BiggerPockets Money Podcast 226: Finance Friday: Is Your Cash Losing Value While You Wait to Invest?

BiggerPockets Money Podcast 226: Finance Friday: Is Your Cash Losing Value While You Wait to Invest?

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Sometimes having a lot of cash can be dangerous. Would you rather be sitting on months (or even years) worth of emergency reserves or have your money be challenging inflation by sitting in investments like index funds or real estate? This is the question that many people have, and also one that today’s guest, Phil, is having as well.

Phil and his wife live in a relatively low cost area and bring in a very solid income. They’ve been maxing out HSAs, 401(k)s, and other accounts all while having a significant amount of cash on the sidelines, just waiting for the right investment. While Phil wants to go into an unconventional type of real estate investing, both Scott and Mindy believe he should focus on the long-term goals he has set for himself and find asset classes that fit within his strategy.

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Mindy:
Welcome to The BiggerPockets Money podcast show number 226, finance Friday edition, where we interview Phil and talk about optimizing your investments.

Phil:
That makes sense. So, basically focus on learning one segment of investing and get good at that is what I’m hearing is probably the key at this point to really optimize and accelerate this growth from here.

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

Scott:
That intro is WACC, Mindy, WACC.

Mindy:
What does WACC mean?

Scott:
Weighted average cost of capital. You have to investment optimize to meet that higher threshold. W-A-C-C, WACC.

Mindy:
Oh, I knew it was something, but wow, you’re a nerd. Okay. 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 where or when you’re starting.

Scott:
That’s right, but if you want to retire early and travel the world, going to make big time investments in assets like real estate, start your own business, or simply pop out and think about a long-term investing approach, 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 am excited to bring in Phil today. Phil has a great income. His wife is self-employed so she has a little bit of a flexible income, not necessarily always guaranteed income. And he’s wondering how he can optimize his journey to financial independence. And towards the end of the show, I think we make a really interesting comment about the psychology of your relationship with money, which is kind of the whole reason we do this show in the first place. The relationship that you had with money, your experiences with money when you’re growing up really has an effect on your relationship with money as an adult. And being in debt can have kind of a negative impact on your mental space with regards to money. And I think in Phil’s case, it was kind of good. Now he wants to really, really optimize and you’re not always going to be able to optimize the investment perfectly, but doing pretty good is really doing well.

Scott:
Yeah, well, I think it comes down to we’ve talked about the four levers of finance many times. Spend less, earn more, invest or create. And when you’re getting started an obsessive focus on spending less and thinking about how to deploy those dollars to the right debt and get to a positive net worth and put together these investment strategies is I think really important. But after a few years of grinding out and optimizing on that front, it fades in importance. It’s no longer as material to your position when you’ve crossed the 300, 400, 500, $600,000 net worth mark. And from there you can kind of take your foot off the gas and pop out and zoom out and think, am I doing the right things that are going to be sustainable in a fundamentals based approach over the long run? And that’s tricky, because saving $200 or $500 over year no longer matters in a relative sense to the overall portfolio.
It’s great to have that $500, but not if that’s coming at the expense of you maintaining a side business or putting together the important work on a long-term investment strategy, or being able to refocus on the fundamentals with a creative investing approach or side business or whatever it is. I’m saying the same things. But the point is that the prioritization shifts. Those levers are the levers at the right time and the right place for different folks that are going to be different. And so for me at this stage in my journey I should be focusing on maintaining and growing my investment portfolios and those types of things and not seeking out a slightly higher reserve.
What’s the word I’m looking for? Yield in my savings account portfolio. But that’s super important. That’s all of the passive income and it’s hundreds of dollars for someone who’s just getting started out, which is a big thing. And so I think that’s the perspective that I think we’ll get out of today’s show that might be helpful to some folks is just remember that those four levers are four levers and the relative importance of each of them is going to wax and wane throughout your financial journey.

Mindy:
Love it, Scott. Before we bring in Phil, I need to tell you that the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott, nor I, nor BiggerPockets are engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate. Phil and his wife recently turned the corner into a positive net worth. They’re saving for a rental property and have plans to reach five within the next 12 years. Something that we have seen on the show time and again is totally doable. Phil is here today to find out the best way to accelerate his progress. Phil, welcome to The BiggerPockets Money podcast.

Phil:
Thank you very much for having me.

Mindy:
Let’s jump right into your, why can’t I ever remember this, Scott? Profit and loss.

Scott:
Yeah.

Mindy:
Income and expenses.

Scott:
P&L and balance sheet.

Mindy:
Balance sheet. That’s it. I should put that in the notes so I don’t have to ask this every single time. Phil let’s look at your balance sheet, what is coming in and where’s it going.

Scott:
P&L.

Phil:
All right. Let’s, I guess, start with expenses. So, every month my housing is $832 a month. Principal and interest is 500 of that. Property tax is 259 and insurance is 73. Auto expenses are $336 a month, 272 of that goes to gas. 46 to insurance and 18 to registration. Utilities are 300 a month. That breaks down to gas, electric combined bill of $144 a month. Water have an average of 45. Internet just dropped to 45. And actually I think that’s going down to 35, because I called and argued the current price point. So, I might save $200 over the next two years of that. Cell bill average is $66. Food is 800, which is 400 for groceries, 170 for restaurants and 230 for fast food. And then I have student loans of $289 a month, $22 for Netflix and Disney plus. About 1,260 a month for charity. 500 for kind of everything else that comes up for a total of 4,350 a month in expenses.

Scott:
So, that’s a huge amount of charitable income relative to the other expenses. So, congratulations and that’s awesome. Where does that go towards?

Phil:
So, that the way I do it is I tie 10% of gross. So, that’s kind of where that falls, since we have a pretty decent savings rate. That’s kind of where that Delta comes from.

Scott:
Makes perfect sense. Let’s go through income next.

Phil:
All right. So, I make about 63,000 a year with an average of about a $3,600 bonus. Of that I only bring home a 1,050 every two weeks because a lot of stuff comes out of my paycheck. Since my wife is self-employed, her income is quite variable and it’s grown quite a bit over the years. Last year, she grossed about 54,000 and we’re projecting about 90 this year.

Scott:
That’s awesome. So, what comes out of your paycheck there? What are you doing with those things?

Phil:
So, right now I am maxing out my HSA and I decided to change that slightly this year after reading JL Collins, was it, Simple Path to Wealth. He mentioned in there that if it comes directly out of your paycheck, it reduces not only your federal taxes, but also your FICA and Medicare taxes. So, instead of what I’ve been doing in the past of making just small payments throughout the year, and then putting a lump sum in at the end of the year, I decided to have it all taken out to hopefully have some more tax savings as a result. So, that comes out and then the taxes for my wife’s business to a certain extent come out of my paycheck as well, because the way my CPA recommended that we do it is have the level of taxes from the previous tax year come out of my paycheck. So, we don’t have to do that quarterly payment and then 401k and regular taxes, health insurance, all that kind of lovely stuff.

Scott:
Okay. So, for those listening, what Phil is saying here is his wife earned self-employment income, probably via contracts or whatever, and is paid directly and rather than pay taxes on that income in installments on a quarterly basis as is customary for many business owners, they have elected to just pretend like Phil has a much higher income with that and take a much larger chunk out of his taxes on his paycheck directly, which nets to the same effect on the household income, or at least it was the advice of your CPA, so that you don’t have to worry about making those quarterly estimated tax payments over the course of the year. Is that right?

Phil:
Correct.

Scott:
Okay. Makes sense. So, what is the total household income for 2021 projected to be?

Phil:
About 150, 160,000.

Scott:
Okay. And what do you guys both do?

Phil:
I work in IT for a insurance company and then my wife teaches Czech language and culture. She has her own company and teaches over Skype. Does translation, court interpreting all kinds of stuff like that?

Scott:
That’s a very practical profession.

Mindy:
That’s very …

Scott:
See what I did there? Okay.

Mindy:
Czech like Czechoslovakian.

Scott:
That’s why I said, practical.

Phil:
They split back in the 90s, I believe it was. So, now you have the Czech Republic and Slovakia, but yes.

Mindy:
Oh, oh I’m sorry.

Scott:
That’s awesome. That’s a creative and unique profession there.

Mindy:
Is she from there?

Phil:
Her parents moved over there as missionaries when she was 10 and she lived there until she was 18. So, she essentially speaks it very close to natively as well as English. So, she understands also how to teach it as a native English speaker. And a lot of people enjoy learning that way as a result.

Mindy:
That’s huge. That’s awesome. Okay. And she’s just growing, which is … Now, do you project next year will also be a growth year?

Phil:
That’s the question. It depends on how well she’s able to continue to scale the group classes, because that’s where she’s seen the majority of her growth is being able to teach multiple people during the same hour. Because there’s only so many hours in a day that you can be doing stuff. And the one-on-one private lessons are a lot harder to scale than group classes.

Mindy:
Okay. That makes sense.

Phil:
Okay. So, what I’m gathering here is you’re bringing in 1500 a month in cash, but a lot of that is going to taxes, but your income is largely going to taxes and the HSA. And then you’re getting less predictable, but still very hefty cash deposits from your wife’s business on a regular basis in a way that’s scaling. And is, I imagine, creating good problems for you about where to allocate this cash around that. And we have a gross income of about 150 K. What are you doing with the excess dollars as you receive them right now?
Right now they’re mainly just going into savings to figure out what the best next step is. Last year I did max out both of our Roth IRAs and this year, it’s kind of a question, am I going to get a better return on real estate or putting into a Roth IRA or opening up a solo 401k for my wife and throwing money in there to potentially put into something tax advantaged, especially one of the near term goals is to become an accredited investor. And then if we have the ability to put large sums in the solo 401k, will it be a better option to invest in real estate personally, or put it in there and do syndications or something like that? Tax advantaged.

Scott:
Awesome. So, we’ll get into that and in a second here, but let’s complete the picture here from the financial perspective. Could you go down your investment and debt stack and tell us how much cash you have on hand as well?

Phil:
I guess there are a couple more minor sources of income before we go there maybe. I do have a side IT business that this year has only brought in a couple of hundred dollars. Last year I think it was about 8,000 gross. And then I’m averaging about 150 a month selling tradelines. And hopefully real estate will start to bring in income at some point in the near future.

Mindy:
Okay. Tradeline. Scott, have we ever talked about that? I want to go over that really lightly at an overview, like just a high level explanation of what that is to people who are listening. Who are like, what’s a tradeline.

Phil:
All right. So, that is basically your line item on your credit report that says you have this credit card that has this number of years established and this available credit amount. And there are services out there that you can connect with individuals that are looking for a credit boost. They pay a fee, you add them as an authorized user on your credit card. It theoretically, hopefully, shows up on their credit report. They get a boost, you get cash. They never actually get a card or access to that actual money, but they have that benefit from the credit boost.

Mindy:
That is something that I want to kind of cover. Because I know that there are people who are like, I don’t want to just give somebody my credit card. The credit card, when you add me to your credit card, my card comes to Phil’s house. It doesn’t get sent to Mindy’s house. So, unless Phil sends it to me, I’m never going to have access to that. And I can’t call up the card company and say, hey, I never got my card. Can you send it to this address? They won’t do that. What is the risk to you with having all these people on your credit cards?

Phil:
The risk is that the credit issuer decides to cancel my account. So, the thing you want to make sure you do is read the terms of service to make sure you are comfortable with the potential risk. Each credit card issuer is different. The particular one that I’m doing says that I just have to have some sort of relationship with that individual. And also be careful with the tradeline company that you use. Different ones will have different levels that they will allow you as far as how many tradelines per card that you can sell, because the more authorized users you have on a card that don’t have the same last name as you, the higher risk that the credit card is going to say, there’s something fishy going on here. Let’s just cancel this, because it’s too high a risk. So, they allow me to do two on this particular card. And I am just comfortable doing one at this point.

Scott:
How much does my make on selling tradelines?

Phil:
That depends on how long the tradeline has been out there, how many years. And then what the balance is on the card as far as your maximum credit limit. They do also ask that you stay under 3% utilization on the card while you are selling that tradeline. So, you might not want to do this with your primary card that you use month to month. So, this is kind of one that I’ve had sitting out there for years. It has a very high available credit. And so I ended up making about 150 a month. I think they end up charging the individual closer to 700 for the two months. So, somebody is making a pretty good balance off of it. But for my 20 to 30 minutes worth of work, total, I’m guaranteed at least $300, because it’s a start of a two month contract, if you will. And then they have the option to extend. So, earlier this year, I think the individual went for five months. So, that’s what $750 I made for about 20 minutes worth of work.

Scott:
All right.

Mindy:
That’s really interesting. Maybe we could post in the Facebook group about tradelines and get some more information if people like here’s the place I use, here’s the place I use. And I get some-

Phil:
I think that’s where I actually originally learned about it was a post in the BiggerPockets Money Facebook group.

Mindy:
Awesome. Well, we will … Yeah, let’s find that and bring that back up to the top then. Okay. So, your income, have we … I’m sorry, Scott, go ahead.

Scott:
Any other sources of income?

Phil:
I believe that is all.

Scott:
And so, what are the assets and liabilities you have?

Phil:
All right. So, assets. So, in tax advantaged accounts I have about 76,800 in my 401k. My wife has a traditional IRA that has 18,570. In the Roth IRAs that we started for 2020, the value is up to 12,850. In the HSA we had 25,800. Of that 24,800 is currently invested. So, that brings a total of 134,000 in tax advantaged, and then have 1,900 in a REIT and 19,560 in a after-tax brokerage account in the S&P 500. Then in checking and savings, we currently have a cash balance of 82,200. Our home is now valued at 93,000 or sorry, 193,000. And we still owe 128,400 on that. So, that gives me an equity of about 64,600. I have a student loan balance of 15,900. So, that puts my net worth at 286,500.

Scott:
All right. A lot of notes there, but basically the key highlights for me are you have a very good tax advantaged investing strategy. That seems clear to me where you’re taking advantage of a lot of really good things. And you’re able to accumulate a large amount of cash outside of that, where you have liquidity. You have what appears to be no debt that is high interest or anything like that with the student loans and the mortgage being the only two sources of debt with that. And now you’re coming to a pivot point in your strategic thinking here about where to dump all of this excess cash that you are getting, the 82,000 there. And it sounds like real estate is top of mind. There may be a couple of other things, but is that a good summary or synopsis of your situation with this?

Phil:
Correct. I refied the home loan, so that’s currently at 2.25%, and then I actually refinanced the student debt for the second time. So, that’s down to 2.7%.

Mindy:
Did you make payments during the student loan moratorium or because you refinanced, was it no longer available to you?

Phil:
It was no longer available to me. So, I just kept making my payments.

Mindy:
Okay, perfect. You have $82,000 in cash. Is cash and emergency fund and everything altogether. Do you have a separate emergency? Okay. How much of that as emergency fund or do you not have an emergency fund?

Phil:
So, I’m still going back and forth on how much of a emergency fund I actually want or need. My thought is six months in expenses. The question is how to actually figure that out, because is it total expenses of gross spending or is it only down to the actual needed things? So, subtract all business expense, income tax, charitable giving all that stuff. And that is the average amount needed.

Mindy:
I would say if you are … an emergency fund in my opinion is for you’re unemployed. Both you and your wife lose every single job. There’s no money coming in. At that point I would put the charitable giving on halt, because it is not vital to your living expenses. You can just keep track of it. Oh, okay. Now I have eight months worth to redo once I catch up. You have restaurants and fast food in your food budget.
I would maybe take out the fast food, because the restaurants … let’s see, how do I say this? Groceries is 400, restaurants is 170, fast food is 230. I think you could probably take 500 of that and say that’s what it’s going to cost me to eat because it’s less expensive to eat at home. So, I think right off the bat, you could probably lop off from 4,300 down to about 3000, which is $36,000 a year. What is that? 1800, I’m sorry, 18,000 for your basic minimum emergency fund of six months. So, with 82,000. Here, let’s do 82,000 minus 18,000. I can’t do math.

Scott:
Yeah, I-

Phil:
64,000.

Scott:
I completely agree with what she said with the way she’s thinking about this. I mean, I think your emergency reserve needs to cover three months or sorry, six months at least of expenses. And you’re not going to be giving away 1,250 a month in the event that you both become unemployed or lose all your income in that period. I would imagine that would be one component that would be totally understandable to lop off a little bit. So, I think 36,000 is a year of emergency fund. And half of that is six months. And so somewhere in the middle is probably it sounds about right when it comes to thinking about the emergency fund with that. And I think that leaves you with probably at least $50,000 for us to discuss today about how to deploy more efficiently. And it’s probably top of mind about like, hey, I’m losing this to inflation right now. What should I be doing with all this excess cash? I’d imagine.

Phil:
Yeah, that was kind of my inclination. I just wanted to talk that out and make sure my thought process was reasonable so far year to date. Once you take the income taxes, business expenses and charitable giving out, we’ve averaged almost exactly 3000 a month in spending.

Mindy:
Okay. That is, first of all, that’s fantastic, because the lower your spending is, the more opportunities you have, the more savings. I mean, if you’re bringing in, what did we say, 190 this year, and you’re spending 36 or even 48. Are you saving two years worth of expenses for every year that you’re bringing in almost. So, that is maybe three years. Math is hard.

Phil:
When I calculated it, so far this year we’ve been saving roughly 45% of gross income, allowing for taxes and everything.

Mindy:
That’s great. Yeah. The tax man is going to knock anyway, you might as well account for that. And I like that you think that way. I see approximately $64,000 of your cash available for investing. And as we were talking before we hit record, you are interested in real estate. You live in a lower cost of living area of the Midwest. Although you do have taxes to consider. And I’m not a huge fan of the Midwest taxes. I used to pay them. And no thank you. I’m glad I’m not paying them anymore.

Phil:
They get their money a different way than other areas of the country.

Mindy:
They do. So, let’s look at real estate deals. I am assuming that you have your eye on the market. Are you considering investing locally or out of state?

Phil:
I would prefer locally, but I am struggling to figure out whether I will find a deal that’s viable, because the cost of real estate has gone up significantly, just like every other part of the country, but the rent has not gone with it. And some people are asking stupid prices for stuff. A specific example I saw come on the market yesterday, somebody is asking, I believe it was 330,000 for a two bed, two bath side-by-side duplex that they are currently getting about 550 per site and rent.

Scott:
The rest of the country’s thinking, sign me up for that deal.

Mindy:
Well, that’s $1,100 a month in rent on a $330 price.

Scott:
What’s market rent in your opinion on that though?

Phil:
Market rent is low. I would say that market rent on that should probably be in the 750, 800 neighborhood. But that’s still significantly off of the price to rent ratio that you can actually cashflow. That one’s a little worse than average. I’d say most other comps for that property would probably be asking in the 280 neighborhood, but that’s still significantly different between income and expenses for a rental property.

Mindy:
Yeah. And Wisconsin used to be able to get 2% all day long, but again, this was 10 years ago. Okay. So, if you don’t invest locally, where would you invest? Do you have other cities you’re looking at?

Phil:
So, right now I’m kind of looking at the region. So, kind of a 45 minute radius from home that covers kind of all of central Wisconsin from a multi-family perspective. And then I’m looking at literally everything that comes on the market in my town.

Mindy:
Are there any opportunities for short-term rentals or other ways to increase the income? Do you have, I don’t think there’s any oil and gas up there, the traveling nurses, so a longer short term furnished rental property. They pay a premium over like an annual lease, but it’s not as much work as constantly turning over an Airbnb.

Phil:
So, that’s what I’m actually digging into right now. There’s a platform that started down in the Atlanta area that does rent by the week. You have a one month minimum, and then it’s weekly after that. So, I am digging into that as an option, because that will significantly boost the income. There’s actually a side-by-side duplex that I’m looking at about 35, 40 minutes north of me that would be turned into seven bedrooms on each side. So, it’s a rent by the week by the bedroom model. And right now I’m trying to figure out how that would work with state and local regulations and see if can actually make that work here.

Mindy:
The first thing I think of when I hear rent by the week is transient tenants who may have a difficult time paying the rent. Who is renting this particular property by the week?

Phil:
So, my target would be traveling nurses like you mentioned, because they have average 13 week contract and then also construction workers who are in town during the week, but then go home on the weekend and compared to a hotel 150, a 175 a week verus a hotel is a phenomenal deal for them, especially if they’re getting per diem and get to pocket the rest of that tax-free. Or in the Atlanta area, and other large metros that they’re in, a lot of their audiences, also your kind of 20 to $50,000 a year jobs that people don’t want to commute a long ways in order to be able to have affordable housing. So, the member ends up getting affordable housing and a landlord gets a boost in their rent and everybody’s happy.

Mindy:
Okay. Let’s see. I feel obligated to poke holes in this model. How much would it cost? Is this a turnkey establishment? You buy the property and it’s already rehabbed?

Phil:
No.

Mindy:
Or you’re buying just the property and then you have to furnish it.

Phil:
It’s finding a property that has the ideal characteristics for this, where it’s not being something like an HOA or a heavily single-family owner occupied type neighborhood. For example, this particular property is right on the edge of a residential and industrial area. There’s plenty of parking, plenty of ability to easily convert common areas to extra bedrooms, so that you have more efficient use from a landlord perspective. And it encourages the individuals renting to more stay in their room. So, you have less conflict between individuals, because you keep that interaction to a minimum just by the way you have the layout of the property.

Scott:
What’s your goal here with this type of investing?

Phil:
The goal is cashflow, honestly. The goal with real estate is to create a third source of income that can completely pay the bills and make work optional for my wife or I.

Scott:
What is your timeline to achieve this?

Phil:
I would like to have that be an option by the time I am 50 in about 12 years.

Scott:
Okay. So, when I zoom out and I think, okay, 12 years you are accumulating $64,000 per year in just cash after tax that you can spend after paying your tax bill, maxing out your HSA, contributing to Roth’s and 401ks, and those types of things. You are going to win big with that kind of stuff. And what scares me about your approach given that timeline is that you’re fitting a way to produce cashflow right now into something that’s 12 years away with that. So, I have no problem with the approach. I think it’s fine. It can make perfect sense, and it could be a great creative thing. I’m trying to create a void of cashflow by try and rent by the room here in Denver with a recent purchase with those types of things. But I would first start with, does this asset make sense in 10, 12, 20, 30 years from a traditional standpoint? Am I going to be happy that I bought it in 10, 12, 10, 20, 30 years?
And if you start from that position with a traditional long-term outlook, I’m going to rent it. If in 10 years, I’m renting this place and it’s in that location in that spot, am I going to be better off or worse off? Now if the answer is yes, then sure. Go ahead and experiment with the creative cashflow technique that you’re thinking about here with that. But if you’re buying a very weird asset that fits this particular strategy, I think that’s where I would shy away from it, because your approach and your timeline, you’re going to win either way. So, why not just focus completely on the fundamentals? And then if you have all the fundamental boxes checked, apply the creative strategy rather than the reverse would be my first impression or instinct in response to what you’re saying here. What do you think about that?

Phil:
I guess what I’m trying to figure out. I’m definitely not opposed to doing more traditional real estate. The question becomes what is the lower frustration and hurdle way of doing it? Doing a more creative strategy locally, where it’s easier for me to do the management required of managing the manager and managing and coordinating any maintenance that needs to be done. And having the option of if I have to drive the 40 minutes to be there or completely learn a long distance market and develop that team and do things in a way where I might actually see the property and have that potentially higher risk, depending on the quality of the team I can put together.

Scott:
Yeah. Well, I think that that is one set of options, but if you’re going to go locally with that, which I think is what I’m reading is your lead. Is I want to go local, but I want a way that cash flows with that. I mean, you’re in a place that, or you’re nearby a place at least that many other people around the country are investing out of state in with your area, with this kind of stuff. And I think many more traditional forms of investing with that.
And so my instinct again, is not to say, don’t do the creative approach. Don’t try the boots on the ground operation. I’m all for it. I’m just saying that you should underwrite any deal you have to the longterm traditional rental rules and have that as your backup plan, because if this doesn’t work out and this experiment fails, you want an asset that everybody wants in 10, 20, 30 years. Not something that was purpose built for a specific type of strategy that may go out of style very quickly with that.
That’s all I’m saying in response to that is, is have that as your backup plan. Not saying don’t try the new approach with that. Although Mindy has some great reservations behind it. I have a lot of reservations about the rent by the room approach. I’m about to try. The place works as a long-term rental. And I know I’ll be justified in 20, 30 years, if not getting the best cashflow for the first one to three years in this property. If, if the rent by the room model doesn’t work. And I need to go back to a traditional long-term rental facility option with that. That’s all I’m kind of pointing out.

Phil:
Yeah. I’m trying to run the numbers where I don’t think I will cash flow well with a traditional model, but at least break even so that if I have to go back, that is an option. This particular one is a unique property to begin with, because you don’t see too many 3,200 square foot, five bed, two bath duplexes out there. So, it’s unique to begin with.

Mindy:
Yeah. So, you used the word unique and Scott used the word weird, and both of those are four letter words in real estate. So, I’m really glad that Scott brought up that point, because Craig Curelop bought a five bedroom, two bath house to house hack. That’s weird having so many bedrooms. And so few bathrooms, was it five bed five … or did it have two bathrooms or one bathroom when he bought it? I know he added another bathroom to it. So, when you’re thinking about that, I am going to rent you a room and now I have to share a bathroom with somebody that I don’t know. That can be kind of weird. So, how many bathrooms are there right now? There’s only two. Are there opportunities to build more bathrooms?
I would be very excited to rent a one bed with my own bathroom, much more than a bedroom and I have to share a bathroom with somebody who may not be the same level of hygiene that I am, or doesn’t believe that they need to take their hair out of the shower. Or there’s lots of things that personal hygiene kind of can get involved in. And the other thing that I’m thinking about is occupancy laws. In cities around my area there are different amounts of unrelated adults that can live together. Up in Fort Collins, which is a college town. The limit is three, and you can bet that your neighbors will absolutely tattle on you, because it’s so prevalent that a bunch of college kids will get together and rent a house. And they’re like, nope, I don’t want the noise. So, it’s different when you’re quiet versus when you’re not, but you don’t have any control over who’s renting your property.
So, I would look at occupancy laws and well-established occupancy laws. Airbnb is having all of these, it started out and then all these cities are like, oh no, you can’t do that. Where there are other cities that have short-term rentals in place. Like the Pigeon Forge area is hugely touristy and they’ve, those are long established short-term rental laws. So, I would look into those. But yeah, I mean, as long as you have a lot of different exit strategies, there’s nothing wrong with getting a really great deal on a weird property and then revamping it to what works for you best.

Phil:
Those are definitely things that I’m looking into specifically on that occupancy thing. The platform that I’m looking at using actually has a challenge to those that they currently have going on in the Atlanta area that they’re actually hoping to take to the Supreme Court, because many people believe that those occupancy laws are unconstitutional and violate fair housing laws. So, that is something that’s specifically currently in flux and being legally challenged. So, that’s kind of where in that gray are you comfortable playing and are you comfortable with trying to fight that and the potential ramifications of that?

Scott:
Yeah, I think, again this all comes to, again, I’m doing the same thing you’re doing in Denver. I’m not doing the exact same strategy, but I’m doing a rent by the room on a duplex in Denver with this. And again, what it comes down to for me is, yeah, there’s all these puts and takes with the law with these things. I’ve obviously chosen a location that allows for what I intend to do at least in the short run with this. But I know that the strategy is dependent on a lot of things going right for this particular property. And my backup plan is this is a high quality asset that’s going to be in a really good location and I’m going to be proud to own it in 10, 20, 30 years. Going to keep it well maintained.
And it’s going to be a great investment for me. Even if the opportunity afforded for extra cashflow goes away with that. So, that’s where I think it all comes back down to fundamentals, fundamentals, fundamentals, and then the creative cashflow approach given the opportunities that are available at the present moment with that. So, that’s just kind of how I’d think about it. I got no opposition to your strategy here, as long as you’re like, you know what, I can’t lose on this over 10 years, most likely, unless the whole market goes to whatever with this. I’m going to win because everything it’s in the right spot. It’s in the right location. It’s a good asset. I’m going to take good care of it, all that kind of stuff. And nothing I’m going to do to optimize for the strategy is going to permanently change the value proposition of what this is. You have a five bed, two bath duplex, is that right?

Phil:
Correct.

Scott:
Yeah, I mean, that-

Mindy:
Oh, so it’s 10 beds and four baths.

Phil:
That I would be converting to 14 beds and six baths.

Scott:
So, that becomes a seven bed, three bath town home when you sell in 10, 20 years with that. And is it that weird though? Is it that unusual?

Mindy:
Seven bedrooms is weird. Anything over four bedrooms is weird.

Phil:
And it would take very little to convert it back to the five bed, now three bath. Because one of-

Mindy:
Which is not so weird.

Phil:
Yeah, one of the rooms is, it’s the size of a bedroom. It has a window and I can rent it out as a bedroom, but it’s kind of designed to be a storage area in the finished basement. And then I would be completing the one wall on the bedroom or on the living room to turn that into a bedroom. And it would just be removing two thirds of a wall to turn it back into a living room. So, the conversion back into your traditional layout would be extremely minimal. Somebody could probably do it for a $1,000 and a half a day of work.

Mindy:
Okay. That’s good to keep in mind because trying to sell a weird house is hard. Buyers don’t have any imagination. So, when they walk into a house and like, I mean, they get the listing, they’re like seven bedrooms. I don’t need seven bedrooms. Well, you don’t have to use them all as bedrooms. You can have them as storage. You can turn one into an office or whatever. More bedrooms now is a bit more desirable with more people working from home. But I like that you’re thinking through all these things. That’s the most important part is when you’re doing these non-traditional investments and non-traditional ideas within non-traditional investments, just thinking through all the things. And it sounds like you’ve got a good handle on that. I would like to go back to something you mentioned, the solo 401k for your wife’s business and your side IT business. So, you said that your side IT business brings in about $4,600 a year.

Phil:
Last year it was about 8,000 gross. And this year it’s been a 500 maybe.

Mindy:
Oh, okay. Is there any opportunity to scale?

Phil:
That is a very good question. For about two years prior to COVID I was going to the local business council. They call it the business after hours meeting. That’s kind of the networking social type thing to try and get business. The problem I was having is due to this being a second job and also I work nights, I try and stick to project-based work versus your desktop support type stuff that I think is where there’s more room to scale. So, figuring out how to work with that within my life and schedule and stuff like that. I was at least looking at that as a potential to either replace my job or as a extra stream of total income, if it ended up taking off and being able to scale. So, that’s a maybe, I don’t know at this point.

Mindy:
Let’s put that to the side then, because it doesn’t seem like that’s something that we can really focus on at this time. But these self-directed solo 401k. I love that option. I have one, I use it to invest in real estate. I have been working for many years and I had a bunch of money in random little 401ks and IRAs around several different places. We pooled them all together and put them into one account, which was my self-directed solo 401k. I am a real estate agent. So, I’m self-employed. My husband has an LLC. He’s self-employed. We don’t have any other employees. So, we are able to put up to $54,000 into our 401ks every year each of us. So, that’s $108,000. We don’t do that, but we have the ability to, and that is my personal contribution of 19,5.
Plus my company can match my salary 25%. So, my 19,5 and then an additional 25% on top of that brings me to, I think, $24,000 right off the bat that I get without paying any taxes on that, like me personally. And then we do that for him as well. And then continue on. The great thing about that is, it’s self-directed. Meaning I can use that money wherever I feel like. I’m not limited to whatever options my company owns or offers, because I’m the company. So, I offer, conveniently, index funds from Fidelity because I like them best. And I offer real estate options. And the benefit with the solo 401k versus the self-directed IRA is that I am not paying UBIT, which is unrelated business income tax and something else UFID or something unrelated, something or other. That’s just an investment.
So, my real estate investments throughout my 401k are just like if I bought a stock and it went up. All of the rent goes in there, all of the expenses come out of there and it just continues to grow exponentially. You can make private loans to people. You can invest in syndications. You can invest in REITs. You can invest in basically anything you want. And at the same time, reduce your taxable income.

Scott:
Mindy, aren’t there restrictions though, on the self-directed 401k in terms of investing in real estate assets, like what Phil is intending to do here? Like something creative, that he’s going to own and operate with that kind of stuff.

Mindy:
Yes, thank you.

Phil:
Owning and operating definitely does get more complicated. And I believe with a solo 401k, it’s more easily done. I believe the caveat is that you can never actually touch the property in the sense that you cannot put any sweat equity. You can manage the managers, but you can’t go and do any of the work on the property. But personally I’ve decided just if I go down that route, I’m going to invest in other people’s deals just to completely avoid the possibility of anything blowing up. The nice thing from my understanding is with a solo 401k. If you do mess up and run a foul with the rules, you are limited to the amount of money in that deal versus a self-directed IRA that the entire IRA is then at risk if you mess up and break the rules.

Mindy:
That makes sense. And I have never touched my investments when I am within the 401k. So, I can’t speak to that, because I’m purposely not. I don’t want to put anything at risk, so I don’t want to buy the house next door and turn that into an Airbnb within my self directed solo 401k, because I can’t stop myself from doing the work. So, I would run a foul with the deals. When we had the mobile home park in Maine, it’s super easy to live in Colorado and not ever touch the mobile home park in Maine. So, I did that and I didn’t touch a thing. And then when we sold that, all of the profits just went right back into my 401k as an investment.

Scott:
I think that the solo 401k is obviously, or it sounds like clearly better choice than the self directed IRA for a large number of reasons, if you choose to go that route. But you got to pop out even one level beyond that and say, how much cash do I want to have available after tax and these kinds of things in order to pursue the side business that your wife runs, the side business that you’re contemplating with your IT stuff and creative real estate options that you would own and operate locally. And the returns on those may be much greater than what you can get by investing through the solo 401k with a lot of this stuff, especially since, as we just discussed one of your goal is to become an accredited investor and you are multiple years away from achieving that milestone, at least on the net worth side. Maybe much sooner on the income side with this. So, I think that’s a big strategic decision to make about how much you want to apply in which categories in the short run there.

Phil:
Exactly. That’s kind of what I’m trying to figure out is the best strategy for the immediate. And then once I get closer to that accredited investor status to have the money in the right type of account, to then able to deploy as an accredited investor. And the thing I’m kind of tossing around at the moment is as my network gets say up to seven, 800,000 to start looking at dumping a significant amount into a solo 401k to be able to then invest in syndications with that once we hit the point where that’s an option. But it’s that between now and then what’s the best allocation of the available finances as far as tax advantaged, liquid to invest in whatever, be it a stock market dip or real estate. And just the allocations there and best optimization to accelerate this journey.

Mindy:
I have a quick comment before Scott gives you his thoughts. You said, invest in a stock market dip. And when we talked to Michael Kitces on episode 120, I asked him, is it better to try to put in a little bit every single time, do you dump it in all at once? And he said, “You dump it in all at once. You don’t save it to try and time the market later, because yes, the stock market most likely will dip at some point in the future. But when is that?” Pretty much whenever you have, oh, I just bought a rental property now the stock market dips. And you’re like, oh, I could’ve put that in there. So, it’s better to put it in instead of save it to wait for a debt. Like you’re going to have better returns if you consistently put it into the market. And he says it way more eloquently than I can. So, go back and listen to episode 120.

Phil:
I absolutely agree with that. Well, I guess what I meant with that statement is having a opportunity fund that is saved up for opportunistic investing such as real estate, or if the market happens to drop, jump on that, but not necessarily saving with that being the intention. For example, my after-tax brokerage account. I got lucky with doing that. I had the money that I was saving up to get started in real estate and then COVID happened and the market dropped.
I decided, okay, when it hits 30% drop, I’m going to throw some money in there. And I just so happened to get truly lucky with this. And I did it with a portion of my HSA and then also after tax. The after tax went in on the Friday before the lowest day and HSA went in on the Monday that was the lowest day. So, that was pure luck, probably will never happen again. But those amounts I’ve doubled the HSA and the after-tax is almost doubled. And I’ll probably actually withdraw that once it hits that point to deploy for other purposes, but more the opportunistic pool of money to use in whatever way crosses my path.

Mindy:
Okay. You do have 64,000 sitting in cash and you’re looking at buying a property. So, it sounds like you’re ready to jump on the property when it presents itself, which is great. You’ve got the money for a down payment. You can do that. I would really continue to keep that in cash so that you can jump on it. What if you have the 64,000, you put it in the stock market, Delta variant cases are rising. Maybe there’s some insecurity in the stock market or somebody has a bad month or a bad quarter, and then the market tanks, and then you find a property and you’re like, oh, I used to have 64 and now I have 50 and I really need a little bit more. Of course, you’ve got various buckets you can pull from, but maybe it drops a lot. I would continue to keep that in cash so you can deploy it.

Phil:
That’s definitely the primary one with the understanding that anything that goes into the market, will at least be a year play, if not multiple years of time before I will most likely take that out.

Mindy:
Yeah. Good. Okay. Scott, I jumped in there and you looked like you were going to say something.

Scott:
No, I think, look, if you’re going to buy real estate, they need to keep the cash in a savings account or money market with that. And I think that the idea of an opportunity fund puts me off a little bit just because that can mean literally anything. And you might be waiting a very long time for that opportunity. Whereas if you just kind of pick a strategy, whether it’s real estate investing or stocks and focus on saving, next year you will have another opportunity fund that you have amassed with that and then gotten whatever the average long-term return of the strategy you’re approaching with this is. If it’s 10%, that’s another six grand with it. So, I think that I would write down a specific purpose of what you’re looking for here. People raise funds all the time.
Literally like private equity funds with saying, I’m going to go after these opportunities. And I believe that in an average scenario I should be able to purchase or use all of the fund, the opportunity fund or private equity fund or whatever it is, in a certain window of time in normal circumstances with this, because this is what is happening here. These are the five deals I would have purchased over the last six months. That means that there’s one deal every month plus a week, every five weeks that I would purchase on.
Therefore, my opportunity fund should definitely be used up in 5, 6, 7 weeks with these types of things. But I think with the way you’re approaching it philosophically, scares me a little bit, because it could be a very long time and it could literally mean anything. So, I’d write down a specific set of actions that you’re going to take and have a very reasonable timeline to act on that. Otherwise you’re going to lose to inflation with that for an opportunity that is very ill-defined. So, that would be my only advice in response to what you’re describing there.

Phil:
I guess also, what do you guys think of the idea of investing those funds in something that is semi-liquid and has a higher return? Specifically, there’s a local hard money lender that has a fund that pays 9%. They ask a year commitment, but they’re flexible with that. And essentially with a 30 day notice, you can get funds out, say for a down payment, when I find a property or something like that.

Mindy:
This is a good question. I don’t like that because they want a year commitment. And just because they say you can have your money back doesn’t mean that they haven’t lent money out to everyone and they don’t have money to give you back. With regards to your down payment right now, the responsibility isn’t to grow it as much as you can, the responsibility is to protect the value that it is right now. And it’s so counterintuitive to oh, I want to invest in the stock market and make it grow. And you put it in a high yield savings account and it’s like, 0.0001%.

Phil:
I’m actually getting 3% on that right now.

Mindy:
Where?

Phil:
HM Bradley. They are so popular that now they are invitation only. And it gets a little confusing and complicated, because it’s a tier structure. So, every quarter they look at the amount of money that you put in there, what your savings rate is. And if you maintain over a 20% savings rate, the next quarter, you get 3% interest on the money in the account.

Mindy:
Well, that is phenomenal, which is horrible. I mean, it’s horrible. 3% is nothing, but it’s amazing. And I would keep it in there and I would count myself very lucky. I was going to suggest potentially a bond or a bond fund at the most, because I just-

Phil:
Yeah, I don’t like those.

Mindy:
I don’t either, but I mean, those pay more than the high yield savings accounts, but if you’re making 3% with HM Bradley, I would continue to keep it in there. That is not an investment. It’s just a savings account.

Phil:
Savings slash checking combined.

Mindy:
Yeah. But there’s no risk to it. It’s not at …

Phil:
It’s FDIC insured.

Mindy:
Okay. Yeah. Then there’s no risk. I would continue to do that and call it flip-flopping amazing that you’re getting 3% on that.

Scott:
Yeah. If you have $64,000 that we’re playing with and you put this at 9%, that’s about $6,000 annually or about one and a half months savings versus 3% is two grand. So, you’re talking about a $4,000 annualized decision here. And I believe that the moving on the next deal that meets your criteria in this property is going to be much more meaningful to your financial position than attempting to arbitrage that spread given the risk you’re going to take on. And I think, I also, based on kind of discussing the situation you’ve described here, you’ve built yourself a really strong financial position that is ready for a lot of these investments and allocation decisions with this, but it appears that a lot of the strength and from a fundamentals perspective of your financial position has come about recently in the last year or two. Is that accurate?

Phil:
Yes.

Scott:
So, I think you’re also going to experience a phenomenon where these seem like high stakes decisions, but in two years, you’re going to look back and be like, the bigger decision was dumping all the money into the index fund or dumping it into the three or four rental properties I have now acquired with these types of things. So, I think that’s a good kind of way to also pop out of this particular decision and be like, I’m just going to take, I’m not going to fret too much about where I put the money with this kind of stuff, put it in something liquid and begin executing on a strategy that makes sense rather than kind of overthinking the opportunities that’s with it.
I’ve written investment protocol where you just consistently invest. You’re going to win huge. 12 years you’re going to be laughing at that in seven or eight, given your fundamentals with this. And the scaling components of your wife’s income and the three opportunities you have right now to begin scaling your opportunity or your income.

Phil:
I’m definitely good at overthinking things.

Scott:
So, that would be my advice is just great, you got 3%, keep it parked there, but keep thinking about, am I ready to commit and real estate, or do I want to just put it into another long-term alternative, like index funds or something creative outside of that and just begin executing on that.

Phil:
Makes sense.

Mindy:
Yeah. And you know what, Phil, you’re not the only person who is guilty of overthinking. There are a lot of people who are in a very similar position who want to max them. I mean, why would I be happy with 3% when I can get 9%? And you see it like that. And you’re like, well, it’s a no brainer to do the 9%. But like Scott said, when you really think about it, run all the numbers. It’s not a huge amount of difference. So, no, you’re doing great. You really are in a very good position and there would have to be-

Scott:
This was a high stakes financial decision for you two years ago, three years ago, I bet. It’s just no longer a high stakes decision for you, which is a weird thing to think about and a compliment to what you’ve built over that. Sorry, Mindy. I just kind of jumped in with that.

Mindy:
No, that’s fine. That’s correct though. And it’s difficult to be in the position where you were three years ago and have a complete mind shift to the position that you’re on now. You’re still thinking about how you were three years ago and you’ve built quite the nest egg. You’re doing awesome. I would almost call you coast fi meaning if you stopped contributing, you could coast into retirement at traditional age for sure. Most likely. Of course, past performance is not indicative of future gains. Got to say that in every episode, but there’s a solid nest egg there. And I think adding an interesting real estate property will continue to boost. You’ve got the HSA, the Roth IRAs. Next year you’re going to max them out again. You’ve got the 401k options. Does your wife currently have a 401k at all? Is she just doing the IRA?

Phil:
She has a 401k from previous jobs that got rolled over into that IRA. And then several years ago we threw in an extra 5,000. That’s now more than doubled. But her retirement savings is limited at this point. It’s mainly coming from my job and the lovely fact that I have a 100% match up to 8% from my employer, which has really boosted the 401k savings. And what you’re talking about with mindset is definitely true, because I think we just crossed from having a negative net worth to a positive net worth within the last three or four years. I think it was end of ’17, beginning of ’18 when we crossed that line. So, it’s definitely a-

Mindy:
How long did you have the negative net worth? For a long time. So, it takes a while to shift that.

Phil:
Well, I had a positive net worth, and then I, well, attempted to get a master’s degree that didn’t work out. And those student loans kind of made that go negative for a while.

Mindy:
Yeah. And I think there’s a lot of psychology about money that isn’t really addressed. We need to get Morgan Housel on the show and talk to him about his book, but there’s oh, I’m doing great. I’m doing great. Oh, now I’m negative net worth. Oh, I feel terrible. I feel this is such a bad thing. This is so awful. Once you get back to positive, you still feel the negative emotions and it’s totally understandable and valid to want to maximize all your returns. But I think Scott’s advice to run the numbers and look at what are you really risking versus what are you really getting for that risk? And I think that right now 3% is awesome in your high yield. That is a super high yield savings account. Give me an invitation to join.

Scott:
I think that’s right with the mindset thing. And I think that whatever that mindset that’s been applied for the last couple of years, if you were negative three years ago and now have a $280,000 net worth, and it’s all in cash and retirement account vehicles that are tax advantaged, according to a strategy, that makes a lot of sense from my perspective. And 50K in your home. This is a very strong, fundamental financial position with a huge savings rate and a lot of optionality and whatever your mindset was that got you there is awesome, but you’re going too far with it in areas that aren’t good levers for you anymore, I think is the key. You got to pop out and say, no, no. My big question here is not, how do I make a good arbitrage between 3% and 9% on my savings account right here?
It’s how do I routinely deploy 65 to a $100,000 on an annualized basis into the highest and best use according to a system. And that is a much more consequential decision. That’s a million dollar or two or $5 million question over the next 10, 12 years that you have to answer and not what am I going to do with this in the meantime while I figure that out. I think that the arbitrage between those two things is just something that’s very difficult to pop out and wrap your head around, but where at. And I think it’s a great problem for you.

Phil:
That makes sense. So, basically focus on learning one segment of investing and get good at that is what I’m hearing is probably the key at this point to really optimize and accelerate this growth from here.

Scott:
Yeah, I think good options for you would include one of the three, one of the three following lines. One, real estate investing. Two, I’m just going to deploy everything in index funds and really hunker down on my side business here or helping my wife scale her business or whatever those things are or increasing my income with that. Or three, finding a new creative approach, but outside of those two things.
But any one of those three options, I think will be much more impactful to you than finding ways to kind of get a little bit more cashflow out of your, what is effectively an emergency fund or opportunity fund with this kind of thing. So, you’ll become wealthy if you can just continue expanding that income and invest in something very boring that requires no thought. You could become wealthy if you continue with the status quo and the same income and apply it to an approach that would be maybe give you a little chance at better returns, like the creative real estate approach we discussed here. And you’ll become wealthy if you do neither of the above, but just keep saving at the current rate.
It just may take you, your returns may drag a little bit behind what you could be doing otherwise with that. And you’re not going to do that. You’re obviously thinking about this aggressively about how to build your financial position. So, there’s a lot of good options, I think, ahead with this.

Phil:
That makes sense.

Mindy:
Yeah. Having all these options can be overwhelming, but it’s a good problem to have. When you only have the one option. Like, well, I guess I’m going to do that, but now you’ve got lots of things to think about. I’m excited for what the future holds for you. And I would love for you to ping us back and let us know what happened with that Atlanta property. And if you found anything locally. I think there are opportunities locally to invest with the money that you have in your emergency fund. I think there’s opportunities to open a self-directed solo 401k and invest that way. Maybe not so locally. So, you’re not doing anything with the money and not touching the property yourself and not tempted to, which is my downfall. I’m always tempted. Phil, we really appreciate you taking the time to share this with us today. This was a lot of fun.

Phil:
Thank you for having me. I did actually come prepared with jokes if you would like one or two.

Scott:
All right. Yes, please.

Mindy:
Phil, what is your favorite joke to tell at parties?

Phil:
All right. I’ll give you two of them. And the people on YouTube will have the advantage of getting to see pictures.

Mindy:
We’ve never had pictures before. Ooh.

Phil:
Why did the alligator take his clock to the bank?

Scott:
I don’t know. Why?

Phil:
He wanted to save time.

Scott:
I was not expecting that.

Mindy:
[inaudible 01:17:32] that.

Phil:
What do you do if your dog chews up your book?

Scott:
I don’t know. What?

Phil:
Take the words right out of his mouth.

Mindy:
Thank you for loading up Scott.

Scott:
Those are fantastic jokes and your delivery was just impeccable. So, we appreciate it.

Phil:
Thank you.

Scott:
All right. Well …

Mindy:
Okay, Phil, I am looking forward to hearing what you do with those, with the real estate-ing. So, please ping us back and keep us updated.

Phil:
I will do that.

Scott:
Yes.

Mindy:
Okay. We will talk to you soon. Thank you.

Scott:
Thank you, Phil.

Phil:
All right, bye.

Mindy:
Okay, Scott, that was Phil. And you know what? I think Phil finds himself in a very advantageous, but anxious position like, oh, I want to do more. I want to do more. Now is the boring part of the portfolio growth, the investment, the growing and waiting and just the slog of watching it grow. And he’s got several years in this position. He’s really sitting pretty in his position and has set his financial future up, I think, really, really well. And I think he’s going to be leaps and bounds of most Americans, like 80% of Americans, he’s going to be way ahead of.

Scott:
We should mention as well. We didn’t talk about it in the show, but Phil and his wife do have one child, a five-year-old daughter as well as part of that. But yeah, I think that you’re a 100% right. He is doing all the fundamentals right. He’s going to become wealthy with these kinds of things. But I think that, that’s where the stumbling block at this point in the journey is overthinking the little things and not just kind of recognizing, okay, now I’m in the grind period. I need to apply myself to some high leverage activities and just let a few years pass. And the income and investments and passive cashflow will stack up gradually from a few hundred to a few thousand per month. And from a few hundred thousand to a million over a period of time, 5, 6, 7 years with this, if I just continue to keep my foot on the gas and stay true to the fundamentals here.
Now I’m going to enjoy life or push and really dive into one of these strategies where hands-on activity can really make a difference or something like that. But that’s the time to pop out systematize and automate and let time pass and your wealth balloon. That’s that boring, automated, monotonous feeling I think is Mr. Money Mustache had an article on this. That’s the feeling of becoming rich. I’ve optimized everything. What do I do now? No, you just keep doing it and a few years pass and that’s it, you’re becoming rich.

Mindy:
Yeah. Yeah. I love what he’s got in store. And I’ve asked him to reach back out to us when he decides or when he buys a property and let’s look at that too, because I think that he’s got a lot of opportunities for him and now it’s just which amazing choice do I make. So, I’m really excited for him. Scott, I would like to invite our listeners to apply to be on this show. If you would like to share your finances and get some suggestions from Scott and I, please apply at biggerpockets.com/financereview. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 226 of The BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen saying, we will see you in a while crocodile.

 

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In This Episode We Cover

  • How much is too much of an emergency fund?
  • Selling tradelines and the risks/rewards that come with it
  • Why investing in traditional-layout houses presents you with multiple exit strategies 
  • Solo 401(k)s, IRAs, HSAs, and other retirement accounts
  • Creating a reasonable timeline to act on an investment, instead of losing money to inflation
  • Understanding what a good rent-to-price ratio is for your area
  • And So Much More!

Links from the Show