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Finance Friday: Still Feeling “Money Anxious” After Hitting FI

The BiggerPockets Money Podcast
41 min read
Finance Friday: Still Feeling “Money Anxious” After Hitting FI

The path to financial freedom is different for everyone. Some invest in stocks, others flip houses, but one couple breeds rats, trains horses, and buys rentals in cash. Before you get squeamish, this isn’t a show about flipping rats for profit. But, it is a show about horse training, unique investments, and how to ease off the gas when building wealth. Even if you’re far from your FI number, thinking about this concept will help you tremendously once you’ve retired.

Alexis and Max have an interesting situation, and they aren’t your everyday workers. Both of them work out in the field, up against the elements, making some serious money to help train horses. Max was a self-taught trainer who built an impressive resume while only in his teenage years. He has a passion for finding, training, and flipping horses that will one day be champions. This is his life’s work and it’s allowed him to charge a pretty hefty price tag.

But, the couple hasn’t just been investing in horses. They also have nine paid-off rental properties, subsidizing the entirety of their monthly spending. But, even with their high net worth, they’re struggling to feel comfortable with their financial situation. They’d like to buy a house of their own, take a break from work, and allow themselves more time freedom. But do they really need more money, or do they simply need to rethink their already solid situation?

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Mindy:
Welcome to the BiggerPockets Money Podcast show number 326, Finance Friday edition, where we interview Alexis and Max and talk about horses, high income, taxes, and because we’re BiggerPockets, real estate.

Alexis:
One reason we’re doing that is because we do want to continue. We’ve been in this mindset of we got to save for the next house. We got to save for the next house. So we’ve been just working so much to be able to just … We got to keep everything steady so that we can continue to save for this passive income. But now we are looking at the numbers and we’re like, okay, we’ve reached our FI number or whatever, but I guess we’re still just afraid. And there’s lots of things we would do.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my so excited about everything all the time co-host, Scott Trench.

Scott:
Is that me Mindy or is that you?

Mindy:
That’s me. Okay. With me as always is Scott.

Scott:
Thank you, Mindy. That’s much more realistic.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like horses, 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:
Scott, I am super excited about today’s episode because we talk about something I’ve never heard … Well, I’ve heard of. Something I’ve never done before, investing in horses, with somebody who knows what he’s doing. I will say that if you think this is a fun story, note when Max actually started with his horse ventures. This is a lifelong pursuit, literally. And I think that he’s got a great story. I think he and his wife have a fabulous financial position. And this is an interesting look into, I have money, but I also hate debt. And personal finance is personal I think comes shining through in this particular episode because yes, they could be doing more with their money, but debt is something that Max doesn’t want to have so don’t go get it Max.

Scott:
Yeah. I think it’s a fascinating situation. It’s a thought exercise rather than really a money problem in this particular episode because they have such a strong financial position, but I think it’s valuable to get a peak into the problems that exist at all stages of the wealth building journey.

Mindy:
Yes. And stay tuned to Scott’s really amazing announcement when you diagnose the problem. That was a lot of fun, Scott. Before we bring in Alexis and Max, I must tell you 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 and tax professionals regarding the legal, tax, and financial implications of any financial decision you contemplate.

Mindy:
Alexis and max have the very fortune position of generating a lot of income. They also have a very impressive net worth and a large gap between their spending and income. They’re extremely averse to debt and looking for ways to increase their real estate holdings to further cushion their position. Alexis and Max, welcome to the BiggerPockets Money Podcast.

Max:
Hi guys. Thank you.

Alexis:
Hi.

Mindy:
I’m so excited to talk to you today. I am going to jump into your numbers and I’m going to do things a little bit differently. I’m going to read them off today just to give us a really quick look at what’s coming in and where it’s going. I’m going to look at your income, which is approximately $8,000 with an additional $4,600 in rental income. And this doesn’t include your horse sales income, which is approximately $8,000 a month, give or take?

Alexis:
Yeah.

Scott:
Is there a number of transactions per year that would be a better way to think about it? Like four or five sales per year?

Alexis:
That’s a really good point, Scott, because the 8,000 is extremely variable. That-

Max:
Yeah. The income is very variable.

Alexis:
Yeah. It could be between four and eight transactions a year and it levels out to around 8,000 a month.

Scott:
But you essentially buy a horse, train it up to perform its task, and then sell it to somebody who will use it for that purpose. Right?

Max:
Yes.

Alexis:
Correct.

Scott:
Could you describe that one more layer deep there so folks can understand? Because I probably butchered that.

Max:
What I do usually is I’m specialized in young horses in a discipline called reining. And-

Alexis:
Which is Western dressage pretty much.

Max:
Yeah. Pretty much. To make it quick. And so what I do is I train young horses to be a good prospect and become also a very valuable horse in the market and try to either sell it or go show it or send it to the top showmen in the industry that will go and show it. So yeah, the process is pretty simple. I get young horses in the beginning of January and in about six months or year, depending on their ability and their talent, they will become very valuable or not piece of property.

Alexis:
The thing that Max isn’t saying that I will say for him, because he’s much more of an expert than I am in this field, is that he from a very young age has studied bloodlines to the max.

Max:
Yeah. Bloodlines and-

Alexis:
He knows his bloodline very well, his pedigrees really well. And so he can identify a lot just by papers on a horse and watching a horse.

Max:
Yeah. You have to watch a horse. A paper will not tell you everything about it. It will just tell you how well the parents’ done and is that combination of that mom and the sire will be a good one. And also you have to look at the prospect himself and see if he’s going to be a good mover, a good minded horse and try to make the best out of it. And then after the price of those horses, there’s no regulation. So I mean, it can go very low, you can lose money. And we lost some money. But you can make a lot of money too. And-

Alexis:
It’s worth what someone’s willing to pay for it on a Tuesday.

Max:
Yes, exactly. Like last year, for example, to give you one of the good horse we bought, we buy him for 25,000 and in three months we turn it and sold him for 100,000. I mean, we had a few very good sales so yeah, we got very-

Scott:
Awesome. And so you are a cowboy. A French cowboy living in Texas. Is that correct?

Max:
Yes. Yes.

Scott:
Perfect. All right.

Alexis:
It is true.

Scott:
Yeah. A horse flipping cowboy. Perfect. This is great. This is will be a unique experience for Mindy and I on the podcast here. So thank you.

Scott:
Okay. And so that is variable income. And then when you said $8,000 in income, where does that come from on a monthly basis? Is that an additional source of income or is that just the average rate of these sales?

Max:
No. My company train horses for also the public. Not just me and Alexis or other partners. So if you guys buy a horse and decide to send it to me, you’re going to pay me a fee every month to train and take care of your horse. And part of it, there’s a lot of expense in that that I have to pay to take care of your horse just for keep him alive. But there’s a part of that fee that is going to come to me to get paid. And so part of the 8,000 is simply a salary that my company pay me.

Scott:
So to summarize, you get paid $8,000 a month in salary. And on top of that, you have rental properties. And on top of that, you have varying numbers of transactions that can be good, bad or ugly from your horse training and flipping business.

Max:
Yes. And the 8,000 is the salary of Alexis and my salary. The total.

Alexis:
The total of both of our salaries is eight. And then on top of that, we have rental income. And then on top of that, we have the variable income of the horse transactions. The buying and selling.

Max:
Yeah. And competition too.

Alexis:
So we separate out Max’s salary from the variable distribution. So you can think about it as just like an owner distribution. So if we have a great month of sales, we can do a $12,000 owner distribution and our company setup is an S Corp entity. So we can do the distribution that month, for example. So for the sake of example, we put 8,000 here for you guys.

Scott:
Great. Well, let’s keep going with this financial snapshot. I think we’ve got a good understanding of the business and income, or as good as we’re going to get in the early stages here with a unique business or unique new to us business. But let’s keep going with the financial snapshot Mindy.

Mindy:
Okay. So where that money is going is $150 in gas, $200 in eating out, $100 for date night, $50 for fun money, $50 for clothes, $200 for travel, $150 for animals. I’m assuming that is not horse feed. $600 for groceries, $720 for childcare, $50 for a person’s name here. I’m assuming that is the child that you have.

Alexis:
Yes.

Max:
Yes.

Mindy:
$150 miscellaneous, $95 for Verizon. I see an opportunity to transfer to Mint Mobile for $10 a month or $15 a month. But still, that’s like a drop in the bucket. $160 for car insurance, $250 for personal cap ex, which I love this concept. Doctor, dentist, random personal capital expenditures. I love that. $400 for giving, $100 for random household, $300 for taxes. And then you have separated out, which I think is very important for people who may not be in your same financial position, auto debits. Audible, Spotify, Xander, Naked Wine, Kira, Amazon Prime, Amazon Prime Video, health insurance. Those are all $100 and then health insurance is 688. For a grand total of spending $4,500.

Mindy:
But let’s circle back to the income is 12,605, and you’re spending 4,500. So you have a monthly savings of $8,106.55. Which is … That’s not bad. Or amazing, depending on who you want to talk to. I think everybody that you would talk to would say, “Holy cannoli, that’s fantastic.” So I see that you are-

Scott:
Yeah. That’s amazing.

Mindy:
Sending those savings to a brokerage account, $1,000, reinvesting in your houses, $2,600, and $4,500 in just savings, which isn’t explained here. So I would like to get into that a little bit. But let’s look at your debt scenario. I’m guessing that your debts are pretty low.

Alexis:
Yeah. Our debt is zero.

Max:
We have no debt. No debt.

Alexis:
Our what?

Max:
Yeah, no debt.

Mindy:
You have no debt. Okay. That by itself is a really impressive statement. However, let’s go look at your assets because they include one, two, three, four, five, six houses. And with zero debt. That includes mortgagees. You have $0 on mortgages in $920,000 worth of real estate.

Max:
Yes.

Alexis:
Yes.

Mindy:
You guys are okay. Why did you call us?

Max:
Well, we’ve been listening for three years.

Alexis:
We’re afraid.

Mindy:
I need to ask you some questions.

Max:
Yeah. We want to bump it up. We want to get better at this.

Mindy:
You won. You’ve already won.

Alexis:
I like to say we’re really lazy. We just plug it all in and we don’t get through any of the work of figuring out leveraging.

Max:
Yes.

Mindy:
Okay. So hold on. Monthly spending is 4,500, real estate income is 4,600. That’s your net real estate income. You won. The end. Now you can just go sell horses for fun.

Scott:
Well, let’s list the rest of their assets just for fun then.

Alexis:
Yeah.

Mindy:
Yeah. Just for fun. That’s not all they have. Yeah. So we have, I’m just going to say various Vanguard holdings in the total of $371,000. There are some Roth IRAs. There are some brokerage accounts. There are some money market accounts that are emergency funds. And the bulk of that is in a Vanguard brokerage account. So that is an after tax brokerage account. Do you have anything in a 401k or a pre-tax account?

Alexis:
No.

Mindy:
Okay. You own a brewery or part of a brewery?

Alexis:
Yeah. We own-

Max:
That’s Alexis. Yeah.

Alexis:
Yeah. We own shares in a brewery out of Atlanta. I bet actually a lot of your, or some of the listeners probably know of Monday Night Brewing, but they were friends of my brother when I was in college and they started brewing beer in their garage. And my brother called me one day and he’s like, “You should give some money to these guys.” And I had some cash on the side and I gave it to him and they’ve made us a ton of … I mean, yeah. Clearly it’s worth a lot now, so it’s pretty cool. So it just shares.

Mindy:
I should probably have some market research on this before I could really comment on that. So Monday Night Brewery, you can send me some beer.

Alexis:
There you go.

Max:
They’re very good.

Mindy:
I like the dark beer.

Alexis:
There you go.

Mindy:
Okay. And in addition to $920,000 worth of real estate and $371,000 in Vanguard holdings, you have $114,000 worth of a brewery that that’s passive income. 100% passive. They never call you for anything. They just send you money every once in a while.

Alexis:
No, we just hold the shares right now. We had a decision a couple months ago to get a payout and we decided to reinvest. So we’re just leaving the money there, letting it reinvest and letting them continue to build. We just keep building our equity.

Max:
Yeah. And it’s a company that we love and we just-

Alexis:
Yeah. Great guys.

Max:
We want to support them as much as we can and we don’t need the money right now so-

Alexis:
We just act like we don’t have it. We just ignore it kind of, and it’s great.

Mindy:
And then you own five horses that are $330,000 total, which is, I think a bit of a misnomer because people who are not looking at your numbers will be like, “Wow. That’s whatever 330 divided by five is.” You have four horses that are worth like 20,000 and one horse that’s worth 250,000. So is that four horses that are one gender and one horse that’s a different gender? Because clearly I’m not a horse expert. I know I’m hiding that really well.

Max:
Yeah. I’m looking at the paper right now and yes, different genders, different age. So the age will give you an idea of the level where they’re at in their training. So the value that we put on is only what we spend on them and as for purchase the horse, or if we raise the horse, how much we spend on it until now. The value of the horses might not be those numbers. It actually probably way higher than 348,000. But it’s what we spend on them pretty much. Yes.

Alexis:
The $250,000 horse though, that is his insured value. So that horse in particular performed really, really well the past year and a half. And so we’ve just consistently upped his insurance. And so now we bought him originally for 25,000 with a partner and now he’s performed really well. We’ve received a lot of paychecks from him and so we’ve just continued to boost up his insurance. So if he-

Max:
He’s a very valuable horse as far he can go on and still win a lot of money. He’s very competitive in the industry that we are in. And also he’s now a sire, which means that we sell his semen because he was very successful. People are interested to breed to him. And so we didn’t have the balance sheet of his work as far as a sire this year yet, but he bred around 70 mares.

Alexis:
We’ll have that at the end of the year.

Max:
And each semen sold for 2,500 and we have a partner on it.

Alexis:
Basically each baby is 2,500 if you buy a breeding.

Max:
If you buy a breeding, you pay 2,500. A part of it, 500 bucks, going to the breeding station who is taking care of that horse and handling the semen and shipping the semen and the rest is between us and our partners.

Scott:
Great. Do you guys own your house?

Alexis:
We actually live for free because I manage a ranch that’s a breeding facility and I have housing in my job. So we don’t pay utilities or anything. We have everything for free.

Max:
And also what we realize is we were very lucky. It’s very popular in the industry that we are in that if you work to train horses a few time, since we are married since seven years now, and since we were married, we never pay for housing.

Alexis:
We’ve lived in some interesting places, for sure.

Max:
Yes. But the gift is yes, we lived in very-

Alexis:
But it’s always been free so we’ve always taken it.

Max:
Yes, we’re very, very grateful.

Scott:
Phenomenal. Okay. We got to spend three to five minutes here and get a condensed version of your money story here in order to get a picture of this because your position’s phenomenal. We have a $1.8 million net worth and you’re telling us that’s way undervaluing your horses with that. You live for free. We’ve got a phenomenal financial situation overall. Really unique jobs and living situation. So could you give us the five minute overview of how your money story transpired?

Alexis:
Yeah. To do it really briefly, I grew up in a family that was in manufacturing. My grandfather, after the war, after World War II, he took over a corrugated box manufacturing business. My whole family was in that for years. So I grew up with a lot of comfort with debt. It seemed like there was always money. I didn’t really know whether there was or not, but it just seemed like there was. And I had zero financial education. My parents were much more worried about my moral status, me being a good person, rather than teaching me about finances, which I appreciate but when you get out of the house, it gets more complicated. So anyway, that business though sold when I was 16 years old. And we all as family members, we did receive a chunk of that company, a little piece.

Alexis:
There was a lot of debt that had to be paid, but I did receive a small piece and that went towards … It went into managed funds. I had no idea about it. Nobody told me what to do with it. It went into managed mutual funds. I took money out of there to pay for college, to build a house because my brother’s an amazing woodworker and I paid for it all in cash. It’s ridiculous thinking back. And then also I started a business. A small business with one of my brothers. Anyway, all that to say that was kind of my story. Really little education. I got a big chunk of cash and I didn’t really know what to do with it. And so I did things that I thought were good. And then I panicked when I started figuring out that was a really bad idea. So I just left it all in the managed funds and then Max … Well, anyway. And then after that, fast forward to when we got married.

Max:
That’s when we start.

Alexis:
I didn’t tell Max anything about my financial status until a week before we got married.

Max:
Yeah. I had no idea.

Alexis:
And we actually talked about just giving away everything and just starting from zero, but we really didn’t even know what to do with where we stood. And we just-

Max:
For two years in your marriage too, we never touched that money.

Alexis:
Yeah. We didn’t touch any of that. And I think it was around $200,000 at that point. So we just left it in managed mutual funds. And then Max’s history with money … You can tell it briefly.

Max:
Yes. It’s very different. I grew up in south of France. My mom was selling insurance and was working in a big company for insurance and my dad was a banker. They didn’t have a lot of money, but they quit their job and took my brother and my sister and buy a piece of property and a building that was going down and they rebuild it. They had huge, huge debt that I felt it through my childhood. It was a big stress in the family.

Alexis:
It was a vineyard. I don’t know if you said that.

Max:
Yes. And it was a vineyard.

Alexis:
Vineyard and bed and breakfast.

Max:
My dad went back to school. We lived very little and debt was very present in our life. And so that’s why also I think to fast forward, that’s why we don’t have debt now also with my combination of being afraid of that and Alexis had a little bit of cash that push us forward. We figured out how to stay out of debt, but we had both zero money education. My only money that I had in high school, around the high school and all this, was me working horses for outside people and buying horses and selling horses.

Alexis:
No. Actually there’s a story that we should tell right now. Because Max always forgets this story. When Max was-

Max:
Oh yeah. To buy my first horse-

Alexis:
10 years old? Were you 10? Eight?

Max:
No. A little younger. I had different jobs, but one of my first business that I built was I love rats. And so I built a breeding rat company.

Alexis:
A breeding program for rats pretty much.

Max:
Yes. So I bred rats like crazy and they sell really good. So I made really good money doing this. And then that gave me enough cash to buy a saddle, a bridal, a pad, and a horse and some fencing. And so when I was 10 year old, I figure out … No. I asked my parents because they had some land. I asked my parents if I could buy a horse and they … No. First, I wanted a horse and my parents approached me and said, That’s a great idea. How you going to get it done?”

Alexis:
We’re not going to help you.

Max:
We can’t help you. So I got it done with the rats and then slowly I quit the rats, buy my first horse and I actually buy the second horse six months later. And then I start flipping horses like crazy.

Alexis:
And then he networked himself with all these pony clubs that wanted horses. And so Max would buy these cheap horses and train them, ride them, and then just sell them to the pony club to these kids who wanted a horse that was broke.

Max:
Yeah. Which kind of pushed me forward. When I was 15 I wanted to come work for this host trainer in US and I didn’t speak English, but my English teacher write an email for me. And I stole the credit card of my parents, bought an airplane ticket, and I paid my parents back obviously, but I didn’t have a credit card so I had to steal it and I wanted to get it done before arguing with them. So I flew to US just on all the money I made on horses in south of France. And then after through high school, I kept on going doing this. And then after high school, I got offered a job with this big horse trainer and I had probably $15,000 coming to US. Yes. So that’s where I started. And then I had a job, but I don’t know if I can say that on the podcast, but I had a job that was not paid, totally illegal, for three years. I had a legal visa, but I was not paid and worked.

Scott:
That’s awesome. And what year did you guys get married?

Max:
2016.

Alexis:
Yeah.

Scott:
Awesome. So most of the wealth beyond that $200,000 in cash you had has been accumulated in the last six years by flipping horses with your salary, living frugally, investing, and then buying debt free real estate.

Max:
Yes.

Alexis:
Yes.

Scott:
Phenomenal. That’s awesome. So how can we help you here today?

Max:
For me, my biggest question is I’m-

Alexis:
One of the biggest arguments in our house and the biggest question we have is about debt.

Max:
Yes, is about debt. I did not like debt. But now that we built some kind of-

Alexis:
Like a nest egg.

Max:
Portfolio, a nest egg that produce enough money, I feel more comfortable to use debt. And to maybe if debt will help us to push us to maybe … In two to five years, we’ll like to have 10 houses, maybe more, and 500,000 in brokerage account. That’s our big goal right now. And so-

Alexis:
We’re also dealing with we’re paying a lot of taxes for high income and we’re trying to figure out how we can incorporate some good debt into our lives so that we can mitigate that a little bit.

Scott:
Let me ask you this. What would you do with the 10 houses from a lifestyle perspective? The 10 houses and the 500,000 in the brokerage account?

Max:
Personally, I will keep doing what I do. Probably a small pace. I have a pretty intense pace at work and also maybe investing more into our own horses. Right now we have five horses, but I would love to have 10, 15 horses.

Alexis:
Basically ride more for yourself, run your own show.

Max:
I have a very good partner that I would love to keep working with. And also just investing harder, maybe in the horses with me and Alexis. Because the horses is great, but it’s high cost and it is very risky.

Alexis:
Extremely risky.

Max:
I mean, a horse can die. I have one right now that is sick and I don’t know how it’s … I’m going to take care of it, do all we can, but we might lose 20,000 right now.

Alexis:
Yeah. He could lose it tonight. It could be gone.

Mindy:
And does insurance pay anything if a horse dies?

Max:
Yes. Yes you do. But I mean, you do ensure a horse. I mean, you do whatever you want to do. You can ensure a horse that costs you 500 bucks. But usually my perspective is they need to show you that they have a lot of talent. They have to show you that it’s a good prospect before I put insurance on them.

Mindy:
So the-

Max:
Which is a little bit risky.

Alexis:
So they have to earn their-

Mindy:
This horse doesn’t have an insurance?

Alexis:
Yes.

Max:
Yes, but he should.

Alexis:
He should.

Max:
He’s very good.

Alexis:
Especially today. Yeah. But that’s always how it goes. Always how it goes. But I think also, Scott, I have a really great position right now and we would love … Max and I both just work a lot of hours all the time. We have a six month old kid and we’re trying to figure out how to chill a little bit, how to become a little bit more … We always talk about quitting our jobs and moving somewhere. And the thing we haven’t tried is just moderation. We haven’t tried moderating the level of work that we’re doing. Because our work is also very physical. We both just have to be out in the elements pretty much all year and it’s a lot.

Max:
And it’s horses. So on Sunday at 8:00 we got a call and we have to go check a horse. And for an hour, we have to figure out how we’re going to do with the kid and go check the horse and take care of it. So it’s figuring out how we can change a little bit the way we’re doing it right now.

Alexis:
One reason we’re doing that is because we do want to continue. We’ve been in this mindset of we got to save for the next house. We got to save for the next house. So we’ve been just working so much to be able to just … We got to keep everything steady so that we can continue to save for this passive income. But now we are looking at the numbers and we’re like, okay, we’ve reached our FI number or whatever, but I guess we’re still just afraid. And there’s lots of things we would do. But Max is from France. We always talk about opening a bakery. We always talk about doing different things outside of the horse business. We do love the horse business a lot.

Max:
And we want to stay involved and keep doing what we do and maybe different.

Alexis:
But anyway, I don’t know if that answers your question a little bit, but we basically just want to double what we’ve done already with the houses so that we feel really safe to make any kind of a gentle transition. Not necessarily quitting our jobs because we both really value work and we want to model that for our children, but we do want to also do other things.

Scott:
Here’s how I would instinctively react. And you can let me know. First, I don’t think twice as many houses is going to help your situation. Because I think you have a mental problem, not a financial problem here. Your houses pay for your expenses.

Alexis:
He said it.

Scott:
Not mental problem like a problem.

Mindy:
You’re not wrong but you can say it nicer.

Scott:
You have a mental block.

Alexis:
We should be paying for this.

Scott:
Sorry. But I think you have like, hey, why am I so worried about money? I got nine paid off rentals. I got a brewery giving me passive income on top of that. My expenses are $4,500 a month. I live for free. And if you wanted to just chill out now, you could do that. That’s totally an option with your current situation. Adding debt to the equation is going to hurt that temporarily, not help it. Because you’re going to refinance your current properties. And if you pull out let’s call it 400 or 500 grand, you’re almost certainly going to get 3000-ish in expenses on top of that. You have to buy more property and it’ll actually almost feel even more tight in the short run. A lot of people’s long term goal is to get to six paid off rental properties on a million dollar portfolio and chill on 4,500 in passive income per month.

Scott:
So it’s almost backwards to go the other way, unless you want to get very, very wealthy, which is not what I’m hearing you say. I’m not hearing you say I want to build a huge net worth. You’re saying I want feel secure. So my next reaction to that is I think there’s a little bit of a cash issue here. You have plenty of cash. Your financial position’s rock solid. But in the case where you have a horse that could go get sick and die and you lose 20 grand or you have all these rental properties in this stuff, I would feel more comfortable if I was sitting on 100 grand in cash that I could just feel very good about, that I don’t have to worry about that to cover my business and personal expenses at a high level.

Scott:
And then after that, you guys are going to stockpile hundreds of thousands of dollars per year. I think you’re very underestimating the potential in your horse flipping business here with that. You told me you’re underestimating that. You have assets that are worth half a million dollars at least in the current horses you have. There’s something there where you could just do that business full-time right now, if you wanted to, or part-time, whatever. And it seems like you love it. You seem like you’re world class at this activity and that this is not something that you’re just going to give up on next year. So it’s not really a financial freedom thing. You’re going to be dealing with horses at 8:00 PM in the evening. Under any circumstance that is realistic based on my take, talking to you for 30 minutes. So how does that feel as an initial diagnosis of your situation?

Alexis:
Go ahead.

Max:
Yeah, I agree. I agree on the fact that yes, I will keep riding horses. I want to. But I also feel like Alexis and I decide to, for example, homeschool our kids. We have one, but would like to have more. And so that will maybe take away the potential of Alexis to have a job full-time. Maybe she will work more with me in my business. So if she quit her job, that means we need to move out of this house we live for free. So we need to go buy a house.

Alexis:
Which we’ve never had housing costs so we’re really afraid of that. Which sounds very funny. I know. But we feel like little kids. It’s like, we do look at our numbers and we’re like, wow, it does look good, but we’ve never had to buy a personal residence. And so we feel like that’s kind of scary. So anyway, maybe this is more a counseling session.

Max:
Yeah. And plus in region right now in Dallas it’s really hard to buy houses. I mean, we’ve been looking a bunch of houses and I mean, for-

Scott:
Well you have sticks. Where are those located?

Alexis:
Yeah. Too far from here.

Scott:
Okay.

Max:
Yeah. Those are located in Kansas. So Wichita and Kansas City.

Alexis:
If there’s anybody in DFW who wants to find us a great duplex, we’d love that.

Max:
Yes. But yes, so buying a house here is very expensive and right now, because I didn’t sell horses and we have, what, 25,000 in our saving in the bank, we’re probably going to have to use debt to go buy one if we find something that we like and feel comfortable to purchase maybe in two months. Now, maybe we’ll have plenty cash to go buy one. But so there’s a part of us that, okay, if we want to maybe do homeschool and Alexis maybe want to wean herself out of her job, because it is a very stressful job, especially with the person she’s working with.

Mindy:
Okay. I have a lot of things to say. My first thing that I’m going to say is your current six paid off properties, rental income is $4,600. Your current expenses are $4,500. 4,600 minus 4,500 is 100 extra dollars. So both of you quit your jobs right now. Number two, Scott is very harsh, but I’m not going to completely disagree with him.

Scott:
That came out wrong. That wasn’t my-

Alexis:
No. We love it.

Max:
No. We want your feedback. I mean, that’s why we have to call.

Mindy:
Third question is you are currently saving $4,500. $1,000 on your rent and $3,500 for Max’s salary. What are you doing with this money? Where does the $1,000 for rent go and where does the $3,500 for Max’s salary go?

Alexis:
Right now that’s going towards … We’ve set up our personal banking so that we have, I don’t know, a bunch of different accounts in there. But we separate it out and we have just general savings that typically goes towards a down payment on … Or not a down payment, but goes towards paying for a house. So we just let that savings bank account grow, grow, grow. And then we also have a separate bank account that is the … It’s for the houses. So the reinvestment amount, that just continues to grow as well. So basically those two in tandem grow. So that 4,500, that’ll just go into our savings and then we’ll transfer out $1,000 to invest in our Vanguard brokerage, which is exclusively VTSAX. We don’t even think about it. We just do it. Try to do it on a monthly basis. And then we let the rental house account and then also our savings account grow and-

Max:
To potentially buy another house.

Alexis:
The thing that it does strap us for … I mean, the thing that is tricky about this tactic is that we will have opportunities that we can’t reach. So for example, I’m always looking. We invested in Wichita, Kansas, which is where I’m from, because I know the market really well. Or I know the neighborhoods. I’ll say that. I know the neighborhoods really well. The other reason we invested in Wichita is that our property management company is incredible there. We love them. So we’ve invested all of it there. I’ll be watching Wichita’s market. We’ll see a house come up or something. But then we look at our savings, we look at our bank account and we’re like, we only have $50,000 in cash right now so we can’t go buy that house. Because we haven’t allowed ourselves to buy on debt. So anyway, Mindy, to answer your question the long way, that savings goes just into a bank account and just sits there until we have enough to buy another house.

Mindy:
Okay. Did you tell us how much is in that bank account?

Alexis:
Right now, 25,000.

Mindy:
That’s good. And then why doesn’t your company buy a horse property for you to live on? Because then your corporation can buy this and Scott correct me if I’m wrong, CPAs, tax pros, correct me if I’m wrong, but if your corporation buys this house and provides you free housing, which is a thing in horse-

Max:
Yes. Business. Industry.

Mindy:
In the horse community. So that’s totally valid in my mind, but definitely check with somebody who knows what they’re talking about. Then the corporate income that you have so much of that you’re paying all these taxes on has now purchased this asset. Scott, is that how assets work with corporations?

Scott:
Yeah, I’m a little more rusty on this so I don’t want to say anything that I’m not sure on. I think you could either buy it as a business and then have the business pay you for that or you could buy it in your personal name or a different entity name and have the business one business own one thing, the actual business of buying and selling horses, and the other business owned the real estate and land on that. But that would be a good thing to do some homework on with your CPA.

Mindy:
With your tax professional, yes, who knows what they’re talking about.

Max:
Yes. But I personally don’t want to go through the headache of owning a ranch. There’s so many ranch built in north Texas that are amazing and I just rent stalls out of it. And actually my partner built an amazing facility and I just rent stalls.

Alexis:
But maybe the company could buy a house.

Max:
Yes. That’s something-

Alexis:
That’s what they’re saying.

Max:
We’re kind of thinking is to buy a house because my employee could live in the house instead of right now, I’m renting a room for him.

Alexis:
Or possibly we could buy a house that has another option for another room and he could live there, we could live in the main house or something like that.

Max:
Yes. Or buying a big enough house that there’s so many people working around horses and we know so many people working in the business that we probably could rent those extra rooms to other people that are involved.

Alexis:
Max is still thinking about making money on it. I’m thinking about us moving into it.

Scott:
But I think that’s the key is you guys are set from a financial position. You’re not going to do anything rash. You think through all these things very carefully. My zooming out would be like, okay, clearly this is more than a business, more than a hobby. It’s a passion that you’ve got for these horses. So set up your life long term to facilitate that in a happy way that you’re going to like. Buy the house you like, that you’re going to be happy in for a long period of time. Maybe go a little higher with that. It’s great if you have a house hack or additional supplemental income, but you can afford to do that at this point to a certain degree. And sure, your rental income alone will no longer pay for all of your expenses at that point, but you still have a million in other assets that you could redeploy at any time for that.

Scott:
And by the way, your horse could get sick and die. One of your five horses. But the stock market can also go down 30%, as can real estate values. So it’s the same risk profile across your asset classes. You just happen to have a lot of wealth concentrated into an alternative asset class, horses, that really well and are probably likely to get a much better ROI on than these other asset classes. So I don’t think there’s anything wrong with that in your situation with that. So I think it’s put down … This goes back to the same advice I feel like we’ve given other … Sit down and say, what do I want to be in three years? What does that look like? What’s a happy life there? Homeschool, nice house. We’ve got a sunset view. I don’t know. Whatever. We’re a very easy horseback ride or drive or ATV or whatever.

Scott:
However you cowboys get around to do your work. We’re very easy with that and we’ve got all these other things. Let’s go make that happen. And surely, even if it’s a little bit of a stretch in the next year or two, my business has such good prospects that even if I take on $300,000 in debt or something like that, I could probably pay it off in two or three years if I am debt averse from the flipping business here, not to mention my salary. So this is how I would be thinking about your situation right here. I think you are in the privileged position of being able to design your dream life. Go do it, and then start living it in the next couple of years would be my opinion on this. And I also like the no debt.

Scott:
I think it’s a personal choice. And I think you guys are thriving in that situation. Why take on a lot of debt for debt’s sake? Take it on if you need it to accelerate your vision by a year or two and then paid off. Because you have the ability to do that with your situation. If you get unlucky for a year or two with the market or whatever, then you’d pay it off in three, four or five. Your income can cash flow it from your wage income, even with one salary plus those properties. So I’m ranting here about how good you guys are doing, but hopefully this is helpful. I think you’re ready to map out exactly how you want to live your day to day life and then you can begin making those changes tomorrow, if you wanted, because of the way you’ve set yourselves up. I do think you’ll feel more comfortable with that as you stockpile closer to six figures in cash though. Is just a little kind of cross the T or dot the I to do. Which is crazy.

Alexis:
We are very curious about … The only thing we’ve done is single family and so we’re really interested to branch into multifamily and we feel like we’d have a little bit less competition in that area, but that’s going to require a lot higher savings rate and everything.

Max:
Yeah. And also to be honest, we start being passionate about real estate. We start really loving it.

Alexis:
Enjoying it a lot.

Max:
We start doing it and we’re like, wow, this is great for us, for our lifestyle. And I don’t know if I want to quit right now. I feel like we’re just starting and I want to keep on moving-

Alexis:
With the real estate.

Max:
Saying, oh yeah, I did a good job on a horse. I made 20,000. Good job Max. No, I want to make a horse that worth 150,000. And the real estate is the same way for me. It’s maybe my competitive part of it is like, well, we tried it to see if it’s going to fit our lifestyle. It did. And now personally, I am that way. I’m like, okay, well what can we do next? How can we-

Alexis:
I think also … I mean, I’m sure I heard it somewhere on y’all’s show or on the real estate show, but that money is like blood. It needs to circulate, it needs to keep moving. And we feel very much that way. We just-

Max:
We never keep money.

Alexis:
We are in the prime years of our working life and we’re like, we want to continue to just go at it and build and not just let our money sit. I feel like our money is kind of lazy right now in those houses. Maybe it’s not, but I feel like it’s just kind of sitting there. It is giving us a little. I love the paychecks that we get from those houses. I’m so grateful. But I’m kind of curious about reviving that.

Max:
Can we be smarter about it?

Alexis:
Yeah. Can we be smarter about it or can we-

Max:
Because we only did it one way.

Scott:
So the goal is less about achieving a lifestyle outcome and more about playing the game of wealth building more optimally.

Max:
Yes.

Scott:
Is that a right way to phrase the goal?

Alexis:
Yeah, I think so.

Scott:
Okay. Well, if that’s the case, you can certainly do that. And then you know where to go. You’ve got $920,000 in equity. You can leverage it probably at a 75 LTV. So you could get close to $700,000 in cash out of that. You’re going to get that at a seven-ish percent interest rate so it’s going to be high. So you’re going to have to be creative with how you use that. I’d start smaller and take out only a chunk of that in the first place when you buy the first or next thing. But yeah, I mean, try it. Buy your $25,000 horse equivalent. The $125,000 house or something like that. Or the $300,000 duplex or the small multi-family properties. Start doing that and then begin accelerating the game like you would in your horse business. Or how I imagine it went for your horse business. But yeah, I think that’s great. It will create stress and more work in that, but you’ll also build wealth. So I think that’s interesting that we got to that’s the goal. It was less about lifestyle, more about playing the game of building wealth.

Mindy:
Okay. I’m going to jump in here because you said game twice. This is not a good game, Scott. Playing the strategic maneuvers, planning out the strategic maneuvers to generate wealth. And then Alexis, you said you feel like your money is lazy. I know that there are people listening right now who are saying, “Oh my goodness, all that money is just sitting there in equity. It’s dead equity. Use that money to generate more money.” But I heard Max say that he is so averse to debt. He doesn’t want any debt. This is a conversation to have. How much debt are you comfortable with, Max? Zero is a valid answer. But if you go and get a bunch of leveraged properties and then you can’t sleep at night, you did not win the game of building wealth. Scott’s game.

Alexis:
Yeah, you’re exactly right.

Mindy:
So buy one with some leverage and see how that makes you feel. Oh my goodness, I have a mortgage. It gives me the heebie jeebies. Pay off the mortgage and then your money isn’t being lazy. It is buying you income and it is growing as the properties appreciate. And that is valid. So it doesn’t have to be leveraged to the hilt.

Alexis:
I appreciate that. And I think it’s a very good point because it is something that I’m much more comfortable thinking about debt than Max is usually. And it’s just a thing in our marriage that we have to figure out. But yeah, I think that the other reality that we look at and everybody’s mortal, but Max’s job is very risky. High risk. He’s going in the round pen with unbroke horses that want to kill him. 20 horses in January. I mean it’s a lot and he’s very safe. He’s very safe and he does a really good job. But that’s part of where we are terrified to lean on the horse business. Because if Max breaks his leg, it’s done. No horses. We have to sell them. We have to get rid of them.

Max:
Or figure out friends that will-

Alexis:
Other training.

Max:
But we have to pay them to ride the horses.

Alexis:
All of a sudden they become liabilities instead of assets. Anyway, that’s part of it also.

Max:
That’s also why we did no debt idea also is because I was very afraid and this is why also we have a 40,000 emergency fund just because if I do break my leg for three months or six months, then I can’t work. But yeah, I think you have a point, Mindy, as for how comfortable I am with debt and maybe go try to buy one house on debt and see how that feel.

Alexis:
Yeah. That’s a good … Yeah, I like that.

Max:
And then if we feel better about it and feel good about it, then we can go where Scott’s saying is-

Alexis:
Leverage more of our portfolio. Yeah.

Max:
Yes. Leverage more of the portfolio.

Mindy:
I also think that you should consult with a tax pro about your tax situation. And you can find CFPs, fee only financial advisors and tax professionals at the xyplanningnetwork.com. This is run by Michael Kitces, who is brilliant and walks on water and knows everything there is to know about money and tax and all the things. And you can find somebody who specializes in your thing. So they specialize in small business or they specialize in self-employment or they specialize in real estate, or there’s a bunch of different options to choose from. And you can really help narrow it down. Couple of episodes that we have are episode, I think 41 or 44 with Kyle Mast, episode 81 with Kyle Mast, and episode 200 with Kyle Mast. I don’t know if you’re sensing a pattern here. I love Kyle Mast. He gives a lot of really great information about how to find a CFP, questions to ask and just things your CFP should be doing. How much it costs. They will go over your financial situation, similar to this, but they will actually have tax knowledge and I think somebody who can help guide you with some tax preparation can help you cut down on the taxes that you’re paying now.

Scott:
I think you’re going to have a hard time with the taxes because you’re flipping property. And so you’re making a lot of money, which is why you’re paying a lot of taxes. So that’s a good problem with that. But there probably are games where if you’re going to have a big loss one year, don’t sell your other or maybe make a big sale that year, for example, to stay in that major bracket. Or can you time certain transactions with the buyer to happen before or after January 1st to make sure that those go into the years that make more sense. And if you have a big one and you don’t want to get into another tax bracket, can you defer payment for a few months to put it into the next calendar year? Those would be games that your tax pro might be able to help you play a little bit better on that front.

Alexis:
Okay.

Max:
Okay.

Alexis:
Very good.

Scott:
But I think the fundamental challenge is not going to go away. You pay a lot of tax because you make a lot of income because you’re good at what you do. So that’s great. Great problem. Yeah. Be thankful for that problem.

Alexis:
Yes. Yeah.

Scott:
I have one more item here that I’ll go back to. I think that you’re not clear on the game you want to play and that’s your fundamental problem. That’s the mental problem I was talking about before. So you’re not sure if you want to maximize your wealth creation or you want to play it safe or whatever. And the grass is always greener because you can have anything you want at this point, but you can’t have all the things that you want, which is always the problem with money, including when you’re a billionaire. So I think when I look at your situation from an outsider, I see a phenomenal situation that I’m envious of with no debt, an awesome, unique career that’s going on there and the ability to do all these other things. And so I would say it’s tempting to play the game of building that wealth, but you guys are already rich.

Scott:
You’re likely to get richer. And if that leg did break or you had a problem like that, you’d be fine. You’d sell off those horses and you’d find another way to make money with your mind instead of your body. And you’re still working and you’re going to be in good shape. That might not be true if you went too far in over your skis in certain directions with that. So I would say the grass is not always greener in those other cases would be a little bit of a warning there. And I would also just encourage you, in two years you could make enough from flipping horses to buy the house of your dreams, live in it right next to where you want to be, paid off as another rental property and be chilling with your complete debt free scenario and more wealth there with that. So all of this is within reach. It’s just a matter of what you want. And I would just warn you that the grass may not be greener on the leveraged side of the real estate investing equation. You’ve certainly won according to a lot of rule books already.

Mindy:
Okay. Alexis and Max, this was a lot of fun. I learned a lot about horses. I didn’t know anything about horses before, so I appreciate your time today. Thank you so much for joining us.

Max:
Thank you.

Alexis:
Thank you guys so much.

Mindy:
We’ll talk to you soon.

Alexis:
Thank you.

Max:
Bye-bye.

Alexis:
Scott, that was Max and Alexis and they have a fabulous story of buying horses from age 10. You know what I bought when I was 10? I bought a candy bar. Did you buy horses when you were 10 Scott?

Scott:
Nope. I didn’t buy anything at age 10. Soccer cleats.

Mindy:
Soccer cleats, rugby pads or whatever. I don’t know. Rugby balls.

Scott:
Or football.

Mindy:
I don’t know how to play rugby.

Scott:
I guess. Yeah.

Mindy:
Holy cow. I do think you hit the nail on the head when you so eloquently posted this is a mental problem.

Scott:
Yeah.

Mindy:
It is. But I mean, that’s a really valid point. This is something that I have tried to verbalize so many different times. Personal finance is a personal journey and if you don’t like debt, then don’t go get debt. It doesn’t matter that you could be making more with your money. It doesn’t matter that you could be optimizing your finances in a different way. If you can’t sleep at night, what does it matter?

Scott:
Yeah. I mean, at some point … It’s hard to find a couple that is in better financial shape. I mean, maybe you’ve got entrepreneurs or rock stars that have a more stable financial position. But I mean, this is as good as good gets in terms of what we see on this show. A $1.7 million portfolio. You and every asset is conservatively underwritten. You know they’re underestimating the value of all their real estate. They’re underestimate the value of all their horses. They’re underestimating all the value of other accounts. So it’s a really conservative position. They spend $4,500 a month. You know that’s an overstatement and they’ve got buckets for CapEx appropriately categorized with that. And there’s still a, what do I do next? Am I ready to take this plunge? Am I ready to do these things? And so I think it’s a good perspective shift to say, no, no, no, I’ve won.

Scott:
The grass is always greener. I can always be optimizing for ROI. I can take my 1.7 or whatever, two and a half million dollar net worth whatever. Somewhere between those two numbers is what the real net worth is. And I can redeploy it into something that’s likely to generate more returns, but it’s going to require me to watch it much more carefully, it’s going to have much more leverage on it, may give me less freedom. Or I can be very happy with the current situation. I think it’s all about what you want. And in post recording, we talked to them a little bit privately and it came out one of the things that I think would be really helpful for them is that exercise of the money date and the vision setting. They need to go somewhere with a beautiful view, nice weather, have their cup of coffee.

Scott:
And around 10:00 AM, when they’re feeling at their peak energy, just say, “What do we want to do? Do we want to start leveraging up our real estate and building a big thing here? Do we want to buy a nice house and set up for that? Do we want to just keep doing what we’re doing? What does good look like in terms of our life? And how does that inform the decisions about what we want to do with our money downstream?” Because they can do anything they want right now and have that luxury and they just need to pick what it is that they want to do. They can’t do all the things. Paula Pant says afford anything but not everything. They can do anything they want. They can’t do everything.

Mindy:
They can kind of afford everything. But yes, they are in a great position. And I think that the exercises and homework that you gave them to do are going to be hugely beneficial to them and to anybody listening who is in the same position. Oh, I’m stuck. What do I do next? Well, go back to the basics. What is it that you want? What do you want in five years? What do you want in 10 years? And map out a plan to get there or work backwards. You want this, how do you get there? And I think that’s really great advice, Scott. The money date. I love that. I still love that advice every single time you give it.

Scott:
And I’ll rant further here. Max in particular is the kind of guy who’s like, “When I was eight years old I bought a bunch of rats and bred them so I could buy a horse. And then I never stopped doing that. I did a thousand horses that I’ve broken in my life, starting from age 10. When I was 15, I flew across the Atlantic ocean to go and work for somebody who probably knew their stuff in that field to pursue my passion.” It’ll never get easy. I don’t think we’ll find another person on this show who is more certain of their passion in life than Max from that. And there’s still, what do I do next with my money and my portfolio with it. So the problem never ends, even at these extreme ends where we’ve got a debt free finalized future state portfolio, fully capable of sustaining FI forever and a clear passion that we want to go after. It’s still hard for Max and Alexis. It’s going to be hard for you too. It’s going to be hard for everybody. Which is why I think it’s helpful to talk about it and hear those perspectives.

Mindy:
Absolutely. Okay. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 326 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, get on the bus octopus.

 

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In This Episode We Cover

  • Flipping horses and the astounding money this unique investment can make
  • Rental property investing and why being debt-free isn’t such a bad thing
  • Sheltering business taxes so you can keep more income at the end of the year
  • When to use leverage to buy real estate vs. buying rentals in cash
  • What to do with your “lazy money” even if you’ve already hit financial freedom
  • Getting clear on your financial goals so you can work less and enjoy your wealth
  • And So Much More!

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