $50,000 roof job, but that’s-

Sarah:
The roof is fine, but there were other things. There were other things that would probably cost that much.

Scott:
I just want to chime in here with a couple of things about the cash position in general. I think you need to reframe how you think about your cash would be my advice for you. There’s two options, I think, and here’s how I would think of it. Here’s my personal life. I need a certain amount of cash. You’ve proven that you’re extraordinarily disciplined with your budget and your spending with this. You are in good shape for that. I’d consider potentially pulling that and saying, okay, all these different accounts, what’s just one number that I’m comfortable with? Is it 15 grand? Is it 20 grand? Is it 25? Once I pass that number, how much do I need for my personal life?
Second, how much do I need for my rental property business of one, perhaps more to come soon? How much do I need right now? And how much do I need after the next acquisition? Do I need to bump that up from 10 to 20 or whatever it is to feel good about that? Third, you have a business, a real business with Budget Girl, and that’s producing income, and that also needs cash to be capitalized. So, you have two options, I think at the highest level that would potentially simplify your cash position and allow you some more flexibility to harness more of that right now.
One, and you don’t have to take any of this advice. Your approach is working really well. It’ll just be a few more months before you have the cash built up for the next property if you don’t do that. This is a directional thing, but one option is to fund each of those things separately, and the second is to say, you know what? I’m just going to aggregate one giant pool of capital and use that to deep reserve for all three of those funds, and everything above that I can then spend on the next investment or whatever it is.
But I think if you could simplify that, you might be able to free up 10, 15 grand right now if you zero-based and said, here’s what I need for personal, here’s what I need for this, here’s what I need for that. Do I want to have those each living within those entities or separate accounts? Do I want a giant pool of capital? Then, great. All the proceeds now that come from those different sources go straight into the next rental pool after all the good habits you’ve got right now with the Roth and the other investments. Any reaction to that? What’s your thoughts on that?

Sarah:
I’ve been thinking about it for a little bit, to be honest. I started these sinking funds when I couldn’t cashflow expenses like these in a month. Realistically, I could cashflow any of these expenses in a month now. So, it would make sense for me to maybe cut down some of those … I’ll keep saving for taxes, I’ll keep saving for annual car insurance, but realistically, it might make more sense to pull on those. I have thought about what Mindy said.
If the perfect deal came up, would I rob those funds? Abso-freaking-lutely, but yeah, I might be thinking with kind of a scarcity mindset on those, where I have this much is in a pocket, especially for this when that fund comes up, when in reality, I could just pay for it out of that month if I needed to. I could probably take at least five grand out of that and be fine. I don’t know if I’d want to just have an emergency fund that I tapped anytime I needed. Maybe that’s a mental break, but maybe an emergency fund and then like a little operating or something, or maybe not, I don’t know.

Scott:
You’ve got a re like a ridiculously conservative position, which is great, because you’ve got like 15, 16 months of cash on hand, and that’s inclusive of your mortgage payment, that assumes no offset comes in. If you don’t include your mortgage and all that kind of stuff, you’ve got what? Three years, close to three years of cash on hand? Compounding that extraordinary conservative cash position, you also have ridiculously high savings rate. Again, if we net out the housing and all that kind of stuff, you’re bringing in 75 a year, and you’re only spending 20.
Now there’s taxes, so we’ll bump it down a little bit, but you’re probably saving at like 60% of your income, your net income, again, zeroing out that. Because of your incredible conservatism on those fronts, you can ironically afford to be more aggressive on the investing front to a certain degree, which I think is a fun position to be in. The way I manage my cash, or I had a similar situation arise for me a couple of years ago, and the way I kind of manage it, I was like, okay, I’m just going to have a pool of capital for the rental property, a pool of capital from my personal account, and whenever the account … That number is suitably high.
You have 10 grand for personal. Let’s say you bump it up to 15. Well, whenever it gets below 15, you just put your next income stream dump into it, and you’re still way above your 10K mark. So, you’re 4,300 in surplus instead of 5,000 in surplus over it. Then now you feel good. You can sweep every dollar above that into the next investment fund. That’s kind of how I’ve run it. I don’t think you can go wrong. These are just tips on ways potentially to harness more of your cash sooner with that. That’s all.

Sarah:
So, should I invest that money or should I save it for the next property?

Scott:
I would consider your next down payment fund investing. You’re not earning a return in the immediate future, but you’re now capitalized immediately to buy next property. That’s your investment. You’re just getting a 0% return in the first three months of the business hold process because it’s in cash, and then you begin generating the higher return when you begin, when you make the investment.

Mindy:
Yeah, I want to clarify what Scott is saying, just because he’s using the word investment. What he’s saying is hoard that cash for your down payment, not putting it into an investment. Put it into a high yield savings account and earn that 0.02% interest, but if you’re going to use that in the next two to … What is it? Two to three years, Scott, if you’re going to use it in the next two to three years, you need to have it in a liquid account, not invested in the stock market, because look at last March.
You put all of your money in the stock market and then March 13th happens and it is now worth 60% less or whatever the drop was. That’s really scary. Yes, it popped back up. It popped back up so fast, but that’s not how markets usually recover from a crash. That was like a blip. That wasn’t really a crash. But yeah, I just wanted to clarify that because Scott uses all these words. I just know how he thinks.

Scott:
Yeah. This is not the time to overextend and take a crazy risk or whatever, but you’re clearly close to, or currently in position to buy another rental property responsibly based on everything I can tell from this situation, and it just depends on how ready and willing you are. Do you want to wait another few months and continue to bulk that up, or you want to go down? You could go down. I mean, we rarely talk to people who are in better position to buy their next property than you right now.

Sarah:
That’s so funny, because in my head, I’m like, I only have three grand for the next property. It’s going to take me a while.

Mindy:
You only have three grand in that bucket, but you have a lot of other buckets that could be poured into that. Then just replenish. Like Scott said, you have a great savings rate. He didn’t use the word great. I’ll use the word great, because Scott said ridiculous, and that’s wrong. It is a great savings rate. He is right. You are very conservative.

Scott:
Ridiculous great.

Mindy:
Ridiculous great. You are very conservative in your projections, but that also comes from the fact that you were in massive debt in relationship to your income and in relationship to your income potential in that field. You were in massive debt and you paid that off. That’s an awesome story. But I bet you were sitting there six years ago like, oh my goodness, how am I ever going to climb out of this mountain of debt?

Scott:
Your an overnight success in six short years.

Mindy:
Exactly. But that affects you so I totally understand where you’re coming from, but what sort of financial position could you be in with another similar duplex?

Sarah:
Pretty good one.

Mindy:
Pretty good one. I’m wondering if you could start reaching out to all the duplex owners. You said you live in a place that is just a bunch of duplicate duplex owners, or duplicate duplexes. Reach out to the owners. Get a list of all the people who own but don’t live there and send them a note, hey, I’d like to buy your duplex, if you’re ever interested, sell it to me.

Scott:
Absolutely.

Sarah:
I like the property I’m in. I think it’s great, but I figured I would get the next one somewhere else just in case.

Mindy:
Do you believe in the area?

Sarah:
Yes, a ton, but I guess I’m thinking like, well, if something happens to the area that’s negative, that’s all of my investments down the suffering instead of … I mean, I’m in Texas, we’ve had a lot of disasters lately.

Scott:
Sarah, do you believe that your business is likely to continue growing? I promise I’ll tie this together in a second here, but do you believe that’s likely to continue growing over the next couple of years?

Sarah:
Hopefully, yeah, I do. I believe in it.

Scott:
Okay. If you weren’t a part of that business, would it stop generating revenue if you stopped doing stuff?

Sarah:
Yes.

Scott:
Okay. So, what you have here is a business that is worth a lot of money, but only to you. Someone else couldn’t buy the business and continue to sustain the revenue. But you’ve got an asset here that’s generating 25 grand and is highly, highly likely to generate more and more revenue each passing year, in addition to your full-time job with that. I think you inherently have diversification that you may not be thinking about in terms of your income stream that make your income very, very stable relative to the vast majority of your peers and a vast majority of maybe a lot of people out there.

Sarah:
That was intentional.

Scott:
Yeah, a $25,000 income stream like that, people would pay him a million dollars for that if they could feel like it’s stable. Now, you obviously have to work at it so it’s not really worth a million … Like you don’t have a million dollar asset right now and you can sell it for that, but I think it gives you optionality in being very conservative, or being a little bit more aggressive with those types of things, and I think you’re understating the risks of investing out of state in areas you’re not as familiar with, unless you have an area in mind, like where you used to live in.

Sarah:
Yeah. I meant like another subdivision in the College Station-Bryan Area.

Scott:
Okay, but on the block.

Sarah:
Yeah. Just not like right next to each other, so if like a tree falls down, it hits both.

Scott:
Okay, I see what you’re saying. Right now, for my state, I’d love to have a property that was right next to the other one. That would allow me to check out both every time. Those advantages are really nice. That said, I guess a tree or a tornado could wipe out both in one stroke, but I think that’s a fairly remote risk.

Mindy:
That’s why you have insurance.

Scott:
Yeah, you’re at the same market risk if you’re just a few blocks away or a few miles away anyways, I think.

Sarah:
Dang, the one across the street just sold for 230, I probably should have snapped it up.

Mindy:
You should have snapped it up.

Scott:
I think that would be, I don’t know specifically, but that would be … My would be to favor that over the other stuff, not knowing anywhere near the amount that you know about your local area and your block and those types of things.

Mindy:
Yeah. I do like the idea of reaching out to all of these same duplexes and letting them know, hey, I just bought one for 230, I’d like to buy another one. If you’re interested in selling, let’s talk. If it’s going to cost you 230 with or without an agent, it’s better to them to have no agent representing, and then they get all 230 instead of 230 minus agent commission. So, something to think about, and it only costs you a few stamps. Send a letter to everybody, hey, I want to buy your place.

Sarah:
I mean, I have the people’s phone numbers. I did my due diligence before I bought the place. Y’all are on another level. I need to get up there. I need to get past my own personal I’m broke barriers and go ahead and [crosstalk 00:55:14] off there.

Scott:
You’re not broken anymore. You’re about to become real rich real quick with this. If you just do nothing and don’t invest anything, you’re going to get rich at a rate of like 2,000 a month, which is 25,000 annually in cash, not to mention all of the investments that you’re applying with it, so this is fun. Another thing to think about, like for your situation, if you really are this interested in getting aggressive about this stuff with the real estate side of things and considering the creative avenues, is maybe you should consider getting your license on the side here and investing in that. That’s not always the right move, but if you think you’re really going to be buying another one, hey, that’s three grand, four grand in the next year right there.
And while you’re doing that, that gives you an excuse to pad your cash position even more and feel better about that while you’re getting a license. That can be a potential avenue for you to explore as well.

Sarah:
There’s also the whole, literally anything I do, I can film it and make money off of it on YouTube.

Scott:
Well, you should, because look what you just did. You’ve you’ve really built an impressive position. You absolutely should, because you’re helping lots of people. How many people can come on here? Nobody. I’ve never talked to somebody on the money show that has gone through what you went through to get out of debt. It’s not the same in a lot of these scenarios. It’s all different. But yours, I think, of all the positions to start from, yours would be the one that I think is least enviable, frankly. With the income you had and the debt you had, I think you had the hardest, I think you were dealt the worst hand, and you started out with the worst set of cards of anybody we’ve talked to on this show. I don’t know, Mindy, what do you think?

Mindy:
You’re killing her. [crosstalk 00:56:48].

Sarah:
I took it as a complement.

Scott:
It had to suck. We talked about it.

Mindy:
Yeah. No, I completely agree. We have talked to a lot of people who have paid off more debt, but their story isn’t as impressive, and I say that, I don’t try to be mean, but you had $30,000 in debt and were making $30,000 a year. It’s hard to live on much less than $30,000 a year. You cut it in thirds, or you cut it by a third and you paid a third of your income to debt and lived on two thirds of your income. That’s huge.

Scott:
That’s what I mean by that. Yeah.

Mindy:
Yeah. When you’ve paid off $100,000 dollars in student loan debt in two years by making $100,000, that’s a very different scenario. It’s real easy to live off of $50,000. I mean, it is for me.

Sarah:
It is. I mean, that’s my day job income now, and every single month I’m like, well, what should I do with this? I should probably save it. I’m so lucky that I have so much more than I need to live on now. I remember making $1,600 a month and having like a hundred dollars to spread across groceries for the month and living in a very bad part of town.

Scott:
I’m going too far with that. I’m sure there are folks that had some more situations and had a child to look after, or other types of things. I’m probably going too far with that, but you had a very tough situation that you’ve overcome, and yeah, absolutely, the lessons learned, it’s just inspiring, seeing what you’ve done right now and all that kind of stuff. And I think you’re ready for like the mindset pivot of like, okay, now I own assets and businesses, and I’m going to scale them and look at them in terms of ROI and capitalization and those types of things. How do I reduce costs and maximize income?
I love the creative thinking around the mobile homes, the small homes on the land. That’s a great concept.

Sarah:
Maybe a yacht.

Scott:
Yeah. I would not capitalize that the same way you capitalize a duplex. I’d put a lot more equity into that and use a lot less leverage because it’s such a higher risk, less tested, time-tested thing than like a duplex. But that would be awesome. I think, if your instinct tells you there’s something there, that’d be something to look at, and you’re in position to attack it, I think. This is fun. I’m having fun. [crosstalk 00:59:13].

Sarah:
Thank you. Yeah. I’m reading all the books and everything. I’ve read you guys’s books and all, and I’m trying to move into that mindset, but a huge part of me is still very much that girl in the $400 a month apartment with a butt-load of debt, who’s like, I what if something happens? I need money. I’m trying.

Scott:
Yeah. Again, I think it comes back to, what is the amount that you need to feel comfortable? That amount can be more. You might just say, you know what? It’s 50 grand, and then I’m going to feel comfortable, but peg it there and then start playing to win with the rest of your accumulation would be my advice, because I think you can. In your position, you’ve got … The best position I can think of, just start doing that at this point, unless Mindy you think differently.

Mindy:
No, I love the position that you’re in now and I can completely relate to the money scarcity from before position. Ultimately, you have to do what makes you comfortable. It doesn’t do you good to take our advice and go buy another property and maybe deplete some of these funds and then be up at night because you’re worried that something’s going to happen. You can call Scott and ask him for some money then, because he gave me these ideas, but it doesn’t-

Scott:
Entertainment purposes only.

Sarah:
Entertainment.

Mindy:
For the advice that we’re giving for the options that we’re suggesting, I really do think that you should continue to look for the next property, and even if you only have $3,000, pull from some of these other funds to make it when you find the amazing property. I wouldn’t pull from any funds for a mediocre property, but what if the one across the street lists for 210 and it’s in great shape, and they didn’t over-spray the cabinets and the tile doesn’t make you want to vomit? If it comes on the market for 210, you want to be able to jump on that. You clearly saw the value in a 230, 210 is just going to be even better. You want to be cognizant of the market. You want to be able to pounce when you can.
I think you can pounce now because your savings rate is so high, because you live on so much less than you make, you should be able to pull the trigger very quickly if something pops up. I would continue to hoard the cash, continue to … Even really, all of your little buckets seem pretty full right now. So, unless they’re all about to get emptied, I would throw all the extra cash after the TRS and Roth savings, I would throw all the extra cash into your home down payment fund and see what happens in the next couple of months. I mean, the market is pretty hot, hot, hot right now, so I don’t know that you’re going to get one for 210 without a bidding war.

Sarah:
It’s a little high right now. I’m hoping things will lower soon. I’ll admit, that’s why I’ve been thinking about this, because 44K in cash seems kind of stupid if I’m thinking real hard about it. Once I break it down, I’m like, that seems reasonable like how much is in each bucket, but it seems like I’m probably wasting/losing money.

Scott:
Yeah. Eyeball on it. I’d say like, if you said, hey, I have 30K in cash, 15 for the rental reserve and 15 for my personal reserve, I wouldn’t be able to argue with that. That says, okay, that’s how much I would capitalize a duplex of that size for, because that will go a long way toward replacing that roof if you have that at one moment, or HVAC can write a check on that. Then the personal side of things, that is 10 months of expenses, which is a big reserve, but not unreasonable, not with that. That would be a potential number that would, optically seem in the ballpark of it. But again, if you want more, you want more.
Just peg it as, what’s enough? Then from there, you can begin applying all the surplus to the next thing. There’s no wrong answer, but I’d encourage you to start … I think you’re in a position to play to win.

Sarah:
I’m looking, I have a lot of properties bookmarked on Zillow.

Scott:
All right. I think this has been really fun. Do we want a recap, Mindy?

Mindy:
Yeah, you’re killing it. Good job. That’s the recap. You’ve got a great salary that you can live off of, more than live off of. You’ve got a side hustle that you can live off of with great potential. You are cashflowing your rental. I say that because the numbers aren’t fabulous, but the numbers are really awesome because your living expenses are zero. Your living expenses are negative 100. When you look at this duplex and you run the numbers as $1,700 in rent, it barely cashflow. In fact, I think it negative cashflows, but 1700 is also with you having a place to live.

Scott:
I want to completely disagree here, Mindy, respectfully. This is a huge winner. If she has rented it out at market rent, she’d be bringing in 2,400 on a $1,500 note. Even with conservative $500 CapEx, maintenance, all that kind of stuff, she’s bringing in 400 a month in cashflow on a $10,000 down payment. That’s a 40% cash on cash with that. This is a real winner of a property with that. It’s just with your house hacking, your cashflow is in the form of not paying rent, I think so. I think that’s how you underwrite it with your deal there.

Mindy:
I’m glad you disagreed with me, because I ran the numbers with what she gave me, the $1,700. I didn’t run the numbers as what they could be, and what is one side 1250, the other side is 1250? That’s a way better, 1250 and 1250 is 2,500, that’s a lot better than 1,700. That’s a killer deal. Yeah, this is a great property. So, you’re killing it on the income, you’re killing it on the side hustle, you’re killing it on the rental property, you’re killing it on the investments. I would like you to look into the 457, so when you do start crushing it on the side hustle income, you can knock down your day job income so that you can still contribute to the Roth.
Because of your age, I’d love to see you max out the Roth from now until you can no longer max it out, and start looking for that next property, because it’s going to take a couple of months to find, and then you’ll just jump on it and be there. But I think sending letters to all the people who have owned the property that are in your area for more than three years, I would send them all a letter, hey, I would like to buy your property. If you’re ever thinking of selling, here’s how you can get in touch with me. Phone number, address, email address, all the ways to get in touch with you, and let them choose the one that makes them the most comfortable.

Sarah:
Quick question, because I already have an FHA loan, I can’t do another one. I assumed I’d have to do a conventional at like 20% down, which is 50 grand. No?

Scott:
Talk to your lender, you can get a much lower down payment.

Sarah:
Okay.

Mindy:
Conventional goes down to 3%. I’m assuming you have excellent credit.

Sarah:
Over 800.

Mindy:
Ooh, la-la. Yeah, so you can have a conventional loan for as low as 3% down. I’ve seen a lot of 5 percents. If you are living in the property, you don’t have to put down 20% or 25%.

Sarah:
Oh, I’m thinking of investment properties. Aren’t I? But obviously, I’d move out of the one I’m in now. I’ve actually tried to run the numbers to see if it would be more responsible to either rent or just buy another place so I could get the full rental income out of, but that doesn’t quite work.

Scott:
That’s right. If you were to put down 40 grand or 20% on one of these rental properties, you would, I think inappropriately … The sunlight is right in my eyes for those watching on YouTube. If you were to put down 40 grand or 20% of the rental property, you would then be over leveraged and that would be a really stressful situation with that. But you could put down 3% responsibly on the next duplex and move out and you’d have a very good shot at cashflowing with a good reserve, and you’d still be able to pack on a nice reserve with that. I think that’s only probably a few months away for you from being able to do that pretty easily.

Sarah:
I don’t know why I was only thinking … I was thinking for the next one, I’d have to do like an investment. I guess back when I was looking at it, it was like, I was thinking I had to do 20%. Maybe that was for a quad or a triplex or something. I don’t know.

Scott:
No, if you move in, you can probably put down that very low down payment with a conventional loan most likely. Talk to a couple of lenders to verify that. But I’ll be surprised if you can’t put down 3.5% or 5% on an owner occupied property with a conventional loan in your area. There might be something that you don’t know that’s impacting your area, but that would be my belief.

Sarah:
That makes my options a lot sooner. Yeah. I was really thinking I needed 20% for the next one.

Scott:
My skepticism is around whether your FHA financing will really let you move out a year after moving into the property, in less than a year. You seem confident in that, but that’s unusual in my experience hearing that.

Sarah:
I’ll check the paperwork again, but I asked that question so many times, and they were like, “No, you’re good.

Scott:
Fair enough.

Mindy:
You’re the only person I’ve heard say that, but yeah, I tend to have the same experience Scott has. And yeah, all of my advice about getting into another property was based on you house hacking it and getting a 3% or 5% down loan. It was not based on the 20%. 20% down, you don’t have enough money for. You wouldn’t deplete your entire emergency fund, and that would give you the heebie-jeebies, so no heebie-jeebies here.

Scott:
I agree.

Mindy:
I love your position and I want to talk to you again after you buy this house.

Sarah:
I get to come on again?

Scott:
Yeah, we should have you back every three years.

Sarah:
Standing appointment.

Mindy:
There we go. That’ll be awesome. Sarah, this was fantastic. I really enjoyed talking to you. I love where you have come. If you are listening to this episode and you did not listen to her original episode number six, it’s a great episode. She shares her story. There are some tough decisions she had to make. I remember you had a baked potato party, and hey, with your friends, I’ll bring a baked potatoes and you bring the butter and you bring the bacon and you bring the cheese. I had baked potato parties after that because of your episode, because that’s a really inexpensive way to feed a bunch of people.

Sarah:
So fun, and heck, if you’re really feeling boujee, make it like a taco potato party.

Mindy:
But [crosstalk 01:09:43].

Sarah:
Yeah, that’s a good meal.

Mindy:
We’ll have Scott bring.

Scott:
That is going to be what we’ll share an Instagram. That’ll be with a clip right there.

Sarah:
No, thank you guys so much for looking at this. I’m kind of the first person in my family to do anything like this. I lost my parents a while back, so I don’t really have … I haven’t really had the person who’s been able to kind of pave the way or show me the path, so I’ve had to learn everything through YouTube and through like the BiggerPockets forums, and through podcasts and stuff like that. So, I do tend to be very conservative, just because I’m afraid that I’m unaware of something that’s going to ruin me, but I appreciate the advice and the encouragement, and that you guys believe in me. I really appreciate it.

Mindy:
Oh, how could you not believe in you?

Scott:
I’m just so grateful you came on the show twice now, and again, I think your story is just so phenomenal and I can’t wait to watch the next couple of years. This is just going to be … You’re giving us a gift of really good content with this and we appreciate it, and you’re helping lots of folks in the process. So, thank you.

Mindy:
Okay, Scott, what’d you think of Sarah?

Scott:
I had fun if you couldn’t tell. This is a fun situation because she’s got all the options in the world because of the discipline and ridiculous, strong fundamentals that she’s put in place and sustained now for six years in a row with her spending, continuing to increase her income, which is now beginning to rapidly accelerate. This is the story. If any story is repeatable, it’s going to be hers to a large extent. The discipline she put in may not be sustainable, but if she can do it, anybody can do it is what I’m trying to say, or most people can do it with this. I had so much fun. I’m so impressed. I think she’s so wonderful.

Mindy:
She is. She’s absolutely wonderful, and her story is absolutely repeatable. You can hear in her voice that she still carries some of that financial insecurity. I think it’s going to take her a really long time to be able to put that aside. I don’t want to say get over it. I think she should always remember that there was a point in time that she wasn’t able to afford most, anything. She wasn’t able to cashflow an unexpected expense, but I’m super excited for her future, and I think it’s huge.

Scott:
Yeah, I had a ton of fun there. Again, if you’re interested, go follow her on Instagram at @gobudgetgirl, and she is really looking for advice on how to paint her kitchen cabinets, so that’s her favorite thing, which in that facetiously, because she got like 150 opinions of that and I think it’s funny. Go give her another opinion on that and give her a follow. Yeah, that’s the big ask from us today.

Mindy:
Should we get out of here, Scott?

Scott:
Let’s do it.

Mindy:
From episode 178 of the BiggerPockets Money Podcast, he is Scott Trench, you can find him on Instagram @scott_trench. I am Mindy Jensen, you can find me on Twitter @MindyatBP, and we’re saying, got to swish jelly fish.

 

 

Watch the Podcast Here

Help Us Out!

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds. Thanks! We really appreciate it!

In This Episode We Cover

  • Getting out of debt fast, even with low income
  • Creating multiple streams of income so you can save and invest heavily
  • Buying properties within the “path of progress”
  • House hacking to live for free (or getting paid to live)
  • TSPs, Roth IRAs, and other retirement accounts
  • Keeping your spending conservative so you can go all in on investments
  • And So Much More!

Links from the Show

Connect with Sarah: