Mindy: I’m Coastfi. How can I shave 24 years off of my retirement? Am I on track? Let’s find out.
Mindy: Hello, hello, hello and welcome to the Bigger Pockets Money Podcast. My name is Mindy Jensen and in the back half of this episode, I am going to be joined by David Green, the host of the Bigger Pockets real estate podcast. Today’s guest has a solid foundation with some questions about how to handle his real estate portfolio. Hence, David Green.
Mindy: Here at Bigger Pockets, we have a goal of creating 1 million millionaires, which means you are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.
Mindy: Today, we’re speaking with Derek who is Coastfi and looking for some advice for shortening his time to retirement.
Mindy: Before we get into Derek’s Finance Friday, a special thanks to our show sponsor Bam Capital, your path to generational wealth with premier real estate opportunities. See why more than 1,000 investors have invested with Bam Capital at biggerpockets.com/bam. That’s biggerpockets.com/bm.
Mindy: Derek, welcome to the Bigger Pockets Money podcast. I am so excited to talk to you today.
Guest: Thanks, likewise. I’m glad to be here.
Mindy: So, this episode comes out of our community and it shows the power of our community. I found Derek’s Facebook post asking this question. How do I get $80,000 annually with my current situation? And then he shared a bunch of numbers in our Facebook group. If you’re not a member of our Facebook group, please go join facebook.com/groups/bpmoney where you can ask questions, get answers, share your experience, you know how Facebook works. So, Derek is a 43-year-old man with a family of six. He has four children with a current net worth of about $1.7 million. A little bit later in the show, we’re going to bring in David Green from the real estate podcast and have him give some of his own advice about Derek’s portfolio.
Mindy: So, Derek, let’s look at your money story. How did you go from birth to $1.7 million net worth?
Guest: It happen overnight.
Mindy: Bam.
Guest: Yeah. No, I think at one point, um, I know my my mother, she was always a, uh, self-employed, so I always saw her working hard and working out on her business as a translator. And then, um, I guess growing up at one point, I I ended up going to um, like a free uh seminar that T. Harv Ecker put together called Millionaire Mind. And when I went to that seminar, I met someone there who told me, oh, I just bought a duplex and how they they love this new book called Rich Dad Poor Dead. I didn’t know what a duplex was at the time, but uh, once I read that book, I definitely wanted a duplex and and lots of them because I wanted more passive income.
Mindy: Okay, and what is your goal?
Guest: Uh, I think my goal right now is to to try and generate uh an 80,000 in passive income per year. I think that would be ideal. I mean, I’m not looking to retire yet, but I think that would be great to have a a sense of of freedom and being able to to spend more time with family and and do what I want.
Mindy: And where did you come up with this $80,000 number?
Guest: I think just looking at our our yearly expenses and and what it would take in terms of a of budgeting and and being able to to live off that and that seemed like a a comfortable number for us that we could we could make work.
Mindy: Okay. So, are you interested in increasing your rental property portfolio or are you looking more towards the stock market side or a combination of both?
Guest: I think a, uh, a combination of both, but I’ve generally been more interested in and being hands on and with with real estate and like the idea of the cash flow that I can generate. I mean, a lot of my part of my equity is in in my 401k, but I can’t really do much with that until I’m of a traditional retirement age. So I’m looking at a way to to bridge that gap and hopefully enjoy that a bit sooner.
Mindy: Well, I am going to send you to the Mad Ficientist and his article, how to access retirement funds early because you can access your retirement funds early. There’s, I mean, there’s just taking money out. You’re going to pay an early penalty withdrawal, which is 10%, plus you’re paying taxes on whatever you’re pulling out if it’s a traditional 401K. Um, another thing to do is the Roth conversion letter. After you separate from service with this particular company, you can start rolling over your, um, 401k funds into a Roth IRA and you will pay taxes on that. You will not pay penalties on that. I don’t really like to pay penalties because it’s my money and I want it now. Do you know that JG Wentworth commercial? Is that just a local thing here?
Guest: Probably local.
Mindy: There’s also something called the 72T, which is substantially equal periodic payment. So essentially you’re taking X number of dollars out now. Again, you’re paying taxes on it, but not paying a penalty, and you’re doing that every single year. You can, uh, and you, there’s no age limit on that. You just have to repeat it every single year. So, you know, you don’t want to take out 100,000 this year if you know you’re only going to need 20 every other year, you’ll be taking 100,000 out every single year. Um, so that and that is something I learned from my friend Eric Cooper is that you can actually do more than 172T. So you start off, you know, maybe on the lower side of what you’re looking at. Oh, I want $10,000. Great, you start off with 10,000 and after a couple of years, you’re like, oh, 10,000 doesn’t really do it. I probably need another 10. Then you can either change it, but you can only change it once, or you can just add another one. So I would reserve the change for if you need to dip down and add another one and just start taking out um money that way. So that I don’t want to derive, you know, dive down a complete different rabbit hole, but I did want to say that there is the opportunity to access your retirement funds early. And Mr. Med Ficientist does a beautiful job talking about it. So I’m going to send that to you. I’ll also keep it in the show notes so that everybody can read that article. Let’s look at your real estate portfolio. You bought one property every three years to get to six properties with 12 units. That’s really impressive and you’re making $40,000 a year on that. That’s nothing to sneeze at.
Guest: Yeah, it’s definitely, uh, I’ve been slow and steady, I guess, like, like the turtle, but, yeah, I’m trying to make a, make a move every few years it seems and it seems to have paid off. Um, my first property I I moved into uh, I was in a more expensive like apartment renting like a thousand a month and then I I spent a couple years moving to a cheaper apartment to help save up that money to to buy that first fourplex, which I bought with a a 203K FHA loan just 3 and a half percent down, which let me borrow some money to help fix up the place and that for me that was that was what got things going for me and really helped me, um, cover my living cost.
Mindy: And how are you saving for your down payments?
Guest: Um, I think at that point, I was just saving into uh a traditional savings account. I think it was like ING direct back then or whatever it was called. And um, yeah, saving money there and well at the same time trying to save at least the the minimum or 10% or so into my 401K.
Mindy: Okay, that’s awesome. Having a 401k is a great opportunity for, you know, your retirement fund or for accessing like I said, you can access that fund early. Um, did you live in all of your properties? Did you buy them as owner occupied?
Guest: Uh, no, I just just the first one. So just the first one, the four unit. I lived in the in the first four unit and rented out the other ones. That gave me some good experience of being a landlord. And after that, it was, um, just buying, um, mostly properties that I saw on the on the market on the MLS.
Mindy: I like to say the MLS is not dead yet. And if you take the initials from that, it spells out Mindy. So when you’re thinking of looking for properties, think Mindy. Uh, how did you fund your short-term rental?
Guest: Uh, short-term rental. So I had, uh, we saw a property that that came up on the on the market that was, um, I think it was only for like 50,000 and it was near ski area that we like to to frequent pretty often. And then at that time I what we had for didn’t have that much I think in in cash to buy, but we had our contributions in our Roth IRA at the time which would have helped us cover the to buy this property in cash. So I took money from our contributions in our Roth Diary and used that to to buy this property.
Mindy: And that makes me a little nervous. How do you feel about that decision after you have made it?
Guest: Uh, well, we took on a property that was a a lot of work to begin with. So just that alone was kind of made us weary of are we doing the right thing or not. But um, and also seeing how the the market’s been climbing, um, recently is also made me second guest, but uh, I think uh, I think we’re feeling better with it and I’ll let you know more once we see how it performs once this key season starts because that’s what we’re hoping on.
Mindy: yeah, there’s there’s this idea that you can pull the principle from your Roth IRA in order to fund certain purchases like buying a house or paying for college or I think medical expenses are one of them. But there’s a payoff. I mean it sounds really awesome. Oh, I’m going to do this. But then the there’s the opportunity cost of your money’s no that money is no longer in the stock market. All the gains from however long you’ve had your money in your Roth IRA are still in your Roth IRA. You can’t actually withdraw those. So, I do I do like this experiment because you you were able to purchase this property for $50,000. It’s now worth $150,000. So that’s a good amount of gain, but, you know, we all make these decisions. Oh, I’m going to sell this stock to buy that stock or I’m going to sell this ETF to buy that index fund. And sometimes it works out and sometimes it doesn’t and you just you make the best decision with the information you have at the time. Um, I’ve done the same thing and you know, hindsight is always 2020, but you don’t have that that luxury right now, which is fine. Like it’s not like you just pulled it all out to go gamble on red at the roulette table. Like this you bought another asset. You sold one investment to buy another investment. So, um, which is, you know, that’s an interesting problem to be facing. You have money and now you have money in a different place. So we’ll see what happens. This shows the power of taking small incremental steps and when we come back, I want to hear more about your life currently and some of your numbers.
Mindy: Welcome back. Before we get into some actionable advice, we want to help our listeners understand more of your situation. So, what does your life look like currently?
Guest: Uh, so right now, I’m I’m living in Canada. We we recently moved, um, a couple years ago from from Vermont during the pandemic because we wanted to be closer to uh my wife’s family here. So we made that move. Um, so adapting to to life in Canada has been uh interesting, but uh but it’s also been good too. There’s ups and downs, I guess, with any with any move. Um, one thing that I liked about moving here was that the education is the costs are a lot more affordable than than they are in the US. So I don’t really have to worry too much about how are we going to afford my child’s education if they’re going to go to go to college. And also health care too. I don’t have to um worry about the the rising health care costs because that’s covered here. Um, so my three three of my youngest children, my older children, they were born in the US, but then we moved to Canada and we had my youngest child. He was born in Canada, so that was nice to to see the the health care system working there and not to have any out of pocket costs.
Mindy: Kids are very expensive, especially right at the very beginning. Um, so one thing that you’re trading off in Canada for their amazing health care and their, you know, for the ability to get amazing health care and, um, amazing money for college or college costs is you don’t have fixed interest rates on your mortgage. Is that right?
Guest: Right, yeah. So that was something that uh, when we first moved in here, like variable interest rate is something that everyone was doing here. The rates were so low like around one and a half something percent. So, um, it’s a lot of it’s and it’s you can only lock it in for like for five years. They do a fixed rate and then you have to get a new mortgage so they do 25-year terms here and then every five years you have to either renegotiate or something like that. So that’s been an adaptation here on our side.
Mindy: Yeah, how does that feel? Do you think you’re going to stay in Canada long-term even with this this tradeoff because like what are interest rates right now in Canada?
Guest: Um, I’m not sure. I think they’re they’re kind of similar to where they are in the states. maybe around um 6, 7% depending on on where, but yeah, I think it’s where they are right now.
Mindy: Yeah. But then they they go up if rates go up, your interest rate goes up on your house. Uh let’s you mentioned that you have four kids. Let’s look at your finances. What’s your income?
Guest: Uh so right now our household income is around a little over 100,000 between um my wife and I and um working a full-time job myself and uh my wife has a self-employment income and I have some self-employment income as well.
Mindy: Ooh, is any of that American self-employment income? Or is it all Canadian?
Guest: Uh, yes, most of it most of our clients are are still based in the US, so so it is yeah, I guess US US based.
Mindy: Okay, so I’m going to give you a homework assignment to look into the self-directed solo 401K. You have to have self-employment income in order to qualify for that. But that could be a way to invest in real estate. Um, it’s not going to help with your cash flow goal because everything it’s like a a traditional investment. Let’s say in your 401K, you invest in Apple. All the gains in Apple go back into your 401k. So the same with real estate. It’s owned by your 401k. You invest there and all the money comes back into the 401k. But it could boost your 401k balance. So that’s something to, like I said, it’s a homework assignment, you can go ahead and and dive into that a little bit more. What are your annual expenses?
Guest: Uh right now that they’re about around 80 to 90,000 a year. Big one I guess is grocery because my kids eat a lot and doesn’t look like that’s stopping anytime soon.
Mindy: It’s not.
Guest: No. No. No. They all eat like truckers. Um, but yeah, I’m mortgage payments is around 15,000 uh annually. Um, uh, children, child care and activities around 5,000, restaurant and entertainment around 5,000. Um, but yeah, we try to try to keep our expenses as low as possible, um, where we can, but I think that’s kind of where I was looking to to try and generate that 80,000 in passive income because I think that’s something that would be manageable and would cover our expenses.
Mindy: Yeah, looking at your uh your expenses, the only thing that really jumps out to me is the business miscellaneous, the um the tax payment. I don’t know if that is related to the business or related to your income. If it’s related to the business, I would like to see business expenses separated from your personal expenses because they’re business expenses, they’re not personal expenses. Um there was one other, office expenses. So office expenses at 3,000, business expenses at 7,000, there’s 10,000 that we’re pulling out and now you’re back down to that 80,000 that you were talking about, which makes sense that that’s your goal. Um I have spoken to some people who are like, ‘Oh yeah, I currently spend 40 but I want 80,000 in passive income.’ Okay, well that’s great. So do I, but also uh you don’t, you know, maybe you’re you’re chasing more money than you need, but this makes a lot of sense. And I mean you have four kids. You’re going to have more expenses than somebody that has two kids. Um, so what does your asset?
Guest: Uh, right now the majority of it is tied up in in real estate. Um I think about two two or 300 is in um in our primary residents and then uh about 300 or so in retirement accounts and then the the remaining is in uh small multi-families for the most part in Connecticut and Vermont. I was also wondering Mindy your thoughts about um I’m coastfy or not or like do I need to contribute more to my 401k at this point or what your thoughts are on that portfolio where it stands?
Mindy: Yeah, so what I like about what you have, you’re 43 and you have $300,000 in a 401k. This is an American 401k.
Guest: Right.
Mindy: Okay. So, you can estimate based on the rule of 72, which has nothing to do with 72T. Uh you can estimate that your portfolio will double approximately every eight-ish years. So at age 51, you should have about 600,000 in your 401k. At age 59, you’re going to be looking at about 1.2. Of course, past performance is not indicative of future gains. However, the 4% rule says that if you have a million in that worth, you will be comfortable pulling out $40,000 a year. So that right there could be at age 59, your additional $40,000. There’s a lot of different options for you. I and that’s if you don’t put any more money into your 401k. I love the 401k because it reduces my taxable income. I’m a little bit older than you and my taxable income is something I want to pull down right now. Um so I’m contributing to a traditional 401k. If that’s not really a big concern for you, you could contribute to a Roth 401k if your company offers it, which allows for the same contribution limits, which is approximately $23,000 in well, it is $23,000 in 2024 and it typically goes up every year or every other year. So if you’re contributing that much to a Roth product, then you’re paying taxes now at your income. So, you know, that’s something to take into consideration. But you’re paying taxes now and then it’s growing tax-free. So when you pull it out at age 59, you are, um, you’re not paying any taxes on that. So that I love a good Roth product, but my current goals are a little different. Um but that’s me personally. You’re not living my same life, so you can make your own decisions. But I think that that’s something to keep in mind and, you know, whatever you choose, it’s still 59 and a half or at age 59, you’re going to be looking at about 1.6 million. Again, past performance is not indicative of future gains, so don’t call me back in 16 years and be like, you said.
Mindy: Well, we’ve heard some really great things already. Let’s see if we can shave off 16 years by gaining an additional $40,000 in annual income.
Mindy: All right, welcome back to the show. So, our goal here is to reach fire in about seven years and to do that, we would need to generate approximately another $40,000. Let’s see what we can optimize to cut retirement down from 24 years to seven.
Mindy: Derek, you posted in our Facebook group that you wanted to get to early retirement and $80,000 in cash flow a lot sooner than traditional retirement age. What is it that’s driving you to do this?
Guest: I guess see my kids grow up and uh time’s kind of flying by and they’re not getting any smaller and I’m getting older. so I’d rather uh like to to see myself in a place where I can retire if I want to earlier or at least be financially independent where I can decide on my own terms if I can uh if I work or decide to travel with them or try and enjoy things a little more.
Mindy: And you have a small amount of your net worth in a uh 401k. You’ve got a little bit in a Roth IRA, uh some cash, which is awesome, but the bulk of your uh retirement plan or your assets is in real estate. And we have brought on my best friend David Green from the Bigger Pockets Real Estate podcast to talk specifically about your portfolio. So David, thank you for joining me today.
Guest 2: It is my pleasure. Thanks for calling me in.
Mindy: Uh so let’s start off. Derek, your first question was, what are my best options to get to $80,000 a year in passive income by age 50 or sooner. So, my first thought is, well, buy more rental properties. Um but we are in a market where prices have gone up, interest rates have gone up, and finding a a great cash flowing deal can be difficult. And with cash flow being your primary driver, I want to go in and look at your portfolio itself to see if there’s anything that may be not be the best use of your money.
Guest 2: David, what do you think about his portfolio?
Guest 2: He has six properties with 13 total units including one short-term rental.
Guest 2: First question, Derek. Well, actually, my first question before my first question, I see you have a family of six. Uh, we could tackle these expenses first. Are you willing to auction off any of these children because they’re expensive.
Guest: Ooh. At times yes, but I think I’ll hold on to them.
Guest 2: That’s going to make things a little tougher, but that’s okay. That’s why you got Mindy here. All right. Your short-term rental. Do you enjoy managing it? Do you hate managing it? Are you willing to have more of those?
Guest: Uh, that I’m still getting into that process. We kind of rush to get it up and running for like the eclipse cuz it was kind of right in line for the eclipse. It was a popular weekend. very in demand. But now it’s the slow season in Vermont. So I’m kind of waiting to see how things pick up once the once the ski season starts here for Vermont.
Guest 2: Okay. The reason I ask is you can increase cash flow by moving equity from traditional rentals to short-term rentals in most cases, but you’re increasing workload also. So if the goal is to have zero work, we don’t want to take that road. If the goal is to have more flexible work where you don’t want to be communiting to an office, you want to build a stay home, you can manage a short-term rental from your house. So when you first when we when we tackle it from that perspective, are you open to managing short-term rentals or hiring an assistant who could help you manage short-term rentals?
Guest: Yeah, I think that’s something that I’m open to. I mean, I’m not looking to retire and do nothing, but some more flexibility in my life is kind of uh what I’m getting at and then thinking more cash flow would be the the obvious answer, but but yeah, another SDR could be another another option.
Guest 2: Okay, but the SDR you have now, you it’s newer, so you don’t have a lot of experience with it, right?
Guest: Right, yeah. Yeah, it’s new to me. I’m used to long-term rentals for the small multi-families.
Guest 2: And are you managing those yourself as well?
Guest: Uh, manage the one in Vermont we used to live there. It has like an in-law apartment. so I manage that one myself using Hemlane, uh, which has been great so far. And then I’ve got four rental properties um in Connecticut that I that I grew that portfolio when I used to live there and I help I put that under property management.
Guest 2: Here’s what we’re looking to do. We want to take your property that has the most equity or the properties that have the most equity and look at your return on equity and compare that to a return on investment. Have you done that yet?
Guest: Uh, not specifically, but I have I have been looking at possibly like a heloc on the STR that I recently bought since we bought that with cash and so that has no mortgage on it right now.
Guest 2: But you are familiar with the concept of return on equity.
Guest: Right, yeah, yeah, definitely.
Guest 2: Okay, so for the audience, when we want to figure out how efficient an investment opportunity looks like, we calculate the return on investment. So we take the cash flow that it would make in a year, we divide that by the money we’d have to put into it, which is usually the down payment, the closing cost and rehab or furniture, whatever we’re going to do. And the number that you get is a percentage of the total number you put in. and obviously, the higher that percentage is, the better. So if you get a 10% cash on cash return, we use that metric to compare this investment versus another one that might produce a 14% cash on cash return. So we know the money will be more efficiently used with the higher number from a cash flow perspective. Well, one thing investors don’t do once they’ve owned a property for 5, six, seven, eight years is they don’t think about the fact that the equity might have grown at a faster rate than what the cash flow did. So rents go up but they may not be going up at the same speed or pace that the equity in the property is. So you buy a property for $200,000, it gets you a 10% cash on cash return. 5 years of rent increases later, you’re at a 20% cash on cash return and you think you’re crushing it. But the property went from $200,000 to $500,000. You’ve got $300,000 of equity. If you divided that same amount of cash flow you make in a year by the equity in the property, not by your initial investment, you often find you’re sitting at a 1 2 3% return on the equity, which means your current equity is lazy. It’s not working very hard for you. And uh Mindy, I know you like it too. The richest man in Babylon, one of our favorite books. talks all the time, you want those little soldiers of yours working hard. You don’t want lazy equity that’s just sitting on your couch, eating your cheetos and drinking your mountain do without getting out there and putting in a solid eight hours of work, right? So if we looked at your portfolio right now, do you have an idea which of your assets have the most equity and the least return?
Guest: Um yeah, I have a I have a general idea. I know some of them are currently have like rents that are below market, um, which some raising rents might get a better return, but I’m not sure if it’ll bring me all the way there to having a an adequate return on equity. But it is definitely a great point that you’re you’re mentioning and something to to re-evaluate.
Guest 2: Yeah, and it will also change the way that you look at your portfolio. So we all have our favorites, okay? I don’t have any kids. I’m sure parents, maybe they have that favorite kid, right? This one gives me the least headache, but when you start to look at the return on equity, you start to get an idea of what property was your favorite, now maybe it’s not. You’re like, oh, I love this charming little bungalow mid-century modern property and you have these memories that you made in that house and then you’re like, this little lazy son of a gun isn’t doing anything, right? Like, I need to sell this one and move that $300,000 into other properties. Now, we do traditionally talk on this podcast about increasing cash flow by increasing the properties. However, in practical terms, sometimes that does the opposite for your cash flow. And here’s why I say that, when you first buy a property, you tend to also be buying a lot of deferred maintenance. Okay? Nobody sells their car when it’s running amazing and it’s giving them no problems. Think about every time that you’ve ever had the thought, I want to sell this car, okay? Taking out the fact, maybe you had a kid, you need a bigger one. When’s the time that we think, hey, I think I need to sell this car? Mindy?
Mindy: Oh, I uh am not the right person to ask because I have the same car since 2003.
Guest 2: Your car’s awesome, by the way. You gave me a ride in that car and it’s super bitchin. I really liked it. All right, Derek, have you ever had the thought I need to sell this car? What was going on?
Guest: Uh I think it was just getting too much too much maintenance and like the the cost was just too high.
Guest 2: It’s a natural human response. Homes can work the same way. So when you first buy a house, you are often buying all the previous owner’s deferred maintenance and then there’s some weird rule of real estate where that air conditioner that was on its last legs that they were barely hanging on, you get in the house, you start using it more than it was used to being used and boom, the thing craps out, right? Or that roof leak becomes a bigger problem and now two, three years of cash flow is gone as you have to dump it into stabilizing the asset. this is even worse if you buy a property that has tenants in it, okay? So I just made it a rule in my own investing, the first year I own a property, if I break even, I’m happy. That’s a win. I expect I’m going to lose money the first year that I own a property because you’re just going to see all the stuff that slipped through the cracks of your due diligence, even the best due diligence. you can’t account for everything that can go wrong with a property. So scaling your portfolio in the short term will usually make you less cash flow, but in the long term it will make you more cash flow and it will make you more equity. That’s why it’s going to build your wealth. So part of what we’re also going to talk about is what your timeline like. So are we talking about trying to get you like out of not working in the next year, the next five years, the next 10 years? What’s your thoughts?
Guest: Uh well, my thoughts like conservatively, I think like seven years, 50 sounds like a good number to to reach for. I’m 43 right now. But I’m sure my wife would say now, but I’d rather uh try and find somewhere in the middle, you know?
Guest 2: Okay, if you could find a way and and what’s the current job you have right now?
Guest: Uh right now I do uh SEO SEO work for SEO specialist.
Guest 2: All right, so I don’t know if you’re open to this advice, but the advice I give a lot of people in your situation is sometimes when we say I don’t want to work, what we’re actually saying is I don’t want to work this job. I don’t want to work under these circumstances. I don’t want to commute. Uh I don’t like this boss. This is mind-numbing, soul draining work. But we’re not saying I don’t want to labor. I don’t want to spend energy. It’s more just I would rather do it with something else, okay? And I say this for you and everybody who’s listening. I am not a proponent of get a couple rentals and quit your W2 and just, you know, throw a middle finger to the world and say, look at me. I am a proponent of get a couple rentals, get some stability, get a little bit of a buffer, and move your energy just like we’re talking about moving your equity from a job you hate to a career, a job, a business, a something that you would enjoy or at least doesn’t suck super bad. Okay? And then maybe you do it again into something else, right? So for real estate investors that love real estate, I’m I’m frequently telling them like, do you love people? Get your real estate agent sales license. We need better agents in the world. There’s not very many. Do you like numbers? Become a CPA? Do you like solving problems, become a loan officer? Do you like design? Do you like construction? Do you like bookkeeping? There are so many knees within the world of real estate that you can get a 1099 position, start your own business, work for a real estate investor. It’s not full-blown W2, I’m a slave to someone else, but it’s also not complete lack of any stability at all. It’s a more happy medium that exposes you to the things that you enjoy doing, which I’m assuming is real estate if we’re talking on bigger pockets. So that’s another thing that doesn’t have anything to do with moving your equity around that I’d like for you to think about. What if you started your own business and did SEO work for other people once we got you to that $80,000 a year, right? Now, if it fails, that’s okay. You still got money coming in, but if you enjoy it, it could actually turn into where you’re making $80,000 a year in your business and $80,000 a year from your rentals and now we’re having better, cooler conversations. But again, going to your portfolio, what we’re really looking at is what’s your laziest equity? So, if you were to call out a couple properties, which ones do you think have the most equity that’s making you the least cash flow?
Guest: Uh I’d say like property number two perhaps and um that’s a two family. And uh let’s see, what else? And property number four.
Mindy: Okay, so property two has about 110,000 in equity, property four 186. Is that right?
Guest: Right, yep.
Guest 2: Okay, and so we could sell those, that would give you around $250,000 of equity to redeploy. I’m trying to see what the cash flow is on those combined right now.
Guest: Those those are the ones that are below market. So like I could probably get another five 700 a month for each one of those if that changes anything.
Guest 2: Do you haven’t a market that you like where you could buy a fourplex or a small multifamily?
Guest: Uh the place where I bought those first four properties in Connecticut, um, has been um, been pretty good. I mean it’s been profitable with it, but I just don’t know with the way things are, this um, with the market and rates and how to approach things any differently than what it was like.
Mindy: Have you been looking at listings?
Guest: Uh, not not really in that area now, not lately anyways.
Mindy: If you have a real estate agent that you like in that area, I would reach out to them and just ask them to send you listings broad spectrum. Like give them the very bare minimum uh requirements so you get the most listings in your inbox and then just start looking and seeing, ‘Oh I didn’t know properties were now $4 million, never mind.’ Or, ‘Hey properties are still $70,000, I can get in on this.’ Or, you know, something in between, obviously, I’m making those numbers up, but having an idea of that market and then you can say, yes I want to sell these properties where my equity is just sitting there kind of doing nothing or you know, have you considered raising the rent? And why are they so far below market? You said you could get another five or seven hundred for each of these properties. There’s two units in each of these properties. So is it raising the rent 250 on each tenant? Is that realistic?
Guest: Yeah, that’s kind of the route I’m going with one of the properties. Um maybe not as high as that, but uh I’m going to see if I can raise rents and if it forces some tenants to leave, then maybe I’ll do a turnover and get potentially more.
Mindy: But what what’s the reason they fell so low, Derek? Because you have a property manager in Connecticut, right?
Guest: Just a long-term tenant that I have yeah. I don’t think they’ve been raising rents like every year kind of thing.
Guest 2: Bro, I just found out in Arizona, I have five properties being managed by one person. I thought they were great because I never hear about it. He hasn’t raised the rent in five years.
Guest: Right.
Guest 2: And it’s been a lot in Arizona of rents going up. So I found that out, he’s now fired. I hired a person to work for me to manage my own properties. She’s going to be managing those now and we’re going to make sure that that doesn’t happen again. But what I was just thinking with you is if you fired your property managers, hired an in-house person to help oversee those and potential short-term rentals that you could be taking on, have you looked at the management fees that you’d be saving and if that would offset like a virtual assistant or a part-time assistant that you could hire to help you manage your properties and then you could also take on more short-term rentals with this additional help?
Guest: Yeah, that’s something that someone else mentioned in the in the comments in the in the forum, but I think uh yeah, it’s like around 11 or 12,000, maybe 10,000 potentially and that’s not including um like leasing fees and that sort of thing. So that’s something I should definitely look at.
Guest 2: Let’s say that you’re at like with leasing fees those are expensive. Let’s say you’re at like $15,000 for management and you bring someone on part-time that you could pay like $35, $40,000 or something. Half their salary almost is covered just by that. Now if you move that $250,000 in equity that we talked about into two or three short-term rentals and you have this person screening calls from tenants before they get to you, you have this person helping to coordinate with the cleaners. You’re not taking on a ton of the work, right? We were just talking about this on C and Green the other day. It’s not necessarily the time spent that I think makes people not like work, it’s the type of work you make them do. I’ve noticed this, like my employees that really like to do deep work on complicated problems, if you ask them to take phone calls from a person that can’t find the TV control in a short-term rental, they lose their mind. But then there’s other people that only want to help them find TV controls. If you’re like, ‘Can you put something in a spreadsheet, then they lose their mind, right? If we find the thing that we like doing, you often can find that work is enjoyable and you like doing it. So for you, I’m assuming if you’re working in SEO, you’re a deep work person. You like to look at complicated problems, you like to see the big picture, and you like to really drill down on like, what’s going to make this whole thing move? You need to hire somebody that does shallow stuff. Like you go uh inch deep wide and a mile deep, you need to find someone that goes a mile wide and an inch deep. They can handle all kinds of stuff going on. They’re answering emails, they’re taking phone calls, they’re shielding you from the little paper cuts that make you bothered and then twice a day you check in with them and say, ‘Hey what’s going on? here’s what I want you to do.’ They go back to work, they do it. You could probably move this equity and get three or four more short-term rentals, triple your cash flow from what they’re making right now and you might find that you really enjoy doing short-term rentals as long as you’re doing it with leverage.
Guest: Yeah, that’s a good point. I mean, it sounds like the easiest way to well, easy, but to try and get a additional cash flow versus a traditional long-term rental like you said.
Guest 2: Yeah. That’s why I just said selling and and redeploying is going to be your better option and you’re going to want to start with the houses that have the lowest return on equity because you’re probably going from a low interest rate to a higher one. So to balance that out, you need to make sure that you have the laziest equity possible that you’re moving.
Mindy: Derek, what did you think about that note investing? Does that hold any interest for you?
Guest: Well, that’s something I need to I guess learn more about and wrap my head around to to see how that would work and I I’ve heard some of the benefits of it um before investing in notes and um but it definitely sounds interesting. It’s not something I’d considered though in the past.
Mindy: Okay. Well, I am also going to send you a copy of Dave Van Horn’s book. It’s called real estate note investing using mortgage notes to passively and massively increase your income, which is, you know, something you’re looking at passively and massively increasing your income. Um as well as you’ve got $100,000 in cash. Is that your emergency fund or is that your I don’t quite know where to put this yet fund?
Guest: Uh, it sounds like the ladder for the most part. I mean, we’re going to um put some of that into like education accounts for the kids, but that’s only a portion of it. Um but the rest of it’s kind of just sitting around for, I guess emergencies.
Mindy: Have you ever considered lending that out? I do some private lending and I think I’m charging like 12% right now. I’m only lending to people that I know that I know are going to pay me back. Um, who are, you know, doing super fun things with real estate on the East Coast because it actually exists, David. And uh they 12% comes into my bank account, they pay it off, and then they borrow it again. And because I know them, I don’t feel like I am putting my money at risk because they then pay me back and want to borrow it again. I know that I now have a a proven track record with them and I can do it again with more confidence. Um, finding somebody to borrow money from you that you know may be a little more difficult than, you know, I just blazingly recommended. Is that a word blazingly? Anyway, uh but you once you make it known that you have potentially have money to lend, people come and start asking you. Oh, David Green wants to borrow money. I’m going to lend it to him because I know him and I know he’ll pay me back. But, you know, Rob Abalo wants to borrow money from you, forget it, dude. Just kidding, Rob, I would lend to you too. But, you know, it it can be a really great way to generate more income. And bigger pockets also has a book about that. It’s called Lend to live, earn hassle-free passive income in real estate with private money lending by Alexandria Baers and Beth Pinkley Johnson and I’m going to send you a copy of that book too.
Guest: Awesome, thanks.
Mindy: Uh another question I had for you, Dave. I mean, I like the idea of a simple paid off portfolio when I retire. Um what are your thoughts on most people talk about maybe try to pay it off with like a snowball type of plan. what are your you and your thoughts on that versus redeploying easy equity?
Guest 2: I’d love to see you start a business like we talked about doing SEO work for other small businesses or something that you like, figure out a way to make that profitable and put that profit directly towards paying off your debt so that you don’t have to pay taxes.
Guest: Yeah, that’s a good point.
Guest 2: And I mean one of these properties, property number two, you paid $70,000 for. I don’t even know what your mortgage oh, your mortgage balance, you’ve obviously refinanced that.
Mindy: Yeah, did a cash refinancing on uh all my properties um right before the mortgage climb. So that was lucky for that, but uh yeah, so that’s why.
Mindy: And I think that’s kind of the only way to tap into some of that equity is to cash out refy when rates are low, which isn’t an option right now. Hey, David, can you write a mortgage for 3% for me?
Guest 2: As soon as Derek here builds a time machine, we’ll go back a couple of years and I will absolutely do that.
Mindy: All right, Derek, what do you think of what David has been sharing with the the debt equity and potentially 1031ning or getting more short-terms or things like that?
Guest: Yeah, I think, um, the idea of redeploying some of that equity and maybe getting another short-term once I have some more experience with that sounds like the a good strategy for getting more cash flow, but as you mentioned, like starting or working on another another business that uh that I could use that cash to help pay off rentals is another another way that that sounds appealing to me.
Mindy: I love that especially because SEO is your jam right now and starting an SEO company is not that cash intensive. Like you can probably do it with everything you have now. You need to buy a URL, like Derek’s SEO.com or whatever. Uh, buy a URL and then just reach out to, you know, I’m not even going to tell you how to get business because you’re the SEO guy, so you’ll figure it out your own so. Use those SEO skills to to generate some business, but it’s such a low cash intensive process for you because you don’t really have to learn anything, you already know it and you don’t really need to buy anything because you already have it. It’s a computer and your brain. And I’m not trying to downplay what you have. I’m just saying like it’s so easy to start this because if it like if it doesn’t go anywhere, what is it like $8 on GoDaddy for a URL.
Guest: Um I guess what other thoughts do you guys have on on side hustle ideas that are maybe could be done remotely or things that you’ve seen that can be successful and generating cash that I can use towards uh rentals or paying off debt.
Mindy: Well, I have a friend named Jay Money from Budgets are sexy and he’s got a list of I think more than 80 different side hustles. Uh, that is going to be something that’s specific to you. What do you know? what do you like to do? what do you, you know, what skills do you have? what can you teach somebody else? or what generates a lot of cash that you can just do quickly. So, um, I will link to it in the show notes, the budgets are sexy, uh, blog post. We also have a friend of the show, Nick Loper from side hustle Nation. He has an entire podcast where every week he interviews another person about their specific side hustle. But hey, do you know anything about SEO? Does anybody else like maybe look to take a course? Could you create an SEO course? How to do SEO? selling courses? I can’t tell you how much money can be generated from selling courses that are engaging. I mean, you have to put a lot of work into the the course, but then once it’s done, you know, you’ve put 40 or 100, I don’t know, I’ve never made a course, but like 40 or 100 hours into this course, then you’re done and people just keep buying it over and over again. So it’s passive-ish, meaning that you have the work up front, but then it just keeps going and going forever. Um, we were talking to Amanda Wolf earlier, and she has a course that she has created and then she hosts a webinar that drives people to the course. Every week she’s hosting a webinar for new people, but then she went back and looked at all these people that have been in her funnel and have never ever purchased anything and she rebranded the same course and was able to generate more interest. So, what do you know besides SEO? What can you teach a course on? I mean, including SEO. I don’t know anything about SEO. So having, um, somebody teach it in a way that like speaks to somebody who doesn’t know what they’re doing or even, you know, two courses. here’s a beginner SEO, here’s the next step SEO course. You know, there’s a lot of uh there’s a lot of opportunity out there just in what you already know. And it’s not limited to you. I’m assuming that you have a wife.
Guest: Yeah, yeah, yeah, I do.
Mindy: Okay, what does she know how to do?
Guest: Uh, she does photography and uh video production, we both uh do that. So there’s there’s something there potentially.
Mindy: Look at that, you guys can have a collaborative event.
Guest 2: Yeah, Derek, fingers crossed for you, man. It was good meeting you.
Mindy: Thanks.
Guest 2: David, thank you so much. This was awesome.
Mindy: My pleasure. Thanks, guys.
Guest 2: I’ll see you in Cancode.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench. This episode was produced by Eric Katson, copywriting by Calico Content, post-production by Exodus Media and Chris Sken. Thanks for listening.
