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BiggerPockets Money Podcast 201: Don’t Delay Your Wealth by Being Scared of “Good Debt” w/ Jake Simon

BiggerPockets Money Podcast 201: Don’t Delay Your Wealth by Being Scared of “Good Debt” w/ Jake Simon

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How do you think about debt? Most of us would shudder to think of having high-interest consumer debt in our lives, and for good reason. Consumer debt can lead to a detrimental financial future and tons of wasted money on interest. But what about good debt? Debt to buy rental properties or help an aspiring business. How do you feel about that debt?

Today we’re joined by FI chaser, and friend of Mindy, Jake Simon. Jake was raised in a frugal household. He learned to spend less than he made, shop the bargains, work hard, and NOT go into debt. Jake had been investing money every month in his 401(k), and after that, began putting the extra money he had into a bank account. After listening to The Mad Fientist (he’s been on our show before too), Jake knew that there was a much better place his money could be stored.

With the relocation of his job every few years, Jake became more and more interested in real estate, prompting him to start doing live-in-flips! After maxing out retirement accounts, selling his flips for heavy profits, and still having a large savings rate every month, he decided to conquer his fear of debt, and use debt to buy rental properties!

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Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money Podcast show number 201 where we interview Jake Simon and talk about frugality and intentionality.

Jake:
I was able to take advantage of constant relocations, buying the cheapest, ugliest, dirtiest house in the neighborhood. A couple of them have been foreclosures. Uh, one was just market research and understanding where the undervalued homes were in the- in the city. Fix them up while I live there, I love to work with my hands. I’ve- I’ve done pretty much everything to a house myself. So we relocated again from Kentucky back to Ohio. Mindy, of course appreciates my- my live in flips. So that it’s- that’s what I realized I was doing after I had done two of them already. It- it took me a while to realize that’s what it was.

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

Scott:
Well, thank you for the, uh, compliment sandwich today 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 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 retire from your peanut butter and jelly sandwich-making job, we’ll help you reach your financial goals and get money out of the way so that you can launch yourself towards those dreams.

Mindy:
Scott, today we are talking with my friend Jake and I love his story because and how do I say this nicely? It’s not Earth-shaking, it’s not earth-shattering it is yet another example of a life of frugality, a life of- but not like penny pinching, cringey frugality. Just it doesn’t mean anything to me so I’m not going to buy it. Um, s- lower spending. He really truly does have just a low threshold for what he wants and when he does want something, he goes out and he looks for it, different ways to buy it other than spending top dollar. Um, and upon discovering financial independence, he realized that he’s already doing everything to get him to financial independence. And retiring early isn’t really his main goal. He wants to be able to spend time with his family and he still really likes his job. I relate to- to Jake story in a lot of ways.

Scott:
Yeah. I mean, I- I thought this was a fantastic episode. He, this is- this is a prototypical or formulaic approach to financial freedom. Jake is an engineer, but, um, he and his wife have both worked. They have two kids, they have saved up, they had to pay off student loan debt, they gradually increased their savings rate, real estate began to take a portion of the- of the game plan here, there’s retirement accounts. I mean, it’s just, this is a highly repeatable, uh, path to financial freedom for many people.
Yes, there’s some advantages and disadvantages and those types of things. But this is really a story that I think is, you know, can be, can be heard across America about how someone in a 10 to 15 year timeframe with a good bit of intentionality and, you know, some- some good values around money can retire early and have their whole life ahead of them to do whatever they- they want with their family. So I- I think it’s a great story and I think I really admire what Jake has done here.

Mindy:
Today’s guest sells peanut butter and jelly sandwiches for a living, but he has the backup plan. He also owns four rental properties. Jake Simon, welcome to the BiggerPockets Money Podcast. I’m so excited to talk to you today.

Jake:
Thanks Mindy. It’s fine- great to finally be here.

Mindy:
(laughs). Yeah, Jake is a friend of mine in real life and he applied to be on the show probably like the second application ever. And I’m like, “Yeah, yeah, I’ll get you on the show, I’ll get you on the show.” And then it just never happened. So I’m glad the stars finally aligned and we can connect. And I said that you sell peanut butter and jelly sandwiches for a living, you actually do slightly more than that in real life. Can you explain what your job is?

Jake:
Yeah, I make them too.

Mindy:
Oh, you make them too.

Jake:
So I, uh, I went to college for engineering, mechanical engineering, and ended up working with a company that I work for now. And I do project management. So I actually look at all the equipment, I make a specification for the equipment, I buy it, I install it, I started up and I- I manage that whole process. So you can see me more of a project manager than an engineer.

Mindy:
And- and five short years of college, you too could be making peanut butter and jelly sandwiches.

Jake:
That’s it.

Mindy:
(laughs). Or you can call me up, I will give you the recipe.

Scott:
Well, it sounds like you’ve got yourself into a real jam with this career. So can you give us a little background about your money story and how you got here?

Mindy:
(laughs).

Jake:
Yeah, sure. So a- as I mentioned, I went to college for mechanical engineering. Uh, before that, I was always, I was big into cars, I rebuilt cars and motorcycles in high school, I was good at math and science, had no idea what I wanted to do with my life. So I thought, “Hey, I- I’m good at math and science, let’s do this whole engineering thing.” Uh, I selected my college based on wanting to be a few hours away from home, but also still close enough to drive. And also, they- the University of Toledo has a really good engineering program, and, uh, mandated co-op.
So that means I- I was able to, um, get three, at least three semesters of experience before graduating. And that was, I had to do that in order to graduate. But it’s a really good opportunity because they help you get that experience, go out and find a company to work with. So y- through college, I worked with the company as an intern, uh, on and off every other semester, which also helped pay for my college. And after graduating whereas I thought I’d go into maybe the automotive industry, I ended up in the food industry and never looked back.

Mindy:
Okay, I have some things before Scott jumps in with actual questions. I just want to point out that Jake at the age of 18 made the brilliant decision to go to a college, it took you five years to graduate, right Jake?

Jake:
Yup.

Mindy:
Okay. So, e- but Jake’s not, um, failing classes. It took him five years to graduate because he would work and then one semester, and then go to s- go to school the next semester, and then work a semester and go to school the next semester. And by work, I mean, he was actually making money. Spoiler alert, I already know his story. He was actually making money every semester.
So not only does that help you pay for college, but when you graduate in five years instead of four, you have actual work experience, you can go out and get a good job as opposed to an entry level job. Did you have an entry le- maybe I should, I don’t know all of it. Maybe I shouldn’t say entry level job. Did you have an entry level job when you graduated or did you have like an entry plus because you already had experience?

Jake:
It was what I would consider an entry level engineering job, but it was a shoe and I worked with the company that I worked for in college. So I was already starting my full-time work when I was in college because I had agreed to work with them. So when I started my “full-time job”, it was entry level, but I was doing work that people with two to three years of experience were doing, so it really jump-started everything for me.

Mindy:
This sounds a lot like Craig Curelop’s, uh, story where he would go to school and he also chose the school that had the work and school program. And he would go to school and then work and he also took five years to graduate, but then he had such a leg up on other people. Well, why would I hire Scott who just graduated in four years with no work experience when I can hire Jake for the same position who already has like s- three years of experience or two and a half years of experience or whatever. Sorry Scott, uh, Jake beats you in those- in those jobs.

Scott:
Uh, Mindy was already telling me about how much better shape Jake is- is in before the [crosstalk 00:07:59] started.

Jake:
(laughs).

Mindy:
(laughs).

Scott:
So man, Jake, you’re killing me. Um, how is-

Mindy:
(laughs).

Scott:
What was your financial position like graduating college with this? So you- you got this job, do you have any debt? Do you have a- do you have some savings? What- what are the things look like for you when you’re starting out your money journey?

Jake:
So I was fortunate enough to have my parents helped me out with the first year and a half of college. Um, so they- they put themselves in a financial position to pay for my college for the first year and a half and after that, that’s when I started my internships. So I would leave school for a semester and work full-time and that full time work paid for my living expenses at the time, but also the entire next semester of college.
So that really helped out throughout college to put me in a position where I graduate- graduated without debt, but also some- some money in my pocket. Um, I’ve also always been a saver since, ever since I can remember so I was never one to spend frivolously. I’d spend on what I value and it’s- since I was really young, I remember saving Christmas money, birthday money. I just I didn’t go and spend it on a lot of things. So yeah, when I graduated college, I did not have debt, um, I did get married in college and married into some college debt, but none of my own.

Scott:
Awesome and- and- and would you say that you had any intention to become financially independent with money or- or was there just kind of like a- a- a thriftiness that was natural to you with this?

Jake:
Yeah, the thriftiness was all natural. I- I didn’t know what financial independence was until years after graduating. Um, it’s values that I- I grew up in the- the Midwest have very, uh, very what I would consider the stereotypical Midwest parents where they live simple lives and they value what they value and I- I kind of grew up watching them and had the same mentality. So it was- you don’t spend money you don’t have and you- you don’t need all all the possessions in the world to make you happy.

Mindy:
How much college debt did you marry into?

Jake:
About $40,000?

Mindy:
And how long did it To take you guys to pay that off?

Jake:
A little over two years.

Mindy:
Okay.

Jake:
So that- that’s- that’s another aspect of, uh, you know, we’re, the way I grew up, you don’t have debt. You- the debt was our mortgage it- really at home. My parents would pay cash for cars if- they’d save up for years and years until they could pay cash for a car. Um, and, you know, so I never- I never wanted to have debt when we graduated. Uh, it was my- my high school sweetheart.
So I wasn’t getting in anything I didn’t know about. Um, but she had about $40,000 worth of debt. So the very first thing we did, um, is paid very, very aggressively on her loans until we could pay them off.

Mindy:
Uh, this was your eighth grade sweetheart Jake.

Jake:
Yes. (laughs). Corrected. Yes. We- we started dating right after eighth grade. Um, and but yeah, we- we met in middle school.

Scott:
So- so once you pay off the debt, what it- where does your- what’s next with your financial story?

Jake:
So that- that was the, that was my question, I also-

Scott:
Hey, what year are we in?

Jake:
We’re- we’re in 2000, uh, so I graduated 2011. Um, so that debt was paid off over the next two years by 2013. Um, in 2011, I graduated, I got married, and I bought a house. So a lot going on that year. Um, and any, as I said, any money over those two years was going straight towards the debt. Um, and then it was- it was after that when I was actually relocating for my job maybe in 2013 or early 14 that, uh, it was- it was early 2014 I was relocating for my job and selling my house, buying a new house in a new city about five hours away down in Kentucky at the time.
And I didn’t know what to do, we made some money on this house because it- the first house we bought was a foreclosure. So we were making some money on that, the company was helping with a lot of my moving expenses. We had some money to put away and I wasn’t sure what to do with it. So that was the question, what do I do with my money next?
Um, I was very, I’d say safe with what I was doing. I was scared of the stock market, it was big and scary and I didn’t understand it so I didn’t put any money into the stock market other than my basic 401(k) match the absolute minimum. So I started researching what I- instead of just dumping it in my house which is what I had been doing once we paid off the loans I, we doubled our housing payment just because I didn’t want the debt, I wanted to pay it off. Um, but that’s when I started learning more about personal finance, and became a little more confident when it came to investing and where to put the rest of my money.

Scott:
So how much- how much per month are you saving at the moment in time where you begin to- or the- or the period in which you kind of discovered personal finance and begin to learn more about this?

Jake:
I’d say at that time, I- I’d have to look back and, uh, my wife has always joked about it. I’ve had a spreadsheet of our life since college tracking, you know, budgeting, not necessarily budgeting, but tracking our expenses and what we’re making, kind of the general expenses. So I- I can certainly look back and find that number, but it’s probably five to $700 a month of extra income that we’re doing something with.

Scott:
And that’s all go into your mortgage basically?

Jake:
Exactly, yeah. First house was $70,000, so it wasn’t a huge mortgage. Um, so we were at least doubling that and then it was e- even with that, moving to the new house our mortgage was going up, but I wasn’t sure that that was the best use of my money to double a mortgage payment.

Scott:
So let me ask you this. You said go- going out of college you had 40,000 in debt between you and your wife, and you paid it off in two years. So that implies like a 1,500 to $2,000 per month payment somewhere in there on average for those two years. Did you relax on the spending after you paid that off or- or what- what- was there any type of transition with it?

Jake:
Relax on personal spending?

Scott:
Well, well, I- uh, it just seems, well, I’m- I’m just trying to get the flow here because you’re saying, “Hey, I’m saving 500, $700 a month.” But for the first two years, you saved much more than that it seems to pay off the student loan debt.

Jake:
Yeah, so I- I guess the- um, we did pay a- a big lump sum. So that- that monthly payment was probably not quite that $1,500 a month, it wa- you know, it was under 1,000 because, um, with some money that I built up in college, we- we paid a good lump sum off of that, uh, pretty quickly. Um, probably in the realm of $15,000. We- we just paid, uh, the highest interest off.
Um, and then, yeah, w- our spending really never increased. Um, we also had a roommate when we first got married because he was our roommate in college and we continued that over the next, uh, while we still lived in Ohio. We had a roommate for the next two or three years that we were first married and it worked out great. Um, so that was some extra income, but no, when- once we paid off her, um, her debt, we didn’t increase our spending.
We- we lived pretty much the same life and that’s When it started just going into a bank account. So that- I didn’t know what to do with it, it was going in a bank account, bank account was getting a little bit big for, uh, I thought there is better, again, better use of my money. So what else do we do with it? Um, so I was probably a little low on that five to $700 of savings that you’re right after we paid off her school loans, it was probably closer to that $1,000 plus.

Mindy:
How did you start educating yourself?

Jake:
Well, I was moving five hours away and wasting, I- I was driving down to my new location every week, uh, for weeks, uh, for a couple months ahead of moving. And I thought that was the biggest waste of time, uh, sitting in a car for five hours. So someone introduced me to both podcasts and audiobooks, I hadn’t been involved in or listened to either at the time.
So I really dove deep into podcasts and Google personal finance podcasts and came across one called the Mad Fientist, um, and, uh, Brandon, the Mad Fientist was the first one to really get me into personal finance, and then, you know, later down the road financial independence.

Scott:
Love it. And so what- what changes with this- with this? What- what about your asset allocation or savings rate or- or how did how did things change after you discovered this?

Jake:
So one of the things I did first was maxed out my 401(k). That was, that became a priority. I knew we had extra money, we- we didn’t need all of the income, we were just putting it in a bank anyway, so I wanted to shelter some of that from taxes. So very first thing I did was bump that up to the point where we can max it out each year. Um, in addition, we- it just changed my perspective on spending. Again, I’ve always I’ve always watched what- what I spend, I don’t spend on things I don’t value, we don’t go out to eat very much, that’s just not our lifestyle. Um, but it- it made me more conscious of- of everything and made me think twice about some of our monthly expenses, the reoccurring expensive, uh, expenses, everything like that.

Scott:
So do you think that you were able to- to so you’re saying you were- e- you’re able to still further increase your savings rate from five, 700 bucks a month to perhaps a- a- a good chunk more?

Jake:
Yeah, yeah. So I’d say at that time it was- it was about 50% of our income. I- I don’t know the dollar figure, I’d have to look back. We’re talking 2013 into ’14, ’15. Um, but it was. we were saving over half of our income at that point.

Scott:
But sorry, it sounds like no big lifestyle changes happened here. It was just kind of an evolution of what you’re already doing with a little bit more focus and attention.

Jake:
Exactly. Yup. No- no big lifestyle changes, we were living in another state. Our housing price doubled just because we went from, uh, a re- a really cheap real estate area to moderately expensive Lexington, Kentucky, not expensive but not- not a- not as cheap as Toledo, Ohio.

Scott:
Not a $70,000 mortgage?

Jake:
Yeah.

Scott:
Nice. So what happens next? Where- where- where’s the next milestone?

Jake:
So with- with my job I- being in project management, engineering, uh, working for the same company, that’s- that’s what I relocated for. So they’ve moved me around quite a bit. I’m on my fourth location with the company still working with them today. Now making peanut butter and jelly sandwiches. I used to just make peanut butter.
So I guess I’ve- I’ve graduated to the full sandwich, um, but we- (laughs), we were in Lexington for a few years. And then we actually moved back to Ohio. Um, we had- we had our first child and Lexington. Um, things were going very well. But we want to be back close to family. So we relocated again, but that’s- that’s kind of part of what put me in a financial position that we’re in today is our company helps a lot with those expenses.
So I was able to take advantage of constant relocations, buying the cheapest ugliest, dirtiest house in the neighborhood. A couple of them have been foreclosures. Uh, one was just, um, market research and understanding where the undervalued homes we’re in the- in the city. Fix them up while I live there. I love to work with my hands. I’ve- I’ve done pretty much everything to a house myself.
Um, so we relocated again from Kentucky back to Ohio. Um, Mindy, of course appreciates my- my live in flips. So that that’s, that’s what I realized I was doing after I had done two of them already. It took me a while to realize that’s what it was.

Scott:
So are you selling them after you move out or are you keeping them as rentals?

Jake:
We were selling them. So I did not have, uh, rentals at the time didn’t really get into that as an idea yet. And so as much as I would love to leave a- a trail of breadcrumbs behind me in every- everywhere I lived and keep those houses as investment properties, the amount of money that I made on them really helped boost my- my future. So, um, I’m not sure that I could have kept them and kept the same trajectory that I- I have now.

Scott:
No, I think- I think that’s a great point. So and I think that, um, Mindy- Mindy does live in flips, you’ve done live in flips. I have bought duplexes and moved out and kept them with that, but it’s the intention with that like, you know, the- I bought them so that they could be rentals. And you guys are buying them so that they can be flips.
And so when you stick to that strategy, that’s where all the economics are, and with the live in flip, there’s an- a phenomenal tax advantage that you’re getting every single time, um, for those listening, where you don’t have to pay income tax if you’re there for at least two years in that property. Is that right? Were you able to hit that milestone with each of your flips or most of them?

Jake:
Yeah. Yeah, I have. And so the first one it was, you know, I- we made $15,000 on our first house, put on a $70,000 house and just graduating college I was pretty happy with that [crosstalk 00:20:37]

Scott:
And that’s [crosstalk 00:20:37] Ohio.

Jake:
Yup. A couple houses later, so our- our third house in was another Ohio house foreclosure and we made $85,000 on that in- in the two years we were there. So each house got progressively more and more. And, uh, again, that really set the trajectory for our financial position today.

Scott:
And what was the difference in intent between house one and house three? Were y- were you going in to maximize your- your- your gain on that house three? Was that the difference?

Jake:
It was so house one was, uh, there was a foreclosure and I bought it because it was a good value. H- I saw, I saw a $70,000 house and I saw a lot of potential work that I could do to raise the value, but it wasn’t- it wasn’t be- because I- because I planned on flipping it or because I planned on making a bunch of money. I just thought that, “Wow, that’s a good value house and I can go in and do a bunch of work and make it my own.”
Um, house two in- in Kentucky I saw, “Hey, this house is selling for 165,000. But on the other side of town, it’s selling for 215,000.” And it was a builder grade cookie cutter house. So same exact, same exact floor plan with that big of a differential, I thought, “Hmm, I’m going to buy on that side of h- town that’s a lot cheaper.”
So I- I did that and all the builder grade cabinets and flooring and everything, I upgraded myself, put five to $7,000 into the house and then sold it and made about 30,000 on it. So then that’s when I thought, “Wow, this is- this is really working out well.” And I- I started getting into more podcasts and, um, realized that I- I really enjoyed real estate. So I think it’s probably around then that I got into the BiggerPockets podcasts, um.

Scott:
And this is 2015?

Jake:
This was 2000 … Yeah, probably about 2015 when I got into the bigger pockets podcast and, uh, started planning my next move back to Ohio.

Scott:
Awesome. I have no idea why you’re friends with Mindy after all this.

Jake:
(laughs).

Mindy:
(laughs).

Scott:
It doesn’t make any sense.

Jake:
Exactly. So we moved back to the Cleveland area where- where both my wife and I grew up and intentionally looked for the worst house we could find in the best neighborhood we could find. And it was another foreclosure, um, purchased at 130. Uh, so- uh, had about 200 into it because it needed a lot and it was a 3,000 square foot house.
So with that square footage comes with- comes a lot of work and a lot of cost. Uh, I can tell you about what it cost to buy 36 windows in a single house. That was, uh, that was quite an expense. Um, but we sold it 285 and then did did very well on it. So, um, that was where the intent came in.

Mindy:
You said you had 200 into … You were all in at 200.

Jake:
All in, yeah, sorry.

Mindy:
You didn’t buy, okay. Okay. I’m like, “You put $200,000 into a house.”

Jake:
No, we- we put 70 into that one and about 80% of it was my own work. I did hire out a few- a few of the jobs, hardwood flooring that I did in my first house, I’ll never do that again. It’s much more efficient use of my time to hire that out, uh, refinishing that is.

Mindy:
(laughs). Oh yeah, for sure.

Scott:
So let me- uh, how much- how much were you saving per year when you made this $85,000 in profit?

Jake:
That is something I would have to, oh-

Scott:
Be it ballpark.

Jake:
Ba- ball park at that time let’s say 40,000.

Scott:
40,000. So- so in two years, you’re able to effectively double your savings, right? It’s like adding in a completely additional householding, it’s like doubling your household income once again, or at least your household wealth accumulation rate once again with this and how many hours per week would you say you put into this property?

Jake:
That was- that was a- a front loaded effort. So bo- both, both of the foreclosures I’ve purchased I’ve put blood sweat and tears in too many hours into the first couple months of owning, uh, very little sleep, a lot of work, but it- it gets me through that hump. And a- as Mindy knows, projects carry on for years, yeah, as long as you live in a house there’s going to be those projects especially when it’s a live and flip and you’re buying one that needs everything.
But I would put in, uh, for example, my first house was the most extreme where I was working 50 hour weeks and probably putting 40 to 50 hours of work in on the house as well. Um, and that was- that was about an average week for me. So, the, uh, at- at the time that we bought the hou- second house in Ohio, it was a little bit less.
I had- I had a baby at home, and soon there’ll be another one on the way. So I didn’t spend all of my time on it, but it did it. It took up every weekend and couple hours and evenings more often than not, it w- it was a lot of time.

Scott:
So- so this is- this second house, when- when do you sell the second house? What year is that?

Jake:
The second house was sold in 2016.

Scott:
2016. Okay, so in 2015, ’16, you’re remodeling the second house and you’re saving. What- what have you been doing all this time with your just general accumulation rate, um, of about 30, 40,000 a year.

Jake:
So that was, uh, again, we- we started increasing our savings for the 401(k), but, uh, it was also building up. So it- it led me to another question of what- what do I do with this- this cash that we’re building, and it’s sitting in a bank account even- essentially making $0 for me. Um, so actually in 2014, I went out and I bought a rental property.
Um, so timeline, I- I mentioned BiggerPockets probably around 2015, uh, 2014, still didn’t know much about it. But I- I actually knew someone, my sister-in-law that was looking for a place to rent and I thought, “Hey, rental, that sounds fun, you know, I like real estate.”

Mindy:
(laughs).

Jake:
Um, so everyone says never rent to family. Um, I bought a house specifically to rent to family. I will say never rent to family. (laughs). So, uh, it has worked out well for us over there. She’s still in the same house now in 2014 to now, she’s still there, and it- it has its ups and downs, renting to family is not always fun, but it’s an act of love. (laughs). That’s all I can say. Um, so but it did, it also put me on- on the path of more real estate and it opened up the door to rental a- as an option.

Scott:
Okay. And- and can you give us a little bit of the numbers behind this property?

Jake:
We bought at 185,000, um, rent was 1,600. So just below what I didn’t know about at the time, but the 1% rule, we were a little bit below that. But, uh, the numbers really made sense and, uh, I was m- well over, well covering my mortgage at the time. So that’s what I cared about. What I cared about was cover the mortgage plus a few 100. Um, I did it as an entry to the whole rental industry. So I- I- I really, I thought it was a safe bet and it was, it- it worked out well. So making probably $300 a month at the time, um, of above what I saw as my costs.

Mindy:
So was 1,600 the market rent or did you give a discount to your sister-in-law?

Jake:
1,600 was a number that I pulled out because I looked at what I thought I needed to charge her in order to cover, again, expenses and plus a little for when the furnace breaks or right now it probably needs a new roof, things like that. Um, the city that I bought it in, the city that I grew up in, not a lot of single family homes are renting so it was really hard to pull comps and r- and look at that. So I kind of ballparked it myself.

Mindy:
Okay. And at this time, you are continuing to contribute to your 401(k), are you maxing it out or are you just contributing to get the match?

Jake:
Maxing it out at this point. So the- the match was my first few years and after it didn’t take long listening to Brandon’s podcasts and starting to get into some blogs before I realized I’m leaving some money on the table because I’m just paying taxes on it and letting it sit in my bank account. So I decided, “Let’s start maxing that out.”

Scott:
And- and your income is going up during this time with- with a couple of big job moves, right?

Jake:
Yeah, wi- with job moves, with relocations with my company come the bigger raises. That’s- that’s really where the money is at. So, um, one of my strategies that I learned, uh, with my first move is, “Hey, I can- I can make money on real estate. But I’m also every time I move with the company, they give me a nice pay raise.” So that really helped boost my income in the first few years whereas if I stayed in the same location, there’s no way I’d be making what I am today.

Scott:
I mean, yeah, you’re going, you’re going all out here. You’ve got, uh, income, you’re moving physically to get, to maximize your income, you’re leveraging your housing to make the most of it, you’re making sure that your investment allocation is- is tax advantaged with this.
And what’s happening here is an exponential or compounding rate of wealth accumulation over these first five years that we just heard right? At first it’s paying off debt in the same location, yada-yada and but then- and making only 15 rent on your first house, um, with that. And then it’s- it’s compounding and you get it you’re- you’re m- making a move, getting more, maxing out your 401(k), getting intentional, then it’s making $85,000 in your housing decision over two years, two and a half, whatever it is, a- and continuing to get a raise and buying a rental property.
And this is where a lot of people see, “Oh, financial independence is so far away and so distant for me.” But no, it’s- it’s this curve that you’re writing and you’re gradually increasing from building wealth at 500 or $700 a month to probably close to two to $5,000 a month, you know, 2,000 a month minimum, just- just with the housing, right? No, 4,000 a month minimum just with the housing decision in the ho- Ohio place. You’re probably building wealth at a rate of five to 10,000.

Jake:
Yup. If- if you include those, you know, over, spread that over the months that I owned a home, it- it really raises that quite a bit.

Scott:
Love it. So what- what- what’s- what’s next here?

Jake:
Well, um, we- we actually moved to Ohio expecting to stay there long-term. Uh, that’s where our family’s from. Uh, we had our second kid in 2017, uh, af- a year after moving to Ohio, uh, this is long term for us. And then I- I found out my company was building a plant in Colorado.
So I said I would never move the family anywhere in this world because it’s not worth pulling them away from- uh, from our family. And we liked the idea of having grandparents and cousins and everyone close. Um, and when my wife and I were moving from Kentucky back to Ohio, on the final drive, I looked at her and said, “Yeah, this is forever. We’re- we’re back in Cleveland and- unless we build something on Colorado, but that doesn’t make logistical sense for food manufacturing so we’re never going to do that.
Within six months, I found out we were- we were building a plant out here in Colorado. Um, so that was six months after moving to Ohio and it- I ended up being in Ohio for two years before doing another relocation for the company out here to Colorado. Um, and again, did- had the same approach that was now 2018 that I moved to Colorado and had the same approach of, “All right, let’s- let’s find a- a house that we can fix up and that we it- this is probably only a three year deal.”
So I knew that I was coming out here to make some peanut butter and jelly sandwiches, start up a new plant to do so. And once I started up that plant, I have the option to move back to Ohio which is what the family really wants. And that that was what was next. So here I am still in Colorado, um, three years later, and not moving back to Ohio anytime soon.
But we- we did, we found that house that no one else wanted, uh, luckily got here three years ago before it- it was- it was booming, but not as much as it is today. So we were able to get a house that sat on the market for too long. It showed really terribly, um, had renters in there that clearly didn’t want anyone to buy the house because they made an effort to make sure the house looked like a disaster when we saw it.

Scott:
And we’re in Colorado is this?

Jake:
So this is about 30 minutes north of Denver, our first house was in Firestone, so a very small, newer community. Um, wouldn’t call it a city. It- it’s- it’s really just a small town. Um, but it was a, it’s- it’s newer, I’d call it a commuter town, people commute down to Denver, e- to surrounding areas.

Scott:
Okay, and w- one thing, um, I don’t want to get into all this stuff, but at some point during this journey that you- are- you’re- you’re thinking about financial independence, right? That- that’s the, uh, uh, an end goal for you. Is that right?

Jake:
Right. Right. So that- that’s where, um, it- and it progressed, it- it was years of progression. I think it was, let’s say, I think it was 2017 when ChooseFI started and that was a podcast that I- I really dove into and focused more on that whole financial independence thing.
And again, starting out when we graduated college, and even for the first three plus years, it was, that’s just my lifestyle. I never imagined I could retire early or, you know, which is not something, not necessarily a goal to retire early, but to have that freedom of lifestyle, have the freedom of time. And that’s something that I learned about ov- over the years and then started focusing on yes, probably 2016, 2017, I really started focusing on what do I need to do if I wanted to leave my job one day, if I wanted a freedom to be home with my kids because my job has a lot of demands.
It’s a lot of hours and travel. So although I really enjoy what I do, I don’t know that I want to do it forever because I value my family. That- that’s really what it comes down to these days is- is I’ve got two kids, I’ve got a wife. And what do I need to do to make sure I’m devoting all my time to them that I can?
Um, so yeah, ov- over a few years, s- slowly but surely started focusing on that personal finance side of how do I set myself up for whatever’s next? Whether that’s two years, five years or 20 years.

Scott:
So what did that look like to you in numbers? Did you boil that down to a formula? It sounds like you have a spreadsheet going for since- since college, uh.

Jake:
Yeah. So I did, I boiled it down to numbers and a lot of it’s dependent. So y- you really have to update your numbers in my opinion every couple years because life changes so much. If I were still in Ohio, uh, that’s a lot different buying $130,000 house, then coming to Colorado and buying a $400,000 house.
So numbers change, but the goal will stay the same and in terms of- of what we need to do, so we look at our monthly expenses. And I- I decided to put a number together of what we need to- to have monthly in order for us to have that freedom. And whether it’s passively through index funds, whether it’s through real estate, um, whatever it may be, hobbies, I- I have a lot of hobbies, too many hobbies, and some of them make money, so that’s nice, some of them don’t.
Um, but in looking at what are my options, are there, uh, and real estate was a leading one because I really enjoyed doing the work myself on the houses I love, um, just researching it, looking at properties, going to see them. I’m on Zillow, and Realtor and all of that all the time getting notifications in a couple different cities.
So I kind of put together my own plan, um, multifaceted if you will where short-term, I’m focusing on real estate. So we- we’re maxing out our retirement plans. But I’m focusing on real estate to allow me- allow me that freedom when I’m young. Um, and that’s- that’s the path that within the next two years, I al- I should be there, have enough rental properties to pay our monthly expenses.
But at the same time, I’m looking at traditional retirement at 60, 65, 70, whatever it is when I get there. So I’m making sure we have enough in our 401(k) and my wife is a teacher. So 457 is a great plan, um, and we’re maxing those out to make sure by the time we’re 35, we- we can stop contributing and have millions in our 401(k)s by the time we are in our 60s.
So it kind of a two- two prong approach of- of the freedom let’s- let’s say the short term being real estate, the long-term being, yeah, we’ll still have a 401(k) to fall back on if that’s what we need.

Scott:
Awesome. So- so this strategy is coming- uh, is coming together, you know, full force around the time in 2018 that you’re moving to Colorado, is that right? That’s kind of- it’s evolving over a two or three year period. But it’s really kind of getting dialed in around that point?

Jake:
Right. Yeah, that’s- that’s accurate, 2018 when really put that focus towards it, and especially moving to the higher cost of living area, making sure that we did track our monthly expenses a little bit more closely and understand what that looks like.

Scott:
Okay, and- and- and the balance sheet when we’re- when we’re- when you moved to Colorado is you got one rental property, you sell the house for an $85,000 profit from Ohio, is that right? And you’ve got-

Jake:
Right.

Scott:
It sounds like a pretty strong savings rate in general sense, you’re getting probably another raise, and you’ve got a good chunk in the retirement accounts and- and a good cash cushion.

Jake:
Right. So cushion, uh, again, a, you know, little bit more money than the first time I asked the question moving, l- l- selling our house in Toledo. Um, this was a s- more significant cash flow because there were other things that were going on with this house in Cleveland, but w- we had quite a bit of money from that.
And I started understanding mortgages a little bit more and whereas in the past, I had said, “I want to pay every dollar on my mortgages just to get rid of that debt.” I moved to Colorado and I said I want to put the minimum amount down that I can on a house. And that way I’ve got a lot of this cash to do other things with and, um, probably get more into real estate.
So that’s what I did. We- we sold our house for the profit that we did in Ohio, but we also had a lot of equity into it. So we were able to put a minimum payment down on a house in Colorado where that was much more expensive. But also then we- we paid off our first rental which I know a lot of the- a lot of the BiggerPockets folks will say, you know, u- use that mortgage, use- use the cash that you can, but it was- it put us in a very strong position.
Still renting at $1,600 a month, but other than tax and insurance, we were making a heck of a lot of profit and that again, uh, just boosted our monthly income to allow us to then continue to acquire properties.

Mindy:
Okay, so knowing that you have four rental properties, and very low expenses, what do your rental properties bring in in terms of your monthly spending? So does it cover like if you quit your job, Jamie quit her job, you could get by or it covers 50%? Like how much are you making on your current rentals?

Jake:
So right now on our current rentals, we are- we could easily cover our monthly expenses without health insurance. Health insurance is always that wild card. So I don’t have a solution for everyone on that one, um, but-

Mindy:
Nobody does.

Jake:
Even if- yeah, exactly. So w- with health insurance being a wild card, um, we could easily cover our monthly expenses including the mortgage that we have on the house we’re living in. Um, so we are- we are there right now and that’s where I’d say over the next two years after acquiring a couple more properties, it would put us into a very comfortable position where even if we had to have health insurance out of pocket, uh, we- we’d be able to cover that.

Mindy:
So that’s interesting. I also listened to the Real Estate Podcast, and I’m on BiggerPockets all the time and I see people talking about how they want to have 15 properties, 20 properties, I want to have 100 properties and it seems almost like they’re pulling this number out of thin air like, “Oh, that sounds like a nice round number.”
You never hear somebody say I want seven properties, or I want 26 properties, but you don’t have to have 100 properties in order to live off of the proceeds and have a nice life. I mean, Jake has a really great life. What have you given up in order to pursue financial independence? Like what- what are the things that you love to do that you aren’t allowed to do?

Jake:
You stumped me. I ca- I can’t [crosstalk 00:41:18].

Mindy:
Yeah, the answer is nothing, I know. (laughs).

Jake:
Yeah, and to your point, I want seven properties, that’s- that’s always been my ideal number, so-

Mindy:
(laughing). I didn’t know that.

Jake:
Yeah, yeah, well, it’s five for me, but I need one for each kid. So, um, e- it- that- that’s-

Mindy:
Wait, you don’t have seven kids.

Jake:
Uh, five for me, one for each kid.

Mindy:
Oh, and one for e- okay, okay.

Jake:
Yeah.

Scott:
Are you doing the Brandon Turner college r- savings plan?

Jake:
That is, yes. Yup. That’s where I got it from.

Scott:
Can you explain that one more ti- one more time in case someone [crosstalk 00:41:51]

Jake:
Yeah, absolutely. So yeah, Brandon Turner, I heard this on a podcast, uh, I think it’s been a couple year- two years maybe, I- I don’t know when he said it, but I thought it was a genius plan. Everyone asks five years ago, “Okay, um, everyone asks, well, what about your, you know, what are you going to do for your kids in college?” First of all, I- I will support them through college.
Um, and college is a whole another debate we can get into, but certainly for two years of college, I want to support my kids if that’s what they choose to do. Um, but the way I’m setting it up, I easily could support them for five years because two of the house, each kid has a house right now.
So two of my rental properties are what I would consider to their college investments. So instead of putting it into some type of fun for them, I put it into a house, bought these houses, uh, let’s say in the $150,000 range. And by the time they go to college, these houses will be paid off.
So there, that leaves me to several options. Um, I could sell the house and easily fund their college hopefully. We could use the monthly income from those to float college all the way through. Um, if my son I’ve got two- two boys, if they don’t want to go to college, this house could help them jumpstart whatever they’re choosing to do with their lives.
So and- and I don’t remember exactly, um, Brandon’s explanation, but that’s- that’s kind of my interpretation of it to, uh, in one way or another, this is their college fund.

Scott:
Yeah, my- and my favorite, I think third option here is, is you just cash out refi the house, use that to pay for college, and you put on another 30 year note and then the grandkids get college, uh, on the- on the next, the nex- on the next one.

Jake:
(laughs). There you go, grandkids, yeah. And I- I never want to sell one of my houses, so.

Scott:
Yeah, there’s more mathematically efficient ways to- to think about these things because like you lose the depreciation benefit after 27 and a half years. But it’s fun to think about that as just such a pure and simple approach to financing college for your kids and then your grandkids. Uh, I plan to do exactly the same thing whenever, um, uh, if- if Virginia and I ever have children, so.

Mindy:
I want to point out because I know the story and we haven’t specifically noted that all of your rental properties are in Ohio, right? With the exception of the one up here?

Jake:
Right. We- we have one in Colorado now, but the rest are in Ohio. Um, and that’s, it’s the market that I know. Um, I’ve looked at other locations, but it’s- it’s a good cash flowing market. Um, so I- I, Mindy, to your point, people say I want 10, I want 20, I want 100 doors, and I listen to the BiggerPockets Podcasts where they’ve got 100 or 1,000 doors and I don’t know what I would do with that.
I don’t want to manage all of that, but I also really focus on I’m diligent about picking my properties, picking the ones that cashflow well and I found a very good market where I- I can buy a house, my mortgage, all in cost mortgage, taxes, insurance around $800 and I’m renting for 16 to 1,700. So where- when I hear of people making one to $200 off a door, to me, that’s not worth the effort.
I- I that- I’d rather invest in a- a nice single family home that is a high value to people. Honestly, I always say picking tenants is like shooting fish in a bucket where I’m at because I get so many applicants and I’ve had them go into bidding wars before just for rental, which, of course can only go so far. You- you can’t rent it for way more than it’s worth and you don’t want to have someone commit to paying you 300 extra dollars a month when then they just don’t pay.
So there’s a lot of screening that’s involved, but it’s, I’m really, I take my time, I go through the process to select my properties and I can do that because I’m buying one or two a year, not 20 or 30.

Scott:
So I- I- I- I- I love everything about your approach and how you’ve thought through this. And I want to point out a couple of milestones once again. You know, it- it takes probably three to five years, I don’t know, it- it- it depends on the person. But it sounds like it took you about three to five years, maybe, maybe six to kind of get to this point where your values, your education, on personal finance, a couple of big wins with a live in flip and all that kind of stuff puts you over this hump, you’re over the hump and you’re like, “Okay, clearly, I’m going to make it and be just fine financially.”
And now it’s just a matter of how l- how fast can I get to the finish line of pu- total financial freedom with this and what’s that safe financial fortress that’s going to surround me with that where I’ve got long-term retirement, short-term retirement, cash flow, college education, and healthcare all covered with those types of things. And your strategy is coming together, and then you’re- you’re just dialing it in and getting really, really intentional and systematic about moving towards it. And- and I think it’s just fantastic. Am- am I- am I on- on track with kind of phrasing that?

Jake:
No, I- I think you phrased it better than I could. So yeah, you’re- you’re right on with it. And it was slow development over years and becoming more and more interested and then m- money is also a passion of mine. I just I like to talk about it, I like to, I’ve had a spreadsheet for a reason because I- I will be at work and I’ll pull up my spreadsheet just to look at it.
And then I play with numbers in the future just to see what if this, what if that. I’ve had several tabs of the same spreadsheet at some point in time to look at different trajectories. What if my wife wants to leave her teaching job and just stay home with the kids? What if I get another raise? What if I don’t? So it- it’s just fun to play with and over the years he had develop that plan and that strategy.

Scott:
Love it. So can you- can you fast forward us through a couple of the big milestones now from 2018 to 2020? I know you’ve got to- It s- it sounds like you get a second house here. So that that sounds like one component of it and a couple more rental properties that you’ve sprinkled in.

Jake:
Yeah, so when we moved here, we moved with the intent that we needed to buy a house that I felt confident that we would at least breakeven, hopefully make money on and the- the city we moved to was going to be Longmont, but Longmont is a kind of a tough town to buy in for many reasons. And it’s, we found the safe commuter town that we really like.
And we bought there because we found this house with renters that were trashing the place and want- want no one to buy it. I felt like I could buy that house and if I hadn’t move in three years, we would not lose on it, we should make some money on it. But we did realize after living there for a year as much as we love the house, love the area, we wanted to move to a little bit closer to town.
And we were looking at rental properties, but then we ultimately decided, “Hey, let’s- let’s just buy a house to live in and we’ll rent out where we’re at now.” So we did that, we did it here in Colorado now we’re- we’re living in Longmont and we have a rental in the- uh, the town, 10 minutes down the road Firestone.
So that was our second rental property that was 2000, what was that? 19. So five years after our first rental property, we bought our second rent- essentially bought our second rental property by moving and renting out that house. Um, and then 2020, we bought two houses. So started really-

Scott:
C- c- can I ask you- can I ask you-

Jake:
Yup.

Scott:
A question about this because you cashed out your Ohio house and now you’re sitting on I imagine somewhere in the ballpark of 150 grand because you have the 85 in profit plus all the equity. Is that somewhere in the ballpark of that?

Jake:
Yup, yeah, that’s right. And again, don’t forget we paid off our first rental in Brunswick in Ohio. So that was- that was a big chunk of that.

Scott:
Oh, okay. So that’s what you did with the cash is you used it to pay off the other- the rental.

Jake:
Bet- between paying off that rental so yeah, we- we paid off that rental, we put a down payment on a house in Colorado. I also, we maxed out IRAs, we maxed out an HSA, some of those retirement type things to defer some ca- taxes. Um, we did have some extra money around and then put some in the bank.

Scott:
Okay. So- so all right, that- that- that eliminates my question. I was going to ask what you ended- like, you know, what you ended up doing with that cash was that if- if- if that wasn’t to going- going into these properties, because you can put them down so little on owner occupied housing in the the Firestone place and the- the long run place.

Jake:
Right. Yup. So that- it- it went all over the place, but we found home for it.

Mindy:
(laughing).

Scott:
You had a- y- y- it sounds like you had a very intentional approach for it. That- that- that’s, I love it.

Jake:
Yup. So then moving forward, everything started picking up pace last year in 2020, we bought two houses back in the Ohio area. And that’s when I really started getting more and more into real estate and thinking this is my path, this is, um, you know, it took a couple years to get there. But this is my path to being able to be free with my time and do what I do what I want, travel with the family, be home with the family before and after school with my kids is really important to me.
So we bought two last year. One of them was the day that Ohio shut down for COVID, um, is the day that we had an accepted offer. So that was a- a nail biter, to say the least. And then later that Fall we found a [crosstalk 00:50:39]

Scott:
I bet you did- I bet you did real well on that one.

Jake:
We did. (laughs). He- he really-

Scott:
That- that’s your reward for having the guts to closing a property right then.

Jake:
It- it- it really was. I think that’s probably the reason I got it and then after being under contract, I second guessed myself a little bit, but I was still fully confident moving forward. But I- I took advantage of the situation and saying, “If I end up not getting this property, it’s not the end of the world because it is a little risky right now.”
So I went and did an inspection on the house and asked for $5,000 back at closing because of some- some things that I found that I- I didn’t really like. And I thought, “If the seller walks away, the seller walks away, then maybe I dodged a bullet with this whole COVID thing, but the seller accepted and save me an extra $5,000 on a house.”

Scott:
There you go. I was just going to ask what you- what you kind of peg your- your savings rate at around this time last year in 2020. Um, now that things are starting to rock and roll for you.

Jake:
So let’s see, 2020, we were- we were cruising right along. I- I finally pulled up my spreadsheet that I’ve had for years, I can actually tell you some of these numbers. Um, because we bought a couple houses, we’re looking at almost $3,000 a month in savings.

Mindy:
Wait, wait, wait, you’re saving $3,000 a month from what?

Jake:
That is our income plus real estate.

Mindy:
Oh, oh, okay, just you’re saving that much money? I’m sorry, I was thinking you were saving $3,000 off of something and I was like, “Wait, what are you saving?”

Scott:
And that’s after, um, 401(k) contributions as well?

Jake:
Correct.

Scott:
Yeah, so you’re just- you’re just crushing $3,000 a month in cash coming into your bank account which is- which is pretty solid, so.

Jake:
Actually, that- that’s a problem. Um, e- we say at this point, we’re saving for houses. So we are putting any money for retirements going to our 401(k), 457. So I’m not thinking about long-term retirement at all. What I’m thinking about the short-term, so it’s just going into a bank account essentially, um, which making very little interest, no interest essentially.
And I- I have parked some money into just a- a general brokerage account, um, but I did that a couple years ago when we sold that house in Ohio, and I haven’t touched the money since because it kind of puts a barrier in between me and the money. I could have it tomorrow if I wanted to, but it just, it makes a little more difficult to get to. And I know I have to pay taxes on it because I’ve done really well over the past couple years with- with a standard index fund.
Um, so right now, any extra money just goes into our savings account, and we build up enough cash each year to buy, put down payment on that leads to houses at this point because it- that snowball effect is really, really coming into play especially of the two properties last year.

Scott:
Man, th- this is just so fantastic. And you say you think you’re about two, three years away from- from completing the play and- and buying all the properties you need and having the cash flow you want?

Jake:
Yeah. We- we’ll see where the market goes. I was already under contract for another one this year and the seller walked away on me in the last week, just flat out walked away said we’re not selling. So that’s all- that was a little bit of a letdown. It was a great little property back in Ohio.
Um, but I’m actively looking and then as long as I can find the properties that I want, um, even two more properties will set us up. Our- our cash flow this year is going to far exceed last year. Obviously we were- we were saving at least $3,000 a month and I just played with some numbers and it’s- it’s actually over- over 4,000 a month that we were saving last year because I had to take out some big expenses I had in my spreadsheet that we’re just closing on those houses.
Um, so with- with two more houses over the next two years, and that- that’s part of my plan is I’m- I like what I do, I like my job, I’m not in a hurry to leave it so I’m using it to my advantage for the extra income but also the ease of getting mortgages. So I want to get a couple houses over the next couple of years to because I know I can get good mortgages on them and if I choose to leave my job, it may be a little bit more difficult to get those mortgages for a year or two.

Mindy:
I want to underline what you just said because it’s not, it may be a little bit easier, more difficult. It- it is a- a lot more difficult to get a mortgage when you don’t have a job and I don’t want to say frequently, but every once in a while, someone will post in the BiggerPockets forums, “I just quit my job. Now I’m going to be a full-time real estate investor.” And I’m like, “Oh, do you have all the mortgages that you’d wanted?”

Scott:
Yeah, I’m going to quit my job and now I’m going to go buy my first property. It’s like, “Oh.”

Mindy:
Yeah. “Oh, can you get your job back?”

Scott:
You need the job to get the mortgage. (laughs).

Jake:
Yup.

Scott:
You know, unless you got something else special going on, but that’s not the case with these posters. Yeah. Uh.

Mindy:
Yeah, yeah, no. Um, it- so Jake, this doesn’t really fit into the general story, but I love it because I’ve learned a lot from Jake. Um, Jake, I help Jake buy the house that he’s currently in and I learned several things during the course of that transaction. The first one was he only put 10% down on this house instead of 20% to avoid PMI. Jake, tell us why.

Jake:
You’re going to have to remind me Mindy, um.

Mindy:
Oh my God, Jake, I set you up so perfectly for a great story because it was going to cost you money to sell the stocks to get the other 10% because you didn’t have it in your pocket, but it’s- what is it like $70 a month or something for PMI?

Jake:
It- it’s actually 60 a month, but here’s- it- it’s a- it’s a two fold thing. I would have- uh, because I was, uh, because I just bought another house in Colorado and with- with, the way we manage our money, um, again, we- we had plenty of money in- in a brokerage fund. But yes, I didn’t want to touch that as I previously mentioned.
But looking at it, it was $60 a month for the PMI, and 10% down on a $400,000 house was 40,000 versus 80,000. So I didn’t want to pay taxes, I’m pulling that money out, but the- the second part of that was when I look at that $40,000 in a- in a standard index fund, the money that I’m making on that $40,000 doubles that $60. So I’ve got $40,000 that I- I can leave in my brokerage making $120 a month with an 8% gain. So that $40,000 is making me 120, why would I spend it to save 60?

Mindy:
Yes, yes. I love that. And that’s, you know, every time I talk to somebody, there’s another one of these think outside the box concepts that like, “Oh, I never thought about that. I would just never pay PMI ever. Why would I? Well, if I can make more money on the investment, this is exactly why I don’t pay off my mortgage. If I can make more money on the investment, then I can save by, you know, paying it down, then why would I not do that?”
The key is here, you have to be making the investment. It’s one thing to be like, “I’m only going to put 10% down, and then I’m going to invest.” Well, if you’re not going to invest, then you might as well not pay PMI. Um, and I think there are some people who for whom this wouldn’t work, but it worked for you and that’s awesome. And I also met my go to home inspector because of you. So thank you Jake for buying that house.

Jake:
He was good.

Mindy:
He was amazing. Oh my goodness, I love him so much. Rick, you’re the best. Um, okay, I digress.

Scott:
I think this has been a fantastic story. I, you know, and I think- I think we- we’ve pr- it sounds like we’ve hit on most of the big topics. Is there any- any other things that you want us to- to touch on before we go to the famous four?

Jake:
I don’t think so. I think that, uh, that hits, I guess my life story.

Mindy:
(laughing).

Scott:
All right. Got- got through the whole thing in like 40 minutes. So there you go.

Mindy:
I will say that he isn’t, um, as old as I am. He’s only, he’s slightly older than me.

Scott:
Yeah, this was a fantastic life story. We really enjoyed it and I think, um, a lot of people will learn from it. It’s a- a very consistent snowball approach with a couple- a couple of events. But really, just the underlying thing is the consistency of your savings rate over all this time and the compounding opportunities that that’s awarded you over the- the last 10 years.

Jake:
It has- I- I’ve been able to take advantage of it and really set my- set my path forward with intention. And I- I- I appreciate the opportunities that have been given to me. But I’ve also been able to take advantage of them with the moves with- with the job, with the real estate and it’s been slow. And if I look back, you know, to 2011 graduating to now, it is almost an exponential growth because at first, it went real slow and- and then over the years, um, it- even my rentals will- will show it where I bought one in 2014, it took me five years to have a second and then within two years, I have two more. So I’m hoping to continue that- that progress.

Scott:
Yup, and a couple of 100 hour work weeks, uh, in those early years fixing up some properties top.

Jake:
It- it doesn’t come easy. Y- you got to put in the work. And that’s- that’s one thing that I’ve always, um, had is that- that drive just to keep moving forward. And I love to learn, I love to, I love to work with my hands. So y- you got to put in the work, you got to put in the effort, but it pays off in the end.

Scott:
That’s how you get over that hump that we’re talking about and getting to the other side where it’s just dialing it into the finish line. But to get over that, there’s a grind and there’s a hustle period that you’ve got to put in.

Jake:
All right, let’s get to the- the- the famous four questions. These are the same four questions and one command that we have for all of our guests here in the money show.

Mindy:
Uh, Jake, what is your favorite finance book?

Jake:
I am going to have to go with The Millionaire Next Door. I know it’s been mentioned a few times, but it is one that really, it- it made it okay to me to be who I am. It showed me the family that I grew up with, my- my parents were the stereotypical mil- millionaire next doors, they weren’t exactly there when I was growing up, but my mom drove an old Toyota Camry, my dad and F150. And they didn’t spend on things that they didn’t need to spend on.
Um, but it also, uh, just a few year- probably five years ago, I read that book and it made me realize it’s okay to grow your money and not flaunt it. I don’t need to keep up with the Joneses and it’s actually probably the better- better way to do it.

Mindy:
I love that, those are the stereotypical millionaire next door how- uh, cars too.

Jake:
V- very much so, yes. (laughs).

Scott:
What was your biggest money mistake?

Jake:
You know what? I’m lucky enough not to have made any serious mistakes, huge mistakes. But what I would say is just conservatism. So I- I’ve always been very conservative with my money which, which got me to where I am today. But I know if I knew, if I knew what I knew now, graduating college I would have gotten to this point, your, you know, not too long, maybe three, four or five years ago, instead of where I am today. I think I could have progressed a lot faster, but I was conservative, I took my time to learn, it was a good thing. But also, it- it definitely inhibited my growth.

Scott:
Opportunity cost.

Jake:
Sometimes you have to- opportunity cost, yeah, that’s what it is. Sometimes, I think it’d be better to take some chances.

Mindy:
[crosstalk 01:01:54]

Scott:
I think that’s a- the- those are always, that’s my- that’s one of my favorite mistakes is not- not having a framework in place early enough and letting it compound for the last 10 years with that. That’s a- that’s a several $100,000 item there which I think is why the stakes are so high for learning this early in life.

Mindy:
Jake, what is your best piece of advice for people who are just starting out?

Jake:
I would say find what you’re passionate about and different stages of life that may mean different things. So if you’re in high school or in college, find what you’re passionate about, and try to find a job that promotes that, that helps you, uh, work towards that. So find something that you could go in every day and enjoy what you do.
Um, if you can’t work towards your passion at your day job, find what you’re passionate about in- in life. Is it family? Is it friends? Is it hiking, is it, you know, whatever it is, you need something to work towards. Is it travel? So follow your pa- passions and let that really drive your life. So work hard for your money, where do you want to be in two years, in five years, in 10 years. And y- following your passion is I think a good way to outline that.

Scott:
Love it. What is your favorite joke to tell at parties?

Jake:
All right, well, given the theme, I, uh, my favorite joke to tell at parties I actually got- got a- I think it was already said on here. So I’m going to go with a different one, uh, given my background. Why is it not a good idea to tell bad peanut butter and jelly jokes?

Scott:
I don’t know, why?

Jake:
People will spread them.

Scott:
Oh, I love it. I knew- I knew sandwich jokes were going to be his bread and butter. (laughs).

Mindy:
(laughing).

Scott:
Where can people find out more about you Jake?

Jake:
Well, I- I’m not much on social media. I do have a- a couple handles and it’s- it’s @FiDilettante, Twitter is probably the best place. I don’t, I don’t post much, but you can message me through, uh, FiDilettante and we can put a link to that. Um, that’s probably the best way.

Mindy:
We will put a link to that in the show notes which can be found at BiggerPockets.com/show201, you our- you are our 201st guest, that’s very [crosstalk 01:04:00].

Jake:
Woo-hoo. (laughs).

Mindy:
Woo-hoo, yay. I’m super excited. Jake, thank you for taking the time out of your busy peanut butter and jelly sandwich making day to share your story because I think it’s a lot of- a lot of really great points. Look, you can do this, it’s the same thing over and over.
Don’t spend every minute, don’t spend every dime that comes into your pocket. Pay for things that- that mean something to you by quality instead of just garbage that you’re going to have to keep replacing all the time, but don’t spend every dime that comes into your pocket. How much of a superpower is that that your FI number is so small?

Jake:
Oh, it- it makes all the difference. It- it really does. And I live the life that I want to live, I sp- to your point, I spend what I value on and it, our family’s happy and we- we wouldn’t ask for more.

Mindy:
Yeah, you have a pretty great life. I hear these people that are saying, you know, oh I need, uh, 10 million dollars to retire, and I’m like, “Oh, what are you going to do? Have- brush your teeth with gold bars?” Like that just seems like a [crosstalk 01:05:07]

Mindy:
It sounds like a personal problem.

Mindy:
(laughing). It just seems like a lot of extra work to me, like a lot of extra working for the man to get your 10 million. Okay, that was Jake Simon, peanut butter and jelly sandwich maker extraordinaire. Scott, what did you think of his story?

Scott:
I- I thought, um, I- like- like I mentioned in the, uh, intro here, I thought it was just something that’s super highly relatable I think to a lot of people. I mean, this is again, if the story is I graduated college, we paid off the debt for the first couple of years, um, we spend less than we earned and gradually began using real estate, sold a home, made a little bit of a profit, got more intentional about our housing, got more intentional about our saving, got more intentional about where we’re putting our money, got more, you know, began to experience surpluses over five year periods as we worked our financial plan, and then began to, you know, experiment with doing things with those surpluses like buying a rental property.
Sort of worked out with the family situation, and then we paid it off and got to ha- have a great income from it now, you know, after spending 100 hour workweeks repairing my house, um, so that I could make 85,000 in profit on that. And- and, you know, I just think, y- you know, we’re going move when the job calls for it. And the opportunity presents itself to- to increase income.
And I think that that’s, this is like, this is a story that I think a lot of people if you’re graduating college now or a year or two out of college and or you’re starting a family, this is how it goes. It seems so far away when you’re making, saving $500 a month and beginning to pay off debt. But then this, once you get to the other side of that and- and get to break even and begin applying your money to investments and then get over that hump, this 10-year journey really begins to work its magic on the optionality you have in your life.

Mindy:
Yeah, just I- w- what I love the most about Jake’s story is that he’s not frantically trying to quit his job because I really don’t think that’s what financial independence is about. I think that a lot of people when they first discover it might be in a job that they hate, and they want to quit their job.
I mean, I’ve had that job. Oh my goodness, there were jobs that I, if I had discovered this then, I would have been like mad-beans and rice, peanut butter and jelly sandwiches for lunch, crazed to get out of. And yes, I think you should get out of the job that you hate, but that shouldn’t be why you’re pursuing financial independence.
And I love that he loves his job and, you know, h- now he does have so many things open to him because when he decides that it’s time to not work full-time, maybe he can come back in a support role, in a consultant role, in a, you know, in an advisory position. There’s a lot of doors that are open to him. But to your point Scott, this is absolutely a repeatable story.
And if you’re listening right now with your kids, and they maybe don’t know what they want to be when they grow up, look into the engineering program at the University of Toledo so you can have a leg up on everybody else. Um, I think you just need math and science.
And, uh, you know, all these PF people are math nerds, right? Most of them, I’m sorry, most of them are. It’s okay if you’re not, you’re still welcome in the personal finance space. I can hear the emails being typed right now.

Scott:
It’s not a problem to get ahead with money, but it is- it- all right, it’s not a math problem to get ahead with money. It’s, uh, it- it’s something else with that. You know, we all- we all get the basics that the- the math problem comes into effect once you start optimizing for financial freedom and begin shaving the retirement life from 17 to 12 to eight years or whatever, using these other things like real estate or retirement accounts and tax advantaged strategies and those types of things. That’s where the math can really be, give you your years back.
Um, at least four years more of- years of more optionality.

Mindy:
Yeah, yeah, yeah, yeah. Love it. Um, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From Episode 201 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, Anybody want a peanut? It’s an homage to Andre F- the giants Fezzik. Did you see that?

Scott:
Oh.

Mindy:
Oh, did you see the Princess Bride Scott?

Scott:
I’ve seen The Princess Bride. I love that movie.

Mindy:
Okay, I was going to have to divorce you if you have not seen The Princess Bride.

Scott:
Oh no.

Mindy:
Um, if you have not seen The Princess Bride, you should watch it because it’s a delightful movie. You can watch it with your kids, and Andre the Giant, isn’t it? What’s better than that?

Scott:
Well, ask me again if you want to get out of here.

Mindy:
Scott, would you like to get out of here?

Scott:
As you wish.

Mindy:
(laughing). Perfect. Okay bye.

 

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In This Episode We Cover

  • The difference between good debt and bad debt 
  • Storing your money in a long-term investment, as opposed to keeping it in cash
  • Why live-in-flips are not only practical but profitable too
  • Understanding your profit margins and buying deals that are worth it for you
  • Buying your children a “rental property college fund”
  • Who should (and shouldn’t) be doing their own rehab work
  • And So Much More!

Links from the Show

Book Mentioned in the Show

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