Mindy: Welcome to the BiggerPockets Money podcast, Finance Friday edition, where we interview Mark and talk about money dates, true portfolio performance, and planning your future.
Guest: So, the reason for that, um, is because that $3,000 a month that’s coming out of my portfolio is going to my wife. Um, and we have separate finances. Um, she’s got student loans, she has a car loan and things like that. Um, and again, when we when we ran the math, um, so that she could stay home with the baby, um, that’s basically bankrolling her her cost of living expenses.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my one throat to choke co-host Scott Trench.
Scott: I’m liking. Like I’m liking that intro Mindy. Thank you.
Mindy: That intro is courtesy of our guest today, Mark who introduced me to my new favorite phrase.
Scott: Have you ever heard the phrase one throat to choke before?
Mindy: We all learn something new each each.
Scott: We do learn something every new on on Bigger Pockets money.
Mindy: Okay.
Scott: Because Mindy is unable to continue, I’ll I’ll take over for her. Mindy and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting.
Mindy: That’s right. Whether you want to retire early and travel the world, go on to make big time investments like in assets like real estate, or start your own business. We’ll help you reach your financial goals and get money out of the way so you can launch yourselves towards your dreams. Uh, Scott, in addition to learning a brand new favorite phrase, I had a really good time with this episode. Uh, Mark has an interesting financial situation. He also has seven rentals, um, six of which are doing great and one of which I think he should really review the numbers again and potentially look into getting rid of.
Scott: Yeah, you know, we we you know, when we, you know, the first 30 minutes of the interview with with Mark, we we uh, we uncovered a couple of things, but Mark’s a millionaire. He’s he’s he saves a lot more, he spends a lot less than he earns. He’s got a portfolio, a pretty balanced portfolio between equities and real estate. He’s got a strong cash position, we can beef that up a little bit. Um, we found a couple of things, one of a couple of cash properties may not be might be cash flowing, and I think that’s a good call out for anyone as a real estate investor, analyze your properties and determine if each one individually is cash flowing. If you have seven properties and your cash flow is $1,000 a month, you have a very good chance of having a dog that is not actually cash flowing in that portfolio. Really good advice. And then if you have a financial planner, make sure you know what they’re doing. um, because that was that was another big takeaway from this. But then we get into the real, the real issue uh in in Mark’s uh uh portfolio about 30 minutes in, which I think is a is a fun twist.
Mindy: Yes, I think that is a really good way to phrase it, a fun twist. I think that, um, when you are running your own personal numbers, you need to account for everything. Every dollar that leaves your pocket in one way or another needs to be accounted for, and every dollar that comes in your pocket needs to be accounted for. So, 30 minutes into this show, we…
Scott: Have a twist.
Mindy: Have a twist. I think that’s a good way to say it.
Scott: All right. And before we bring in today’s guest, Mindy’s attorney makes her say, The contents of this podcast are informational in nature and are not legal or tax advice. And neither Mindy nor I, nor Bigger Pockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate.
Mindy: Mindy, let’s go talk to Mark about his money now.
Mindy: Mark, welcome to the BiggerPockets Money podcast. I’m so excited to talk to you today.
Guest: Thank you. Thanks for having me, Mindy. I appreciate the time.
Mindy: Before we jump in and give you advice, first we have to see what we’re dealing with. I’m going to run through your numbers really quick. We have a salary of approximately $8,500 a month, which is no small potatoes. You’re doing pretty well. Rental property income, which nets you approximately $1,000 a month after mortgages and property management fees. Primary residence mortgage, for your expenses, we have a primary residence mortgage of about $1,400 a month and all your other expenses lumped in at $1,500 a month. This is clearly not the issue, so we’re not going to focus on that and quite frankly, Mark doesn’t even keep track of his minute individual expenses because he knows that as long as he is keeping around $1,500 a month, he’s doing just fine. And how does he track it? Well, he’s got a running spreadsheet that dates back to 2016. So he is aware of what he’s spending and he just knows that this isn’t where the focus is. So this gives us a grand total of personal expenses at $2,900 a month. Remember, back up at the top, $8,500 a month income, $2,900 going out. I think that’s pretty good. He did note that his collective mortgages for rental properties is $2,400 a month. and I want to point out that rentals are a business and not a personal expense. So rental mortgages would therefore be a business expense. We’re keeping his personal expenses at $2,900, which he says has been fairly consistent for a long time. Business expenses, this is more for people listening than directed at Mark. Business expenses come out of your business accounts, they don’t come out of your personal accounts. Uh on the investment side, we have $750,000 split up among 80% stocks, 15% bonds, 4% real estate and 1% cash. We have $22,000 in an IRA, $16,000 in a Roth IRA, $34,000 in personal cash reserves, which I love. $11,000 for the business cash reserves, which I am going to talk with him about in a bit. $850,000 in total real estate value, $400,000 in mortgages, giving him approximately $450,000 in equity in his rental properties. So Mark, welcome to the show. What can we help you with? What are your goals for this uh for your financial situation?
Guest: Thank you. Thank you so much for having me Mindy and Scott. I really appreciate the uh the time. Uh big fan of of Bigger Pockets and Bigger Pockets Money for sure. Um, you know, so today I I really just kind of want a second set of eyes. You know, I’ve got a lot of uh call it balls up in the air at this point uh between the real estate, um the stocks, the bonds, um and I’d like to see if there’s any opportunities for improvement. Um, you know, it’s kind of the old adage of I don’t know what I don’t know. Um, you know, I’ve definitely been a uh a student of money for a long time, student of the bigger pockets um for sure. Um, but with that being said, I I also consider myself a lifelong learner and and I’m always open for feedback and recommendations.
Scott: Awesome. What what are the goals that you have?
Guest: Um, so to to provide you a little bit of background, I I just had, well, my wife and I just had a baby girl, um, about a year and a half ago. Um, she uh, I I did not want her to go to daycare. Um, so she actually stayed at home with me while I I worked from home for about the uh the first eight months or so. Um, my wife was a teacher. Um, so when the school year ended, we decided, um, that she would actually stay home with the baby. Uh we had conversations amongst ourselves, amongst uh the financial advisor as well. Um and really kind of determined that um we would be able to cash flow um $3,000 a month from just the investments, um, which would allow her um to support the baby and stay home kind of indefinitely. Um, you know, she she does plan on going back to work, you know, once the the child’s in school. Um but for the time being, you know, that’s that’s kind of where we’re at. Um we do for the most part have separate uh finances. So, you know, I think my goal being is, you know, realistically, what options might we have for, you know, one of us at least to um, retire if you will, um, indefinitely. Um, you know, I think there’s a little bit of uh golden handcuffs on my side if you will, which we can certainly talk about as well. Um, you know, Mindy you mentioned the uh the the I think you said it was the 85k, but with commissions, my my total yearly W2 take home is about 155k. Um, so it’s the cost benefit analysis of do I do I stay in that position or do I become a stay at home dad? So, that’s kind of where we’re at.
Scott: Lovely. Could you give us a uh three-minute background on your money story, how you got to this position? Because you’re in a strong position. I got probably some good news for you on on what the goals that you’re asking about.
Guest: Okay. Yeah, so I I’ve always been interested in real estate. Um, you know, my my father um, dabbled in the real estate game. Um, you know, he was a a white collar professional um growing up but you know, he I guess you could say it was his side business, you know, he he cash flow from some rental properties. So from for quite a while uh growing up I saw the benefits of owning real estate. And then kind of after college, um, and I was fortunate enough to to be on scholarship throughout college and graduate school, so I didn’t I didn’t come out with any um, student loan debts. Um so after college once I kind of started my career, I started saving money, educating myself, you know, obviously, um found my way through bigger pockets. Um, and slowly but surely just started buying uh rental properties. Um, you know, all of mine are are the the turn key model. Um, you know, I know some people like that, some people don’t. I’m happy to discuss um, you know, why I chose that model. Um and ultimately now we’re now we’re here.
Scott: Awesome. And and uh could you give us a a breakdown of, you know, a typical turn key purchase? I would love to hear why turn key and then what that is a how those cash flow.
Guest: Yeah, for sure. Um, so I use a uh one particular provider, um where they essentially buy um, call it dilapidated properties, they do the fix and flip internally, um then they sell it, call it retail to investors like myself. Um, then they also have an in-house property management company, they have in-house um, repair personnel. Everything is one throat to choke in house, so there’s really no finger pointing between anybody.
Mindy: I’m sorry, I’ve never heard that term, one throat to choke.
Scott: Which firm, which firm do you use?
Guest: Uh I use Mid-South Home buyers.
Scott: Mid-South Home buyers, okay.
Mindy: I’m sorry, I’ve never heard that term. One throat to choke.
Guest: You’ve never heard it before?
Scott: I use it all the time, Mindy.
Guest: Choke slamming people over here.
Mindy: Clearly, you seem the type.
Scott: Could you walk us through the numbers on a on a recent purchase and how do you arrive at cash flow for that?
Guest: Yeah, so one of the most recent ones I purchased for 975. Um and as of right now, according to Zillow, it’s actually worth about 1039, so it’s already gone up several thousand. The rent on that is 775, again that’s not accounting for um the 10% property management fees or anything like that and I believe the mortgage on that is going to be the uh 41618. So about 400 bucks a month. So again, roughly 2, 300 bucks a month in cash flow on that particular property. and that’s that’s about the same across the board for all of them.
Scott: Awesome. Let let me let me provide a couple of of uh thoughts here. $775 in rent, uh minus a 10% management fee is $77.50 a per month. Um, we have a $416 uh mortgage each month. I’m gonna allocate $60 for you in vacancy costs. That’s about 8%. Um, you’re not gonna have that property occupied year in and year out long term. Hopefully you beat that, but that’s a good conservative estimate for vacancy. And then I’m gonna estimate $100 for maintenance and because it’s a turn key property and hopefully everything is brand new, I’m gonna estimate $75 per month in CapX, that’s for your roof in 15 years, those types of things. So I at least you like $50 in cash flow, which is still positive. So you’re you’re you’re making money on this investment most likely I think. Um, you know, with some conservative vacancy, um, maintenance and CapX numbers. Those maintenance and CapX numbers will increase 10 years from now. Um, but hopefully you have a fairly well-conditioned unit if you got a reputable turn key provider there.
Guest: Yeah and that’s and that’s a good point. And and again, that’s actually one of the reasons that I that I choose the turn key providers is because they do everything from uh the roof to the Hback systems and, you know, Mindy it’s one throat to choke um at the end of the day. So, new floors and everything like that.
Scott: I think it’s great and I think there’s every reason to expect those expenses to be lower. If you weren’t using a turn key provider, I’d be telling you, you need no you need no less than $150 per month for maintenance and probably the same for CapX. Hopefully we’ve got a better deal there, but you want to be conservative with those. Um, but that that will depend and I think that uh, um, you’re not cash flowing $250 in this property. Um, you might hit that might hit your bank account some months, um, but other months you’re gonna get a $2,000 dinger um or a turnover event that’s gonna wipe that’s gonna wipe that out.
Guest: Yeah and you’re right. And and like I uh kind of Mindy mentioned at the beginning of the show is like I I track um the the monthly cash flow, um from all of these, all of these properties and that’s a perfect example. Like last December, I was actually negative about $1,200 for that exact reason, the get ready where they had to flip for a tenant. Um, another month earlier this year, I I netted all of $26 for the same reason. so, you know, it it definitely all averages out.
Scott: Yep. So I would I would just think about it when whenever you’re analyzing a new property, um, think about it in terms of those averages and and bring down those expectations to to account for the things that you can’t see, which include vacancy, uh, maintenance and CapX that will come in. Those are the big ones that are hard, again hard to see. You’ll obviously know the the management expense, of course. Um if you have any utilities that you pay, probably not, um those will be things you should include in as well. So, okay. Um, and so, if I were to include those items in your overall estimate, does that change your cash flow number? Does that reduce it from $1,000 a month you anticipate to something lower?
Guest: Oh yeah, probably. So the the $1,000 a month again is just the average of what’s actually hit my bank account. So, um, you know, we’d have to do whatever the what did you mention per property or per door if you want to do it that way.
Scott: I think you should estimate an 8% vacancy rate per property. That’s one month of vacancy. I like that because if you have a great property manager, a good good property manager, they will probably charge you about 50% of the first month’s rent and they should be able to turn around the property very quickly within two weeks.
Guest: This particular provider, you know, knock on wood, there’s never been um whenever the first tenant moves out, the next tenant moves in the very next month, which has been fantastic.
Scott: Great. So you’re only have a week or two with vacancy and then they they have a new new person in.
Guest: Correct. Yeah and again, that a lot of that’s contingent upon what the get ready looks like. Sometimes it’s just cosmetic stuff, sometimes it’s more, but there’s never been I don’t think I’ve ever gone a month without um with with vacancy.
Scott: Perfect. But you are paying them a half a month rent most likely for placing the new tenant.
Guest: I believe that’s correct, something along those lines, yes.
Scott: That’s why I like to use one month vacancy or 8% is because you’ve got the two- week turn plus the 50% of that first month’s rent going to your management company, which I put into the vacancy column. You could put it into the management expense, but I like to allocate uh mentally in the vacancy thing. So, 8% vacancy is what what I would recommend you always account for on these properties. and that assumes one turnover event per year. Hopefully your tenant stay a little longer and you only have that turnover event once every two or three years and you beat that number, but it’s a good conservative number to underwrite to in my opinion.
Guest: Okay, cool.
Scott: And then and then I think that if you have an older property, um, you got to assume, you know, a big long big yard that’s unkemped or whatever, um, you’re in the southeast, you know, you’re going to have to do that and um, but you’ll have you’ll have $250 a month in maintenance would be my my allocation for a turn key property, I hope that would be less, which is why I’ve allocated 100 for for yours mentally. And then for CapX depending on the condition of the property, this is anybody’s guess. But an older property that needs a lot of work and you know you’ve got deferred maintenance, I’d budget 250 or 300 a month for a newer property or one that’s been recently remodeled or turned by a reputable turn key provider, maybe you need less and I’d allocate $75 or $100 a month. Okay. So those those would be some rules of thumb that I would put in there. and that will that will help you actually know your cash flow over the course of a year. So.
Guest: Okay.
Scott: And and you’ll and your numbers will prove it out uh over time. You’ll you’ll know if you’re too high or too low and you’ll get your averages. You probably have enough historical data already to give yourself a good guess at what those should be.
Guest: Actually, yeah, over the past two years I’m averaging 1,100 bucks a month. Net cash flow. And that’s, you know, turnover events and and what have you.
Scott: Great. So so we’re probably in a good spot there. Do you have any properties that you think are particularly or are not cash flowing out of that? Cuz you’re you’re seven properties with $1,100, that means each property is averaging about 125, it it it begs the question, is there a loser in that mix that that could be the one to sell?
Guest: I don’t think so, not at least not at this point. You know, I do have concerns over one of my particular tenants. Um, so I I purchased the duplex um, from another investor. So it wasn’t like a brand new net new uh turn key model. However, it was uh purchased from Mid-South from the investor and then I purchased it. So call it, you know, certified pre-owned if you will. Um, and one of the tenants is on a uh um, a month by month lease, which I’m not that big of a fan of. So, you know, I’m I’m not looking forward to that get ready when that happens.
Mindy: I have a comment, Scott. I’m looking, I do have the privilege of seeing all the numbers that you have shared. I’m looking at investment property six where the rent is 775 and the payment, it looks like the mortgage payment is 699.
Guest: Yep. So that was one of the one of the newer ones. I think the provider that I or the lender that I use required me to do 25% down. I don’t really remember why that mortgage payment is as high as it was, but I was kind of shocked when that happened as well.
Scott: Well, that’s a great that’s a great one to go looking for. You’re probably losing money on that one.
Mindy: So, what is that, what did you purchase it at versus what is it worth now? Are there any opportunities to change it out? Have you thought about a short-term rental model or a medium-term rental model?
Guest: I’m going to be honest with you, I’m not I’m not that big of a fan of the short-term models, the Airbnb piece. Um you know, I know that they can uh make a lot of money, but they also require a lot of a lot of management and you know, if I was to do something like that, I I’d definitely hire a property management firm as well. I just for me it’s I I just kind of like to set it and forget it and have my tenants in there for at least a year.
Mindy: Okay and that’s that’s totally valid. I love that you know what you like and you know what you don’t like and you don’t want to just like throw spaghetti on the wall and see what sticks. I love that. Um I am going to try and and throw one more thing at you. There’s the medium- term rental concept where you’re still doing the furnished rental so you’re getting more income because people aren’t traveling with their stuff, but they’re staying longer. It’s a way to get, I have to be careful the way I word this. You’re not getting around short-term rental laws because you’re not doing short-term rental. These are minimum 30-day stays. And it’s more like traveling nomads, traveling professionals, um traveling nurses or military. It’s people who have uh sometimes they have acipen to travel, sometimes they are just, you know, out and about traveling all us frugal weirdos that are are travel fi people. Um, and they are willing to pay a higher rent because they are unwilling to sign a one-year lease. Um in general, there’s less turnover. It’s a $150 cleaning fee that you can charge them versus, you know, $10,000 in turnover costs when you’re replacing the carpet and doing all of that sort of thing. Um, we have a new book coming out. Bigger pockets has a new book coming out. It’s so new, I don’t even know the actual name of the book, which is really poor planning on my part. But it is about medium-term rentals. I’m gonna send you a copy so you can read through it and and really determine, hey, this looks really interesting or you know what, I’m gonna stick with this. But that could be a way to juice some returns on this property that isn’t uh such a return winner right now. Um, and maybe that one isn’t in the right neighborhood to to do a medium-term rental or maybe it’s located, you know, across the street from a corporate park or by a football stadium or, you know, by a, you know, something exciting where people want to come and see things. Um, a great way to just look for this is to go on VRBO or Airbnb and just search for rentals in your area and see what’s available and basing based on the makeup of this particular property, let’s say it’s a three bedroom, four bath house, see what other three bedroom, four bath houses are out there and what they’re renting at for month long rentals.
Guest: Okay.
Mindy: So, maybe you could juice your returns on that one a little bit. And the same with the duplex, if you’ve got a big turnover coming up, maybe that would be worth it to turn it into a furnished rental. But you don’t have to do the whole properties, but that’s an option. So, just a bit of homework.
Scott: I I completely agree with Mindy’s premise here though that 775 in rent and a $700 mortgage payment, this property is going to suck cash out of your life until you sell it until many years past. So you could make money, you could go up in value, you could advertise a loan, but it’s not a property I would invest in. And I’m on I’m on team sell if you’re not interested in short-term or or medium-term rentals and just reposition it into another one of these other properties or use it to pay down debt or something like that.
Mindy: Yeah and if you are going to turn it into a different property, look into a 1031 exchange.
Guest: Oh yeah. Yeah, yeah, yeah, for sure.
Mindy: I don’t think it matters if you bought it yesterday, you can still 1031 into something else because you purchase it as an investment property and now you’re going to buy it another investment property. To get a 1031, you need to have a qualified intermediary. Those those are that’s a a specific job title, uh qualified intermediary to hold your hand throughout the whole process. They take possession of the money and then buy the next house for you. I mean, they don’t, you still buy it, but um it’s there’s a lot of hoops you have to jump through to make it work, but it’s worth it because then you’re not paying any taxes on this, on the gains, you’re just kicking that can down the road. Um, so that is another homework opportunity to look into. And you don’t have to make any of these decisions right now. That’s just something to look into and see if it makes sense.
Guest: Okay. Cool.
Mindy: Um, you said something about you’re taking uh $3,000 a month in cash flow, are you selling down stocks?
Guest: So, we that the majority of that is coming from the dividends um popped off by the stocks. Uh full transparency, my financial advisor handles the majority of that. When we ran projections on that, um I don’t know, several months ago, um he showed me that it could work. Um so some of it’s uh the dividends on the stocks and then I believe we’re selling down some bonds as well.
Scott: And have you looked into the tax applications of that?
Guest: Yes, so he I am going to get taxed on it, but we also did something I if I can remember what he called it, uh tax depreciation where essentially we we sold some stocks and then bought some at a lower rate um where it essentially would offset the the taxes if that makes sense at all.
Scott: Is that tax loss harvesting?
Guest: There you go. That’s what I was looking for.
Scott: Yeah. Let me, let me, I think I know the answer to this question. How does your financial advisor make money?
Guest: Uh, he makes money off of me.
Scott: You pay him by the hour or do you do you pay him based on assets under management?
Guest: No, it’s assets under management.
Scott: I I am I am not a fan of that and my instinct every time I hear that is move on from the financial advisor in those cases. Um, because I think if you’re not paying your financial advisor by the hour, you’re paying them out the wazoo with your in in terms of fees that they’re going to be harvesting from your portfolio. Often in the one to 2% range.
Guest: No, it’s a lot less than that. Um, I think it’s actually about . 1% or something like that. Um the firm is actually called Creative Planning. um and from and we can actually cite some of the books that I did the research on. According to everything that I’ve read, they actually have the lowest fees across the entire industry.
Scott: Fair enough. I will look up I will look at uh creative planning and take a look at them after this. Um but I do think that you have some homework to do in understanding what your financial planner is doing with this portfolio. um because this is most of your net worth. We just talked about a minority of your net worth in your rental property portfolio, but the more than half of it is going to be in this um stock portfolio and I think not knowing what’s going on there is gonna be um a major homework assignment for you in a general sense. But okay. I I do want to just take a step back and zoom out and look at your position. You you you are worth $1.5 million and you spend $3,000 a month. Um so you’re done, right? I mean, in order to spend $3,000 a month, you need like $750,000. So just with your stock portfolio, you can cover all your housing and other types of things and your real estate is gravy in terms of a traditional retirement planning thing. Do you plan to spend $3,000 per month on a go-forward basis or do you want to spend more in order to achieve your your financial goals?
Guest: For the most part, probably on a go forward basis. You know, half of that, half of that is actually my mortgage as well. Um you know, the the $1,400 is couped into that. So, you know, the the $1,500 that you mentioned at kind of at the beginning of the show, Mindy, you know, I don’t $1,500 is everything from gas, food, um insurance, phone bill, things like that. Um you know, so that that actually begs the next question of whether or not I should pay off my my mortgage. Um I’m definitely in the camp of, no, no, I’m definitely in the camp of not doing it. Um but to your point Scott, I don’t I don’t foresee myself significantly increasing my my cost of living expenses anytime soon.
Scott: So then what why why do you uh what do you want to like quit your job? Do you want to hang out? Like what what what what’s going on?
Guest: Well, and that’s that’s part of it as well. You know, because I’m clearing um well into the six figures, um quite honestly my job is not very difficult. Um, you know, there’s the health insurance piece of it and to be honest with you, I’m not entirely sure what I would do with my time if I quit. Um, you know, I could spend my days out on the water, you know, fishing and doing things like that, but you know, I I I can’t see myself doing that for the next six years. What what happens in six years?
Guest: I don’t know, nothing nothing specific. I was just, you know, saying further down the road.
Mindy: Okay, my first comment is, why are you taking money out of your portfolio when you already make more money than you’re spending at your job?
Guest: So, the reason for that, um, is because that $3,000 a month is coming out of my portfolio is going to my wife. um and we have separate finances. Um, she’s got student loans, she has a car loan and things like that. Um, and again, when we when we ran the math, um so that she could stay home with the baby, um, that’s basically bankrolling her her cost of living expenses. Um, whereas my finances, the money that I’m saving each month from the job, and this is actually one of the questions I want to ask you guys is, you know, it’s being invested back into real estate. Um, you know, I just put money away for her college. um, you know, home improvements and and things of that nature.
Scott: So this is really interesting. This is like the other half of the story. So we’re you’re like, hey Mark, you’re you’re worth a million and a half, you spend three grand a month, uh you’re you’re you got a good rental property portfolio and you’re able to harvest a lot of cash from your portfolio. What’s going on? Well it it sounds like there’s really a family financial situation that we need to discuss here as well in the sense that your portfolio is paying for your wife. Is there a reason you haven’t combined finances? What’s the back story behind that?
Guest: It’s a little bit of an emotional one, um, because she’s had the opportunity to pay off some of the the loans and and be more strategic with finances and and she’s decided not to. So, um, that, you know, we don’t we don’t see eye to eye all the time on finances. so it’s kind of the agree to disagree at this point. So.
Scott: So there’s a conflict in terms of household finances.
Guest: Correct.
Scott: And the resolution to that is you’re paying her $3,000 a month and she does what she does with that and you have your finance separate.
Guest: Correct.
Mindy: I am not here to change your mind. She’s not here to share her side of the story and that’s really not the focus of this conversation. You guys seem to have come up with something that works for you. So I don’t think that we need to focus on that, but I also think we need to acknowledge that it’s there.
Scott: I think it’s a focal point of the thing. I I I hear that you’ve you you you you you you may not you may be at an impasse with that, but like I think that the what how that’s cascading into our conversation today is Mark doesn’t know what he wants. Mark, you don’t know what you want from this. You’re you’re like, hey, I I’m making bank. I have this big portfolio, life is good. I could retire right now with the way I set up my finances for my personal expenses with this. But I can’t really do that because I have to I have another three grand in expenses that I got to bank roll my family for uh to a large degree and that’s that’s part of the deal even though it’s not really and I think that this is a major underpinning of the conversation. Is that is that accurate, Mark?
Guest: Yeah, that yeah, that’s accurate and and again, by and large, I I don’t know what I would do if I, you know, if I if I stopped working. You know, I could be the the stay at home dad and then she could go back to work. But at the end of the day, you know, that would be a teacher’s salary versus, you know, what I’m making. So it’s just it’s kind of a no-brainer. at least for the, my gosh.
Scott: And that’s kind of.
Mindy: I think it’s important to talk about that because yeah, that’s kind of a no-brainer to keep, I mean, Carl and I had similar salaries. I was making basically a teacher’s salary without being, you know, the prestige of a teacher and he was making a salary similar to yours. I stayed home with the kids because I wanted to stay home with the kids, but also, it was not financially advantageous for him to stay home with the kids and me to go work and then, you know, we could just scrape by on nothing.
Guest: Well, and that’s that’s exactly what it is.
Scott: In spite of the fact that there is no formal agreement or you’re at an impasse, you’ve effectively reached an agreement where you’re paying her $3,000 a month and she is handling all of the child care expense um uh frankly to to a large degree with that. Is that So, we do have an agreement it’s just not um one that’s been formalized or maybe arrived at uh the way that, you know, in a way that’s in alignment um in a formal capacity. But but I think going back to you uh and your situation, I think this is where you got to like I think you got to think about like what do I want in three to five years? And it’s a simple it’s it’s as simple as this defining that and an artifact for that is this vision uh document. I’ve now said this a million times and I feel like a cheeseball when I say the word vision document. But like I think I think a tool that you you might benefit from by like just, you know, go somewhere. What where do you like to go where you feel at peace and you feel like your your your life is good and I’m I’m happy at this point in time. Is it fishing or on a boat or something like that? You mentioned it earlier.
Guest: It’s on my boat. Yeah, it’s definitely on my boat.
Scott: Awesome. May maybe you take you you you take a day and you go out on your boat and when it’s when it’s beautiful out and you bring a notepad uh with you and you just write like one page or one half a page and say, in three to five years, here’s what I want to be doing. I want my days to look like this. I want um to wake up in the morning at this time, I want to do these this thing first thing in the day, I want to I want to hang out with these people. I want to I want to look out my window and see this view or whatever that is. And that I think will be a really powerful starting point. And then um, you you can take or leave this because you you’ve said there may been there may not have been alignment there, but I might even consider drafting that in a word document, typing it up on your computer afterwards and presenting the words draft vision for Mark family, a draft and presenting that to your wife. And and seeing what her reaction to that is. Um, and and and asking her, could you please provide input on this? This is something I drafted. What do you think? Uh, would you, would you make any changes? Hopefully she does make changes, otherwise she’s not engaging with the process. But from that artifact, you could then begin saying, okay, if we we like those things, imagine we had all the money in the world and life is good because you do have all the money in the world. You’re you’re a financially independent millionaire at this point in time. So you can, you can dream a little big in this. And you say, okay, if we have all that, what do we want? What do we want our life to look like? Okay, great. Here’s what would have to be true financially with our household finances in order to make that happen. And this might be a way to re-engage that conversation with your wife, which I think is a uh a major factor in your overall financial story and then talking about this. If you can arrive at a shared vision and alignment, you can maybe restart the conversation around household finances in a healthy way uh and figure some of those things out. How does that sound? What’s your reaction to that?
Guest: No, that’s that’s all good, man. You know, and that’s that’s definitely has that has not been something that that has happened. Um, you know, so I will I’ll definitely take that as an action item of before. So, I like it.
Scott: Draft vision, right? The word draft does a large amount of uh work there. If you come in with something that is not aligned at first or like way off or whatever, word draft will save you there.
Mindy: Um, I want to bring up a document that I created last week or the week before on the file, fire planning worksheet. That can help you figure out, uh in conjunction with Scott’s draft vision, uh this is just this is for you. This could be a separate one could be for your wife to talk about what you want your post-fi life to look like. Um, I will send you a link, uh, I’ll email you the link, Mark, but I’ll also include a link in our show notes so people listening can download this document as well. Uh, and it just asks you a bunch of different questions. What is it that you want your fi life to look like? What do you want to spend your days doing? Why do you want to be financially independent? A lot of people want to quit their job but they quit their job because they work for, you know, Scott Trench the evil troll boss, who is actually not, it’s not true. He’s really nice. Um, but if you just hate your boss, maybe you really like to work or you would like to work if you didn’t work for this evil troll. So go find a new job. If you want to be productive and, you know, contribute to life in a different way, find a different position. Don’t just sit here and you know, muddle through to get to the end so you can be fi and then you’re like, oh, now what? It’s more of a it’s a guiding helping you figure out what you want so then you can shape, you know, what your fi number looks like. What does your Um, I I’m not so sure that 750 is your fi number. I think maybe 1.5 or two million would be closer to your fi number. Um and you do have a healthy net worth, a very healthy net worth. Scott, we really stink at at saying hooray. So, hooray, you’re doing great, Mark. You really are doing great. Yeah, yeah, you’re you’re you’re crushing it. You spend $6,000 a month. um not three, but it’s still a very good healthy, healthy uh spread between your investment between your income and your expenses and um, uh, you you you you have a great portfolio, you’ve got strong rental properties. I think if you’re asking us for like money advice, if you just keep doing what you’re doing, you’re going to continue to compound your wealth, right? You’ve got a great situation. I think you have two cleanup items. I think you need to go through those portfolios. I think you got one to sell. uh, uh, one in that and just maybe just sell it and rebuy another one that’s better, that’s a better cash flow. It’s just a simple repositioning exercise. And then I think you need need to have some understanding work to do with what the heck your your CFP is doing uh on uh in terms of your portfolio and why, not not because you’re not doing he’s not doing anything wrong necessarily or she, it’s just because you don’t understand it and you need to understand it because it’s half your wealth. Um, but I think those are the two things. And the bigger one is is figuring out how to get um, you know, addressing the elephant in the room, which is that, you know, twice half your spending is going it’s essentially payments to your wife and I think that even though you may have had some conversations previous with that, re trying to reapproach that in a healthy way is going to be a game changer for you. I think your biggest problem is you don’t know what you want and and if you if you keep doing what you’re doing, you’re just gonna keep growing your pile of wealth. Um, there’s no question about that because you’re very efficient at generating wealth at this point. but I don’t I don’t I think I think you want to move towards something specific and you’re gonna feel a lot better about that if you can do that, especially in partnership with your your wife.
Mindy: We should have said that at the beginning. We’re like, oh you gotta do all this other stuff.
Guest: Yeah. Yeah and that’s that’s something that I’ve I’ve honestly struggled with for for a long time. You know, I could see myself being I guess in a theory, being on the boat all day. I could see myself traveling the world, but, you know, is that something that I could do for 12 months, five years? I don’t know. Um, you know, I took so another another point to mention is, I actually took the entire month of January off because my company gave me that month for paternity leave. Um, and it was the first time that I’d pretty much completely unplugged from work, email, this, that, and the other since ever, high school and it was it was incredible. Um, I was able to be present um, with her, um, watched a lot of movies. It was amazing. So, what I learned from that experience is that work will always be there. I don’t know what I would do in early retirement, but you know, the flip side of that is do I do I actually retire and then just take some time to figure it out? Possibly. Um I don’t know.
Scott: Yeah. Well, I think you can experiment and and and it doesn’t have to be an event. You don’t have to like know what you want tomorrow. It can be a process of figuring it out. But I think that’s your challenge right now. Congratulations. That’s a great problem to have. You’re not in like the I need to build up an emergency reserve or pay off a bunch of debt or whatever. It’s I’m a multi-millionaire and life is good and I got to figure out what the heck I want to do with this immense power I’ve created for myself long term. And that’s that’s a fun, make it a fun challenge. Don’t don’t, it doesn’t have to be like, uh, oh, I’m I’m so things are horrible because I don’t know what exactly what I want to do next. It’s a fun, no, it’s great. I’m gonna go try this out. I’m gonna go try this out. You could start a business, you could switch up your career if you want to be something different, you could just keep doing what you’re doing. That’s a great option. Uh and and the pile will continue to grow and your your options will continue to expand if you keep doing that. But I think that just going through that exercise will be helpful because we can’t give you advice on like how to reposition your portfolio other than tweaking a few things if it’s not like, oh, I want to live in Bermuda in three years um and have a jet ski. Oh, great. Okay, we can back into that and and tell you what needs to be true or whether that’s realistic.
Guest: Well and it’s so so we actually have toyed with the idea of moving um out of country, um probably to Belize or somewhere like that. And if we did, you know, the then the question becomes is what do we do with the primary primary residence? Um you know, my mortgage is at all of $1,400 a month. We could probably clear about 3,000 a month in in rent here for the house. And you know, to your point, that would that would clearly bankroll our lives in a in a country like that.
Scott: Yeah, man. I think it’s great and I think that would be a really fun exercise to say, you know, here’s a good one. Over the next three to five years, we don’t know what we want. We’re going to figure out what we want. And in that process, we’re going to spend six months here uh with me chilling at home. We’re gonna spend six months in Belize with me working full-time. We’re gonna spend six months in Idaho or six months in Portugal or six months whatever, three months there. Like those that that could be a fun exercise as a thought starter for example. Or I’m gonna we’re gonna continue living here and I’m gonna start a business or you know, things are good. I could see myself here for five more years um, hanging out on my boat. with that and no changes necessary and the pile will continue to grow, you know, even though we don’t really need the pile to grow that much at this point or you know, we’ll just cook finish the journey coast over the next five years to financial independence because you’re you really need that probably two to one one and a half to two million um is probably the the range you need to spend $6,000 a month.
Guest: Yeah and that’s and that’s the other piece of it and that that’s one of the other reasons that I don’t really want to quit my job is because, you know, this year after taxes, I’m probably going to save cash about of about 50 grand. Last year I saved 70 grand after tax. you know, and that paid for my daughter’s college. It’s, you know, going back into another real estate and things like that. So, the opportunity cost I think is there if I were if I were to leave my job. Um which is one of the reasons that I that I don’t really want to do it at this point.
Scott: Great. We don’t have to. All you have to do is all you need to do is sit down and say, I got this great position. What do I want?
Mindy: Okay.
Scott: Awesome. Well thank you very much for coming on the on the show today and and we’re glad this was helpful. We have we have uh a couple of good action items there and and uh hopefully those will be helpful. We’d love to check in in a couple months and hear how things are going.
Guest: Absolutely. Yeah, let’s do it again guys. I appreciate the time and uh thanks for the conversation.
Mindy: Awesome. Mark, thank you so much for your time and we’ll talk to you soon.
Guest: Thank you.
Mindy: All right, that was Mark. That was uh Scott, as you alluded to at the beginning of the show, that was a fun twist and I do think that in order for Mark and his wife to fully embrace this fire lifestyle, I think that a money date would be in order. Um, my action items for Mark would be to have a money date with his wife and this is because they’re not on the same stage page financially, this is going to be a delicate introduction. Let’s listen to episode 157 together. Let’s listen to uh that new money documentary on Netflix. Uh what is that called getting good with money?
Scott: Yeah. Well, well, I I I think I completely agree with that. If you’re going to suggest stuff, uh, think get smart with money is the new documentary. There’s Playing with Fire, it’s another good documentary. There’s um, episode 157 of our podcast, of course. But it might be hard to get your spouse to like listen to or watch one of these things. But it probably will be an easier entry point to say, hey, um, spouse, this is what I was I was thinking about this and I I love you very much and this is I want to like what I want our life to look like maybe in a couple years. I so I put together a draft of it and would love your input on it. Would you be willing to look at that with me one day this week? Um, like Saturday morning or something like that uh over breakfast. And and that is I think a really good way to break break the subject of, okay, oh, this person wants these things. I want these things. We’re actually very aligned on most of those. And then I love the tool from playing with fire that you mentioned around listing all the top 10 favorite things you like to do and saying, let’s optimize our life so that we’re doing more of those 10 things and not spending money or doing things um that that are not in that top 10 list. Um, or or reallocating time and money uh to enabling that. I think that’s how you broach the conversation with money, not by, you know, saying, hey, I want you to spend an hour and a half watching a fire documentary with me. That that’s great. Maybe that’s after the first conversation.
Mindy: We had a, we did have a guest who said whenever I want my husband to listen to something, I just lock him in the car with me and we drive for a while and I make him listen. And, you know, that might work, that might not work. Uh, maybe if they have a great big long road trip coming up that might work. Um, hey, I’d like to listen to this podcast together. Whatever you can do to get the conversation going. And it has been quite a while since we recorded episode 157, Scott, but I remember that we had several ways to get the conversation going. Rule number one, make it non-confrontational and non-judgmental. This is how I see our lives, us spending time together. Like you get married to spend time with someone. You don’t get married and never ever see them. So, um, I think there’s a lot of ways to have a conversation, but non-confrontational and non-judgmental should be in the forefront of your mind when you’re thinking about how to approach it.
Scott: Speaking of uh Git smart with money, uh that’s fantastic. It’s a new documentary out um on Netflix. It features uh Mr. Money Mustache, it features Paula Pant, it features Tiffany Aliche and it features Ross McDonald. Um, and it was just it was just great. It follows four different money stories and uh my favorite part of it was uh uh uh Mr. Money Mustache follows a fairly well-to-do couple in Boulder, Colorado who are looking to achieve financial independence and at one point they cut $3,000 out of their spending. Hopefully it’s not too much of a spoiler. And Mr. Money Mustache’s reaction to that is something to the effect of, wow, you cut $3,000 out of your spending. That’s like cutting a whole family’s budget out of your budget. And I think Mark’s budget today really reminded me of that. Uh, really reinforced that. So, anyways, it’s a great show. Uh, there’s folks from different walks of life and uh really a fun thing and pretty educational.
Mindy: I have not actually not seen it yet. We’re having a watch party at the co-working space in just uh next week and I’m very excited to um to watch it. It actually came out when FinCon started, so we couldn’t do the the watch party. I am very excited.
Scott: Shall we get out of here, Mindy?
Mindy: Yes, we should. Wow, we really flip-flopped these roles today, Scott. That’s great. All right. From the Finance Friday episode this week of the Bigger Pockets Money podcast, he is Scott Trench and I am Mindy Jensen saying, bye-bye butterflies.
