Home Blog BiggerPockets Money Podcast

Finance Friday: What’s The Best Way to Buy Rentals—Partnerships or Solo?

The BiggerPockets Money Podcast
50 min read
Finance Friday: What’s The Best Way to Buy Rentals—Partnerships or Solo?

Rental properties can be a phenomenal second source of income for the majority of us who work at regular jobs. One or two rental property purchases every year or so can slowly, but surely, build a strong foundation for financial independence, sometimes within only a few years. Today’s guest Connor has taken this approach to wealth building and now sits on six rental units, splitting some of the profits with his partners.

Connor runs a lot of the operation for these rental properties. He has a background in construction management, making him an integral piece of any future BRRRR, flip, or rehab project he and his partners decide to take on. But, could these real estate partnerships be slowing down his personal wealth growth? And if so, how does he mitigate the risk of being an independent investor in a cash-intensive business?

Aside from his real estate portfolio, Connor also wants to simplify his personal portfolio, plan for future baby expenses, maximize his retirement, and get a better handle on his financial situation in total. Scott and Mindy leave Connor with some clear action items that may help him achieve financial freedom in his five to seven-year time horizon!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Mindy:
Welcome to the BiggerPockets Money podcast show number 274, Finance Friday edition, where we interview Connor and talk about investing in real estate, structuring partnerships, and babies.

Connor:
Essentially, I want to have the opportunity to quit my W2 job after five to seven years from now. It seems super aggressive. I just don’t want to set it at 10 years because I know it’ll probably end up taking 10 years. So essentially, I want to scale as much as I can with real estate and passive income and try to have the ability to retire in five to seven years. Well, I’ll actually quit my W2 job, probably not. But that’s kind of the goal.

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

Scott:
I just don’t know how you keep producing these types of intros, Mindy. Thank you so much.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every bad pun he can come up with and every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting. And Scott truly believes that puns should be involved in every single sentence he ever utters.

Scott:
Oh, I can’t live up to that one. But whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or scale your real estate investing portfolio, 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 Connor today because he’s got a lot on his plate. And he has a lot of really interesting opportunities headed his way. He’s investing in real estate, he’s investing in stocks a little bit, he’s investing in crypto, which we don’t get into in the show, we kind of glance over that. I don’t really like crypto, so I don’t really have a lot to say about that. But his real estate investing is kind of interesting. You had a really good point about structuring real estate partnerships, and how to evaluate if even partnering is the right option for you. So, I’m super excited to bring in Connor to talk about these things today.

Scott:
Yeah, absolutely. And a sneak preview to that point is just that, look, everyone wants to go faster in their real estate investing journey. But getting 50% of a $200,000 pie is no better than having 100% of $100,000 pie. And a lot of cases it can be worse, if you’re not careful, right? It’s just more work. What do you get? What do you get more than half the work and managing the $200,000 pie? You’re actually worse off than if you didn’t have a partner at all and “little slower”, I’m air quoting on that one for those listening to the audio only. That you go a little slower on that by partnering and buying more real estate than if you just wouldn’t on your own. So, it’s important to get those structures right if you’re going to partner and begin to scale a real estate business so that the economics actually accrue to you if you’re going to do the extra work to go a little faster.

Mindy:
Yeah. And another point to make is that sometimes partnerships don’t allow you to be the boss of the world. And if you’ve listened to this show more than once you know that I really enjoy being the boss of the world. So, partnerships are difficult for me. Good thing I have Carl to be my real estate partner. Now, my attorney makes me say the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor BiggerPockets 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.
Okay, now let’s bring in Connor. Connor is 30 years old with a baby on the way, yay, babies, and like everyone else on the face of the planet, he has more stuff to do in a day than hours of the day to do that stuff in. So Connor, welcome to that club. He’s looking for advice on his general FI trajectory. Connor, welcome to the BiggerPockets money podcast.

Connor:
Thank you. Thank you for having me.

Mindy:
I’m super excited to jump into your numbers because we have a lot to discuss including student loans, financial independence, babies, babies, student loans, lots of investments, lots of real estate. So, let’s jump right in. What is your income and where does it go?

Connor:
All right. So, before tax income is combined between me and Sydney is 185,000. That includes vehicle allowance, bonuses, and my W2 salary. So, the breakdown would be about 4,800 for the vehicle allowance, about 35,000 in bonuses annually, and then the W2 salaries about 147,000 combined.

Scott:
And what do you guys both do?

Connor:
So, Sydney is a pediatric dental assistant and I’m a construction project manager for a company that does development and construction, obviously.

Scott:
Awesome. So, your job is the one that has the vehicle allowance.

Connor:
Correct. Yep.

Scott:
Okay, awesome. And any other income besides these sources?

Connor:
Yeah. So, I have some real estate that I am trying to track separately for income and kind of keep it within the company or real estate accounts. So last year, I did a wholesale deal for $2,000. I send out some direct mail every once in a while, see if I can pull in some deals. I have a duplex that I’m currently house hacking, but I’m moving out of in a month to essentially a live-in flip. I have another rental duplex on a land contract. And I have a tiny home in the works. And then, I have another duplex that I’m essentially getting under contract this week. So, all those together, I’m hoping in a 12-month period would bring in about $34,000 annually. Some of them aren’t completed yet, but that’s kind of where I think things are heading.

Scott:
So, that brings us to 220,000 in annual income?

Connor:
Yep

Scott:
Okay, awesome. And then where does it go? How much do you spend?

Connor:
So, getting into expenses. Again, I’m in a really transitional phase right now. So, I’m currently house hacking, remodeling for a live-in flip in a move into there. So, my mortgage will be going up, but it’s kind of an equity play for a live-in flip. So, expenses, broken down come March 1st would be, my mortgage would be about 1,845, 250 for electric, 80 for water. We have a car that we own and a lease that will be ending soon. But the total car principal payments are 538 a month, car insurance 115, gas 136, cell phone is 139, internet 70, Netflix 20 bucks a month, student loans $212 a month and we can get into that more later.
I’m just paying the minimum on that right now and I have been since I’ve been in forbearance. That’s kind of one of the topics I want to go over today. But then rolling into some of my variable expenses, groceries about 600 a month, dine-in, takeout another 600 a month. Dog $80 a month, personal care, haircuts 40 bucks a month, entertainment $400, miscellaneous house items 250, and last but not least, just some home renovations and the duplex I’m living in is about 500 bucks a month right now. Obviously, that’ll go away come March 1st.

Scott:
Okay, awesome. So, in total, how much you able to accumulate in cash per month? And what are you doing from an investment standpoint?

Connor:
So as far as W2 savings, I stock away about $2,000. I put $1,000 in a capital investment account, and then $1,000, I put it into crypto and aftermarket or after tech stocks. So, that’s the W2 leftover. But as far as real estate, I’m kind of just keeping it in those accounts. Essentially, one of the topics I wanted over today is how to scale fastest. So, I’m trying to just keep it in there and just put it back in and look for profit or properties or whatever comes my way, and use that essentially for buying more real estate.

Scott:
Awesome. So, where are these assets going? And what is your net worth right now?

Connor:
So, net worth is coming in around $280,000. Breakdown, I’ll go through the assets first. Everyday checking is about 3,100. One of the duplex accounts I got 4,500. My house hack duplex account, I got 2,700. My investment capital account for just sitting there whenever I find a deal is 24,000. We have a three month cash reserve at 10,000. We keep it kind of low because I have cash in other places and that investment capital account if something were to happen. We feel our jobs are pretty stable. So, we just keep a three-month cash reserve. Discretionary, we’re saving up for a car down payment once the lease ends or purchase a car out right. We got 800 bucks in there right now.
Roth IRA opened up, I don’t know, 10 years ago, I haven’t put much into there, which I know you guys might tell me otherwise, but that’s 1,700. We have about $47,000 in Roth 401k combined. I have a duplex, the duplexes, one of them is 315. One’s worth 355. A single family home live-in flip is worth 375. I won’t go into the one I got under contract yet, because that’s not quite closed. I got a car worth 23,000, tiny home worth 7,500. I do not know, I kind of put an estimate to it for what we just have into it because it’s a construction trailer we remodeled and I don’t know exactly what I could even sell it for. We have 7,500 into it. So that’s what I got to work that. I got at 8,300 in crypto and an HSA with 3,500. That’s what I have for assets. I have an ESOP listed on here that’s getting rolled out in my company, but I don’t have anything in that yet.

Scott:
How much cash do you have? Because you listed seven accounts there?

Connor:
Yeah. General organization, I’m still working on. I try to keep every duplex or every property with a separate account. But cash wise, I have about 45,000.

Scott:
Okay, great. And you’re about to, i’m sorry I interrupted you. You’re about to go into debts, I think.

Connor:
Yeah. The duplex, that’s worth 315 is, I owe 227 on it. That’s a land contract at 3.75%. The duplex that’s worth 355, I owe 305 on, and the single-family home that we’re moving into, I will owe 304 on that. The car, I owe 15,000 on that one at 3.2%. And then I have $47,000 in student loans. So, that pretty much sums up the debts.

Scott:
Okay. And you said your goal is to scale faster. Can you get more in detail or give us any other goals that you might have with your finances?

Connor:
Yeah, so the main goal is, essentially, I want to have the opportunity to quit my W2 job after five to seven years from now. It seems super aggressive. I just don’t want to set it at 10 years, because then it’ll probably end up taking 10 years. So essentially, I want to scale as much as I can with real estate and passive income and try to have the ability to retire in five to seven years. Will I actually put my W2 job? Probably not. But that’s kind of the goal. Depends how many hours [inaudible 00:12:46].

Scott:
Okay, great. And you want to do this through real estate?

Connor:
That is the goal. Yep.

Scott:
Okay. Awesome. So, can you walk us through kind of in more detail the numbers on your current properties? Sure.

Connor:
Sure. So again, this is kind of analyzed after I move out. I got to make some assumptions for what I’m going to get in rent for my unit currently. So, after all expenses, mortgage, taxes, insurance, utilities, water, internet, cable, CapEx, vacancy. My current duplex will bring in 886 a month. I’m doing on Furnished Finder as a contract nurse rental. That’s currently the tenant upstairs. That’s how she got in here. When I bought the duplex. She was already here. So, I do have a tenant that’s doing it, but I haven’t quite done it myself yet. So, the next duplex is a land contract. I’m going to do the same thing with that. That’s going to bring in about 760 a month after all expenses, vacancy, all that. Tiny home, that will be in Airbnb. I’m hoping that’ll bring in about 600 bucks a month. And then, I do have a rental listed on here that I didn’t close on yet and I’m hoping to bring in 400 bucks a month. It’s essentially, we’re closing March 1st.

Scott:
Okay, and how much damage are you putting down on the one that you’re under contract on right now?

Connor:
That’ll be 20%.

Scott:
And so, what’s the purchase price?

Connor:
One eighty-five, but I did bring in some partners so it’s going to be split three ways.

Scott:
Okay. Okay, I see. Well, great. So, when you say you want to scale faster towards this. What does that mean to you? Do you want to buy more properties and bring on more partners? Do you want to just accumulate more personally? What are you envisioning this looks like in a couple of years?

Connor:
Ideally, I think in order to scale as fast as I would like to and still be comfortable with not making a big mistake, it’d be nice to keep more going with these partners that I’m currently bringing in. But obviously, we got to do a deal together and see how we work. The previous properties of purchase have been on my own, the land contract and the current house hack, and then the live-in flip. But as far as cash accumulation, I think it would make the most sense to keep you on with some partners. And we did talk about some long-term goals getting into some multifamily, larger stuff down the road.

Scott:
Okay, great. Let’s unpack the partnership structure here. Because I want to understand how that helps you get to your goal, financial freedom faster. So, when you bring on a partner, how do you structure with the partners?

Connor:
So, right now, I have an LLC, and they have an LLC, and it’s two of them in their LLC. It’s just me and mine. So, we created a series LLC. And so, we actually have another LLC over the top of those two that we use to get a commercial loan and purchase this next rental property. That’s the actual organization structure right now. As far as roles and responsibilities, that’s to be determined, I guess,

Scott:
How did the economics work for you?

Connor:
As far as income, you’re saying?

Scott:
Well, here’s what I’m trying to understand. When you raise money from a partner, often do you get some sort of carried interest or ability to accelerate your position faster, as a result of managing more money. But we want to make sure is, you’re not just bringing in partners. And so, instead of getting 100% of $180,000 pie, you’re getting 50% of the $360,000 pie, which means you’re just managing other people’s money, but not getting actually rich any faster with that. So, what I’m trying to figure out is, what is the economic advantage that you’re creating by pooling money together from a partnership?

Connor:
Ah, that’s a good question, I guess. Originally, my train of thought was that, obviously, pooling money to get a 20% down payment between three people is a lot less impactful if something didn’t work out, than going all in by yourself. So, that was my original train of thought. It just kind of happened to work out where these people were looking for something as well. And so, to answer your question, I don’t know that I’ve thought about it too much.

Scott:
Here’s a great discussion point because I think a lot of people are probably struggling with what you’re struggling with here, right? This concept that will, I think, hopefully sound, common sensical when I explain it, but it is kind of hard to conceptualize here, right? So, if I buy 10 properties and bring on a partner for each of them, I’m no better off financially than if I bought five properties and didn’t bring on any partners unless I structure the deal, such that I’m getting some sort of economic interest. So, when you hear these syndicators on the BiggerPockets real estate podcast, pooling together money to scale their portfolios faster.
What they’re doing is they’re raising a hundreds of thousands, millions or tens of millions of dollars, and they’re buying a property. And they’re saying, “Okay, among other things, one, I get the transaction fee when I buy the property. So, I’m the agent, I get the commission, that’s my paycheck. Two, I’m going to charge a management fee for some percentage of the assets here, one 2% of the capital I’ve raised. And these may be high fees, right? [inaudible 00:18:48]. Third, if the property performs as expected, and let’s say the property, I’m going to promise you a preferred return of 10%, so you get 10%. Anything over a 10% IRR, we’re going to split 80-20 on that.
And so, that’s a way to get wealthy very quickly by pooling together capital in real estate. And you can imagine that the more funds you accumulate and you manage, the more wealth you have the potential to generate as long as you can perform in excess of that hurdle rate that you’ve determined with your investors there. But if you’re just pooling together, if you just bringing on partners and managing the property for them, now you’re doing more work. That’s a sweet deal for your partners, if you’re the one finding the deal and doing the work. And you’re not really building wealth any faster.
You might get into the property sooner by a matter of months or maybe a year or so. But I actually think that it’s probably not an efficient mechanism from to scale your wealth unless you’re able to say, “No, partners. I’m going to get the brokerage commission for closing this deal and I’m going to charge a management fee. And I get a certain amount of the profits over the long term in excess of your return capital” or something like that. Now, there are numerous structures there. This is a real good one to talk to a lawyer and I have not set this up from a real estate perspective personally. But I’ll let you react to what I’m saying there. What are your thoughts on this?

Connor:
Those are all things, I guess, I didn’t really think of. I was trying to, I guess my thoughts are just trying to keep it simple. I essentially have $24,000, in my cash reserve for investments. The property needed 20% down. I’m like, “Well, I can’t do 20% down. Let’s see if we can group some people together.” I’d rather take 33% of the deal than 0% of a deal, I guess. So that was my original thought. But yes, I mean, the stuff you’re bringing up is super valid. And I mean, that’s stuff I got to keep in mind going forward as I try to tackle.

Scott:
And back into your five or seven-year goal. You want to be financially independent in five to seven years with this. It doesn’t matter if you have, again, 20% of 30 properties, or 100% of seven properties that are cash flowing to solve that goal. It’s the same economics. One of those options, to me sounds like a much simpler life that is actually financially free. And the other stand seems like a lot of work. However, again, the 30 properties can be a way to more overall wealth, if you’re able to structure a partnership that’s advantageous for management there. Because if you’re going to do all of the work and just put the profits, please call me up and I’d be I’d be interested in investing there.

Mindy:
Yeah, me too. So, I’ve got a couple of comments to add to Scott. I heard you say, “I want to keep it simple. “And the best way to keep it simple is to keep all those cooks out of the kitchen and have you be the one making the decision. Because Scott and I have done your episode 276. Scott, and I have done a lot of these shows, and we still have differences of opinion on a lot of things. And we have similar goals. You being in a partnership with somebody you could have similar goals and very different opinions.
And when you’re the only person with the money in there, and you’re the only person with your name on the deed, you’re the only one whose opinion matters. And you can still go out and ask people, “Hey, what would you do in this situation? Hey, Scott, this is a great place to plug the BiggerPockets forums.” biggerpockets.com /forums where you can ask more than 2 million investors their opinion of what you’re about to do or the options that you’re considering. Sometimes they’ll throw out a third option that makes even more sense, but I digress.
When your name is on the deed, and that’s it, you’re the only one that has to make the decision. I saw a bit of a pink flag, when you said something about to be determined with the partnership. And we’re recording this in January, you still have time to hash out all of this stuff about the partnership, but you need to come to a decision about everything before you buy the property with your partners. Because now you’re all still friends. Now you can decide, “Oh, wow, you want to do that? We have way different opinions. Let’s break the contract and lose our $1,000 of earnest money instead of having some horrible acrimonious relationship for years because we have very different opinions that we didn’t discuss going into the partnership.”

Scott:
I want to say I have a partner on many of my deals. So, I don’t want to, but it’s not a I do all the work and he’s a silent partner. It’s we’re both 50-50 and we’ve been partners for years and we believe that as a good … Like I said, this is a person that I live with as a roommate for many years, my best friend is someone I trust implicitly from a competence and integrity standpoint. And so, over the years, we both waxed and waned in terms of contributions and some of that, but I feel it’s been a very close to 50-50 contribution over years further building the business with that. That to me is helpful, right? And then it is wonderfully simple in that case.
But if you’re looking to scale, I think your partner, if you’re going to go 50-50 with a partner, there needs to be a true operational advantage that you’re accruing from that or you’re getting economic interest. A silent partner that is splitting the economics with you close to 50-50 is not going to help you actually meaningfully move toward your goal, in my opinion.

Mindy:
And Connor, you have construction experience. And because you work for a big company, I’m assuming that that’s more commercial construction experience than specifically residential, but electrical is electrical and plumbing is plumbing and the codes might be different, but the construction basics are all the same. And you have a lot of knowledge to bring to the table, that could be more beneficial than your dollars coming to the table. You could get paid for your construction knowledge, perhaps you could partner on commercial deals to help you grow, because you’ve got the commercial construction experience. And now, I’m getting outside of my area of expertise, because I’ve done zero commercial. But if I needed some commercial, I’d call you up, “Hey, Connor, come partner with me on this giant renovation that I don’t know anything about because I’ve never done commercial.”

Scott:
In fact, you should you should see if you can talk to the person who owns the project, the projects that your construction firm is working on at some point to kind of understand how they structure the deals with their limited partners. I bet you they’d be fascinated to have that discussion. Maybe they might play off. I don’t know on that one. I do not know. But I bet you that they’ll echo some of the things that I just described there about carried interest and management fee on invested capital, limited partners, those types of things and the way that they’re going to make money on the deal and not go broke. Basically the structure there, I’m going to charge a certain amount of assets under management to pay the staff and my salary, but they’re going make their hundreds, thousands or millions on any of these projects based on the success of that project and carried interest.

Connor:
Sure.

Scott:
Is term carried interest, are you following that term?

Connor:
Yeah, I understand carried interest, not in full detail, but I do the term gets tossed around at my day job. So, I do kind of understand it.

Scott:
Okay, great. For those listening who may not understand that, right? There are various terms that will describe this concept. But essentially, let’s say that we’re buying a 100-million dollar property, right? And there’s 25 million in equity raised from limited partners, right? These are private syndicator investors like myself, I invest in a couple of these from time to time. And that 25 million is looking for return on capital. If the equity in the deal at 25 million, if the value goes 150, because they improved the net operating income or increase rents or reduce costs, then they might sell it and there might be $75 million gain over or $75 million in equity at the end, that’s three times invested capital, right?
That excess 50 million might be split 80% to the original investors and 20% to the management team or the general partner managing that deal. So, in that case, the manager makes $10 million in addition to the fees to buy and sell the property and any management fees on the 25 million in invested capital over the hold period. That’s very simplistic a better overall understanding of the structure. It can be found when we had Jay Scott on the BiggerPockets Money podcast to describe this in a two-hour comprehensive session on syndication investing. And that’s the framework that I think a lot of these guys are using is something to that effect that would be advantageous to you. Now, with all this said, Connor, could you walk us through the structure of your partnership as you currently understand it?

Connor:
So that’s kind of where we’re going, that’s kind of what we’re trying to dial in the next three weeks is actually roles and responsibilities. We want there to be an operational benefit to each of us. I manage subs daily, I don’t know that I want to do it outside of work. So, they’re really good at it and they got a system down to two partners. And so, I don’t really want to wedge in and kind of try to fix something that’s not broken, because I know they’ve done some [inaudible 00:29:04] deals already that are working out. So, I brought the deal, I was going to essentially let them kind of manage that to finish. We had to talk about some of the details and stuff. So that’s kind of where I was originally thinking again, we had to sit down go through all that greater operating agreement.

Scott:
Okay, well, that can work from that structure. But I think it might be wise to sit down privately on your own and figure out a business plan to get to where you want to get to, and a couple of options that would move you there faster. I have a property manager, my partner have a property manager on this. And that property manager manages the subcontractors and we pay the property manager a 10% management fee for these things, and sometimes we’ll pay him an additional fee to GC certain of our projects with that. And that works for us and allows us to continue buying properties and managing them relatively passively, including the projects. But is it faster than having a dedicated equity partner? I don’t know. But those are the kinds of questions I think to think through.

Connor:
Sure. Absolutely.

Scott:
This really is the biggest, I think, item in your financial story here. You’ve got great control over your expenses, you earn really good income. You’ve got plenty of cash, your debts are all very low interest and don’t make sense to prepay early, in my opinion, given what you’re doing here. So, I think, it seems like, if you weren’t saying scale faster, it would be keep accumulating this cash and keep buying another property every year or two, maybe more frequently, and within five years, you’ll own five to seven more properties, and probably be very close to do your goals with a lot of this stuff. But I think it’s great exploring these other forms of scale.
I wonder if you’re live-in flip, and buying another rental property isn’t going to generate $150,000 in additional wealth over the next two years, which is a pretty good chunk out of this. And increasing your net worth by 50% in two years, by saving, live-in flipping and buying another rental property is a pretty good, aggressive, aggressive approach there with that. I like the mindset to be even more aggressive. But I love the fact that you’re all out, in my opinion on what you’re doing here.

Mindy:
When you say scale faster, does that mean generate more income for you or own more properties for you?

Connor:
That would mean generate more income.

Mindy:
Okay.

Connor:
In general. So, whether that’s real estate or some form of side hustle at one point, I try doing wholesale dealing and bringing in some income that way. And I’m kind of just trying in what I can when it comes my way, but obviously trying to still be safe and not make big mistakes. I want to make sure that I’m limiting my exposure, my risk in certain areas.

Mindy:
With your background running stubs, during the day, I see flipping or live-in flipping as a really great way to generate some income and maybe flipping because you’ve got a baby on the way and live-in flipping is a big mess. And you’ve already done that once and you probably, lots of people are one and done live-in flippers.

Connor:
So, this one’s actually, sorry to cut you off. This one’s actually, I guess, it wouldn’t be considered a live-in flip. It’s a Fannie Mae homestyle. So essentially, 70% of its going to be done by the time we move in and then we just got to wrap up the other 30%.

Mindy:
Okay. So, yeah, when I say live-in flip, I mean, live in the construction zone the whole time. But that doesn’t mean that’s the only way to do it. Yeah, getting the big stuff out of the way, that’s the smarter way to do it. That’s just not the way that I do. Why do it smart when you can wash your dishes in the bathtub for a month? Okay, so like I said before, electric is electric. The electrician at the job site could come to your house and do home electrical. I’ve seen it done. My father in law as an electrician, he’s done it. Residential electrician work is the same. And they probably know the codes, they’re really easy to look up. I can look them up. Plumbing, the plumber at the job site can do plumbing at your space and that is one of the most difficult things to do right now is I mean after you find the deal is to find somebody to actually work on the deal.
So, if you want to own rentals, finding these properties that are subpar and fixing them up and then renting them out, which is a strategy that we have coined called BURRRR. Buy. Rehab. Rent. Refinance. Repeat is the way to kind of recycle your cash. If you do it right, if you do it optimized, I don’t want to say do it right. If you do it optimized to the highest degree, you can pull out all the money that you have in there and still have a cash flowing asset, and then take that money and use it again. Even if you have to leave some money in the deal. You’re still able to, in many cases, pull some money out and use it again. So, you’re not parking all of your money in there.
So, that with your skills, I think that’s a better way to go about this than partnering with people. Then you’ve got a cash flowing asset. that you own all by yourself and make all the decisions by yourself. That’s my opinion. That’s what I would do if I had a lot of access to contractors because I’ve got, I can find the properties, I just can’t find anybody to work on them or I can’t find people to work on it. Everybody I know is already retired and they don’t want any more work.

Scott:
One thing I noticed about your kind of overall financial position is you’re very clear on your expenses. That seems beautifully simple on this. But your assets are very complicated, especially relative to your current net worth right now. You have seven different bank accounts with that kind of stuff. And this partnership, what I’m reading in is, it’s kind of an experiment is what I’m gathering. You are kind of learning this. You got two guys that you’re partnering with, you think it will help you buy faster, but you haven’t really worked out the full economic impact of the partnership and how that’s going to map into your long term with that. I encourage you to think about simplifying a lot of this. Let me ask you a couple questions about your cash. Do you have a separate entity for each property?

Connor:
I have a separate entity for one land contract duplex. The duplex I’m in now there’s not a separate entity because I currently live there and I’m house hacking it. So, to answer your question, I just have one entity right now for a land contract and then we created a series LLC for the one that’s closing March 1.

Scott:
There’s always a debate about asset protection and that kind of stuff. If you’re going to be investing with partners, you got to go with the wishes of the partnership on that. And if you have an LLC, you need to have a separate bank account for that LLC and treat it as an independent entity entirely with that. But for the rest of it, I had a number of these different bank accounts and all this kind of stuff a while back, and I just consolidated all into one checking and one savings account, and then the rental property business has a single checking account with that. And does that make it a little harder? Does that make it harder to parse out what pieces of cash for which property or whatever?
Yes, but it’s also just pretty freeing to be like, “Okay, I’ve got one big pile to handle the roof on any one of the properties that might have it at this point with that. And I got one for my personal and one for my next investment, checking and savings, rental and then business account. And you might consider that at some point because all these separate accounts may be complicating the situation. And that’s going to magnify and multiply if you begin forming more partnerships over time to buy more of these properties with that.

Connor:
I hate going to the store and trying to pull out my wallet. I pull out three different credit cards. I can’t remember which ones for which property and so it would be nice to simplify, consolidate. The problem is one of them is an LLC, and one of them is not right now. So maybe when I’m out of here, I guess I don’t know how that would look to be able to get this into the same LLC.

Scott:
Yeah, so at that point, you’d have to talk to an attorney about this, but you would have the option to quick claim the property into the LLC. And then that would allow you to merge all the properties into one LLC interest with that. There’s always puts and takes around complications in your life and management of the business and asset protection in general with this. So, you need to talk to an attorney and CPA, it might be a couple of hundred or maybe even a thousand bucks to figure out what moves you want to make with all this kind of stuff and why you want to make them overtime.
But I really like the idea with a portfolio of your size, having to manage in a single asset with that. If you become a multimillionaire over time, then it makes sense to potentially begin putting in the series LLCs, not in the sense of a partnership, but in the sense of equity. That will protect your equity interest in some of these properties a little bit more over time. But with $280,000 in net worth, it may be more complicating than it actually is providing risk mitigation for you.

Mindy:
Yes. And I am going to reiterate that you should speak to an attorney because neither Scott nor I are attorneys, and they may have some different advice and take their advice over ours.

Scott:
I think you should talk to investors and attorneys with that because sometimes attorneys will just tell you, absolutely you got to do this crazy level of protection, and they’re going charge you 1,800 bucks for the privilege of doing that and give you four more credit cards to put in your wallet with that, which often doesn’t make any sense. So, I think that the combination of a good attorney and good investor peers to listen to and get those opinions from is valuable because the attorney is often going to bias towards reducing risks at that point, in my opinion, sometimes absurdity with some of these things. So, talk to the attorney. Yes. But make your own decision and maybe talk to some investors as well.

Mindy:
Yes. And in the meantime, with your wallet full of credit cards, take a Sharpie and write on the credit card. This is this duplex, this is this duplex, just put the the street number of the address or the name of the street that the duplex is on, however, you can delineate it. So, then it’s easy for you, because yeah, you can get confused and then cross mingling of funds or commingling of funds gets you into a lot of trouble. You have mentioned the phrase land contract multiple times. And I know there are people listening who don’t know what that means because I don’t know what that means. So, please explain what a land contract is for those of us who are listening and have no idea what you’re talking about.

Connor:
Well, I’m sure you guys could better explain it. But in general terms essentially, I found a seller that had 100% equity in this property and he was willing to finance it to me at an agreed upon amortization and balloon payment with interest rate. So that got executed and essentially, I’m making the payments to him. And then after five years, I’ll have to make a balloon payment to him via refinance or sale, whatever it may be.

Mindy:
Oh, interesting. Do you have to have it for five years? Or can you refinance sooner? The reason that I ask is because rates are about to go up.

Connor:
I can refinance sooner. So, I’ve actually been kind of pondering that, I guess I’d like to hear your guys’ thoughts on it.

Mindy:
How long have you owned this property?

Connor:
Only a year.

Mindy:
Okay, if you have owned it for at least six months, well, since it’s a seller finance, you could probably refine it anytime. I would say, just talking to an lender as soon as possible, because the Fed has indicated that they will raise rates. I think they indicated it three times. But of course, as soon as I say this, then we record this, then they’re going to change their mind. But as soon as March, they are considering increasing interest rates. So, I’m already seeing interest rates going up. They did something with second home mortgages where you could have, and I don’t think this applies this, I’m just sharing this with everybody in case they haven’t heard. If you have a rental property or a property that you would buy with a second home mortgage, which is kind of like a vacation property for you to use, the rates are going up, or there’s an extra fee or something starting April 1st, so get yourself into that house now.

Scott:
What’s the rate on your bank contract?

Connor:
It’s at 3.75, which is pretty good for land contract.

Mindy:
Yeah, that’s awesome for a land contract.

Scott:
It’s funny, because we say that we talk about can’t time the market. But then we’ll always speculate on what interest rates are going to do. And I can’t help it. But my dad, when I when I first bought my first property, he was like, “Get an ARM. And why? You get an ARM because the rates are so much lower and this was seven years ago. And if I got on the ARM, I would have had a way lower rate and I would have paid way less in payments, and it would have gone down over the last couple of years and I would have saved a boatload of money with that. And he’s constantly telling me to get an ARM. And I’ve never got an ARM on this kind of stuff. I think it’s kind of like what you have with this land contract. You have a balloon payment. You’re going to have to refinance it a few years. You’re speculating on what interest rates are going to do over the next couple of years.
If you refinance now, I bet you’re at over that rate on a conventional mortgage with this. What you have to ask yourself, and we have to kind of think about is, do we think interest rates are going to go up, down stay the same, or we can’t time them? And I can’t predict that.

Mindy:
I can.

Scott:
But I’m too afraid of interest rates going up over the next five years to go into a deal like you have right here where I have that kind of exposure to those interest rates. I always lock in at fixed long term 30-year mortgages in spite of the fact that I’ve lost a lot of money over the last seven years by doing that.

Mindy:
Okay, I am going to say that Scott, your situation is similar but very different. Connor bought this a year ago in your situation that your dad is telling you to get an arm so Connor did what your dad told him to do, and that would have been great, but now we are in a different situation and I will speculate that rates are going to go up, because the Fed has said we’re going to raise rates. Even after all this other stuff has happened, they said, “We’re going to raise rates. We’re not changing our plans.” Of course, they can change their plans at any time. But I would bet that rates are going to go up.
Rates have been unbelievably low for so long that there’s, I mean, they can’t, I keep saying this, and then they prove me wrong, they can’t go lower, but they will go lower, and they won’t, they’re not going to. Okay, that didn’t make any sense. I keep saying rates can’t go lower, and then they go lower. This time, I truly do not believe that rates are going to go any lower, I believe that they’re going to go up. And the reason that I believe that is because the Fed has said, “We’re going to raise rates three times in 2022.”

Scott:
Three months ago, the Fed was saying this inflation is just temporary. So, I tend to agree with Mindy on this one. So, all of what I just said is tongue in cheek, but I wouldn’t be comfortable with a five-year balloon on a mortgage of that level relative to your overall financial situation with that, and a five-year picture right now. That’s how I personally will be feeling about the situation and be wanting to walk into a long-term rate in the next couple of months, I’d imagine.

Connor:
Okay, so general consensus, probably look at refinancing.

Mindy:
This is a good time to go into the forums at biggerpockets.com/forums and ask that question, “Hey, I’ve heard that the Fed is going to go up or the Fed is going to raise rates. What are your thoughts on interest rates?” And if everybody in the forum’s says, “Oh, no, they’re going to stay low forever, then maybe I’m wrong. But I don’t think everybody in the forum is going to say that. I think they’re going to say, “Hey, I’ve seen and they’re going to cite articles. Here’s an article where the Fed says they’re going to raise the rate.” I mean, it’s been what, zero almost zero for so long.

Scott:
We’ll see. So, a lot to think about on that one. What else can we help you with Connor?

Connor:
So, we went through general trajectory, we went through some scaling techniques. Obviously, student loans are the next big one. I’ve been paying those. It’s just another kind of speculation type topic, but I just wanted to get your thoughts. I know you guys are doing an episode on student loans, but just wanted to get a little bit of input on my specific situation.

Mindy:
Yes, so this episode 267 came out on January 17th with Robert Farrington from the collegeinvestor.com and we talked about different ways to look at your student loans. If you have private student loans, the student loan repayment, pause didn’t affect you. But if you had federal student loans, it did. It sounds like Connor does have federal student loans. And the repayment pause is now through May 1st. So, what Robert said in that episode, is that he does not think that you should be making any payments right now, if you could be putting your money towards other uses, if you’ve got other debt. So if you have a low interest rate, what is your student loan interest rate? Isn’t it like 3.2 or something?

Connor:
It’s 4.6 actually.

Mindy:
It’s 4.6. So that’s still within Scott’s range of don’t pay it off early because you can get a better return on your money in a different investment. I tend to agree with Scott, 4.6 starts to get a little high for me to not pay off. But I generally defer to Scott, he has a big economic break.

Scott:
I think it’s an interesting thing because the overall interest rate on that is slightly lower than 4.6%. And again, I can’t compute this math. So, someone else has to put together this spreadsheet and figure this out. But you think okay, because that’s in forbearance right now, I’m actually paying zero and based on time, value, money and all this other nonsense that the blended rate of my student loan that is actually less than something else. I’m accruing interest on my car payment right now on this, so it makes sense to stop accruing that interest at the very least in a temporary period and put it towards some other debt rather than towards a student loan that is currently not accruing interest there.
Now if it was 8%, you’d be like okay, well, if I don’t put it towards the student loan debt now it’s going to be accruing a higher interest rate when it’s all said and done in a few months. So, that’s kind of the art and that’s where I’m having trouble figuring out the right economic answer where that cut off is because that dynamic, but that’s the framework I’d be thinking about the problem with.

Mindy:
And we’ve already had extensions of this student loan repayment and of repayment forbearance, I can’t remember what it was called. We’ve already had extensions of that. So, it was definitely going to end on January 31st. And payments are going to definitely start on February 1st. And now, it’s been kicked to May 1st. So now, payments are definitely going to start on May 1st, unless they decide that they’re not definitely going to start on May 1st. So that was another point that Robert made is that we could see this kick down the line further. So why start making payments again if you don’t have to? See if it’s further kicked down and then you can take the money that you would be paying towards that and further reduce your car payment.
And there has been talk of student loan forgiveness. And if you pay off your student loan, then there isn’t student loan forgiveness, and whatever side of the coin you are on with regards to student loan forgiveness, what it boils down to is if there’s no student loan to forgive, you can’t take advantage of this program. So, the student loans, definitely go back and listen to episode 267 of the money podcast with Robert Farrington and get some great advice from him. Visit his website, thecollegeinvestor.com. He’s got a lot of stuff about student loans. That’s kind of all he talks about.

Scott:
And you want to make people angry, you talk about how I’m going to wait for the student loans to be forgiven. And the people who paid off their student loans will be livid that they did that. So that’s always a controversial topic as well with this, but our job is not like, oh here’s what should be the case. It’s what’s the best decision you can make with your money with that, and failing to take into account the possibility that student loans might be forgiven in some amount is a financial mistake, I think, at the end of the day, regardless of what your views on that from a policy perspective, just to save us from the inevitable comments that will come from a commentary on, “Hey, it’s student loans might be forgiven, therefore we shouldn’t pay him off.” Well, that is a rational economic thought that an individual need to have when they’re considering the long-term financial planning. An overall situation is what is that probability? So, I think it’s a fair point and heading off those nasty comments now.

Mindy:
However, if you would like to make a nasty comment, you can send it to [email protected] Okay. And we need to talk about baby. Your baby does not care if he or she is wearing brand name items. Your baby does not care if he or she is wearing clothes that another baby has worn, your baby does not care if he or she has a room full of toys or three toys, especially when they’re brand new, because all they’re going to do is eat, sleep, and poop. So, don’t buy brand new everything, you don’t need it. You do need, in my opinion, you do need a brand new car seat because that protects your baby when traveling at upwards of 40 miles an hour in a metal shell. You need a brand new crib because crib technology changes all the time and what was acceptable for us is now against the law to make.
Otherwise, you can shop at thrift stores and garage sales. Tell everybody you know that you’re having a baby. And they’ll be like, “Oh my goodness, can I give you all have my old baby stuff?” And you’ll be like, “Yeah, I guess.” Take the stuff that you like, pass it on to somebody else who is having a baby. When I was done having babies, and like, what do I do with all this stuff? People who no longer need it, want to get rid of it. They want to give it to you, let them. Go through what you want. Get rid of the rest. It does not have to be super expensive to have a baby. You can cloth diaper and breastfeed and get used everything and spend almost nothing on your baby.

Scott:
What do you have to say to the folks that may be listening or Connor here who, I’m aligned with that. The baby is aligned with that for sure. But maybe the spouse is not aligned with that? How do we have that discussion?

Mindy:
Tell her to call me up and I’ll tell her the same thing. But, and I get it, I get it. You want your baby to have, when I was pregnant with my first, I was working with a woman who was also pregnant with her first and I was telling her about this enormous garage sale that was happening at the fairgrounds that weekend. And she said, “Oh, this is my first baby. I want my first baby to have everything brand new.” And I was like, “Oh, we’re not the same person at all. Okay, I just won’t tell you about these garage sales that are coming up.”
Always keep your baby in a onesie because when you don’t, they poop everywhere. And every mom listening, every dad listening is like “Yep, that’s what happens.” So, buy a bunch of onesies at a garage sale and when they get covered in unmentionables, you can throw them away because they only cost a quarter. And that’s kind of gross to clean that out. But yeah, so you can spend very little on having a baby and you can spend a whole lot of money on having a baby. You could buy Ralph Lauren actual baby clothes, which seems absurd to me.

Scott:
At a garage sale.

Mindy:
I think you can buy Chanel baby clothes at the garage sale. I think it’s absurd. And everybody’s going to buy you baby clothes anyway. Get good diapers, love your baby, spend time with them, and that’s all they want. But I mean, that’s oversimplifying everything. The baby industry will tell you, you need all the things. You don’t. You need something to put in this end and something to clean the other end. And that’s like, keep it warm in the middle and that’s kind of it. And there’s lots of ways to do that on the cheap.

Connor:
Yeah, I was trying to actually go through and put together a budget for a baby and it was very, very bad. Yeah, I was Googling, how much does a baby cost per month. It’s just wildly inaccurate. So, anywhere from $1 to $10,000.

Mindy:
That is a true statement, anywhere from $1 to $10,000. And I went off on a tangent. I said breastfeed and cloth diaper. Not everybody can breastfeed. If you need to buy formula, you need to buy formula, reach out to the formula companies and ask for coupons, they’ll send them to you. Formula is expensive. Getting the liquid formula that you just pour into the bottle is more expensive than getting the powder formula that you mix with water. It’s not that hard. It dissolves super fast. It’s really easy to mak. Get the powdered kind, buy in bulk. Ask your doctor for samples if they have samples or ask them if they have any way to save money on them. Some babies need special formula. And sometimes you can get that prescribed by the doctor and then your insurance might cover it.
There’s a lot of different things to try when your baby doesn’t fit the traditional, I don’t want to say norms, but the traditional everything’s okay. That doesn’t sound right either. So sorry, I don’t mean that like that. When your baby, I cannot figure out a way to say this, that doesn’t make me sound like a horrible person. So, talk to your doctor. Talk to moms during moms groups. There are always people looking to get rid of their baby stuff, take everything, go through it, take what you like and pass on what you don’t. And that’s a great way to get baby stuff.

Connor:
We do have the age-old issue right now, which is obviously when my wife is off of work, she doesn’t have maternity leave. So that brings this whole different budget scenario that we’re just banging our heads against the wall trying to figure out.

Mindy:
Yeah.

Scott:
What state are you in again?

Connor:
Wisconsin. We’re in Milwaukee.

Mindy:
They have four-year old kindergarten.

Connor:
So, obviously, we knew it was coming. So, we’re still excited for everything. But we do have a little bit of a dilemma we’re trying to work through right now with this.

Scott:
Yeah, that’s just going to be another expense that you guys are going to have to have to put into the budget there.

Mindy:
And then when she goes back to work, there’s childcare expense, what are you going to do about childcare?

Connor:
Right.

Mindy:
Who do you have to watch the baby?

Connor:
That’s what we’re kind of, we’re tossing around ideas, and we talked about it a lot. We’re just not quite there with a final decision, but trying to look at some side hustles, maybe some stuff we can do from home. And we’re really trying to navigate right now. So, it’s a lot to think about.

Scott:
Well, the good news is you got a really strong financial position with all this kind of stuff on your money journey. You’ve got a big margin of safety, you’ve got a number of assets with this, and a portfolio that looks like, and your net worth is not just in retirement accounts or your personal home equity. It’s in assets that can excel you towards your financial goals. You’re generating passive cash flow from these properties already with this, that will probably partially or completely offset some of these childcare expenses. So, you’re in a good spot, and you’re going to build wealth over the next couple of years with it. Regardless of whether you buy the baby clothes at the Ralph Lauren Polo store, most likely or at the garage sale, although Mindy’s advice will certainly help with that. So yeah, but I think it is interesting. It’s something I got to think about if we start a family Mindy in the next couple years.

Mindy:
Childcare can be, there’s lots of creative options for childcare. Maybe your wife can work. I mean, she works as a pediatric dental hygienist, did you say?

Connor:
Pediatric dental assistant.

Mindy:
Yeah. There could be the opportunity for a four-day work week and maybe other people that she knows could do a four-day work week. And it just the same kids rotate through people’s houses. She takes three kids one day and somebody else takes three kids one day and somebody else takes three kids one day. And that could work out. Baby sits swaps are great as long as you trust all the other people that are within the swap. I think you just really have to get creative if you don’t have family near you or trusted friends or trusted neighbors that that do this. I mean, just because somebody works from home doesn’t mean that they get to be your babysitter. Speaking up for all of you, work from home moms that get asked this all the time. “Hey, you work from home? Can you watch my kid?” “Well, no, I work from home.” Sorry, I digress.

Scott:
Well, how else can we help you today, Connor? Any other areas that you want to touch on? Or anything that you don’t feel we’ve quite covered enough?

Connor:
No, I mean, we’ve covered a lot of areas I want to talk about, kind of backtracking a little bit. I guess I want to get your thoughts on, currently, I’m not putting anything into my Roth IRA. For my Roth 401k, I’m just putting in the company match 4%. All cash above and beyond that I’m taking and dumping in real estate. I’m assuming with my goals of the five, seven years or 10 years at max, that’s kind of what I should be doing with purchasing real estate.

Scott:
I think it’s an impossible question to know the right answer to if you believe that your returns from real estate will be greater than the returns you can get from the stock market, that 10% may be tax advantaged, long term average at the stock market might return eight to 10%, then you can continue doing that. And I see nothing wrong with it. It’s what I did when I got started with something very similar to what you’re describing here. And it worked out for me, although that was in the middle of a very good market for real estate, I guess, and stocks over the last couple years when I started there.
So, I think it’s a decision to make and I love the fact that you have made a decision and you’re doing that, for the most part, rather than spreading it all across everything and getting rich very slowly with this. So, I can’t argue with it. And I think if you’re going to do that, then ply your trade in real estate and figure out a way to make sure that you can get the best returns their possible with it.

Mindy:
I completely agree with what you said, Scott. I think that trying to do everything is going to be difficult. And focusing on one thing with your background, I think that focusing on real estate is a really great choice.

Scott:
Next question.

Connor:
Yeah, I guess, I don’t know. I mean, we went over, it’s just the one thing I want to talk about was the scaling and there’s days where I just don’t have enough hours in the day, and I’m sure you guys are familiar with that. So, it’s not like it’s my problem only. But yeah, just general time management. I mean, my W2 job is pretty, they require a lot of a lot of time to it. So, it’s tough to also try to scale the real estate portfolio on top of that. It’s getting extremely difficult.

Scott:
You earn a great income and a great bonus potential from your W2 job. So that’s why it’s difficult to build a business on the side because you have a great job.

Connor:
Fair enough.

Scott:
Yeah. No, I think that is the big crux is if you’re going to if you’re going to scale your real estate portfolio, you need to go back to the drawing board on the basic math about what the return is going to be, and an estimate of how that’s going to impact your time commitment. And I think that’s the big challenge for us to figure out am I really getting wealthy faster because I’m partnering with these two individuals? Or am I just going to own a bigger portfolio with more partners that produces essentially the same economic return long term, as if I didn’t have those partners in the first place? That’s the trap I think you should save yourself from. And maybe the answer is yes, having these partners are going to get me there faster. But I bet you, it will take a structural change in the way that you’ve done that more clearly outlining the roles and responsibilities or giving you economic interest that results from the extra work you’re going to do.

Mindy:
And also scaling doesn’t have to go from zero to a million today. I would keep your real estate agent, make sure they know that you are ready, willing and able to jump in with both feet when the right property pops up on the market. Have them send you a list based on whatever your criteria is over whatever market or markets you’re looking at. And what I do every morning is I go through all the listings that came in overnight and I go through the listings, as I’m drinking my coffee, I check them out. I review what the property is, where I think it’s, I’m only looking at my specific city. What this is doing is showing me just how fast my market is appreciating and where the prices are rising.
And in my city, it’s everywhere, which is awesome. But it just keeps the properties in the forefront of your mind all the time. And it doesn’t take very long to do because I’m not looking through all 500 properties that are on the market. I’m looking through the 15 that came on the market last night, and I can scroll through them really quickly and say, “Nope, nope, nope. Oh, that would be very interesting. I’d like to go look at that. Hey, this is awesome, I don’t even need to look at it. I know that this is going to be a smoking hot deal, I can jump on it right now. So, I would make a point to review the listings every morning, and quickly dismiss anything that you know is not going to work out. Dive a little deeper to something that you think might work out and see the properties or make offers on the properties that you really want to own and see what happens.

Connor:
Do you guys. I’m not too familiar with a 1031. But do you guys see opportunity for that, in my position or where I’m at now?

Scott:
You haven’t known the properties. I’m not even in the properties very long. I don’t think that you have a lot of equity in those properties. I don’t think you have a use case for trading up from those properties to another to a larger property. So, I’m looking at some of your numbers here. One of the properties you have 375 asset value, you have a $305,000 mortgage against it, right? Another one, you have $355,000 value, $305,000 land contract. Another one, you have 315,000 in asset value and 227. You maybe have $150,000 in equity between all these properties, maybe 200 on that.
And to me, you’re highly leveraged against all those properties, which means your return profile, if things go reasonably well is likely to remain strong, and you won’t be able to 1031. Even if you 1031 all of those properties, you’re pulling out 150 to 200 grand, maybe less after transaction costs associated with that and you’re buying a, I don’t know, $700,000, $800,000 asset with that. It’s almost less asset value than you currently have with it based on that. If your mortgages were $100,000 across those things, you had $600,000 in equity value, that would be a real consideration on those things for seven to 10 years, then we might be talking about that as a tactic. But I think you just have another several years to sit on these guys before that becomes a more useful tool in your arsenal.

Mindy:
Yeah, I will only disagree with Scott about the amount of time that you’ve held the property for a 1031. There’s no actual set amount of time that you have to own the property. Otherwise, everything that he says is correct. There’s just not enough equity in there to make the 1031 and the hassle of a 1031, the deadlines of a 1031 worth your while right now. In a few years, it might be, I mean, we’re in a rapidly appreciating market. I’m not that tuned into the Milwaukee market right now, so I don’t know how fast your market is appreciating. But over the course, over most of America, it is appreciating rather quickly because we just have no supply right now.
So, I can say maybe in a few years, I can see this being more of an opportunity or more of a worthwhile endeavor. I will say if a 1031 does actually work for your specific situation, get involved with a qualified intermediary before you list your house because if you take possession of the money, your 1031 is out the window, there’s no way to save it. So, there are several really great 1031 exchange qualified intermediaries, that’s a specific phrase, the person that handles the 1031 exchange for you. They know all the rules and you can find a couple of really great ones at biggerpockets.com in the forums. Just type in 1031 in our search bar and you will find the same names referred over and over again. Because they’re awesome.
Okay, well Connor, this has been a lot of fun. I had a great time jumping into all of your different options. You really do have a great financial situation where you’re at right now. I don’t think that’s Scott and I do enough to praise the financial situation because you could be 30 with a boatload of debt and no assets at all. I mean, you’re doing great. You are in that phase where you sit and wait. Now you just got to wait for the appreciation to grow and the portfolio to get larger. So, as you continue doing what you’re doing, it will continue to grow.

Scott:
I would echo that. You’re doing fantastic with this. You’ve got a really strong financial position, you’re in a great income, you spend much less than you earn, and you’re applying, you have you have a strategy that seems effective for your investing, and especially with this real estate stuff with it. This is the frustrating part of the financial journey, because you’ll look up in five years and if you just apply this, you can probably go from 250 to 500 to 750 in net worth, depending on how the markets do and what the compounding of your assets, how that plays out.
And your frustration, your biggest pain point which we have not solved today on the show, really is how do I make that grind go faster in the end? And the answer is I don’t really have a good answer for that, from the grind perspective of moving from this period of several $100,000 in net worth and strong cash flow positive situation to financial freedom that much faster. Other than finding that creative option for your business that actually changes the economic potential. It’s taking more risk or working harder or finding some sort of opportunity to you systematically exploit in your market with that. And I don’t think we uncovered that for you today. So, this is one of those finance Fridays. Well, hopefully, we’re helpful, at least helping you avoid or tweak a situation that might have resulted in more work for the same or potentially the same gain as if you did it on your own. I actually don’t think we solved your fundamental problem today, unfortunately. Is that right?

Connor:
No, I wouldn’t say that’s right. I mean, yes, you gave a lot of good feedback and kind of reassured that the path of mine will get me there. I don’t want to put the cart before the horse. I got to make sure I still do things correct and not try to scale too fast. There’s an end in sight. It was nice to kind of hear some reassurance from you guys and a lot of good feedback. So, I appreciate it.

Scott:
Oh, great. Okay. I was just a little down myself. I was like, I don’t have a silver bullet here for this. I think you’re doing all the right things. It’s going to take you some time from your fundamentals. And then, I don’t know if we’ve really cracked the nut on the partnership or scaling the real estate thing faster with this right now.

Mindy:
I think we gave him a lot to think about. So, I think you’re wrong, Scott.

Scott:
Okay. Okay. Okay.

Mindy:
Okay, Connor. Well, thank you so much for your time and we’ll talk to you soon.

Connor:
All right. Thanks, guys. Bye.

Mindy:
Okay, Scott. That was Connor and that was a fun episode. What did you think?

Scott:
Yeah, I think it was great. I think Connor has a lot going on his financial position here, integrate income. He’s got clear command of his expenses, a lot of moving parts with his move coming up, and a lot of different assets and debts with different parts of their picture. So, it was a fun discussion, because there’s a lot of, it’s a more complicated financial position than many we’ve talked to. And so, there’s a lot of opportunities to dissect various decisions and make capital allocation decisions.

Mindy:
Yeah, I do think that we gave him a lot of really great points to think about. And that’s kind of the whole purpose of the show is to, yes, give a little bit of, “Hey, if I was in your position, I would do this.” But also, to give our guests something to think about and something to, what do we call it, research opportunities. These are things you should consider. These are things that you need to come to the decision about on your own. But here’s some frameworks to think about, that can be things that you didn’t consider until Scott’s big economic brain brought them up. So, I’m very pleased.

Scott:
Awesome. I have a personal favor to ask of the listeners today on this. There is an account, my Instagram account is @scott_trench. There is an account that has @scott__trench is a scammer or spammer. They’re impersonating me. They’re messaging people about crypto trading, which I will never do. Could you please, if you have an Instagram account, could you look up this fake account @scott__trench and reported. I’m forgetting the language that they use there but you can report it as impersonating my real profile. That would be very helpful and I think hopefully would save some people from getting scammed hopefully with that. So, thank you very much. Could you please report the fake Scott Trench on Instagram? My real one is @scott_trench, one underscore. Thank you, guys.

Mindy:
He’s even posting your same posts and he used your picture.

Scott:
Yes. And he or she blocked me, so I couldn’t even see it there. I didn’t even know that there was a fake account. So, yes, please, please go and report those guys, that guy, or that person in getting kicked off, please.

Mindy:
Oh, I hope by the time this airs that that has been removed. So yes, please help Scott out and also follow scott_trench on Instagram and you can follow me [email protected] That’s everywhere, Facebook, Twitter, Instagram, that’s where I’m at. And BiggerPockets Money or BP money depending on what platform you’re on because somebody took BiggerPockets Money on several platforms. Anyway, okay, that’s enough asking for favors. Oh, wait, no. We should ask for a review to while we’re at it.
We would like to be able to share the show with the whole world. But since we can’t share it with the whole world, we’d like you to help us spread it as far and wide as we can. And the best way to do that is to leave a ratings and review wherever you get your podcast. Of course, we’d love a five-star review, but please give us the review that you think we deserve, which is five stars. Okay. Should we get out of here, Scott?

Scott:
Let’s do it.

Mindy:
He is Scott Trench and I am Mindy Jensen saying see you later alligator.

Scott:
After a while, crocodile.

Mindy:
Go back to the basics.

 

Watch the Podcast Here

Help us out!

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

In This Episode We Cover

  • Real estate partnerships and establishing the value that you bring to them
  • Generating more income (and reducing expenses) through live in flips and house hacking
  • Land contracts and seller financing on rental properties that allow you to scale faster
  • Student loan repayment, deferral, and when you should plan on starting up your payments again
  • Shopping for a baby as frugally as you can so you can invest for their future
  • And So Much More!

Links from the Show

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.