BiggerPockets Money Podcast 230: Finance Friday: In My Mid-50s, Do I Have Enough to Retire Next Year?

BiggerPockets Money Podcast 230: Finance Friday: In My Mid-50s, Do I Have Enough to Retire Next Year?

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Retiring early can be a daunting task. Not only do you have to do more, with less time, but you have to stay diligent on your budgeting, expense tracking, and investing if you want to hit your goal by a certain age. Today we talk to Lisa, who wants to retire next year, in her mid-50s. While most people think early retirement means retiring in your 20s and 30s, this isn’t necessarily true. Retiring 10 years early, like Lisa, is a massive accomplishment, but requires the same skills needed for retiring decades earlier.

Lisa has three pieces of property: a cash-flowing rental in pricey Boise, her primary residence in Washington, and a plot of land in North Idaho. She’s tinkered around with ideas of using her primary residence as a short-term rental, but unbeknownst to her is the fact that having a short-term rental could bankroll her retirement. She also has a sizable amount in retirement accounts, but none of those assets produce cash flow.

Will Lisa be able to retire using the 4% rule with her retirement accounts? Or, should she use this last year of employment to double down on cash-flowing assets like rental properties?

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Mindy:
Welcome to the BiggerPockets Money Podcast Show 230 Finance Friday Edition where we chat with Lisa and talk about financial independence starting a little bit later in life.

Lisa:
I always thought I needed a million to retire. And I’m not so sure anymore. It’s scary out there.

Scott:
So you think you’d need more?

Lisa:
I think I might need more. But I really, really, really want to retire next year.

Mindy:
Hello, hello, hello. My name is Mindy Jensen. And with me as always is my thought-provoking cohost Scott Trench.

Scott:
I don’t have a good one.

Mindy:
That gives me something to noodle on, Mindy.

Scott:
Great. You got it today.

Mindy:
I’ll use it. I’ll be playing the part of Scott today and me. Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story, because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right, whether you want to retire early and travel the world.

Mindy:
Why can’t we say that without laughing?

Scott:
Go on to make big time investments in assets like real estate or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
We are talking to Lisa today. Lisa is in her 50s. And she is looking at her finances and wondering if she’s doing it right. And she’s doing really well. But, of course, everybody can always be doing better.
So, we talk to Lisa. We look at some of her real estate holdings. We look at her investments, her balance sheet and income statement and give her some suggestions that we would make if we were in her shoes.

Scott:
That’s right. I thought it was a really good episode and new perspective that we haven’t had on the show before.

Mindy:
Something we didn’t really cover in the show and I want to make a note of is the rent on her rental property is lower than market. And she has a tenant who is taking good care of the property. And rents have gone up. She has an interesting thought on why she hasn’t raised the rent.
But something to think about if you have a rental property is that if you’re not regularly raising the rent to market value at the end of the lease, you could get to the point where you’re significantly lower on the rent every month. And you could be leaving a lot of money on the table.
On the other hand, I don’t think it’s worth it to raise the rent on your really great tenants just to squeeze another dollar out of them. You know what, Scott, we should have a conversation about raising the rent in the money channel.

Scott:
I think there’s a lot of nuance to it. And I don’t think there’s a right answer or not.

Mindy:
Yeah. Boy, that is a really great way to phrase that. There’s a lot of nuance to it and there isn’t just one right answer. We have a Facebook group. If you would like to discuss or join in the discussion on raising rent versus keeping it static for your tenants, you can find us at facebook.com/groups/bpmoney.
Scott, before we bring in Lisa, I need to say that the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate.
Lisa is in her 50s and makes great money but is concerned about financial independence and thinks she should be saving more. She has a decent retirement account and a rental property that provides good cash flow with great equity. But a rental property comes with a mortgage plus her primary mortgage leaves her with two mortgages every month. Tracking spending doesn’t come that easy for her so we’ll be looking for ways to automate her savings.
Lisa, welcome to the BiggerPockets Money Podcast.

Lisa:
Thank you, Mindy. Thanks, Scott.

Mindy:
I am super excited to talk to you today because you’re not 20. And while I love our 20-year-old listeners, they have a lot of time to get through their financial journey. And you are well on your way. In many cases, you are in a better position financially than they are. But you also have retirement coming up a little bit faster.
So, let’s look at where your numbers are coming in. What is your income and debts and expenses and investments? Scott, why do I always forget what this is called? Balance sheet.

Scott:
Balance sheet and income statement.

Mindy:
Yes. Balance sheet and income statement.

Lisa:
Okay. So, I make $126,000 a year. And I have two mortgages, the rental property and Boise, Idaho mortgage is $969. And it has an HOA that’s $81 a month. And it has a HELOC on it. They took out some money to upgrade it when I bought it. So, I’m paying $500 a month on that.
Then my primary residence mortgage is $1,487. And the HOA here is $40 a month. I have a car payment that I pay $700 a month on.

Mindy:
Is the $700 your monthly payment or is that what you pay because you’re paying extra?

Lisa:
That’s what I pay because I pay a little bit extra. What else? So the rental property rents right now at $1,900 a month. And I just increased the rent on it because I did a market analysis and I was well below the market. So it still has room to grow, the market analysis that it should be getting about $2,300 a month. But I couldn’t raise the rent $400 a month on my tenant so I just raised it $100.
So, there’s potential there when there’s turnover in the rent. And let’s say gasoline, last year, I spent $2,500 in gas. So that’s about $210 a month. Groceries is about $600. Utilities $180, $200 for restaurants. And I save $600 a month for travel. And I save $600 a month for just other savings.
And I have six months of income in my emergency fund. Let’s see. I have about $683 saved up between my 401(k), my Roth and my rollover IRAs.

Scott:
Before we get into all of this on the asset side, we have a salary of $6,000 a month plus $1,900 in rental income. Is that right?

Lisa:
Yes.

Scott:
And how much is your total expenses? All the things we just added up here?

Lisa:
About $5,600.

Scott:
Okay. And that salary of $6,000, that’s after tax?

Lisa:
Yes.

Scott:
That’s what’s in your bank account. Okay. So we have $400 a month leftover or thereabout?

Lisa:
Mm-hmm (affirmative).

Scott:
And then your rental property has an income of $1,900. And what’s the mortgage and expenses on that?

Lisa:
So, it’s about $1,500.

Scott:
Okay. So you have $1,500 in expenses on that. And so you’re clearing off $400 a month increments all from your rental property as well. All right, now let’s keep going with the investments there, sorry.

Lisa:
Okay. Investments. I think that’s it, Scott. I have $30 in the six-month emergency fund. I have $683 in my traditional and my rollover and my 401(k). I have just a land in North Idaho that’s worth about $85,000. And I think that’s it.
Do you want to know what the equity is in my two properties, my two houses?

Scott:
Yeah. I think that would be helpful.

Lisa:
So the Boise house equity is about $340. And the house that I’m living in, equity is about $150.

Scott:
So, how would wrap that all up and articulate your net worth at the highest level?

Lisa:
I think my net worth is really about $800,000.

Scott:
$800,000. Okay. And what are your goals? What would be the best way we could help you today with all of this?

Lisa:
I always thought I needed a million to retire. And I’m not so sure anymore. It’s scary out there.

Scott:
So you think you’d need more?

Lisa:
I think I might need more. But I really, really, really want to retire next year. And I always thought that I would retire a little bit early. So that’s been a goal. And I guess I just maybe … should I move some money around? Should I use the land in North Idaho equity to pay off the HELOC and increase my cash flow on my Boise property? Or should I just make the leap and let the equities keep doing their thing? And just start my retirement by taking money out of the 401(k)s, the IRAs.

Mindy:
So, I have a couple of questions. You have approximately $5,600 in monthly expenses. But some of that sounded like you’re putting $600 away for travel, that sounds like it’s part of that $5,600. And $600 in other savings, that sounds like it’s part of that $5,600.
So, I’m wondering for your own knowledge, what are your true expenses without the savings, without the contributions to 401(k)s, what is your true bottom line spending because at $5,600 a month, that’s $67,000 a year times 25 for the 4% rule is $1.68 million, which is not where you are right now.
But I don’t think that $5,600 is your true measurement. If we took away those $1,200 for travel and other savings, we’re already at $4,400. And so then $4,400 times 12 is $5,280 times 25 is 1.3 million. So, that’s significantly lower but it’s still more than what you’ve got right now.
So, I think that a good exercise would be to go back and see exactly what your expenses are. And you mentioned travel, $600 is a lot of monthly travel for … I mean, how long have you been doing that? What does your travel kitty look like?

Lisa:
Well, I’ve been saving for big trips. And a lot of it just disappeared because I’m going to France with my brother and sister-in-law in November. So, it looked really nice until last week. And I used it for little trips like I meet my daughter in Las Vegas, and I’ll use it for that. And we just go and have a good time and do what we want to do.
So I don’t really budget that travel too much. I just say, “Okay, this is where the money is going to come from,” and we go. So I’d like to continue to have some money for travel for retirement. I think I still have to put money away for those kinds of things.

Mindy:
Okay.

Scott:
What I’m seeing here when I look at the position overall with a lot of these things is that if you want to get to a million dollars, that would generate $40,000 in spendable liquidity each year if you’re looking at the 4% rule and you like that as a rule of thumb.
There’s a lot of debate about whether that’s too conservative or not. And we have an episode with Michael Kitces where we just talk about exactly how conservative that is. So it’s possible you could go as high as 5% or something like that or even stretch a little bit more. And I know some financial advisors talk about 7% withdrawals. And there’s a 50/50 chance or something with that portfolio.
But without bending the rules of the 4% rule, we have two levers that we have to pull on this. One is to reduce the monthly expenses that you’ve got going into retirement. And two is to pile up more wealth going into retirement. And so, let’s start with the expenses because I think that’s interesting with that.
You drive what appears to be a tremendous amount. Is that related to the commute for work?

Lisa:
Not so much. So, I moved to Richland Washington for this job. And I left my home in Boise, Idaho which is four hours away. So, I drive over there quite a bit. And then, I also have my property in North Idaho which is three hours away. So, I drive up there quite a bit too.
It doesn’t seem like it’s that far away. It doesn’t seem like I make that many trips over there. But somehow, it really adds up.

Scott:
The reason I asked that is because will those miles and the need for that level of transportation expense in that category decline after retirement is where I’m going with that.

Lisa:
I just don’t know, Scott. There are so many unknowns when … I don’t even know what I’m going to do in retirement.

Scott:
Well, that’s a good place to start. So here’s the thing is I think that one way to start answering this because now, we can wrap our heads around math with this kind of stuff and say, “What is retirement going to cost on an annual basis with that?” And I think that we’ve found that most people start spending less money in retirement than they are when they’re working with that.
And there’s a lot of cost-saving opportunities with that. You’re not going to cut some corners maybe while you’re working and very busy with a lot of these things. Maybe there’s a way to make that less expensive or there’s less driving or there’s less dry cleaning or less on eating out or fast food, on the commute or whatever it is with that.
And so I think that that would be a really good first step here to say, “What is my annual spending going to be in retirement? What is it now which you’ve got a great handle on? And which numbers are going to move as soon as I leave full-time work.” And that will give you more clarity into what that looks like and an ability to project there for the expenses after that.
Mindy, do you have anything to add on that one Maybe?

Mindy:
Yes. So you said you don’t know exactly what you’re going to be doing in retirement. And this is the best time to not retire is when you’re not sure where you’re going to be spending your time and what your retirement looks like when you’re done. And first, let’s talk about your job. Do you enjoy what you do? Or is it a stressful job that you can’t wait to leave?

Lisa:
I think I’m just burnt out. And I just like to move on to something different. And I wouldn’t mind leaving my full-time job to do some part-time work.

Mindy:
That was going to be my next question.

Lisa:
Yeah. And there are a lot of things I’d like to try to do. And then, the other big factor for me is just that most of my family lives in Ohio. My parents and two siblings and my daughter lives in Texas. So, when it comes to traveling less, Scott, I think I might be traveling more to spend more time with them.
But it might just be that I take that trip to Ohio and I’m going to spend a couple of months. And I wouldn’t really have living expenses because I’d probably live at one of my parents’ or siblings’ houses. And certainly in Texas, I would just stay with my daughter. So, in that scenario, I thought that I would short-term rental my primary residence so that I negate that expense.

Scott:
Okay. So what I’m hearing, Lisa … so, this is great. So, we say there’s going to be some more transportation expense because you’re going to be traveling to these different places. Maybe you drive there if you want to bring your car. Maybe you fly depending on how long you’re going to stay. And then that will wipe out your housing expense to a large degree in some of these cases with that.
And so, I think that going through that and at least mapping out the first six months to a year and getting alignment with your family would it help you bring a lot of comfort into like, “Okay, here’s my model and here’s what it says. And here’s how much income I need to make that work on this with that.”
I think that would be really helpful for you to get comfortable with the amount of spending that you’re going to be doing and the amount of passive income you’re going to need to fund that.

Lisa:
That’s a great idea. I just figured that out. I’m just trying to … the nebulous way of sort of said to myself, “Yeah, I’m going to go stay with my mom. I won’t have the house rental to worry about and both the both houses are easily rentable.” Yeah, I go stay with my mom part of that year and my daughter.

Scott:
And where’s your primary again …

Lisa:
Washington. Eastern Washington.

Scott:
Do you have any idea about what that would look like from an Airbnb perspective and seasonality and all that kind of stuff?

Lisa:
There are 250 wineries in a 50-mile radius of where I live.

Mindy:
I would have come visit you.

Scott:
Yeah, that’s awesome.

Lisa:
And I live on the Columbia River. So, that’s a big draw as well. There’s one short-term rental in my neighborhood. And if you can trust the Airbnb statistics, she’s charging $185 a night and she’s booked all the time, about 90% of the time.

Mindy:
So that’s amazing. And I would look at seasonality in your location specifically to plan my trips. People really, really want to be here at Christmastime or people really don’t want to be here in August. Great. Then you can be home in August and go traveling when people want to be where you’re at.
What about your Boise house?

Lisa:
It’s on a long-term rental.

Mindy:
Could you short-term that because I know Boise just happen.

Lisa:
It’s a screaming hot market. I think it could. I think it could.

Mindy:
And since you’re not there, you would have to find somebody who could do the cleaning and the turnover which is the big, big issue. Another thing is the longer short-term rentals like to traveling nurses and corporate rentals and things like that. They’re still furnished like a short-term rental but they’re like in between. They’re not quite as high as the nightly rates but they’re more than a long-term rental would be.
So that’s another way to generate some income.

Lisa:
Yeah. I actually put my house on Furnished Finders last year to market to the medical-traveling community. And I had one tenant and it just didn’t quite work out so well. I was new to just trying to do the house hacking kind of thing.
But, yeah, I think I would … definitely, I’ve had a lot of requests on that website for my extra bedroom to be rented. So I think that’s a great market.

Mindy:
Is that your extra bedroom in your primary residence?

Lisa:
Mm-hmm (affirmative).

Mindy:
Yeah, that’s another thing to throw out there is that could offset a lot of your mortgage payment if you could rent that out. What is your thought about renting out a room?

Lisa:
Well, I tried it. And it just didn’t go very well. And I just decided in the meantime that I think I really like my privacy.

Mindy:
Okay, that’s valid.

Lisa:
So for now, I’ll just stay here by myself. What I’d have to do is I’d have to rent either two bedrooms or three bedrooms to two different traveling nurses or medical professionals to make it work. Maybe this one would upset the overall mortgage though.

Scott:
The biggest strategic challenge I see for you in wanting to retire in one year is right now, most of your wealth is in your retirement accounts and your equity in your real estate, these types of things. And you’re not generating very much in the way of cash flow which is going to make early retirement difficult.
And so that’s where I think what we’re trying to get to with this discussion here is how do we generate more cash flow in the short run here? How do we reduce expenses and generate more cash flow over the next year so that you’re in position to make that break cleanly and with more confidence, I would say.
And so that’s where I think the primary residence becoming an Airbnb. I mean, if that’s right, $185 a night times 25 nights a month, that’s $4,600 a month in potential income on your mortgage of $1,500. So that goes a long way right there. If you can begin setting those systems up over the course of the next year.
And if you only do that a few months a year, that’s actually still going to go a long way towards providing cash flow. The rest of the cash flow, I think, is going to have to come more creatively. And you said you have multiple options on the table there. You have ability to do part-time work. We can maybe reduce some expenses, depending on how you do things with you’re planning out your budget before and after retirement.
And then I also think we should revisit the rental property like Mindy is saying here. And at the very least acknowledge, “Hey, we’re losing $400 a month right now because you don’t want to raise the rent on your tenants.” And so you’re giving them $400 every month that is not going towards your stuff there.
And so I think that’s one way to think about it as that. And I don’t want to be too callous on that but this is real estate and then, that’s a decision that over the next year or two, we can think about with that as well.

Lisa:
Definitely.

Scott:
And every little bit helps there. If you can increase $400 in cash flow there and reduce $400 in expenses in the car, for example, per month, that’s a net difference of 800 bucks. That’s the equivalent of … what’s 800 times 12 times 25?

Lisa:
$9,600.

Scott:
That’s a quarter-million dollars you shaved off the number you need for your retirement with the 4% rule between those two changes.

Mindy:
So, you know what, Scott, can you please say that slower because that’s not something that I’ve never thought about it like that. What’s $400? That’s not going to change my life. But look at that. Run those numbers very slowly again, Scott.

Scott:
Well, if you’re projecting retirement using the 4% rule, the 4% rule says that if I have $1 million, I can spend up to 4% of that and likely not run out of money or never have run out of money any 30-year period in history with my portfolio. In some cases, my portfolio will decline but I won’t quite run out over 30 years. And in most cases, my portfolio will grow. So the 4% rule is what we use to plan retirement.
And that means that if you want to spend $40,000 and you agree with the 4% rule, you need a million dollars in retirement. If you spend instead of that $10,000 less, $30,000, then you can get away with $750,000 in total wealth. If you can get away with $20,000, you could do that. And we maybe have found $800 in cash flow for Lisa between raising the rent by $400 and in reducing potentially the cost of car transportation by $400 a month. $800 a month is $9,600 per year, 800 times 12.
And then, if you multiply that by 25 or the reverse of the 4% rule, that equates to a $240,000 difference in wealth needed to retire. And so, if those are just two areas, you’d imagine or hope that, Lisa, when you do that budget for pre and postretirement that you may be able to find a number of other things.
And they’re not just ticky-tack. They can build up to every $100 in monthly spending, let’s do this real quick, is going to be $30,000 less than wealth that you’re going to need in order to retire comfortably at that 4% rule. And so that tight control of the expenses and making sure that that model works can really make that feel a lot more comfortable.

Lisa:
Yeah. Well, I did raise the rent this year. They’re great tenants and they’re taking really good care of the house and the yard. And she’s just getting her business started. She’s naturopathic doctor. So, I’m trying to balance being a businessperson, but also understanding that there’s value in having someone take really good care of the property.
And just by raising it this year, I feel like I’ve given them notice. I told them what the market rate was and said, “You know, I’m not going to raise it that much,” because it would be $400, $500 all of a sudden for them. But they’re sort of on notice that next year, it’s going to go up again. And it will probably be more than just $100 next year.
So, I feel good about that. The other way to increase that cash flow on that property would be to take the money out of sell the property in North Idaho, pay off the home equity line of credit which would also give me extra money to pay down on the mortgage for that house, too. And if I could, that would give me almost $1,500 a month.

Mindy:
Let’s talk about that property in Northern Idaho. Is it just a lot or does it have any improvements on it?

Lisa:
It has city sewer. It has a well. And that’s about it. And it’s almost a half-acre. It’s in town. And it’s in prime recreation country.

Mindy:
I would speak to a real estate agent. You had mentioned that it was worth $80 something. Have you done research on that or are you estimating that?

Lisa:
Well, I’m kind of estimating. I paid $75 for it at the beginning of this year. And it’s really hard to figure out what just bare land is worth right now up there. There’s another property, not a half-a-mile from mine that’s a half the size and it’s listed for $200,000, but it’s not moving.
And other lots have slowed down in how fast they were selling. They’re not being snapped up like they were last year.

Mindy:
The market in general has slowed down. I thought it had something to do with kids going back to school, but an empty lot has nothing to do with that. Just in general, the market is slower than it was in the spring. I’m really curious to see what next year’s spring selling system looks like.
And when I say cooling down, I don’t mean cold. I mean, instead of only having 12 properties to choose from when normally you would have 65. You now have 20 properties to choose from. It’s still really, really hot.
Well, okay, first, we didn’t talk about why you bought this lot. Did you have plans for it or did you just think it was a good investment?

Lisa:
So, one of my mistakes. So, last year was really tough for everybody with COVID. And I was feeling very isolated and lonely. And my daughter’s in-laws live in North Idaho and her dad lives in North Idaho. And I just thought the kids are going to be coming to North Idaho for holidays and when they have kids, they’ll bring their kids. And so I thought I want to be in the middle of those things.
And so, this land had another house adjacent to it. And I bid on the house. I thought I was going to make it a rental near Airbnb. And then it had this big lot right next to it. And it had a tiny little I called it a minor shack, it was like a 600-square-foot. Nobody’s lived in it for a long time. And it needs a ton of repairs kind of house on it.
And I thought, “Well, this would make a really cool Airbnb.” But I got talked into tearing the whole thing down. And that was a mistake because I think I could be getting a good $100 a night off of it if I had spent $80,000 to fix it up. So now, it is just a bare lot. And I have shifted gears in terms of living up there.
I don’t regret buying it because I still think that is an exceptional market. And I think that it is going to grow in value. It’s just what’s for me right now and moving into retirement, what is the right thing to do? Do I hang on to it or do I pay off other debt with it?

Mindy:
If I was in your shoes, I have a lot going on. And I would personally sell it because my plans have changed. I think that since I don’t know all of the circumstances surrounding the decision to purchase it and the decision to tear down the shack and do all these other things, I think you should make a list of pros and cons. This is why I would keep it because of these reasons. This is why I would give it away or sell it, not give it away, sell it.
And then, it sounds like you have ties to that city. I would reach out to the in-laws or to the agent that sold it to you. Ask the in-laws, “Can you recommend an agent?” If you like the agent you worked with, ask them, “What are lots going for right now? Can you just run a really quick report and tell me what lots have sold for in the last year?”
And you can start to see what things are selling for $200? I would sell it in a heartbeat.

Lisa:
No kidding.

Mindy:
You will have to pay capital gains taxes. There’s a difference between short-term and long-term capital gains. So definitely talk to a CPA and make sure that you’re … you don’t want to sell it a day short and then now, you have to pay long term as opposed to short term which is less.
So, look into it. I can’t say that there’s nothing wrong with holding on to it for a year, maybe we have a catastrophic crash and then it’s not worth even what you paid for it. But things to think about, it doesn’t sound like you’re totally on board with keeping it. It sounds like it would be easy for you to sell. So, I would lean that way.
Scott, what do you think about that?

Scott:
I think that’s really good advice. I think that I had not thought through the taxing angle on short term versus long term which I think is a really good point to consider in that. Strategically, unless you feel like you’re an expert in land speculation in this area which I do not think I’m reading is the case, to me, it doesn’t seem like a strong part of the portfolio with these things.
You think that there are better options if you’re going to redeploy it into places in Ohio or Texas or where you live currently or Boise, those are all areas that you seem to know a little better, maybe then the land strategy in these areas. And then, yeah, I mean once you have the cash, I think it’s how you’re going to allocate it to the highest and best use.
And so I’m not from there. I think you should think through what’s the best application of that. You still have a lot of time to be an active real estate investor, for example, with that. And you know this. And so, does paying down the mortgage really provide the right ROI for you compared to maybe some other alternatives? There are some things there.
And I think that if you’re wondering, “Hey, can I retire in a year while another cash flowing rental might be or Airbnb might be much more impactful than reducing the mortgage expense to some degree?”

Mindy:
I’m glad to hear you say that because that’s definitely something I’ve been thinking about.

Scott:
If you’ve got this place in Washington and there’s another place down the road maybe that would have a similar type of thing, having two in there might be some economies of scale or whatever. So those would be things I’m thinking about the strategic level. And then, Mindy, I think that was awesome. I completely would have forgotten the tax component of this as well.

Mindy:
You forgot about the T word?

Scott:
Yeah.

Lisa:
And did you say the short-term tax is less than the long term?

Mindy:
I may have said that but that’s not right. And it’s entirely possible that I said that. No, short-term capital gains taxes are taxed at your current income level. And long-term capital gains taxes. I always thought it was just 15% but I guess it varies by your income tax as well. But it’s going to be closer to 15% than whatever you’re being taxed at right now.

Lisa:
Okay. So I like the idea then of just maybe waiting till next spring.

Mindy:
Yeah. And make sure … was this your leap year? What is this, ’21. So make sure next year is not a leap year and just wait. If you close on April 15th, then close on April 16th next year just to make sure you totally 100% own it for 365 days.

Lisa:
Got you.

Mindy:
And I don’t know how leap years actually affect that. I just always go with the extra day. Let’s see. So, yeah, I like the idea of starting to look in your current location for another property and see what happens.
I don’t love the HOAs up in that neck of the woods. I have a relative who lives in Idaho and her HOA is something like $800 a month. And they basically like water the plants or something. It doesn’t seem like they’re getting a lot for their $800. And I don’t like HOAs in general. I would just caution you to keep an eye out.
Every time I talk to somebody up there, they’ve got some crazy HOA fee.

Lisa:
It’s a fact of life out here if you live in town unless you get out into the county areas. You’re pretty much stuck with them. So they haven’t been horrible to me. I haven’t had any run-ins or any issues. They’re not horrible.
They actually decrease the HOA fee in my primary residence last year. I know, shock, shock, $5.

Mindy:
In my entire life. I have never heard of an HOA that went down.

Lisa:
Me neither. Me neither.

Mindy:
Oh my goodness.

Lisa:
We have a beautiful little central park in our subdivision. And it’s got a nice little pavilion. They keep it watered. They have a nice playground. And I love this neighborhood because we have little alleys behind the houses and there’s always kids, especially last year with COVID, kids on their scooters laughing and screaming and going to the park and hanging out. And I just love it.
They make me feel so happy when they’re out being outside instead of inside playing their video games.

Mindy:
Yeah, that’s awesome. I can’t believe it went down.

Lisa:
I know.

Mindy:
Wow. So you’re the unicorn.

Lisa:
I’ll take that.

Mindy:
Yeah. Okay. I know what I wanted to talk to you about. In our application when you applied to be on the show, we asked you if you are on a budget and if you track your spending. And you said that you track your spending off and on but it’s not something that you really enjoy doing.
I think and I am a harper of tracking your spending. I harp on this all the time because I think it’s really, really important. So, I made a video called the Mindy Method of Tracking Your Spending where you’re literally writing it out by hand.
And it is not the most fun but it is the easiest way to see every single day how much you’re spending because when you come into the house, you write down on a document and you add it up right there, “Oh, today, I spent $13,” whatever. The next day, you have a big busy run and you’re like, “How did I spend $750 in one day? Well, I had to go for kids’ stuff and groceries and this and this and this.”
And while you’re swiping your card, it’s really easy to just swipe that card. So, I would like to challenge you to track your spending for one month. If you go to biggerpockets.com/mindymethod, you will get a link to a YouTube video where I explain it. And also there is a link to a … you can print out a handwritten tracking form. So, you print that out, you keep it right where you walk in from the house every day. And you just write down every time you spend any money.
And what I discovered is that there was a pattern for me for spending money. I went to the grocery store every single day. And I would pick up one thing. But I wouldn’t just pick up one thing, I’d pick up four things or five things or 12 things. And what are these? I just went to the grocery store.
And it was literally every single day and my grocery bill was enormous. And I didn’t need all of that stuff. I have a pantry full of stuff that I’m not using because it’s not in my plan. I just thought it looked interesting. So, I challenge you to track your spending for one month to see where it’s going, see how it’s working. And see if there’s anything, “Oh, I guess I don’t really need to do this all the time,” or, “I can combine errands on Thursdays and then I don’t have to spend so much gasoline going to all these weird little places.”
I just think that there’s a lot of value in seeing where it’s going. And maybe you discovered that you’re doing a great job and there’s nothing to change. But then you know that that’s not the way [crosstalk 00:41:44]?

Lisa:
Yeah. Well, that’s a great idea. I’ll give that a try.

Mindy:
Are there any other questions that you have for us or any other parts of your balance sheets and income statements that you want us to look at?

Lisa:
I think the biggest thing was that property in North Idaho that was kind of been bugging me about whether I should hang on to it or leverage it in another way.

Mindy:
I would look at what could you do to that property? Could you just put a tiny house on there? Could you get a nice looking modular home or a mobile home and throw it back on there so it’s generating income for you? Or is it really just time to sell?

Lisa:
Yeah. I have been thinking about that, too. There are some super cute tiny modular homes that are out there. I’m just not sure if any of them are really right for this particular property, the ones that I’ve been looking at but I’m not sure. I’ll keep looking.

Mindy:
And you said it’s like a half-acre.

Lisa:
It’s almost a half-acre.

Mindy:
You could put several little tiny houses. I mean, look into the zoning.

Lisa:
Yeah. And I have. Then you can have one 800-square-foot additional dwelling unit on it if you had a regular-sized house. I’d have to subdivide it in order to put two.

Mindy:
Yeah. There’s lots of use options and sometimes you can get a variance if the code doesn’t allow for it. But if it’s a hot little market and people don’t want to allow that, then they just won’t. It stinks. I’m in that market right now where they’re like, “No, you can’t have anything weird on your house.”

Lisa:
Yeah. It’s a tiny little town in the Silver Valley. It’s known for its trails for the side by side. There’s little razors. So people are just flocking into the area with their RVs and they’re side by sides and they go up into the mountains and ride those all over.

Mindy:
Could they park their RV at your lot?

Lisa:
No.

Mindy:
No. Okay.

Lisa:
I tried that angle for myself. I was like I’m just going to put my RV here and somebody might stay in it once in a while. No, they’re not going to allow that. I did.

Mindy:
Yeah. Just getting creative can be really eye-opening but also can be like the county just comes and smacks you. They’re like, “No.”

Lisa:
And it’s okay, too, because there are single-family homes around it. If I was in the single-family home, I wouldn’t want somebody to come in and start putting in RVs and having a different person in there every night. So, I was like that.

Scott:
It just sounds like the highest and best use of this lot is to put a single-family home on it. And so, to me, I’m skeptical that another strategy is going to emerge other than sell the property to a developer, let him put a house on it and redeploy the cash somewhere else. But I love the optimism. Maybe another solution comes in.
But to me, based on a little Idaho, that seems like a likely probability and the long-term capital gains if you can make that work. But wait another half more months, it might make sense. But otherwise, I think that’s [crosstalk 00:45:25].

Lisa:
I think you’re right, Scott. I did look at like you said the tiny homes and developing it myself, and the RV does not quite the right spot for it.

Mindy:
Yeah. It sounds like you’ve exhausted all your options.

Lisa:
Yeah. They’re great.

Scott:
Hopefully, it’s a very nice gain. And it allows you to put that money towards something that can produce some cash flow for you which I think is going to be the biggest thing. How do I rearrange parts of my portfolio am I spending in my primary to create cash flow over the next year? And what are some things I’m willing to do for part-time work if that’s interesting?
Those will be the biggest levers I think that will make you feel more comfortable about the decision to retire in a year from now.

Lisa:
Yeah, I think you’re right. So, cool.

Mindy:
Okay. Lisa, I think this was a really, really interesting discussion today. I’m excited for your options and opportunities. And I don’t think we said it enough during the show, but you’re doing really great. You have an $800,000 net worth. There’s lots of people who don’t have that and won’t ever have that. So I think you’re doing a really great job.
And I think a couple of tweaks and really tracking your spending is going to show you where to make those tweaks and you’re just going to kill it.

Scott:
Lisa, was this helpful for you? Did this open up some new ideas or thoughts?

Lisa:
Absolutely. Yeah. It’s validating to know that I’m on the right track. And I really appreciate the advice on the North Idaho property and how to leverage that to my advantage as I head towards retirement.

Scott:
Awesome. Well, glad to hear. Thanks for bringing your story to the show. I think this was really valuable for us to think through and hopefully for other people to hear from and learn from.

Lisa:
Thanks, Scott.

Mindy:
Thank you, Lisa. We’ll talk to you soon. Okay, Scott, I really enjoyed talking to Lisa. I think she’s doing great. And I think we don’t make it a point frequently enough to tell them how great they’re doing on the show. But I think she’s doing fabulous.

Scott:
Yeah, I think she’s doing great. I think she’s in pretty good shape here. I think she just needs to make a couple of tweaks and maximize her last year working and figure out what she wants to do in retirement and how she wants to handle that.
So, it sounds like she’s got a lot of good options. She’s willing to do some part-time work. She’s got Airbnb options. She’s got investment decision to make with if and when she decides to sell that property, the land and how to redeploy it. So, I think she’s got a lot of good options. And I’m excited to see what’s in her future.

Mindy:
Yeah. I am excited to see what’s going on. And I’d like to check back in with her in about a year and see what she did with that property and see what sort of work she’s doing. Again, I want to hear from you regarding the raised rent question.
Like I mentioned in the beginning of the show, you can join us in our Facebook group at facebook.com/groups/bpmoney. And chime in and tell us why you advocate for raising the rent on your tenants or why you do not advocate for raising the rent, why would you keep it the status quo, assuming that there is a difference between what you’re charging and what the market rent is?
Okay. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From Episode 230 of the BiggerPockets Money Podcast. He is Scott Trench and I am Mindy Jensen saying ciao, ciao, brown cow.

 

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In This Episode We Cover

  • Using the 4% rule to calculate how much you need to be invested to retire
  • Leasing out your home as a short-term rental while you travel
  • Choosing cash-flowing assets over assets that merely appreciate
  • Calculating out your TRUE living expenses (with the Mindy Method!)
  • Profiting off of land purchases and when the right time to sell is
  • When the appropriate time to raise rents on a tenant is
  • And So Much More!

Links from the Show