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So You’ve Reached Millionaire Status, What’s Next? Finance Friday with Brian Blask

So You’ve Reached Millionaire Status, What’s Next? Finance Friday with Brian Blask

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What do you do once you’ve hit millionaire status? You have rental properties, brokerage accounts, and a good amount of cash on hand, so what’s next? This is the question that today’s guest, Brian Blask, has. Brian has done everything right so far: he doesn’t spend frivolously, he invests heavily, he isn’t overleveraged in his rental properties, and he has a high income.

Often when you reach such a high point of financial intelligence, you want to make bigger investments for bigger returns. Brian is debating whether or not he should buy more rentals in the cash flowing market of upstate New York, or buy a short-term rental in his new home state of North Carolina. Both markets are different, while one favors cash flow, the other favors appreciation. Brian is also debating whether or not he should take a truly passive role and invest in real estate syndication deals.

Many people don’t know that to become an accredited investor you (often) need to have a net worth of $1,000,000. This is why Brian is debating whether or not he should put money into syndications. Although they can be more hands off, it’s incredibly important to do your homework and look at the track record of a syndication before diving in.

With the liquid assets that Brian has on hand, he has a number of great options to follow up with. Keep the cash flow in New York even with little appreciation, try his shot at an AirBnb in North Carolina that could both cash flow and appreciate, or have more time with his new baby on the way and put money into a syndication. What should he do? Listen to find out!

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Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money Podcast show number 180, Finance Friday edition, where we interview Brian and talk about saving for rentals versus maxing out the 401(k).

Brian:
I can’t get to that money that I already have locked up in retirement accounts till 59.5, right? Should I be socking it all the way? Should I be… Because there are so many schools of thought there; put it up to the match, max it all out, and that really is the root of it is use the extra money to invest or max it all out because now I’ve got a strong cash position.

Mindy:
Hello, hello. Hello. My name is Mindy Jensen and with me as always is my high level overviewing co-host Scott Trench.

Scott:
I love how you just zoom in every time or I guess zoom out every time with these intros with a new adjective. Thank you, 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.

Scott:
That’s right, 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 deploy hundreds of thousands of dollars in cash laying around, 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, I’m so excited for today’s guest, Brian is doing it right. I think it’s really helpful to see how people who are handling their money right are handling their money. We have had some guests on the show who have had some real problems and needed some guidance on where they should go next, or some encouragement to look in this direction or that direction for their next financial win. But Brian really doesn’t need that, he’s contributing to his 401(k), he’s got a healthy balance there. He’s buying cash flowing rental properties in his former location in upstate New York, and has just moved in is looking into learning that new market. It’s fun to see somebody who’s doing it right.

Scott:
Yeah, I think it’s really interesting to compare Brian to two of the other millionaires we’ve had recently on the show, Brian is a millionaire. One of those folks earned a $220,000, $215,000 income, had a billion dollars, but had no free cash flow and no freedom as a result of that. The other, I think, was a millionaire with a small real estate portfolio, but was earning too little at their work to justify their continued work there. Their time was just way more valuable than the dollar per hour activity rate that we’re getting there.

Scott:
We don’t see those problems in Brian’s situation. Brian has a well constructed, careful financial position. He earns a good income. He’s invested in both real estate and stocks. He’s got a sizable liquidity position. He’s moving to improve his lifestyle. All his expenses are intentional, and he seems in complete command of his position.

Scott:
What I think you’re going to get from today is a kind of glimpse into what kind of I think good looks like. There’s always room to improve one’s financial position, and there’s certainly optimizations that we were able to identify, but they’re really minor in scope compared to some of the things we talked about recently. I just love… I think it’ll be really helpful to contrast this in your minds with the positions of some of the other billionaires we’ve had on the show and look at the freedom and lifestyle and abundance and happiness that Brian is able to have, because of the way he set up his position in contrast to some of those other ones.

Mindy:
What’s a great way to say that, Scott. Before we bring in Brian, my attorney makes me say, 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 for professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate. Brian, welcome to the BiggerPockets Money Podcast. I am so excited to have you today.

Brian:
It is a wonderful to be here.

Mindy:
Brian and his wife are high school sweethearts in far western New York, they have eight year old twins and his wife was a teacher and is now a stay at home mom. They have another baby on the way and have always been financially conscious. Their net worth just recently passed a million dollars, yay, and are now in the, should I max out my 401(k) or save for the next rental debate portion of their financial journey? Brian, welcome to the show. Let’s look at your financial picture. Let’s talk about your income and your debts and expenses.

Brian:
Sounds like a wonderful plan.

Scott:
Great. Could you walk us through your income, your household income and expenses… How much do you bring in a month and how much are you able to accumulate in savings per month?

Brian:
Are we talking gross income or are we talking net income?

Scott:
Le’s start with after tax income. After your retirement account contributions and those types of things, how much are you bringing home on a monthly basis from your various income generating activities?

Brian:
About $9,000 to $10,000 a month.

Scott:
Great. What’s that broken out of? Is that mostly salary, or is there other stuff going into that?

Brian:
My salary job plus commission, and then rental properties. I have several units that generate rental income. Because I’ve been a BiggerPockets member for so long, I realized that rental income is a very good thing to do.

Scott:
There you go. I love it, diversified income there. How much of your income would you say on an after tax basis is reliable month in and month out, not commissions or bonuses, but that you can count on?

Brian:
All of that. It’s pretty standard. I’ve been doing this for so long, in the sales side of things that it’s not a variable income. The position that I have has been steady, the same for yours.

Scott:
Wonderful. We’ve got about $9,000, in after tax income coming in every month.

Brian:
Awesome.

Scott:
What do we have in terms of expenses after that?

Brian:
Well, we have to pay mortgage, and we got to pay a car. Essentially, those are our big ones. Overall, it’s going to be about between $5,500 and $6,000 a month.

Scott:
Awesome. What are some of the big breakouts of that $5,500 to $6,000.

Brian:
We’ve got obviously mortgage. Your PITI with your mortgage there and a car. Our mortgage PITI is about $2,200, and then car is about $900.

Scott:
All right. That’s $3,000. The remaining portion of your budget is all the variable stuff, which is the… I’m locking out around $2,000, $2,400 a month based on what you just said there. Does that feel about right?

Brian:
You’re correct. You’re talking your regular bills; phone, internet, cable, or whatever you do with your YouTube TV. Then you go to food. Food’s a big one too. I got a couple of kids that are continuing to grow and we like to really eat healthy, so we spend a little more on that, to make sure that we ensure.

Scott:
Okay, great.

Mindy:
Have you considered eating junk food all the time? Because that’s way cheaper.

Brian:
So much cheaper. I understand. I’m a chiropractor. Being in that wellness side of life, I have to be more health conscious with my nutrition.

Mindy:
Fine.

Scott:
Okay. Well, I think, at a very high zoom out level, I think that there’s opportunity for improvement in that variable expense side of things, but how do you feel about it? Where do you think we should go looking in that $2,400, $2,500 a month variable expenses outside of the car and mortgage?

Brian:
I totally agree. You can look at the expenses and say, you can cut back here, cut back there. We did that, we did that through our 20s when we had no kids, and we were just two young professionals with no kids and very little car house payments. We kept our expenses super low. When we get to the investment side of things, you’ll see that we’ve stockpiled enough money that we should be fine with that. Then you get into the idea of where we are now in our 30s, mid to late 30s, where I don’t think to look at all those expenses and say I could cut here I could cut there, I’m not saving for any specific goal per se.

Brian:
I don’t really look to cut back expenses, we just have always been cognizant of what we spend. I don’t create a budget and say, we should be spending this, this and this. It’s not how we live our life anymore. We’ve always grown up very money conscious about this is not a good idea to spend money on, this is a good idea. We can get away with this, based on what we have coming in.

Brian:
Because of that discipline, and years and years of discipline. We grew up in a small town in western New York, and there wasn’t a lot of commerce, so there wasn’t a ton to do. We didn’t spend money on anything. So, we didn’t worry about, we still don’t do crazy excursion and spend a ton of money. In a long winded answer, Scott-

Scott:
You’re telling me, let’s look somewhere else here about the problems in my financial journey. Okay, let’s zoom out. We’ve got about $3,000 to $3,500 a month in after tax cash generation from your income minus expenses, which is really solid, I think. That’s $35,000, $40,000 in cold hard cash per year on top of probably some other activities you’re doing, maybe a 401(k). Well, we’ll find out about that in a minute. Let’s walk through your assets and liabilities then.

Brian:
Okay. Overall, assets when it comes to retirement funds or money that I have in retirement accounts is proximately $400,000. Equity in real estate holdings for rental properties is approximately $150,000.

Scott:
Awesome. Could you tell me about the asset value and debts on that real estate portfolio, that how that breaks out?

Brian:
Yes. I have 30 year terms on all but one of those. Anywhere from 3.5% to 5%.

Scott:
Would you ballpark… For example, would you say that, that $150,000 in equity is based on a million in assets and $850,000 in debt or $2 million in assets and 1.8, or 1.5.

Brian:
No. I understand what you’re saying, my mistake.

Mindy:
Okay, Brian, while you’re looking at that, can you remind everybody how old you are?

Brian:
I am 37 years old. As we’re taping this, my birthday is tomorrow. When it’ll air, I’ll be 38.

Mindy:
Happy birthday.

Scott:
Happy birthday. That’s awesome.

Brian:
Thank you. They’re all roughly around… It’s probably about $400,000, about $500,000 in assets, and then about $350,000 in… A ballpark around $500,000 total real estate and then $350,000 on liabilities. Total equity is about $150,000. Does that make sense?

Scott:
Yep. Okay, great. $400,000 to $500,000 in real estate value $350,000 in liabilities. Okay.

Brian:
Great.

Mindy:
I like those numbers.

Brian:
I like those numbers too, Mindy.

Mindy:
Yeah. Those are, I can sleep at night numbers. Those are, I’m accessing leverage, I’m using leverage, but I’m also not leveraged so far that I can’t even sleep at night because I’m worried what happens if somebody misses a rent payment.

Scott:
Well, I heard that you might be on the low end, your properties are worth 400K, and your liabilities might be $350,000. Is that right?

Brian:
No, The property values they’re closer to $500,000.

Scott:
Okay, great.

Brian:
Liabilities about $350,000.

Scott:
Wonderful, perfect. Then what else do we have here besides the real estate and retirement accounts?

Brian:
Cash and brokerage. Brokerage and mutual funds, and cash. Right now I’m sitting on a lot because I just sold my house and moved… We just moved to North Carolina, and we’re renting in North Carolina until we close on a new house. That’s one of the reasons we want to go over all this is because I have probably about $450,000 in cash in brokerage and mutual funds, and I want to take about $100,000 of that and invest it.

Scott:
Okay, great. Then the rest will go into a house and then remain leftover for capitalizing your personal financial position, safety net, such fund?

Brian:
That’s another question that I get into too, is how much do you want to take away from that, we’ve saved all this money, how much of that security do you want to use to invest in real estate?

Scott:
Awesome.

Brian:
That’s where I look to go long term is, making that residual income increase as much as we can.

Mindy:
Okay. I need a little bit of clarification just for me, do you currently have a mortgage payment for your primary residence, or are you renting?

Brian:
We are renting. We’re under contract right now for a new house.

Mindy:
Oh, okay.

Scott:
You’re expecting that mortgage to come in at $2,200 a month?

Brian:
Correct.

Scott:
Okay, great. This is awesome. We’re right in the middle of a big financial decision, specifically relating to the house, and that’s going to be your major short term leverage point here is how much cash you put down. You’ve already made the decision on the house, so you’re expecting 2,200 a month principal interest, taxes and insurance, which seems super reasonable in the context of your financial position for housing and all that kind of stuff. Now, it’s just a matter of capitalization and resource allocation that you’re wondering about today, I’d imagine.

Brian:
Correct. It’s really wondering, like we mentioned in the introduction is, you just said there, how much do you put down? My idea, my thought process was enough to stay out of PMI, get the 20% down. But then the rate, Scott, are 2.5%. I’m getting a 30 year mortgage at 2.5%. We’d look at in the forums, in the Facebook group about, all right, do I put more down, do I put less down? Everyone wants to have that magic answer, and I don’t think that there is one. For us, what we’re going to do is put the 20% down, because I had a ton of equity in my other house and it was almost like debt equity, I thought.

Brian:
Now, I feel like I can move and invest in a different way and pivot with that extra capital and hopefully produce better long term success.

Scott:
Love it. Let me ask you this next question, what are your financial goals, what are you trying to accomplish over the next couple of years? Because I’m looking at what I believe to be as close to over a million dollars in net worth, just based on those three things. Is there anything else in there, like debts or assets of consequence?

Brian:
No, that’s everything. We just passed the million dollar net worth a few months ago.

Scott:
Congratulations on being a millionaire. That’s pretty awesome.

Brian:
It was a goal. We’ve got to have those goals and it was a goal by 40. So, we did it.

Mindy:
The double Comicon.

Scott:
Love it, yeah. Okay. Again, what are your financial goals now, going forward here?

Brian:
I guess really, the biggest thing is cash flowing assets. To be able to produce multiple streams of income, to make sure that gives us that flexibility. I listened to the podcast this morning, comes out on Mondays. So, I listen to it on Mondays. You want to be able to, in my opinion, create those different leverage points where I can have, or different streams of income where I can have options. I want to make sure that… Like you said, I love my job, I love my job. I don’t want to do anything else right now. But what if you sometimes don’t love your job in two, three, four, five years?

Scott:
Yep.

Brian:
I want to have more options when it comes to… We’ve got, obviously a new baby on the way, so I don’t see myself not working. I’ve worked this hard to get to where I am, and I’m not going to stop. I don’t think I can stop. I think the overall goal is to just have more multiple streams of income. Whether it’s… You get to this point now, it’s like, do I invest in syndications? I just moved to a different state, so do I want to invest locally? Do I want to invest back in New York? Do I want to just get a short term rental for a beach property? I don’t know. That’s the goal, is to figure it out.

Scott:
I’m hearing you want alternative sources of cash flow. But I’m also hearing that you think, you’re pretty highly confident that the next three to five years, you’re going to be reasonably satisfied at your job. Is that right?

Brian:
Oh, yes.

Scott:
Okay, that’s interesting. Let me try to noodle on this one. I think you can afford, for example, to invest in… Cash flow, steady, reliable, super conservative cash flow is extremely expensive. Interest rates are what, 2%, 3% for… What’s your refinance rate going to be on your house or your financing rate on your house going to be?

Brian:
2.5% for 30 years.

Scott:
2.5%. If somebody’s saying that the value of your debt service as an individual is worth 2.25%, that’s extremely low. I think if you go straight up for the cash flow right now, that given your goals, you’re going to be sacrificing a little bit on the value creation side downstream over even a three to five year period, or especially a long term trajectory, versus going for that… For example, rather than attempting to buy an annuity or something like that, or a debt for 2%, you might be better off investing in stocks or real rental properties, or those types of things.

Brian:
That’s fine. That’s where I am. It’s, do I max out the 401(k)? Because right now I’m not, I’m getting company match, I go to 5%, because my philosophy is, probably the most people that are around here is, don’t max it out, but use that extra money to then buy a rental property and continue to build that.

Scott:
Yep.

Mindy:
Okay. Something I want to say that I got from the Mad Scientist, I did not make this up myself. But in early January, we interviewed him, and I read this on his episode too, normal retirement is part of early retirement. He said that people have said to me that they aren’t contributing to their 401(ks), because they plan on retiring early. That’s insane. Even if you plan to retire early, you still need money to live in your 60s, your 70s and beyond. So, why not pay for those years with tax deferred or potentially tax free money?

Mindy:
I am of the mindset, in many cases, that you should continue to put more money into your 401(k) rather than less money. I hear what you’re saying you want to do more rental properties, you have nine rental properties that throw off $2,500 a month-ish.

Brian:
Yeah, I take home about $3,000 a month on those, after everything’s paid, management fees, everything, it’s about 3,000.

Mindy:
What do we come up with, around $3,000 that you are netting after you contribute to your 401(k) and pay all of your expenses?

Brian:
Correct.

Mindy:
I would even say put in another $1,000 a month in your 401(k) and keep that… You still have $2,000 to save for your next rental property, you have 450,000 in cash, and I’m sorry, I don’t know if you said this, or if I spaced when you said this, how much money are you putting down on your new property, actual dollar figure?

Brian:
About $110,000.

Mindy:
You’ll still have $340,000? What does the rental property cost you in your rental market?

Brian:
See, I’m so new to this market. I haven’t done… I have connected with some people on BiggerPockets actually about getting into more of the short term rental market here, which you’re looking at properties there in the $3,000 to $400,000 range that are going to run like a beach property that you use for short term rental.

Mindy:
What about some of these… Where are your other rentals? Are they all in one area?

Brian:
New York. Yeah, they’re all in upstate New York.

Mindy:
Okay, and do you want to continue investing there or do you not like that market?

Brian:
I like it. I’ve lived there, so it was easier. I had my team, and I still have my team there, people that I can use, and it’s like… I’ve snowbirded to Florida for the past five years, every winter, we’ve gone to Florida for months at a time. I’ve been able to do this remotely for years. I can continue to do that and invest in upstate New York. It’s not a problem, and that’s one of the things I have to kick around in my head is if a deal comes up, can I jump on it quickly? The cost of real estate there is considerably less. I can get duplexes there for $100,000 that kick off-

Mindy:
That’s $20,000 out of your pocket.

Brian:
Correct.

Mindy:
25%. I don’t know if you’re putting down 20% or 25% out of your rental property, you said.

Brian:
20%.

Scott:
You’ve got some good problems here.

Brian:
I know, they are good problems to have. I’m not complaining here.

Scott:
100%.

Brian:
This is those things that you want to make sure that you make… I think too many times I’ve tried to just make the right decision, instead of enjoying it and being like, okay, if I do make the right decision, okay, if I don’t, no big deal.

Scott:
Well, let’s start from the very beginning here, in the highest zoom out level, you’re a millionaire at the age of 38, and you’ve got a bunch of good problems. I think you have $110,000 in cash going towards your next home purchase, and $340,000-ish in liquidity leftover that you consider to be liquidity there. I think the first thing is to make sure that you’re capitalizing your life and your business appropriately after that. I would set aside a chunk… How much do you want for your emergency fund? Right now, you have a $340,000-

Brian:
Yes, the emergency fund is a little higher right now. I’m going to put in a pool though. So, it’s going to cost me a little bit of money.

Scott:
Fair enough. I think you’ve earned a pool.

Brian:
I like the standard three months to six months. I’ll go anywhere from $20,000 to $30,000 at a time in keeping cash.

Scott:
Great. Then what do you think is a reasonable liquidity position to capitalize your rental business?

Brian:
I don’t know.

Scott:
How many units do you own?

Brian:
Nine units.

Scott:
Nine units, and what do you think like a roof replacement, or the furnace, or what are some of the big high ticket items that can go wrong with your particular-

Brian:
My current ones?

Scott:
Yeah.

Brian:
I’ve pretty much taken care of all those. You might have a roof here or there. I want to make sure that we’ve always got… I always err on the side of caution there, you put an extra 10,000 aside for that.

Scott:
A roof might cost you $10,000 ti $15,000 in your area, if you need to replace it?

Brian:
Yeah.

Scott:
I would budget for a couple of roofs, and then a another three to six months, at least on your emergency fund, or on your mortgage payments for your rental business. What do you think that might look like, if you’re thinking about a reserve for that?

Brian:
Yes. If you’re looking at a couple of roofs, if you want to have an extra, say $20,000 in cash, just for safekeeping on the rental business, probably a good idea.

Mindy:
Always a good idea.

Scott:
Is that nine units or nine different roofs-

Brian:
No, that’s only four roofs, nine total units.

Scott:
Okay. In Denver here, I keep about a $35,000 to $40,000 reserve for my three structures, which are eight doors. The reason for that, is a roof here costs a little bit more than the numbers you quoted. My rents and mortgages are a little higher because of the difference in property values in Denver versus upstate New York, it sounds like. I keep that little extra. I don’t know, but I think that, that 30-ish, you’ll have to dial in on that number. But keeping aside some reserve for both your personal life, and then separating your real estate businesses, I think is a good step to take in thinking about your capitalization.

Scott:
I’m just going through this because this is the easy stuff. You have such a luxury problem here, I’m just trying to figure out like, hey, one, how do you ensure that you’re having one is nicely and safely capitalized so that you don’t begin investing in a way that’s going to decrease your freedom or cause you stress on your financial position or bleed you money? That’s my first thought when it comes to this. How does that resonate? Is that along the lines of what you’re thinking?

Brian:
Yeah, that’s a good plan. Sometimes I don’t think of it as a real estate business, it’s just my investments, trying to keep everything… They are all under LLCs and everything like that. But when you separate it like that, and you think about it as you own the rental business as your personal business, it is probably smarter to make sure you have that all in one place.

Scott:
When it gets mixed up like that, sometimes you risk potentially getting a distorted view of how much cash the business is actually putting into your bank account and how much is actually coming out, because you have these large expenses and those types of things. But if you sit on it and it’s all flowing through one bank account, and you’re like, hey, my reserve number is $30,000, I’m making this up. When it’s above that, I take distributions out, and apply that towards my other investment approaches or build up to the next thing, whatever. When it’s below that, I stop taking distributions, or I’m going to take a distribution at a set amount to fund my cash flow or retirement. But know that I’ve built enough of a buffer in there to keep the account growing for my capex allocations, vacancy allowances, those types of things.

Brian:
I still feel that I’m at the acquisition phase at 37. There’s still no reason… Or 38 by now, and having these conversations online with people, and here on the podcast, and just even the conversation I have with my father in law was that, he’s now in the preservation stage, right?

Scott:
Yep.

Brian:
I’m still going to try to continue to acquire properties and investments and continue to do as best I can to provide generational wealth, that’s our goal for our families.

Scott:
Absolutely. That’s what the 80-20 of your position is going to be is figuring out how to deploy this huge surplus leftover, even after conservative capitalization of your properties. I just think that that’s… I’m trying to wrap my head around this because now we got a problem of what to do with $200,000 or so leftover, we’ll call it $175,000 if you agree with the, I’m going to set aside a few tens of thousands for my personal life in liquidity there, and a few tens for my rental business. Now, you’ve got $175,000 left to deploy… You have $450,000. Then we’ve got-

Mindy:
Minus $110,000.

Scott:
Minus $110,000 is $340,000. Minus let’s call it $60,000 in just cash for your rental business, and then also for your personal life. Now, we’ve got $280,000 to deploy. That’s a fun problem.

Brian:
It is.

Scott:
It sounds like your heart is set, or what I’m hearing is that you’ve thought pretty long and hard about this and real estate is at least one of the primary considerations that you’re considering, either continuing in New York, or in North Carolina, where you live.

Brian:
Correct.

Scott:
Do you have any other options for it?

Brian:
The real estate?

Scott:
For investing.

Brian:
Syndications? It’s the only other thing that I’ve brought up in my head of reading, is getting to that point where just being passive investor in those types of deals.

Mindy:
Okay. My thought is you should run the numbers based on the two different markets. The syndications… I think you should look and read all the syndication proposals you can find. I’m having a hard time finding anything in syndications that is really worth investing in, that I truly believe is going to generate the profit that they’re promoting.

Mindy:
Just because they say they’re going to give you an 8% return doesn’t mean it’s going to be anything close to 8%. Just FYI. But the New York market, on the surface seems like a no brainer, you know it, it’s cheaper, just go ahead and do it. But is it North Carolina, or South Carolina?

Brian:
North Carolina.

Mindy:
The North Carolina Airbnb market has the opportunity to make more money. So, I would write out these numbers. In New York, I’m going to put $25,000 down and it’s going to generate $2,500 a month or whatever the numbers are. In North Carolina, I’m going to put $100,000 down for the one property, and it’s going to generate $50,000 a month or plug in the actual numbers, because that makes North Carolina sound way better. But those are the actual numbers.

Mindy:
Run the numbers based on how much it’s going to cost you to run the property. You still have to pay for somebody… You have to furnish it, you have to pay for somebody to come out and clean it which usually comes out of the Airbnb people’s pockets, but just do all the research that you need to on those and see where you’re at.

Mindy:
What percentages and what is more sustainable and repeatable? Clearly, you can buy five houses at $25,000 down in New York versus one house for $100,000 down in North Carolina. Is the North Carolina going to split off five times more? Then maybe it’s a better choice, or maybe it’s going to be more mental space taking up in your mind, oh, are they going to pay? Do we have a problem with this? Are we having an issue somewhere?

Mindy:
I think there’s a lot to look at, not just numbers wise, but numbers is a really good place to start. What is New York going to generate versus what is North Carolina going to generate?

Scott:
I’ll chime in here as well, that there’s another factor at play, which is each one of your units in New York is a $50,000 bet, which is around 5% of your net worth. I think if you’re going to exert mental energy, that’s the minimum, that’s the floor I would have in terms of the size of these investments. Have fun if you want to try $5,000 in a stock or a syndication or whatever like that, that’s fine if that’s something you’re going to enjoy doing. But in terms of your core strategy, I think you need to be intentional about making bets of a significant enough size that they can meaningfully impact your financial position. Otherwise, you’re buying yourself a pain in the rear, even if it is a good investment.

Scott:
The $50,000 house is fine, it’s just you’re going to have to have a system for buying multiple of them, and scaling that versus, with the ones in North Carolina, that’s a big enough bet, where each one, at least for the next couple of years, you’re going to be able to take your time and actively get involved with and that’s a reasonable use of your time, given the size of it, relative to your position.

Brian:
That was the way I was leaning. It’s almost, I think about it, too, is more of a diversifying my actual location of rental properties, instead of staying completely in one market, being able to now have access to this market by being local. It seems just to be a better diversification as well, if that makes any sense to you.

Scott:
I think those makes sense. I don’t know enough specifically, but you think on paper, that New York, I’m assuming it’s upstate New York market is not really growing at the same rate as the North Carolina market in general. There’s a reason, I presume you moved from upstate New York to North Carolina. Maybe that reason applies to other people as well.

Brian:
Yeah, it’s exactly it. You see the numbers, they’re out there. It’s easy to see the swing of the progression is to the southeast. I agree with you that the growing market here, especially, they’re building all over the place down here, which is crazy.

Mindy:
Yeah. You said Airbnb market by the beach, what about rental markets that aren’t Airbnb by the beach? You’re still there, you’re still learning the market? Obviously, a non-beach property is going to be less expensive than a beach property, given everything else being the same. Have you looked into the local long term rental market? Have you looked into longer short term rentals like traveling nurses and the furnished rentals for corporate travel and things like that?

Brian:
I have not. I have really just looked at the short term Airbnb markets for beach properties, and there’s just not as many of the long term rentals, like the normal, single family duplexes. Your small multifamily that I would normally gravitate towards up north, just because I have the beach right here, so I gravitate myself that way.

Mindy:
I like the beach too.

Scott:
What beach are you by, just wondering?

Brian:
Wilmington. We’re in the eastern part of North Carolina, so it’s near Topsail Beach.

Scott:
Okay, great. Just curious.

Mindy:
Okay. What about the… Since it’s a beach location, I assume that they already have their Airbnb laws set up.

Brian:
Correct.

Mindy:
Okay. Just for people who are listening, if you’re considering doing an Airbnb, it sounds like great money, but if your city has not created their own Airbnb laws, yet, chances are good that they’re going to craft them, and the residents who are in the area are going to be anti-Airbnb, because that’s kind of how that goes. You don’t really want to be investing in an area that doesn’t have existing Airbnb laws, unless you have other options for that property should Airbnb become outlawed, or, in Denver, it has to be in your primary residence. In Longmont, it used to be in your primary residence and now they’re allowing Longmont residents to own one more property that they can Airbnb, but they don’t want you to own 50 in the city and Airbnb those. These are evolving laws. Even if they’ve got them, there’s no guarantee that they’ll stay the way they are. Just a bit of a caveat for anybody who’s listening.

Brian:
Yeah, we did that before Airbnb was really as big as it is now. We did that to our primary house up north, and we got kind of in trouble, because you’re supposed to… The town law was you could not rent it for less than 30 days. We had a, you have to stop doing this right now.

Scott:
I want to chime in there that the trend of, just because the law is what it is today, does not mean it’s going to stay that way over time. The tendency, in my experience, or what it seems to be around the country is that the laws are getting more restrictive and clever about enforcing these restrictions in the areas where they have those restrictions.

Scott:
I imagine, my guess is that North Carolina is going to be more friendly to Airbnb owners than other parts of the country, and slower… I don’t know, but is that what you’re seeing?

Brian:
Yeah, for sure, short term rental market is very popular here, very, very popular.

Scott:
Wonderful, because that’s probably a big tourism boost in the area, may be very happy to accommodate that, but some places aren’t. You mentioned syndications. It sounds like, one of your big options is to buy a beach rental in this town or another rental locally and drop a good 50K to 100K as your down payment on a property like that, maybe even a little bit more. Walk me through what you’re thinking about with regards to syndications? Because you’re going to have a lot of money leftover even after you do that one, if that’s what you choose.

Brian:
Yeah, I was just looking at the idea of more of a passive way of investing in real estate and getting… I’ve never invested in a syndication before. It was a thought in my head before… I want to obviously… I like to be hands on here a little bit first, and then have that option. But giving that as an option, I’ve never done it before, so I’d need to do more research [inaudible 00:35:19] that have and be more active in the forums and talk to contacts that have done that. Just because I don’t know enough about it.

Scott:
Would it be helpful to overview syndication investments from my limited experience and talk about some of the frameworks behind that?

Brian:
Yes, of course.

Scott:
When you talk about investing in syndications, typically, you’re referring to being an equity partner on a commercial investment property. It’s usually a multifamily deal in the context of BiggerPockets investors often talk about, the syndication can broadly mean just about anything. It could be part of a debt on the deal, that’s a lot of what the crowdfunding portals do. But if we’re talking about an equity syndication, typically those have a three to five year-ish investment horizon, and are typically involved in commercial, usually multifamily real estate syndications. Is that what you’re referring to, or your mind’s attempting to?

Brian:
Correct. Yeah, multifamily situations, whether it’s the large complexes or self-storage, something along those lines, to just have a more diversification within larger deals, and having the passive flow, being able to purchase, essentially, cash flowing assets.

Scott:
Great. These deals are going to be structured very differently depending on who you’re investing with, and which options you choose. Let me give you a sample of… This fits the mold of several deals that have come across my desk recently, because I have invested in syndications previously. Typically, what often will happen is we’re going to have a property for purchase, it’s going to be distressed, or need some sort of value add. The owner operator is going to put together a fund, and the way that’s going to work is they’re going to raise capital from limited partners.

Scott:
They’re typically going to raise that capital in two ways. One is what you’re thinking of as common equity. If the property is $2 million, we’re going to raise $500,000 from limited partners, and a $1.5 million in debt, and buy the property and then maybe either raise a little bit more debt or whatever to finance the repairs. The second piece that is often offered is what’s called preferred equity. Are you familiar with a concept of preferred equity?

Brian:
No.

Scott:
Often, it’s called preferred equity, but it’s really more like secondary debt. For example, let’s say I take that same $2 million apartment building, and I’m financing it with, let’s use a million dollars of debt and a million dollars in equity.

Scott:
I get a million dollar debt from the bank. Usually, I’ll finance it with a commercial loan like that. Then I’ll raise two $500,000 equity investments, I’m making these numbers up. The first $500,000 is going to be preferred equity. What I’ll do is, I’ll say, “Investors for this $500,000, I’m going to give you an 8% dividend, basically, on a monthly basis during the whole period, and then pay you back all the principal at a later date.” I put in 100 grand, I’m going to get $8,000 per year in cash flow as preferred equity, and I’m going to get that payment before the next level of debt, which is your common equity.

Scott:
That’s the common equity there. They’re going to get a portion of the deal proceeds in a pro rata basis of the cash flow. There’s another hidden layer of equity involved in a syndication, which is the carry that the deal syndicator gets. Let’s say that that property ends up making a $500,000 profit over the next year, the syndicator might take a 20% or 30% carry of that profit. There may be certain rules governing it like hey, the first $100,000 goes to shareholders and I get 20% of everything above that first $100,000 in profit, or so on.

Scott:
So, we have this $2 million property, and let’s say the value goes to $2.5 million, and we pay down some of the debt. Now I’ve got $750,000 of debt left and $2.5 million in asset value. What will happen at the exit is that the preferred shareholders are going to get their 8% and get paid off whenever the property is sold, or it’s refinanced with a new bank debt or whatever, when they buy out shareholders. The common shareholders are going to get 80% of the rest of the difference, and the syndicator will get maybe 20%, in this case, if the syndicator is getting 20% of the carry.

Scott:
The point of this is understand the basics of the framework, and I’m explaining it much more poorly than we did in the hands off investor book, which will send you a copy of, one of our latest books this year. But there’s a lot of explanation of how that works in that book. But the point is, when you invest in a syndication, even within this asset class, you still have a choice typically between that preferred equity investment and the common equity investment. The question is, which one do we choose? Is this been a reasonably helpful overview of the process of investing?

Brian:
Yes, it is. It’s very good.

Scott:
Okay, great. Zooming out even further here, the reason we’re having this discussion with Brian is because Brian is a millionaire, and he’s what’s called an accredited investor. He can begin accessing these types of deals, which is why the million dollar net worth is a great milestone, although there are certain ways to get around the accredited investor thing, especially in 2020, there’s been a couple of rules changes. But anyways, the syndication can be a powerful tool for you, but you need to understand when and how to use it, and then how to analyze the syndication investments specifically, to make sure that they’re a great fit for you, and that they’re going to add value or derisk that. Which comes to knowing the operator, the game plan for the asset, the exit timeline, and all those other types of things. I’ll stop there. Do you have any questions or follow ups there that would be most helpful for you?

Brian:
I do not. I just know that there are multiple… Like you said, there’s multiple deals out there, and there’s multiple syndicators out there. Everyone always says, “Make sure you do your homework, make sure you do your homework.” You’re really just relying on somebody else, essentially.

Scott:
Okay, perfect. I’ve got some comments on that. Go ahead, Mindy.

Mindy:
I was going to say, yes, make sure you do your homework. What that means is, don’t just… When Scott sends you an email, “Hey, I got this deal.” Don’t be like, “Here’s $50,000, here’s $100,000.” That’s the wrong way to invest in real estate. That’s the wrong way to choose the syndicator. Scott’s great, but, I wouldn’t give him $50,000 on his first deal. You want to know what experience this syndicator has, you want to know what their track record is.

Mindy:
Just because they have a great track record doesn’t mean they’re always going to be amazing. I have a syndicator, who has always been amazing, and then one of the deals that I invested with him was like the dud deal. Sometimes they happen. That’s just investment, the risk is a part of every investment, and past performance is not indicative of future gains, blah, blah, blah. But this book, The Hands-Off Investor, by Brian Burke really walks you through the process of a syndication deal, so you can make smarter decisions once you’ve read this book. It gives you, here it is from a syndicator perspective, and here’s what you should be doing from an investor standpoint.

Mindy:
I’m going to send you a copy of this book, so you can start educating yourself on syndications. I would not recommend jumping in with both feet onto a syndication deal. They sound all sexy, it was like the best thing. But until you know what you’re doing, you can just lose boatloads of money. Ask me, I know.

Scott:
Brian, how would you go about getting access to a deal in the first place to begin analyzing?

Brian:
I would reach out to their… Because you can find them online. You can find syndicators online, you can just reach out to them and then get on their mailing list and get those emails.

Scott:
Perfect. I’m having trouble helping you, Brian, because I feel like you’re pretty good at this, and know what you need to do. Your position is so strong, you’ve got a rental property portfolio, you’ve got a couple of good options. It sounds like you feel like investing in real estate is superior to continuing to push even further in your retirement account, asset breakdown-

Brian:
Because that’s always that, that’s the rub, that’s that question that everyone always wants to answer is I can’t get to that money that I already have locked up in retirement accounts till 59.5. Should I be socking it all the way? Because there are so many schools of thought there; put in up to the match, max it all out, and that, that really is the root of it is use the extra money to invest or max it all out because now I’ve got a strong cash position.

Scott:
Well, I think in the short run, you’ve maxed it out the retirement account, because you have so much cash and haven’t deployed it outside of your retirement accounts. Once you’ve settled on that strategy, that you figured out for investing, and feel like it’s the better move, then you can go ahead and begin deploying more… You can ease back on those contributions and move it into the other investments. But for now, you’re sitting on an enormous pile of cash, and haven’t deployed it, and you’ve got a couple of ideas, but haven’t really fully fleshed it out. While you’re figuring that out, it doesn’t make any sense to continue piling up, adding to the mountain $1,000 or $3,000 at a time, rather than doing something that you know is not the wrong move, most likely, when it comes to the retirement accounts. What do you think about that?

Brian:
Yeah, that’s true. That is true. I thought about that too, and trying to… That’s again, the things you have to wrestle with in your head when you’re laying in bed at night, right?

Scott:
Yeah. Hopefully you’re not stayed up too late thinking about it, because you’ve got a pretty-

Brian:
You want to make a smart move with those [inaudible 00:44:50] to do the right thing.

Scott:
I love it. I think, if I zoom out, you’re going to have a sizable balance in your retirement accounts. You’re not over committing to your home equity, you’ve got real spendable cash flow coming in from your rental properties right now, you’ve got a clear path to capitalizing your life so that you’re not going to lose any sleep about short term liquidity needs or those types of things. If your wonderful job turned south in two years, you’re not going to be stuck there without other options, because you’ve got all those types of things. I just don’t think you can go wrong.

Scott:
You’ve got options between the New York and North Carolina, you can either diversify or keep doing the same playbook you’ve got, those are not bad options in there, and you’ve got comfortable with the real estate. I do think you’ve got a heavy weighting… No, you’re actually weighted, I think, at the end of the day, pretty reasonably between what I imagine are stocks in your retirement account portfolios, and then your real estate holdings between the new primary residence you’re about to buy and your position in New York.

Scott:
I think syndications are probably a great move for you over the next couple of years, but you’re going to have to probably spend 100 hours at some point analyzing some deals, saying no to a couple, figuring out what good looks like there. But I just think you’re really in a good spot here. You don’t seem to feel uncomfortable with your current spending, or feel like there’s a lot of leverage that you’re really intent on changing there. I think you’re racing towards phi if not already phi right now with your current position and have no bad options ahead of you. Maybe that’s why I’m struggling to give you more… There’s not specific things to change up. Do you think I’m reading the situation wrong, or do you think that we’re reasonably close with that?

Brian:
Yeah, that’s where I’m at too. I’m right with you.

Mindy:
Well, let’s look at it from a different perspective. Let’s say tomorrow, your boss quits and you get the world’s worst boss. Let’s say Scott is your boss, and you have to quit, you can’t stand it for another second. Where are you going to get the money to live off of? You’ve got $2,500 coming in, but you need $5,500.

Brian:
True? Well, I got savings, and I have a doctorate degree and 15 years experience in sales. So, I’m confident in my ability to get a job.

Mindy:
I’m not attacking you. This is the only job you’ll ever have.

Scott:
Performing sales people typically don’t have a lot of trouble staying employed or getting new employment is another piece of that. There’s a lot of other positions that-

Brian:
I know where you’re going, Mindy, and I didn’t want to have a snarky response there, but I think over my career I have become employable, and done what I needed to do to put the numbers on the board that makes you… And just connecting with people, honestly. That’s the biggest thing I’m able to do over the last 15 years in the working life is connect with as many people as you can, because you never know when it’s going to go south.

Mindy:
Oh, my God, say that again.

Brian:
You have to connect with everybody. Don’t burn any bridges ever, ever.

Mindy:
No, never, because you never know when somebody is going to call you up from 10 years ago and be like, “Hey, we’ve got this really great job opportunity.” You’re like, “Wow, I just quit yesterday.” It’s crazy situations like that, that happen. Yeah, absolutely, network with a lot of people. That’s true in your whole life, in your everyday, in your investment. I’m hoping that you’re networking with real estate investors in New York, and starting to network with them in North Carolina. But you never know when somebody is going to call you up and be like, “Hey, I found this deal, and I don’t know what to do with it. What do you think?” “Oh, you know what, I like those numbers. I’ll take that from you, or I’ll partner with you or whatever.” Then all of a sudden, that’s your best performing deal ever.

Mindy:
I got a really great deal on a property because somebody wanted it and didn’t have the money, and I didn’t have the time to manage it. So, we partnered together and I didn’t want to manage it and he didn’t have any money. So, it worked out great. You just never know what’s going to happen. So yeah, network, network, network.

Brian:
That’s amazing. That’s the amazing part of BiggerPockets though. I wouldn’t, obviously [inaudible 00:48:53] BiggerPockets, having a podcast but even being able to invest like I have, is all because of BiggerPockets. My broker, my agents, everybody that I meet is through BiggerPockets now when it comes to real estate and investing. It’s phenomenal.

Scott:
Love it. Well, thanks for the plug. We love BiggerPockets too here. But yeah, clearly you’ve been successful and taken… Well, can you walk us through a little bit of the journey? Maybe that will help us provide more context to your current situation as well. How long ago did you start investing and build this up?

Brian:
We’ve always been power savers. Ever since I got out of chiropractic school, my wife has always been a phenomenal power saver. So, we paid off chiropractic school loans right away, like right away, which is $100,000 in loans.

Mindy:
I was going to say, let’s talk about those loans, because my brother is a chiropractor and that’s not cheap to become a chiropractor.

Brian:
It’s not. It’s about $100,000, $120,000 in cost, overall cost of education. My wife was working as a teacher in New York and save, save, save, save, right Way, and we were able to pay everything off right away. I always tell her, the joke is that it made financial sense for me to marry her because she had way more money than I did at the time. Of course, I’m going to marry her.

Scott:
Love that.

Brian:
Thinking of the long term here. From there, it was just saving and working. You don’t even really realize what you’re doing at the time, it’s just working and saving and just not living. We did it, I don’t know, the way that I guess you’re supposed to before you realize you’re doing it is living below your means and making what you can.

Brian:
Then finally I saw rental properties and student housing, and I was like, man, this seems like a good idea. I was just talking to a friend, he’s like, you got to check out BiggerPockets. This was probably 2016, and I was like, oh, yeah, every deal I’ve gotten has been off market because of BiggerPockets.

Mindy:
That’s awesome. I love hearing that.

Scott:
Well, you clearly have crushed it here, and you’ve built a sizable little portfolio for real estate, a sizable cash. I would say your equity balance isn’t that high relative to the amount of units you have, but your cash flow? Seems phenomenal.

Brian:
Yeah, upstate New York where we live it was, you don’t buy for appreciation, you buy for cash flow there. It’s just the way the market is. You’ve got to know your market for one, and that market is you buy for cash flow. Down here, it seems a little different, I don’t know what’s going on. That’s why I got to shift and run the numbers a little differently than when I did up north.

Scott:
Yeah. Look, I think if you said your goal was to retire as soon as you possibly could from your career here, I think that would give you a different set of choices, potentially, than maybe some of the other things in North Carolina. You have a playbook for that, that it seems like you’ve mastered in upstate New York. But if you’re like, “Hey, I’m pretty happy here, I’m going to invest for maximum growth over the next couple of years.” And sleep well at night with that, I think you can go right with either the New York or the North Carolina or the syndication route with that, or you can just dump it into more stocks.

Scott:
But I do think that given the luxury, or the giant mountain of cash that you’ve accumulated here, that you do have, I think, some games to play on the retirement accounts stuff. Not much, not the 80-20 of your financial position, but really, I think I’m going to start coming to you for real estate investing advice here on that front, because you’re producing a lot more cash flow than me.

Brian:
I wouldn’t do that, Scott.

Scott:
Fair enough. What do you think, Mindy, have we missed on any big points for Brian’s position here?

Mindy:
No, I do want to see Brian contributing a little bit more to the 401(k) other than just the 5% match. But that’s because I am a 401(k) fanatic. I think you said it really well, Scott, he’s got a pile of cash that he has not yet deployed. So, why throw more money on to that when you will be 60 or 70 or beyond, and will need money to live then, why not pay for those years with tax deferred or potentially tax free money? Now, you have a baby on the way, so I’m not going to suggest an HSA this year, but is your family generally very healthy? It sounds like it, because you’re in the healthy space and you don’t eat junk food, when you are generally healthy, a high deductible insurance plan with an HSA can be a really great income… I’m sorry, not an income, investment boost, because just like Brandon said, the mad scientist back on episode 161 in January, he was talking about the HSA, you contribute now tax deferred, just like a 401(k), and it grows tax deferred. Or you can make withdrawals tax free if you have qualifying medical bills.

Mindy:
He shared how he had an appendectomy and it cost $2,500. He could have used the HSA account to pay that $2,500 bill at the time, but he had enough cash in his savings in his regular income, that he could just pay that $2,500 bill and keep the money in the HSA. This was six or seven years ago, it has grown, $2,500 grown over the last six or seven years is going to be a lot more than $2,500, he can take out $2,500 anytime he needs it. He just submits the receipt, they send him a check, or they deposit it into his bank account. However, they just give him the money. He pays no taxes on it because it’s a qualified medical expense.

Mindy:
It’s not just limited to surgeries and doctor’s visits and things like that, it’s actually quite fascinating. There’s a whole list and I think it’s 27,000 different expenses that you can pay for with your HSA. I said it then and I haven’t looked it up since then, I think it’s 27,000, I might just be making that up, but it’s a lot, like it’s a lot, a lot, it’s not such as four things. It’s band aids, and contact solution and your eye care, your dental care, it’s a lot of different things. When you go to checkout at the grocery store, or Walgreens, you’ll get a receipt and it says FSA next to it, which means it’s an FSA eligible expense, which is also an HSA eligible expense.

Mindy:
If an HSA is an option for you, I would look into that next year, if that’s something that you find interesting. The contribution limits for the HSA plan for a family is $7,000. That’s on top of your $19,500 for your 401(k), that’s on top of your IRA contributions and everything else, that’s just an extra $7,000 that you can essentially invest for the future, because you can take those funds and invest it. I have my HSA, I think we’ve been doing HSA for two or three years now. I have $7,000 or $14,000 in my HSA account that’s invested through fidelity, in VTSAX or whatever my husband chose, I don’t pay attention to that part. But that’s worth way more.

Mindy:
I should look that up. For the purposes of sharing real dollar figures, I should look that up, and I’ll share that the next time the HSA comes up.

Scott:
Yeah. I think that that’s probably a good spot to look, if you’re looking for more optimization there is in the HSA, and then the retirement accounts stuff. Again, I think that in the context of your position with your mountain of cash, and your, I would say $35,000 to $40,000 in cash accumulation per year, on average, maybe even a little more than that, you’re going to have no trouble with liquidity and those types of things. It seems like a logical place to look is to save a few thousand bucks on taxes with some of these things. Yeah, thanks for bringing up the HSA, Mindy. HSA is super powerful, and Mad Scientist has a lot of good reasons why that… Maybe even max that before you max your 401(k), for some good reasons there.

Brian:
The only reason I did not do it this year, is obviously the baby. My wife has Lyme disease, so that’s actually the main reason we moved to North Carolina from New York was for that, and that has come with a lot of expenses health wise. I’ll stick to the normal plan before I go to the HSA. But I did try to weigh that here back in open enrollment back in November, because there are so many good benefits from it, and I didn’t know enough about it, about reading online and talking to my brothers about that stuff too. Chatting with him, like you guys just said, it opens up more investing opportunities long term. But I don’t think it’s something I can do now.

Scott:
I love how informed and knowledgeable and with why… I think the most important thing is to have a why behind each of those things that you clearly do. I just think you’re rocking and rolling. It’s no wonder you’re a millionaire at this point in your life. Given you’re able to rattle off why it’s like that behind this stuff. Yeah.

Brian:
Again, just try to make the most informed decisions as we can.

Scott:
Yep.

Mindy:
That’s why we’re here to share the different opportunities that are available, and to know over our mics. Is there anything else we want to talk about, Scott, before we wrap up and recap?

Scott:
I guess, before we just run out of here, is there anything else you wanted to cover or chat about that we didn’t cover, or that you’re looking for more clarity on?

Brian:
No, I think we covered it all. You guys have been a great help. The whole BiggerPockets community, family, what you guys do, and then chatting with you guys here today has come full circle for me. So, appreciate the help.

Mindy:
I was so delighted you shared your numbers with us today.

Scott:
Yeah, and I’m so grateful to hear that BiggerPockets was a part of that journey and glad you seem to be crushing it and reaping the benefits from a lifestyle perspective of your rock solid financial fortress that you’ve got here and the abundance of opportunities that you’ve created for yourself.

Brian:
Thank you.

Mindy:
Okay, so let’s recap what we talked about today. You’re buying a new house, you talked about how much money should I put down on the house, but when you’re borrowing at 2.5% for 30 years, right?

Brian:
30 years, correct.

Mindy:
You are comfortable with a modest amount of debt. I think 20% down on that new house is the best option ever, and that’s what I would do if I was in your situation. Because I am also comfortable with that amount of debt. I think the debt on a primary residence is different than consumer debt or debt even on a rental property. This is a place you’re going to live, you’re in a lower cost area of living, right? It’s not a high cost of living area?

Brian:
No, it’s not too crazy at all. It’s middle class.

Mindy:
I think the 20% down is the best choice. That’s what I would do. Your income is great. Your expenses are fine. We didn’t talk about the $978 car payment and I know somebody’s listening like, “Why didn’t you ask him about that?” I didn’t ask about that, because that seems like a conscious decision. I know what that means, I know how much it’s going to cost and I’m going to do it anyway, because… Then you’re in a good financial position. It’s not like you are scraping together every month to get this $978. I used to-

Brian:
You know what it was? My wife wanted… I had a new car coming off of a lease, don’t lease cars. Okay, okay, okay. All right, we’re coming off a lease, and I knew she wouldn’t buy this car. It was her dream car, it’s a Mercedes GLE SUV, it’s what she’s always wanted. That’s the lady who does everything in this whole relationship and does everything, I will buy her anything she wants. She’s not one that asks about things. I knew she wanted it and she would never buy it herself. So, I just pulled up in the driveway with it, and she cried.

Scott:
You rock. That’s a wonderful reason. We figured we didn’t even need to go there with that. You can buy a Lamborghini with cash, brand new, if you so choose. You don’t do that. But hey, that’s the deal is you paid off $100,000 in debt from your student loans, you were disciplined for many years, you’ve built a monster financial position, you get to buy what you want. That’s the point of doing it. So, I love it. Yeah.

Mindy:
He gets to buy what his wife wants. She also wants you to buy me a car.

Brian:
I asked [inaudible 01:01:06] “Do we think she’s going to be happy with this?” She goes, “If she doesn’t want it, I want it.”

Mindy:
Okay, and we want you to run the numbers on your New York investment opportunities, versus the North Carolina investment opportunities to compare them, apples to apples, this is going to spit off this much cash, which is this percentage of the amount of money that I put down on it, versus set it and forget it investing, and this one is going to spit up this much money. The Airbnb is going to be more work. But is it twice as much work for 25 times the money, then that’s kind of a no brainer.

Mindy:
Is it twice as much work for an eighth of the more money, then that’s also a no brainer to say no. Just really run the numbers and make sure that you’re comparing them in an apples to apples format. Then once you do decide if… I’m assuming you have a real estate agent in New York, do you also have an agent in North Carolina?

Brian:
Correct.

Mindy:
Okay. I was going to suggest that you connect with an agent. If you are listening and are looking to connect with a real estate agent, you can go to-

Scott:
Biggerpockets.com/agents, Mindy, is your URL. Then it redirects to that crazy URL.

Mindy:
Yes, thank you. That is where you can find a real estate agent who is investor focused, who can help you run the numbers in the local market, who can help you find an investment property or just even share information about the current market. Set you up for an email drip. That sounds like, oh that’s a minimal amount of work, you need to learn your market. Nobody is going to care about your money more than you are, and nobody is going to be more responsible for your money than you are, nobody’s going to benefit from it more than you are. So, you need to make sure that it’s going where you want it to go. You want to make sure you know the market and can make an informed decision when a good property pops up.

Scott:
Then lastly, we talked about other forms of investing, I think you’re in perfect position to begin considering syndications and other forms of those types of investments. I would dip your toe in the water, they usually ask for $50,000 minimums, but if you call them they’ll drop it to $25,000. You can try that out and probably get some access to some deal flow, analyze a couple of deals, be rigorous, figure out why you’d say no to a couple maybe before you invest. But yeah, absolutely a viable path and just know what you’re getting with the equity. Is it, do I want a press return, or do I want common equity? That’s my only a little follow up to what Mindy said here.

Mindy:
Yep. We’ll send you a copy of The Hands-Off Investor from Brian Burke, and read through that book, and you’ll get a really good overview of the syndication process in general, and just knowing how something works, helps you invest in a more intelligent manner. Okay, Brian, this was super fun. I really appreciate your time today, and I really appreciate you sharing all of what you’ve got going on, you’re doing great. I’m not seeing anything like, oh, you’re never going to be able to retire. You’re going to be able to retire and have a great life. You’re going to have a great life while you’re doing the retirement because you’re so conscious of money. It sounds to me like you and your wife never fight about money.

Brian:
We never fight about money, no.

Mindy:
That’s the best type of fighting about money to do, is to not ever fighting about money. The best way to do that is to be money conscious. Do you have money dates? That’s another question I didn’t ask you before, do you have money dates?

Brian:
No. Every once in a while, when we do a big purchase like this, she would say, “Can we afford this?” “Yes, we can afford this.” We’ll go through… I like to track everything. You should track your net worth, you track your spending, and I always look at the credit card statements and then everything just to make sure that we’re not going crazy on anything here or there. But over the course of as many years of marriage as we have and being together that you just get to trust that person and trust their style of what they’re going to do. I told her she can spend… As my friends as, she’s not going to hurt me at Target.

Mindy:
I love it. Yeah, well, it sounds like a challenge.

Scott:
Well, Brian, before we go, do you have a joke for us by chance?

Brian:
This wasn’t a normal BP Money Podcast. I didn’t come prepared with any jokes. My son’s a joke master, but I don’t, and I can’t even call him in to say, “Spencer, come give me a joke.” I don’t have any [inaudible 01:05:36]

Mindy:
I have a pregnancy joke.

Brian:
Okay, hit me.

Mindy:
Okay. This is the joke, I’m not pregnant. It says, I’m two months pregnant now, when will my baby move? With any luck right after he finishes college.

Scott:
I love it.

Brian:
There are many chiropractor jokes out there that my friends will send to me that I just have to shake my head at and tell them those aren’t funny. A lot of the crack me up jokes, a lot of those.

Mindy:
Oh, my brother has one, how many… It’s something… I can’t remember it now, it’s terrible, of course. It was like, how many chiropractors does it take to change a light bulb? Well, you’re going to have to come in once a month for the next three months to see any progress or something like that. That would have been a better, okay, 52 of the best chiropractor jokes.

Scott:
I had a joke about a chiropractor, it was about a week back, but I forget it.

Mindy:
Oh my God. Yeah, these are all cracks. I went to see my chiropractor for the first time in a long time. The first thing he said when I walked into his office was, “Glad to see your back.”

Scott:
These chiropractor jokes really crack me up. All right, should we move on and get out of here?

Mindy:
Yes, these are terrible. Okay, Brian, thank you so much for your time today, and we will talk to you soon.

Brian:
All right, thank you.

Mindy:
Okay, Scott, that was Brian. After we stopped recording, he said something that I thought was very interesting. He said, “Wow, I never thought you’d call me because my financial position is boring.” I just want to say boring is the best possible description of your financial situation. My financial situation is super boring; index funds and real estate that I basically invest in long distance and hands off. That’s as boring as it gets. I don’t have any fun, sexy stories about toilets overflowing in the middle of the night or tenants having parties on the lawn. Super boring, and I like it that way.

Scott:
Yeah, absolutely. I want to highlight that because he does not have a complicated mess of a financial situation going on. He could list all of his expenses in like three buckets that were really easy to understand. His investments were in three buckets. He’s could buy a house, he’s got his real estate portfolio, and he’s got his retirement accounts, and then a cash position, he actually refers to his cash position as both his cash and money he has, I think, in after tax brokerage accounts, which to him is liquidity for real estate investing purposes.

Scott:
Love it. Super, super simple, and he’s thinking about expanding into one additional asset class, either additional real estate in a diversified location, or syndications. You know, he’s going to be methodical and careful about moving in those directions. What is there to improve? There’s a couple of things, there’s things to think about maybe on the tax optimization front and some things, but the guy has built a position that is rock solid, he is enjoying, I think a lot of freedom to continue doing what he loves, wherever he wants.

Scott:
I think just that’s a powerful position, and something that a lot of other millionaires in this country do not experience. Just make sure you’re building that for yourself, or thinking about that, and the different contrasting ways to build wealth, because his wealth, in my opinion, is in a lot of the right places.

Mindy:
I completely agree. We called him out on his car payment right at the very end, he explained it, and it comes from a position of conscious spending. What is the point of having money, if you are not going to spend it on things that make you happy? Which is very different from my normal comments about money, but you spend on the things that matter, and you save on the things that don’t matter.

Scott:
What’s the point of being a millionaire who could be financially free in a heartbeat if he chose to, or didn’t want to work his job anymore, wanted to reposition a couple of things, if you can’t buy something really nice for your wife? Come on, that’s great use of money. Can’t argue with that at all given his position, the context of his position.

Mindy:
Exactly. This is another one of our Finance Friday Review episodes and Scott and I really, really loved doing this. We want to review your finances. Please apply if you’re interested in having a look through what you’ve got going on and making suggestions based on our decades of experience handling money. Please apply at biggerpockets.com/financereview. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From Episode 180 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, I look forward to our next meeting.

 

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In This Episode We Cover

  • How real estate helped Brian keep his income higher than his expenses
  • How much of a safety reserve should you have for your rental portfolio?
  • When (and when not) to put more money into you tax-advantaged retirement accounts
  • Setting up separate reserves for your rentals and your personal life
  • How to evaluate whether or not a syndication will bring back promised returns
  • Cash flowing markets vs appreciation markets
  • And So Much More!

Links from the Show

Book Mentioned in the Show