Mindy: Welcome everyone to the BiggerPockets Money podcast where we are answering your tough questions today. We are going to talk about losing a job, being in the cycle of debt, syndications, and house repairs. Hello, hello, hello. My name is Mindy Jensen and with me as always is my smarty pants co-host Scott Trench.
Scott: Thanks Mindy, it’s great to be here with my only wears digital shorts co-host Mindy Jensen.
Mindy: I don’t even understand that one.
Scott: Me neither, but I thought it sounded good.
Mindy: That’s the best.
All right, 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 are 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 real estate, start your own business, or recover from a financial setback like many of the folks asking questions today have, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Mindy: Scott, today’s money moment is stop buying fast fashion. Fast fashion is super trendy. It’s quick to come into the design studio and quick to get out the door. They’re using cheap fabrics, they’re using things that aren’t going to stick around for a long time because they don’t need to because you’re just going to jump to the next garment. Instead, think about buying some classic pieces, some, there it’s a more expensive pieces that are built from quality materials that will last you a lot longer. Your, uh, clothing budget will thank you in the long run because you’re buying one sweater and wearing it for multiple seasons. I’ve got some sweaters that I’ve had for decades. Uh, I don’t know that they’re necessarily super high quality, but they’re my favorites. So I’ve had them for a super long time and then when you already have them, you’re not buying more and more. You’re also not contributing to a bunch of junk in the landfill. So from an environmental standpoint, this is a a one two punch. Stop buying fast fashion.
Scott: Yeah. And the best part if you are going to buy fast fashion is Costco. Um, Costco is always got the latest fashions in there. It’s like 10 bucks you get 15 new pairs of fashionable socks. And those lead to networking opportunities. The other day I was looking at a property, uh, with my wife, and I took off my shoes, of course, because it’s nice nice, a nice house. And, uh, uh, as I was on the way out, another investor looking at the house commented on my nice Puma, Costco brand socks. And so it led to networking opportunities. Classic, uh, long-term look there. And, um, yeah, a great conversation starter. So, Costco for those latest fashion, uh, statements.
Mindy: You have a money tip for us. Email us at moneymoment@biggerpockets.com.
Scott: All right, today we’ve got our third episode called Ask Mindy and Scott here, a new kind of Finance Friday. And as a reminder, if you’ve got a question for us, please feel free to submit a written question or voice memo to www.biggerpockets.com/moneyquestion. And with that, let’s kick it off. Mindy, do you want to, uh, read the first one here?
Mindy: Dear Mindy and Scott, I think I may lose my job. My company was recently bought by a private equity firm and there have been quite a few red flags. My boss put a meeting on my calendar next week with no context. I am afraid that I’m going to be let go. I have been applying for jobs but I haven’t been getting any interviews due to how competitive my industry is with all the recent layoffs. What should I do? How do most companies do severance? I have an emergency fund with eight months of expenses and equity in my house, but I’d rather not touch that. Do I try to freelance? Help. Thank you, scared.
So Scott, do you want to tackle that first? I’ve got a lot of thoughts.
Scott: Sure. I I I think um, there’s a real fear here. This is not something to just brush off. This is something you got to tackle head on. And I think, you know, first we have to stand back and acknowledge reality. Maybe there’s a real chance, maybe there’s a 50% or greater chance that there’s going to be a layoff coming in this particular scenario here. We’re not getting any other other interviews for new jobs. Um, we we do have a good financial position with an emergency reserve. Um, and to their point, they should expect some level of severance. That severance can range from anywhere from two weeks to eight weeks. If you’ve been there a long time, maybe you get even longer than that, um, in terms of in terms of severance pay. Uh, and there will be some unemployment benefits as well. So I think the first thing here is to uh, um, acknowledge the reality of maybe if there is a layoff, I am not going to be able to get the same level of pay in the near term at this new, at this new job or in the same industry. What is my worst-case realistic scenario that I would have to cut back down to in this in this situation? And what would be the job that I would need to go out, or, that I could go out and find, even if it’s in an unrelated industry here. Um, and then I’m going to have to reset and kind of and and think through what am I going to do in order to make that happen as soon as possible or to have that that option on the table in the event that this is happening. So I I I don’t think there is anything to do here, um, from an activity standpoint other than react to the news, which may not may or may not be, um, any better. This person is already been getting interviews. And I but I think it’s about looking at their household budget and being ready to potentially scale back and to accept the reality of a, of a new lower paying job here. And it’s just terrible news, and I don’t I don’t have a magic bullet for this person.
Mindy: So, I like what you say about thinking about accepting a lower paying job because a lower paying job is still paying more than $0, which you will be getting if you lose your job. So, I think a lot of people have this, maybe this block, oh, well, I was making 100,000 and this other company only offered me 80. That’s a pay cut. Well, it’s a huge pay raise from the zero that you’ll be getting if you don’t accept it. So I think that’s a really great point, Scott. Um, going from these questions, what should I do? I once lost my job. I, I didn’t lose it on purpose, but they absolutely should have fired me because I was a terrible employee. Learned my lesson. Now I’m the best employee ever anybody has ever had, right, Scott? Uh. But once I lost my job, I lost it on a Friday and I had a pity party the whole weekend and starting Monday, I went to the unemployment office and filed for unemployment. At the time there was a week of lag before you could start getting unemployment. So you want to uh uh, apply for unemployment as soon as you possibly can. Then I made it my job to apply for jobs. And we don’t have a gender assigned to this person asking this question. But there is some statistic like men will apply to like 90% of men will apply to a job that they’re only like 40% qualified for, but women won’t apply to a job unless they’re closer to like 90% qualified or 100% qualified for. My thought is if it sounds even remotely interesting to you, apply for the job because they’re not going to call you up and say, hey, Bob, are you looking for a job by any chance? They’re only going to be responding to the people that are applying. So if you start looking for a, when you start looking for a job, apply for anything that seems even remotely like you could get the position. And let them say no to you. Don’t say no to them before you even start. Um, another thing to consider, if you have been applying for jobs but haven’t been getting any interviews, due to how competitive the industry is, how does your resume read? Does your resume read like full of great things or does it say, hey, I used to work at this one company one time. Um, there’s a real art to writing a resume and uh, there are resume services out there that can take what you have done and not lie about it, but embellish or uh make it sound even better than the way that you have written it. And, you know, you are wanting to stand out in a crowd. You don’t want, uh, and the resume writers are going or sorry, readers are going through the resumes and just saying, uh, nope. Nope. Yes. Maybe. And they’re just sorting through really, really quickly. So you want your resume to be the best that it can possibly be. And if you have to drop a couple hundred dollars on a resume writer to get a really great job, it’s totally worth it. Um, how do most companies do severance? I don’t I don’t think there’s any particular formula that they do, they just kind of figure it out and give it to you. So I don’t really want to spend a lot of time on that question. Um, I have an emergency fund with eight months of expenses. This is what your emergency fund is for. Just because you don’t want to touch that doesn’t mean that you shouldn’t touch that. So I would absolutely be the the best employee that you can be right now, get your resume in front of every single person that you can, get a great resume out there and it could just take some time and that kind of stinks. But don’t be afraid to take a lower paying job than where you’re at right now just to tide you over and just because you take a lower paying job doesn’t mean you have to stop looking for a better job.
Scott: I think Mindy, you’re you’re uh advice here has been fantastic. I completely agree with with your framework there. Right? Control what you can control. Get your resume updated. Go hire somebody to take a look at it and polish it, make sure there’s no typos, make sure that it shows metrics that showcase your success at your previous roles there. I I took this part of the business from this to this. I did this to this. Um um, you know, you’re going to you’re already trying to get other interviews. Make sure that that effort is very robust. To Mindy’s point, begin um, expanding the scope of those things. And then let’s say that your fear comes true and you’re in the room and you’re getting let go, um, as as as we fear in this in this question here, right? Well, how do we handle that situation? Because that’s a big moment, right? Getting fired is something you’ll never forget for the rest of your life. It’s can be surreal. I I, you know, I I imagine, you know, with this I imagine it’s a terrible terrible time. But come into that, you you have the potential here to know that it’s coming. And how you handle that could make a difference. So maybe you come in and you and you say I have a list of questions here. What are the severance? how much how much they that will probably be explained to you, but how much severance will I get? Will I be eligible for Cobra? What well is this a termination for cause or is it a layoff in which case I’m available for unemployment? Um, and then, you know, if if it’s a layoff because the company is restructuring whatever, ask your boss at in that meeting professionally, look them in the eye, you know, um, uh confront the situation, uh, understand their position. They they probably not, uh, thrilled to be having to give you that news. It’s probably not their decision, um, in in this particular case. So, but ask them, hey, I’ve worked really hard for you. Here’s what I’ve done. Will you be a reference for me in for my next employer? Um, when I when I come in, can I give them the reason for the termination? And can I list you as a reference? Will you be will you uh, uh, in there and give them your number to call. Those would be, that would be a way to handle the moment in a way to your maximum advantage in a relative in a relative sense in this situation. So, I think that’s one thing to think about as well. Um, and then to Mindy’s point, you know, uh, we we you go down the path and increasing your odds. And then fundamentally, I’m going back to the the highest level point here, the the the issue here is the the employer has way too much power over your life in this situation because of the industry dynamics here. And this is what we we come back to the financial foundation really really, uh, focusing on that budget, building up a big even bigger emergency reserve, building up an investment base outside of your home equity and that emergency reserve, so that you have other streams of income, um, because you never want an employer to have this power over you again. You want the next conversation in 10 years if it ever comes to be one where, well, I’ve got a real estate portfolio and a stock portfolio and I’m coastfy here. And I’m going to hang out and go on a trip for for six months. And that needs to be a consuming, um, you know, uh uh aspiration for you on a go-forward basis when you are able to get back on your feet and get things going because that’s the the power dynamic that I think is much more healthy in in this country. And I think a lot of people unfortunately are in are in the situation you are in where that power is is in the hands of the employer.
Mindy: Yep, absolutely. Uh, one last comment, they said that they do have equity in their house. It might be a good idea to go to the bank now and get a home equity line of credit. This is a, you’re opening a line of credit. You don’t have to take any money out, but the bank doesn’t want to give it to you if you don’t have a job. So, if you do have a job and you you go into this meeting and you don’t get fired, open that line of credit so you have access to it, should the next meeting be the one that you don’t want to have. Then you just have another opportunity to access cash in an emergency.
Scott: Okay, I’m in my mid-forties and live in a house with dual income. We bring home $200,000 pre-tax. We have a robust 401k, but are stuck in the cycle of debt. We can’t seem to get ahead to save enough for an emergency fund, so every time an emergency happens, we charge the credit card. I feel like every dime goes to the mortgage, cars, IRS, creditors, groceries, et cetera, and there isn’t much left to save. I have no idea where to start. Any advice would be helpful.
Mindy: I love this question because the answer is so simple. They don’t have an income problem. Their income is going to be what, 140, 150 after tax. Uh, that is liveable. This seems so silly to say. You can live off of that in any city in America. It’s going to be tighter in New York City and San Francisco. It’s going to be way easier in Iowa. But it’s a liveable income. This is a debt problem. This is a spending problem, not a debt problem, a spending problem. And I am willing to bet large sums of money that they have no idea where their money is going. It says, uh, we we feel like every dime goes to the mortgage, cars, IRS, creditors, groceries, et cetera. The the key is that et cetera. They don’t know where the money is going. So, I’m going to go all the way back to the beginning of 2022, biggerpockets.com/mindy’sdget. Go check out my line by line spending tracker that I did for five months in the beginning of 2022. The fact that it was last year is irrelevant. It’ll show you how I did my budget and how I blew my budget because I didn’t know how much I was spending in each category. And it’ll also show you a lot of different categories. I have categories like parties because I have a swimming pool in my backyard and I host a lot of backyard parties. If I’m suddenly feeling a pinch, I can stop spending in that category altogether and still have a good life. I also have categories for tap rooms because I live in a city that has a lot of beer, a lot of breweries and I go to tap rooms with my friends. I can cut that out really quickly and still have a great life. There’s a lot of things that I track very granularly because then I know where I can cut and still have a great life. And I think if they started tracking their spending, they would discover almost instantly where these holes in their budget are and they could close those down, close them down a little at a time, close them down a lot at a time and quickly discover that it is in fact easy to save when you’re making 200,000 pre-tax.
Scott: Mindy, I I I I’m going to take a different slightly different take here. I agree with everything you said. And I think that what you described is 20% of their problem. And there’s another 80% of the problem, which I refer to as the middle class trap. This is a classic example of the middle or in this case, upper middle-class American trap. I believe that this individual um and and their spouse purchased a house that was the limit of their purchasing power, not too long long ago. And so 30 to 40% of their income goes to mortgage payments, interest, taxes and insurance, right? The principal interest tax and insurance plus other home upkeep. I believe that they have fine have at least two financed newer vehicles. I believe that they have borrowed in the past for for for various other expenses and typically spend most of what they earn, uh, in a general sense. And so I agree with your point that there’s probably money leaking through, but I think that the the painful reality of their situation is that even though they have a good 401k and probably a lot of home equity, their their fixed overhead is going to be so um, uh, suffocating, uh, if you will, for their financial position. They can’t they can’t even if they were to cut back on everything in this credit card, you know, creditors and groceries and etcetera category, I think it’s going to make a tiny impact on their overall ability to get ahead. I bet you it’s a 12 to 18 to 24 month slog, even with their high incomes, to pay off the car loans, the personal debt and the other other types of things. And it’s really the root cause of their problem is their house and their cars. And so, I completely agree that a great place to start is keeping that budget and really getting cost-conscious on everything. They’re going to be miserable with that and they’re have to keep it up for several years. If they want to actually escape this trap, I would encourage them to really take the hard look and say, what is my house doing for me right now? Should I just sell this thing and should we just downsize in order, you know, in in in by half in terms of square footage or price. Should we rent a much a much smaller place. Should I sell a bunch of of the crap I have I have accumulated around this house and kind of just start over with a new lifestyle. Should I sell both of these cars, I’m assuming there’s two cars at least in this in this situation because I’ve seen this before. Um, you know, not this person but but this this type of question. Should I sell both of those cars and should I buy paid off used economy vehicles on Facebook marketplace in the 3 to $10,000 range. And should I live like I’m making $40,000 a year, or $50,000 or $60,000 a year, um, to to truly get ahead. Within three years of making that choice, those hard choices at the highest level, I believe this couple would essentially emerge with zero consumer debt, a pile, you know, be accumulating 50 to $100,000 a year in liquidity and have the ability to make really big investments. And within five to seven years, I bet you they could buy back everything they have today with the passive income generated by their portfolio given their exceptionally high incomes. So they won’t do that. That’s crazy land. They’ll probably have to take your advice, Mindy. But that’s how I think I think that’s really their root cause problem here, uh, and how to get out of it.
Mindy: Yeah. You know, Scott, I agree with absolutely everything you said with one caveat, the house payment. I would encourage them to look at what their current house payment is. If they bought it a couple of years ago, they could be in a very low interest rate mortgage that even trading a smaller house could increase their their costs. So, definitely run those numbers before you just put your house on the market and buy something smaller and make the situation worse. That’s the only caveat I would say to any of what you just said.
Scott: And that’s the trap. Yeah. They’re trapped in this house would be my guess without knowing anything about their financial position. I bet you that they’re trapped in this house because of that low interest rate mortgage. Um, and they see no alternative and the alternative is right there. It’s just so unpleasant on a relative standpoint. Um and it’s selling the house and significantly downgrading. um to offset that problem that you just described.
Mindy: Yeah, but even if the house can’t be sold because like maybe their house payment is $2,000 now and to downsize would get them another $2,000 house payment, that’s silly to to go through all of that for the same thing. There’s a lot of other things that you suggested that they could do. Sell the cars is a great one. They did say cars plural, so I bet your uh, guess is pretty spot on.
Scott: I bet you though that it it the house and the cars are the meat of their problem here in terms of fixed overhead and cash outlay. And I bet you that if they don’t sell the house and redo those that car situation in a pretty intense way like I just outlined that they’ve got a five to seven to 10 year journey before they actually go on to pay off all of this debt and accumulate any type of a meaningful emergency reserve and maybe a real investment or two. It’s that’s the difference is they got to make those extreme moves if they want to actually get ahead in a reasonable period of time. But yes, time will be their friend. In 20 years, their mortgage will be mostly paid off, these cars will get paid off, and if they don’t buy brand new ones. Um, and they just let them let these cars, the paid off the car, current cars that they have be paid off and all that, their problems will slowly melt away that we just heard here. This this couple’s earning a lot enough income to to do all that stuff. And if they stop accumulating debt that will. If they want to get ahead fast, though, they got to make much bigger, bolder changes.
Mindy: Yep, exactly. That’s the, that’s the key there. How fast do you want to make these changes? And how bold are you willing to go?
Okay, Scott, let’s move on to syndications. Dear Mindy and Scott, how do I find non-accredited syndications and how do I properly vet syndications? Thanks, Nicole. So, Scott, I’m going to jump in here first because I’m very opinionated about this one. Uh, first, how do you properly vet? You go and take some time and listen to episode 219 of the BiggerPockets Money Podcast where Jay Scott who knows everything shares an enormous amount of information about syndications, how to vet them, how to choose them, what to look for, what to not look for, how to uh, anything about syndication. It’s a two-hour long episode and it is not boring in any part of that. It’s absolutely packed with information about syndications. Now, how do you find non-accredited syndications? I don’t know and you shouldn’t. If you are not an accredited investor, you should not be investing in syndications at this time. There is a uh, percolating issue with commercial real estate and that’s what syndications are investing in for the most part is commercial real estate. That’s what I’m focusing on. Um, and there’s a lot of things coming up. The rising interest rates have uh a big effect on commercial real estate because commercial real estate is not secured with a fixed rate mortgage for 30 years. It is secured for a fixed rate of a short amount of time, three to five years depending on the mortgage. and then it re-amortizes. So all of these loans that have just been had at three to 5% are about to come due. We’ve got in the next two to four years, we’ve got a lot of loans that are going to be going from making money to most likely not making money. And what this means for your new syndication is that there’s a lot of properties coming on the market overpriced or not cash flowing or the people selling them are trying to get money back and I think it’s going to be a mess. I think you should absolutely put your your energies into learning about syndications. Listen to that episode, do everything that Jay suggests, but then also put your energies into investing in different ways right now because I don’t think it’s the right space for non-accredited investors.
Scott: Yeah, I Mindy, I think I think those are all great points here. Um, just to frame it out for this person, right? How do you vet how does one vet syndications? Well, you go through a long list of questions that seek to understand who the sponsor is and what the deal is, right? So if it’s like it’s a apartment complex, right? Who’s the sponsor? How long have you been in the business? What’s your team like? How long they’ve been in the business? What’s your track record? How long have you known this market? What qualifies you to be an expert in this place? What are you going to do with this with this pile of money? How how long do you intend to hold it? How much of your your own money are you putting in the deal? How are you getting paid? Are you getting paid just to buy the property with an acquisition fee? Are you getting paid to manage the assets over time? Or are you getting most of your compensation uh, on the on the upside. I would personally look for someone that’s getting a modest salary, not a big acquisition fee and has most of their interest on the come with the carried interest uh in the profits of the deal long-term. And um I’d love to see somebody who invests a significant portion of their personal net worth in the deal and who has satisfactory answers to the expertise questions long-term, and I ideally has a healthy fear of the market. It’s not just some um syndicator who’s going to tell you uh uh a bunch of, you know, arrogant, um surefire, I know this is going to work crap, right? Like someone has a healthy feel of the market’s going to get my respect much more than somebody else.
Speaker 1: No, I want to just highlight what you said Scott, beware, be very wary of the syndicators who are glossing over issues who are saying, oh, it’s totally fine. There’s no problem in commercial real estate. Um I’m telling you that there is a percolating problem. It’s interesting to watch, to to watch all of these moving parts going on and saying, wow, I didn’t realize that could be an issue.
Scott: Yeah. A syndicator is a salesperson. They’re selling you on giving them giving you their money because they’re going to make money. If they buy $100 million complex just for easy math, a big number, right? For about $100 million complex, they’re going to raise 30, $35 million in equity. Um, they’re going to make 1% of the $100 million a million dollars to buy the thing. Then they’re going to make 2% like 600, 700 grand a year, 30, 2%, 3%, 35 million, uh a year to manage the asset over time, right? Which does not include the property management, it just includes their salary and the staff on their team that will, you know, do the analysis. And then they’ll get 20% of the profits. So if they move that that property from 100 million to 130 million, investors double their money, they may get 20% of that over a five-year period, right? That’s $6 million. So if we’re counting we have a million on the on the on the first part of it. Five times 6 million, five, five times $600,000 is another 3 million over a over a five-year hold. And then we’ve got $6 million if you believe if in this example with a 20% carried interest spread on the on the on the downside. So they are very interested in selling you and a lot of other people and raising their money, okay? That’s great. It’s a healthy business model. There’s a line of alignment with with the the there’s healthy is a wrong word. There but they it this is a proven business model that aligns interests, right? But I want to know that that person’s not just getting all of this upside. They’re also putting in $5, $10 million of their own money in this particular example at that scale. I would love to see that um in that situation. I’d love to see a healthy fear. That’s a meaningful percentage of their net worth. This person is not a billionaire putting in 5 million. They’re worth 25 million and putting a quarter of their their net worth into the deal. That gives me a lot of reassurance um that this person believes uh strongly in in in the opportunity, right? So those would be things on the syndicator side. On the deal side, I’d really want to understand exactly what I’m getting into. What is the market like? What are rents projected to grow, right? What supply is coming on? right? In if someone’s telling me that rents are going to skyrocket in Austin, Texas over the next two or three years or I’ll pick Florida, for example, I’m not going to believe them. There’s too much supply coming online and there’s a lot of puts and takes there. I want a more conservative approach where they’re going to actually add value. Every deal is a value add because every syndication deal is a sales pitch. We love our syndicators. It’s great. They’re trying to make money like anybody else and they often produce great returns for investors. But understand that, you know, not every deal is actually a value add play. You have to really understand like are they going to put in $20,000 of work per unit to truly upgrade it and there’s a stunning before and after picture? That’s value add. That’s going to drive rents up, right? Um, you know, I I want to know all about the market, the the the plan, the property uh that that they’re purchasing. How they’re financing it. Who, where is the debt coming from? Are they using uh a bank debt? How what’s the interest rate? What are the terms on that? Is it a fixed rate? Is it variable? What kind of what kind of things are they assuming there? Who’s guaranteeing the debt? right? Very a lot of these loans are not non-recourse and somebody’s guaranteeing it. Sometimes that’s a really prominent investor, someone bringing in 10 million on the LP side who has particularly favorable terms with the investor. and sometimes it’s a sponsor personally guaranteeing the debt. A sponsor personally guaranteeing the debt is a good sign, right? That means they’re taking additional risk um on the deal and a lot of cases and something that gives me a little bit more confidence. Um, so those are all questions. You’re entering the wild west. if you have a fund, now you got to do the same diligence on 10 deals in the fund, the history of what’s been happening before and what’s going to happen next. So you you really need a lot of information to do this with a high level of confidence over time, I think. And I think that a lot of LPs in the last 5 to 10 years haven’t really put in this level of work uh on a lot of cases and trust that other LPs are doing that. You start to see some Wall Street Journal articles there was one a few months ago about a guy uh who lost a lot of investor capital. We’ll see how that plays out, whether that was mismanagement, bad luck, other other factors that went into play here. But, you know, just making sure that the syndicator isn’t going to run off with your money to another country is one factor you have to consider. Then there’s the actual extreme difficulty of driving excellent returns in the space. So listen to episode 219, that’s just a teaser that I just gave you right there. Um and go through it. Uh that’ll give you a good framework to do that. And then to your second broader point, how do I invest in non-accredited syndications? Let let’s unpack that question. Why would a syndicator be reaching out to non-accredited investors, right? That that needs a good question, uh, answered, okay? A a a one thing you got to be looking out for is the syndicator may say a lot of things to answer that question appropriately. And the good answer to that question is, I want to empower non-millionaires or the non-rich to be able to invest in my investment as well. So I’m willing to do all this extra effort. That’s the right answer technically in my opinion. But you got to be careful because one one has to worry that the reason that they’re going to all that trouble to market to non-credit investors is because they can’t raise enough capital for the deal from accredited investors. Okay? That’s a concern that you got to understand and go into with your eyes wide open. It’s harder for non-credit investors in the space. Okay? Usually the minimums are 25 to $50,000 because it is a pain in the rear to manage a $10 million pool of capital and $100 increments, right? It’s much easier to do it in 50 to $100,000 increments, right? Um, uh, from that, right? You got to raise there’s 1,000 more people that investing $100 increments. So these are all things that you need to to understand here. And I think the right answer sadly for you is to go get accredited. Now, the good news is you don’t have to be a millionaire and you don’t have to earn a 200 and $300,000 income anymore. You can like pass a test. There’s a series 65 exam, I believe it’s 180 minutes to complete the exam. I don’t know the cost for it. I should probably go and find it and take it uh myself. It’s only 187 bucks on this particular site, Finra.org. I don’t know if that’s a good site or not. It’s just something I Google in response to this question. Um, and if you take the test then you’re an accredited investor. So, long rant over there. Hopefully that was helpful to folks that are considering syndications. We at BiggerPockets hope to solve this problem in a more thorough way in 2024 by introducing um, content that begins doing that analysis, who are you? What’s your deal? What’s your background? How are you making money? What’s the what are the prospects for the deal? How have your last three turned out? Um and all that kind of stuff. So we’re excited about that. Um if you’re interested uh in that, you can email me at scott at biggerpo.com. I was hoping to get that up earlier in 2023. It’s taking me a lot longer. Um, you can tell I’m passionate about the subject though and um want to explain.
Mindy: No Scott, we couldn’t tell that you’re passionate about this subject. You hid it very well.
Scott: How’d I do Mindy? Anything, any reaction to all that?
Mindy: Um, I understand what you’re saying. I would be curious how somebody could pass that exam but still doesn’t have the either 250k in salary or the a million dollars in net worth. Um, and would still feel comfortable investing in syndications. So I’m going to stick by my assertion, if you are not an accredited investor, I don’t think you should be investing in syndications. However, Scott gave you a different way to think.
Scott: I would just say to that like the price of entry into most legitimate syndications is 25 to $100,000. So if you earn $180,000 a year and have been very frugal and have a $600,000 net worth, and 150 of that is liquid, um, perfectly reasonable for you to plop $50,000 in a syndication, the accredited investor cutoff is arbitrary and I think it’s bad policy frankly at the highest level. Um, that’s another that’s a conversation for another day. Um I would I would love the little guy. Um but like, you yeah, you got to have the liquidity and if $50,000 is all you have and you’re putting it in the syndication, you got to really be asking yourself why am I why am I putting that at risk in what is likely to be a highly leveraged, um, and and and investment where I could lose all my principle.
Mindy: Yeah, don’t do that. If you only have $50,000, don’t be investing in syndications. All right, Scott, moving on.
Scott: Dear Mindy and Scott, my unemployment isn’t covering everything. I lost my job during all the tech layoffs. If I need to skip a bill, loan, or credit card payment, which is the least detrimental to skip? Sincerely, DJ.
Mindy: Woo. Well, unemployment isn’t covering everything. I hope that you are, just like I said in the first question, I hope that you have made finding a job your new job. Um, I would encourage you to get a job at one of the many places that is always hiring like Starbucks or a restaurant or the grocery store. Um, I’m seeing a lot of really, really big dollars that they’re throwing out there like $20 an hour, $35 an hour to do these jobs that um, are unskilled and I say unskilled as like you don’t have to have a college degree to do the job, uh, not that the job doesn’t require some level of skill. Um, but if that is not an opportunity for you, um, the question says, if I need to skip a bill, loan or credit card payment, which is the least detrimental to skip? The least detrimental is going to be the loans from family members if there’s anything that you have out there. Of course, you want to say to your uncle Bob, hey, uncle Bob, I’m really in a pinch right now. I’m not going to be able to make these loan payments to you. I’m going to put those on the back burner and add them on at the end. Of course, I will continue to uh, make these payments once I get a job again. Uh, what bills can you skip? Utility bills. And I don’t recommend skipping any of this, but if you have to skip something, I think utility bills have to go for a really long time before they can be cut off and I think depending on what area of the country you’re in in the really cold months, I don’t think they can turn off your heat or your gas or your electric or however it’s powering your house, your heating. So, um, that would be the one that I would skip. I wouldn’t skip a credit card payment if at all possible, but I would also be calling up every single one of these lenders and credit extenders and saying, I am having a problem paying my bill. Is there anything that I can do to reduce the amount that I owe you or reduce the payment that I am making on a monthly basis until I get a new job. Um I would absolutely not skip your mortgage payment because they will start foreclosing on you and you don’t want to lose your home. Uh, Scott, do you have anything to add to that?
Scott: Yeah, I I I think I I I still am struggling with the first sentence. My unemployment isn’t covering everything. I would be I would have much more confidence in this question if it said, my unemployment and my side income um from my scrappy activities as a an Uber driver or driving for door dash or cleaning houses or mowing lawns or working at Taco Bell or packing groceries at King Supers or whatever your local grocery store is isn’t covering everything. Uh or lost my job during all the tech layoffs. Right? I I understand that those jobs are not going to pay the same as a tech job, um, does here. But this, you know, this person is not being able to pay all of their bills and I think they need an additional income on that. And if they’re a tech worker, they’re clearly capable of also taking on more of some of these other types of work. So I I think that’s a really important um first point here is is that needs to be addressed um, after that, I I I I think, okay, if we’re working full-time or as close to full-time as we possibly can in a gig economy while we’re while we’re looking for a replacement job, and that income and the unemployment isn’t covering everything. And we’ve sold the car and downgraded to a, um, you know, a much more affordable option in the 3 to $10,000 range. And we we we we’re not going out to dinner and not ordering out um, or any any type of food, cooking our own meals and and have have have later uh cut back on essentially everything. And we’re still in this position where where we need to, where we’re not able to cover all the bills. Okay, now I agree with your point, if I have to to cut out something and it’s just, it’s just not going far enough, okay, utility bills would be the first place um, to potentially um lay offer a little bit. And you got to be really, really uncomfortable with that game and then begin thinking about selling the house. Um, if that doesn’t change pretty abruptly.
Mindy: That’s a good point.
Speaker 1: I agree with that and there’s probably a cutoff there, but like but you got to do that. Maybe maybe you turn to wait and tables or tending bar or mowing lawns, I mentioned earlier or something that will have a lot of tips and cash, right? We’re we’re not loving the situation. We got to rectify the the root cause there, but I don’t I’m not I’m not hearing about the fight in this question first and foremost. I’m hearing about I lost my job and I my unemployment is not coming everything. It’d be great to hear about the fight that I’m I’m that the person is is putting in place to do it because this is a tough time.
Mindy: That’s a good point. All right, our last question. Dear Mindy and Scott, I feel like I bought too much house. My original budget was $250,000 and my house purchase was $310,000. My house now needs repairs and I’m not sure what to do. My take-home pay is 5500 and my mortgage alone is 2600. I haven’t had trouble paying any bills but I’m now worried because I have student loans kicking in and my house needs $24,000 worth of work. What should I do?
Scott: I think we have a, you know, a similar framework to some of the other questions we’ve heard here on BiggerPockets Money where I would I would really like to hear the answer to say my take-home pay plus my evening job, um, or my weekend, my my weekend side hustle is $5,500 and the mortgage alone is 2600. Um, I haven’t had a new trouble paying the bills because I worried about student loans kicking in and the house needs $24,000 of work. I’ve pushed that down to $8,000 because I’m going to do it myself now and not hire out any of the work, um, on that. Okay, now we’ve got a different problem. So I think I think that needs to be requires a reframing here of this situation is not going to resolve itself. There’s not going to be a magical change to the numbers here. The the there are two ways out of this situation. First is hustle and sweat and hard work and the old back-to-foundation stuff, getting the evening job, tending bar on the weekends, mowing lawns, whatever it is, say earning more income, and when they’re not doing that, doing the work that their house needs themselves, watching YouTube videos as their new hobby, going to Home Depot, um to buy the the the deck replacement uh, you know, the the the deck material replacement material, whatever it is for their house. Um, right? You can do all of this work yourself in a lot of cases. Um, is it if you’re if you have the the skill set to make, what is it? 70, 80, $100,000 a year, if $5,500 take-home pay depending on where you live on your tax rate. If you have the skills to make you close to six figures, you have the skills to watch YouTube videos and and do a lot, a big chunk of that housework yourself over a long weekend. That would be my first uh approach to this. And if we pencil all that stuff out and it just doesn’t work, right? All the Netflix in their life is is is kicked out, all of the eating out, and it’s replaced with either extra work or or work on their house. Then you got to sell the house and you got to think about relocating or or moving here, maybe renting, um and again, downgrading the position. Uh, I I imagine that they can get a roommate or live somewhere that is is uh much cheaper than $2600 a month in rent, for example. And that would uh remove their $24,000 worth of work that the house needs and the uh the cash outflow problem that they’ve got um from there, their mortgage.
Mindy: Scott, I love all that what you said. Um, I’m going back to the very beginning of this question. Dear Mindy and Scott, I feel like I bought too much house. I want to be very kind, but they did buy too much house. Their original budget was 250 and they bought 310. They went over budget by $60,000 and that was a choice and now they have to live with that choice, um, in some regards. I think that maybe selling the house might be an option. Although remember it costs between 10 and 12% of the sales price of the home to sell the house. As the seller, you’re footing the bill for the seller’s agent and the buyer’s agent, um, unless you have negotiated something else. That is traditionally how it works right now. although you’re not responsible for that, that is how it has been for a very long time. There’s currently a a lawsuit wending its way through the court system uh, challenging that. Um, you don’t have to do that but it does make it more difficult if you’re not paying the uh, agent on both sides of the transaction. And you just bought this house. You stand to lose a lot of money if you do sell. Um, are there any opportunities like Scott said to DIY the the work. I can tell you you can learn anything on YouTube. $24,000 worth of work, what is that comprised of and how can you get that price down? If you can’t DIY it, if it’s something like H-vax system, which is really a large amount of uh, DIY knowledge to jump into, um, can you barter with the service provider? Have you gotten multiple quotes? Is the first guy saying $24,000 because he doesn’t really want to do it, but if you’re going to pay $24,000, he’ll find time to do it. Um, that’s also something that you’ll you’ll hit up with uh, contractors is that they don’t want to say no, so they’ll just throw an outrageous price out there. And if that’s if you say yes, then they’ll figure out how to do it for that price. Um, student loans kicking in that’s going to be that’s going to be something to contend with. And, you know, if selling isn’t truly in your best interest or just financially unfeasible, you know, how urgent is this $24,000 worth of work? Is it just cosmetic? push it to the side. Who cares if your kitchen’s ugly? But if it’s like it’s raining inside of your house because the roof has a hole, then that’s more urgent. And then, you know, are there any opportunities to get a Heloc, which isn’t my favorite opportunity to pay for this work. Um a loan from your 401k again, not my favorite, but there are ways to be creative when you are financing some of these repairs.
Scott: Mindy, I think this kind of brings up, I I I think those are all great, great points to add on there. But, you know, I think what we’ve seen in a number of questions here brings up kind of a philosophical question that we’ve touched on in the past here. And in the past two, three months, we’ve had a couple of millionaires on the platform or, you know, on the on the on the show here, uh including yourself and Carl who have struggled with being too frugal in some ways and not not being able to enjoy the wealth that they’ve accumulated and spent um, to a certain degree, you know, after years or decades of spending 50% of of of of your income probably or less, right? Um, in order to in order to get to those points. And you know, the I I hear the arguments against that from some folks like Ramit Sethi, you know, saying, hey, don’t that’s way too much, like you’re not enjoying life or whatever here. But we’ve had a number of questions today on the podcast that uh, fundamentally boil down to systems that do not have enough slack in them. And if these folks had had targeted or, you know, spent a couple of years, the first couple of years of the journey targeting a 50% savings rate, an extreme savings rate um with that and the uncomfortable, the sacrifice and the discomfort and the the tough challenges that that produces, like the the the the the reduced lifestyle that’s way below what you could live. The the the type of decisions that you made and Carl made that I’ve made and that many other many of the folks that we’ve had on the on the show have made, we don’t have these problems to a large degree here. And you know, I I would much rather be confronted with the challenge that you and Carl have of trying to figure out how to optimize the spend on the lifestyle amount of wealth that you’ve got in place then the the pain and lifestyle reduction and forced to reset that at least three of the questions we had today are going to face. And so I think that’s the the key thing here is I think we should I I I’m all for the all out pretty extreme approach in the first couple of years in the wealth building journey because it just removes the possibility of having the challenges that some of the folks that we’ve talked to today have um in their lives. And and I think that’s really the root root cause answer here and the advice that I’ve really given um throughout the throughout the show is go back to that mentality and and look it ain’t it ain’t that bad living in the half duplex uh, that’s two bed one bath for a couple of years that pays for itself and generates a ton of wealth, right? Ain’t that bad driving a Corolla. uh I still do to this day. And then though, you know, I I I talked about buying a much nicer car and easily could, right? It’s just not that bad. It’s got Bluetooth, it gets great gas mileage, it gets me from point A to point B. And all but the most snowy or severe weather patterns it doesn’t doesn’t have that problem. And and, you know, I get it I’m on my high horse with the CEO job and all that kind of stuff. But even if even if like I I wasn’t, I I think that that paid off Corolla and those types of things would would be able to prevent a lot of potential problems downstream. And of course, it’s not pleasant having all these things happen or or losing a job. But, you know, I think that that mentality can protect you and give power to you instead of your employer or to the federal government bringing back student loans in this example or the unemployment, you know, uh uh uh benefit program and the the rules regarding that. Um, and that’s that’s what we’re here about for BiggerPockets money is solve the root problem today, go back to basics, get way on the positive side from a cash flow perspective and layer in the goodies and the and the the nicer house and the nicer cars and the nicer stuff over the next couple of years as you generate an passive income and alternative sources of income from other assets.
Mindy: I think that’s a great perspective, Scott, and I was I was going to say, yeah, and you can always just spend the money later, but clearly you can’t always just spend it later. That’s a muscle you have to learn how to flex as well. Um, but that’s the better problem to have in my opinion. But yeah, I like what you have to say, Scott. I think you’re pretty smart.
Scott: Well, I think you’re very smart, Mindy, and I think you had great advice and answers to four questions today.
Well, should we get out of here?
Mindy: That does wrap up this episode of the BiggerPockets Money Podcast and if you have a question for us, you can submit it at biggerpockets.com/moneyquestion. All right, he is Scott Trench and I am Mindy Jensen saying, ’til then penguin.
Scott: If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
Speaker 1: BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kalyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.
