Speaker 1: Welcome to the Bigger Pockets Money podcast, show number 338, Finance Friday edition, where we interview James and Bianca and talk about large student loan debts, early retirement, and real estate investing, like always.
Guest 1: One thing is like, I I’m fearful of creating just a new job for us, right? Like, right now we’re doing all the maintenance, we’re doing all the all the property management, everything. It’s all us. And so it feels like time is tight already, and so I always have this fear of growing and figuring out systems to make sure that we’re not just creating a new job on top of our jobs we already have.
Mindy: Hello, hello, hello. My name is Mindy Jensen, and with me as always is my thoughtful co-host, Scott Trench.
Scott: Thank you, Mindy, great to be here.
Mindy: Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or pay off hundreds of thousands of dollars in student loan debt, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Okay, Scott, this is actually one of my favorite episodes ever, and it didn’t start off that way. We have a guest, we have two guests actually, who have quite a bit of student loan debt. And when I was first reviewing their numbers, I thought this is a really big problem. As we started talking to them, I realized that they have a an income-based repayment plan. But they make a lot of money. And at first I was like, hm, this is interesting. And then we started talking to them and the whole situation kind of changes. The way that we were going to go, the direction we were going to go in actually gets changed quite a bit. So this is, it I can hear people saying, oh, I don’t want to listen to income-based repayment programs. This is an awesome episode. This we went in a completely different direction than what our guests were expecting and really opened their eyes to different opportunities.
Scott: Yeah, I I I think the the the elephant in the room when it comes to James and Bianca’s financial situation is Bianca’s student loan debt. Now, because she took on so much so much student loan debt and has a a relatively modest income relative to the size of that debt burden, they actually separate their finances, they feel trapped in their current location, um, and they’re waiting 19 to 24 years for the repayment programs to come in, and they’re worried about an income-based, uh, problem from a forgiveness perspective after 19 years, some of that loan those loans may be forgiven. And because they’re not federal programs, um, that that those that repayment program may actually count as income for Bianca. So major long-term problems. I think we were able to avoid those entirely based on their financial situation, and I hope that this is eye opening for folks that are in similar situations or who may find themselves in similar situations in a few years.
Mindy: Scott, I just loved this episode because very soon in the beginning of this show we change tunes and it’s it’s just a lot of fun. Now, for my attorney, the contents of this podcast are informational in nature and are not legal or tax advice and neither Scott 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. All right, let’s bring in Bianca and James. James and Bianca have a fairly good financial situation until you look at the debt. Bianca was a human chiropractor and took some additional course work to become an animal chiropractor. She’s sitting on about $278,000 in student loan debt, which has been in forbearance for the last few years, but will go back to about 6.8% interest once the repayment pause is lifted. But back to the good. They have 10 cash-flowing rental units across four properties. They spend significantly less than they earn and their only debt is mortgages and that pesky little student loan thing we talked about. Bianca and James, welcome to the Bigger Pockets Money podcast.
Guest 1: Thank you. Thank you for having us.
Mindy: I’m super excited to talk to you today. Before we jump into that, let’s look at your numbers. You make a whopping $17,310 a month, and this is across both salaries, bonuses, and rental property cash flow. Yay. That is a great
Guest 1: Yeah. That’s that’s after deductions. Yes.
Mindy: That is uh yeah, that’s net income. Their expenses are $7,300. So approximately saving $10,000 a month, which is fabulous. I do see some room for improvement on those expenses. We have a car at 765 a month, that includes gas, insurance, maintenance, registration, like all of those things, but it’s still 765 a month. and if we’re going to round up, that’s almost $1,000. Clothing at 250, dogs at $360, entertainment at 825, gifts 500, groceries 845, health care 265, miscellaneous needs 300, personal care 570, travel 2415. I think I see a place we can cut. Uh, utilities 260. For a grand total of $7,300, 7355. Again, you’re making $17,000 a month, not a year, a month. So spending $7,000 isn’t such a big deal until we go back to the beginning where we have that $278,000 uh student loan. So, I’m not done. I’ve got more more things to talk about. Um, we have a, that’s $99.55 leftover, which is not really uh leftover. I think that number can be a bit misleading because you’ve been using it lately to cash flow one of the rehabs on your properties. Um, investments, we have a 401k for James at 120,000, HSA at 4,000, traditional IRA at 298,000, Roth IRA at 59,000, after tax brokerage at 368,000, cash savings at 105,000, which normally I would be like, wow, that’s a lot of money in cash. But you do have 10 units over four rental properties. So I think that that’s maybe a smidge high instead of like grossly high. Um, subtotal on that is $954,000, which I think is really great allocated, uh very, very diverse. Four rental properties, total 1.5 million, hurray for you. Bianca has $7,000 in her Roth IRA, $14,000 in her brokerage account, $5,000 in cash for a total of $26,000 in total investments. But you put those all together and you have $2.5 million. So, it seems like you’re doing fairly well. We go back over to the death side and we have $847,000 in debts for a grand total of 1.6 million in net worth. So again, it seems like you’re doing fairly well once we don’t look at those student loans. Why is healthcare so expensive? We have a shortage of healthcare and then it’s so expensive to become a healthcare provider. It seems kind of uh like that’s a self-fulfilling prophecy. Hey, it’s so expensive we’re not going to allow you to get in there and and learn this. Um, so of course the challenges that I see are the student loans. And clearly, if you are allocating so much to that travel fund, you probably like to travel. So, Bianca and James, what can we help you with today?
Guest 1: Well, I I think there’s a couple things and you hit the nail on the head. Obviously, the student loans are a big part of what’s out there and it’s been weighing on us and how to handle it. We’ve got some ideas, um, based on the the program that Bianca’s on for repayment. Uh, but also, I think that, you know, we’re looking at three to four years to try to find a little more flexibility in what we’re doing. I don’t dislike my job, but it’s not something that likes me up every day. It’s not something that I go to work and I just can’t wait to do. And I know that if we look to do something else, it’s going to mean a big step back in salary, right? I mean, because I’d be leaving the industry that I’m in completely to to look for something new. and uh to be able to do that, I want to make sure that we’re in a solid position. I don’t think either of us has a dramatic urge to retire in the next couple years. I don’t think that’s what we’re looking for, but understanding that our income could potentially dramatically decrease if I were to explore something else. Uh, I, you know, we we want to make sure we’re in a good position going forward.
Mindy: Sure. Okay, so let’s talk about the student loan repayment plan.
Guest 2: Yeah, so I’m on an income driven repayment plan. Um, we spoke to some
Guest 1: some consultants.
Guest 2: some consultants, yeah, um to kind of figure out the best path forward with that because obviously it’s quite a lot of debt. Um, so currently on an income driven repayment plan, um, started working with them during the pandemic, but um basically my income driven repayment plan allows me to pay as little as possible. I’m paying after after forbearance ends here, I’ll be paying close to zero dollar a month or very low. Um and then after 25 years, my debt will be forgiven, um but I will have to pay interest or excuse me, I’ll have to pay income tax on the on the amount that was forgiven. So I’ve been saving for that, putting money away each month, um, and just kind of prepping for that giant tax bill at the end, um but still there’s a lot of fear and anxiety around is that plan going to work? Is this the best plan forward? Um what should we be doing?
Scott: How far away is the 25-year forgiveness event?
Guest 1: So, the loans are split technically between two loans. The first one is about 19 years away and that’s really going to be I think I think that one’s the bigger the bulk of it it’s about uh 200 it’s the most of it. It’s over 200. There’s about 50 or excuse me, 70 with the uh interest left for the other one and that one is additional five years. So we’re looking at like 24 years.
Scott: Just just to kind of uh frame what I understand here, the goal here is for James to have flexibility with uh in a general sense, specifically to pursue an entrepreneurial venture, it sounds like in the next couple of years. Is that is that really the high-level goal here and to deal with the student loans in the context of that?
Guest 1: I think so. I think that that level of flexibility while also hopefully not taking a huge hit to our lifestyle or or you know, we’re looking for whatever that path is to be at least semi location independent too, right? Because we have we have family and friends across the country. It wouldn’t mind living by for bits of times. So we’re also trying to keep that in mind with whatever path we go forward with.
Scott: Yeah. And and let’s let’s call it some good here. Um if I were to frame your situation at a high level, let’s pretend that the student loans are just part of your rental property portfolio for a second, right? So you have if you if you include them in that, you’ve got 847 grand in debts against a $1.5 million rental portfolio. That’s not so bad. and your blended blended interest rate on that is usually 3% for the the the mortgage and 6 and 1/2, 7% on the on the student loans. Is that right?
Guest 1: That that’s right in exact terms, but there is some caveats to the percentage on on the student loans. The program that she’s on, the government offers a uh forgiveness on the negative amortization that occurs each year. So the fact that she’s not paying really anything and then we have the interest at the end of the year, they actually forgive 50% of that. So really it’s a 3.4% equivalent interest rate which kind of changes the picture as to, you know, what do we do? Because, you know, you get start start getting that uh interest that low, is it worth aggressively paying it off versus possibly saving for the end.
Scott: Well, even better then in in in that situation. Um and Bianca, what what do you want to do over the next couple of years? What’s your do you have any specific goals around flexibility or or outcomes for you?
Guest 2: I would also like some flexibility. I enjoy my work currently, but it is very location- dependent and that’s the thing I don’t enjoy about it, I guess, um because James and I do like to travel a lot. um so my work does not allow me to just up and leave for extended periods of time unless I really want to impact my business.
Scott: Awesome. And what happens if you do uh uh up and leave from that job? Is that is is there any impact on the student loan program?
Guest 2: Yes and no, I guess. um because it’s income income based, so my income would change drastically. um it would drop to zero, technically. So um I’m not sure what would happen if I were just unemployed, what that would do to my income driven repayment plan, but I don’t really I don’t I don’t really want to be unemployed. I like working, I like, even if I wasn’t doing this, I I’m a busy body and would want to be doing something.
Guest 1: I think it’d be a lot harder for us to certify that she does not have access to my uh income or or or my saved money if she is completely unemployed as well. And that’s part of what allows my my income-based repayments to be as low as they are.
Guest 2: Is that we’re keeping our finances so separate?
Guest 1: Okay. That that makes sense. Um I’m calling this out because I I think that when I when I look at your your position is at a very high level, the the student loans are are really they they probably feel like a big, you know, like like the big um uh thing, you know, the story here. but I don’t think they are. I think the story is that you guys are worth 1.6 million dollars, have a cash flow rental portfolio and save $10,000 a month and have a very responsible debt to equity position accross your overall, overall portfolio in a in a general sense. And I think that the the what I what I’d hope to do at a first point is to free you from this this mindset that the student loans are really this crutch that you that are that are that are that are holding back your financial position. You here’s several ways to frame it. One is, yes, there are advantages you currently have with this. But in the worst case scenario, you have a 6.8% student loan debt that you need to pay off. And you you you can crush that in about two years with your current cash flow situation. Um so you have a two-year debt here um from that, and you could also cash out refinance your rental properties, probably at a similar debt at this point, um uh debt debt level at this point to to pay that off at any point as well. Um so I just want to I want to call those things out because the tradeoff there of spending 19 years with this as a boogieman in your financial profile may be very steep. Um there yes, it’s advantageous, but you may you may not need to do that and you may find that there’s a freedom from just being rid of this thing um in an earlier time period. Not not to say that’s what we’re going to end up on. I just want to paint that perspective because it’s really not that big of a deal in the context of your financial position. It is a huge it would be a huge deal to someone to someone else, but when we combine your finances for the purpose of this show, um you got a really really strong position. What what’s your reaction to just that observation?
Guest 1: It comes back I think for me the the math versus the personal finance side of it, right? Because like there’s a certain it it’s a weight off your shoulders to think about having it paid off and having it gone, not having it sitting there and worrying about it for the next 19 years to see what happens. But then I sit down and do the math based on what the interest rate is and what we could do with that money and what the opportunity cost is and and I feel like well, if I could just somehow ignore it and pretend it isn’t there, we may end up in a much better position down the line.
Mindy: But down the line isn’t five months down the line. It’s 19 years down the line. How much of your current job do you want to deal with so that you don’t have to pay this off? I mean, I was looking at this and I saw $278,000 as a first glance. I’m like, that’s a lot of money. And then I’m like, wait a second. You have $10,000 extra dollars every month, and there’s no such thing as extra dollars, but you have $10,000 currently unallocated dollars every month. What is 200,000 divided by 10,000? Cuz I think that’s not that much. And I did the math on the calculator just to double check myself. That’s 20 months. That’s less than two years. That is then you’ve got 17 years to build up the biggest pile of cash you can and you still come out so far ahead without the stress. You don’t have to do it for 19 years if you don’t want to, whereas if you go with the income driven repayment plan, you have to do it for 19 years, and 24 years for the additional $50,000, which you could then just like knock out whatever, but I really would encourage you to sit down with the spreadsheets and like talk about your goals. This isn’t a decision you have to make in the next 27 minutes while we’re recording this show. It’s just something to think about. Why do you want to spend 19 years at a job tie, very location- dependent, and even though we’re not sharing publicly where you live, I know where you live. and sometimes it’s not the most uh delightful to be outside where you live. So you would have to be there for 19 years or, you know, take some time off, which will further, you know, I just I think that’s something that’s really worth pursuing.
Scott: Yeah, and another way to think about this is let’s look at it this way. You spend about 7,300 bucks a month. Um that’s about that’s a little over 80 grand a year. I’m probably doing that wrong. So someone will correct me. I’m going to do it real quick. That’s 87 grand a year, right? You pay off these student loans, you crush these student loans in the next two years and you just pay them off with your cash flow. You’re at $2 million in net worth because you’ve reduced your student loan balance by that much. You’re now fi at the 4% rule, right? So, boom, there it is. That that’s one way to to think about it from a simplistic standpoint to to to potentially reframe that. So, yes, there’s optimization in the student loan um program and we can definitely go there and talk about that with with that. But I think but my my instinctive read on your situation, uh if in just a few minutes in is that this is the boogie man, um that that we need to that we need to that we need to tackle. and if you if you if you knock this thing out, then all of a sudden you can combine finances, you can you can think, okay, in three years, I could be sitting on a beach for six months out of the year, um, uh, in this beautiful location and the other six months, um, you know, uh fixing animal backs um or what doing what I love in this area and and we’re done, right? and and and that that’s that’s like a freeing thing and that’s the power of personal finance and the privilege that you guys have built because of the incredibly strong financial situation that you have, this item aside. Um so, with that, would you rather talk about would you like to talk about that angle or do you want to talk about how to optimize the student loan debt paid off or or both, uh next up here?
Guest 1: I don’t know. You you’ve thrown a little bit of a a wrench and things, right? In terms of I guess I was coming in the mindset of like, how are we going to do this most efficiently? But you know, there is there’s something that I can’t uh I can’t quantify in the idea of it being gone.
Guest 2: Right. I agree.
Guest 1: You know, it it’s you can’t see it in a spreadsheet. Like you tell me to look at the spreadsheet, but I can’t see that in a spreadsheet, the the feeling of just not having it there.
Guest 2: Yeah.
Mindy: I wonder if there’s a way to set up some sort of, I mean, some spreadsheet genius will do this in a minute. It’s not me, but have your 250 and your uh interest payment, and I think it would be a lot like a mortgage calculator where it shows you, oh, I’m paying 10,000 a month or $8,000, give yourself some buffer. I’m paying 8,000 or $5,000 a month towards this debt. Look at watch this debt just go away. It’s not 200,000 for a super long time. It’s 200,000 and then all of a sudden it’s only 185. And that is like, wow, I paid off a lot. And then it’s 175, and then it’s 150, and then it’s 100 and you’re like, holy cow, I just paid off so much debt. And my time horizon now isn’t 19 years, it’s another year and I can be debt-free. you mentioned in the intro that we may be sitting on a little more cash than is necessary or or that maybe we need. So, you know, part of the question comes to, is it worthwhile dipping into that a bit and and running a little thinner on cash? So cuz I mean that would make a big dent. We can make a pretty big dent right away if that’s the route we went.
Mindy: Yeah, like a 50% dent.
Guest 1: Oh, look. Now you’re one year away from um combining finances and quitting your job and living on a beach and just with so 105 to to go from 105 cash to zero cash might give you a little bit of hebi GBs. Although you make $17,000 a month and you spend $7,000 a month. You actually you only spend $5,000 a month unless you’re traveling all over the place.
Guest 1: So, I mean, look at what you could knock out. I, gosh, I know that this is not where you were thinking this was going to go, but I like that a whole lot more. And yeah, it you know, is it awesome to pay $200,000 when you could just spend 19 short years of your prime life working in a a place that isn’t always awesome weatherwise. um when you can just have it for free, But no. I mean, what kind of stress is going to go through it? What what kind of life changes have happened in the last 19 years that you didn’t account for, that you didn’t plan for, that just kind of happened? Like you can’t predict what’s going to happen in the next 19 years. Get it over with, pay it off and then like go nuts. Look at your position. Yeah, yeah, I I I’m getting more and more convinced that this is this is the way I I I view the situation here because it’s just like it’s just like, this is your boss, right? This is your this is your bad boss that you have to deal with on a regular basis that’s just always there with with this. And like you just like I said two and a half years earlier, we we have $110,000 in cash. So 100, 100%, like that’s that’s a great option right there. You also have, you know, 401Ks and those types of things that you can borrow against, um to to to do that if you want to arbitrage the interest rates a little bit with that. Um so this I mean, that could free up a lot of this and then all of a sudden, now you’re combining So, so I I think that a good exercise here for this would be, where do you like to travel? What’s your what’s your favorite place to travel to?
Guest 1: I don’t know that we have favorites. We try to do
Guest 2: We haven’t picked a favorite yet.
Guest 1: Yeah, we try to do different things all the time, right?
Scott: So so you want to be able to go to so many different places that you can finally pick a favorite. But what what’s what’s one of your favorites? A a beach, mountains. What’s what’s your kind of go-to?
Guest 1: Uh I’m beach, she’s mountains. So
Guest 2: I like the beach, too, though. We can say beach.
Guest 1: Yeah.
Scott: Okay, great. So this I I I’ve now done this a few times, so I probably sound like a broken record on a couple of recent shows, but go go to the beach. When’s your next beach trip?
Guest 1: I guess we have to plan one because we don’t have one planned right now.
Scott: Okay. So permission to plan one? Go go plan a beach trip and spend a few grand on on it, okay? and and and go there and and sit there and and you know, have your coffee in the morning or whatever what makes that your your your, you know, 10 10 10: o’clock, you’re on the beach, someone’s bringing you a coffee, maybe your first drink of the day or whatever. and then write down like, what do I want to be in two years, three years from now, right? Put put put three years. This is where we want to be. And just like write a half page, right? Uh what if you if one of you is a planner, you can bring a draft, call it draft uh on there and encourage the other one to to to to manage that and say, what do I want to be in three years? And I think that that exercise will be really powerful here because you’re you’re thinking, what do I want to be in 19 years, right? 19 years, life’s going to be a whole lot different, right? This is going to be there’s going to be a whole different capability set that you’re going to be able to do that you’re going to have physically um going going to all these these places and like I think if you think about it in a three-year picture, a lot of this will become crystal clear and it’ll be I’ll be I’ll be pretty surprised if you don’t find a way to it. I don’t know if you pay off this student loan, but to free yourself from it as a constraint in your situation, right? It could be paying it off is the easiest way. Um but but I think you know, um combined finances where we don’t have to do this all you know, um Bianca doesn’t have to work all all year round for or for most of the year in order to to to keep qualifying or for that to be a factor and constraint. I think that um without that student without those student loan debt, um, you’ll have a position that’s two million and or two and a half million in equities between real estate and stocks and other and cash, and $500,000 in mortgage debt, super conservative position. That’s a position that’s really strong from which to start a business, for example, right? Without without student loans over overhanging. one income is probably going to come pretty darn close to covering all of your expenses um from Bianca, um, and I think your rental properties will easily cover the remainder with that. So, you know, um I I think that will be a really helpful exercise to come through and say, three years from now, this is where I want to be. Maybe those are some starter thoughts, but only you guys can can decide that. Um, but I would not do it from where I want to be in 20 years. Um that’s way too far out and you you’re going to be way wrong on that. So, that like no one knows what they want 20 years from now, right?
Mindy: Mindy’s laughing at me because I went too far again.
Guest 1: You know, when question I have though is we look at that and if that was a route we were to take to try to aggressively attack a lease and pay them off, is then it comes back to allocating where the money’s going right now. Like right now, I max out my 41k every year. There’s slight details on mine is I have a 3% dollar for dollar match and then at the end of the year, if I’m still employed, uh my company adds an additional 3% regardless of my contribution. So, you know, given what our cash flow is, is it worth backing off in those contributions? If we were to go this route or is do I still want to take those tax advantages to to put that money away?
Scott: I I think math is math. but the but I I I don’t think we have a math problem here. right? I I think we have a a boogieman problem with the student loan. I’m sorry that I’m using that word. I I think it’s funny. Um so but I think that that’s I think that’s the real issue here is that this this student loan has too much power in your life um from that. but I but I I I think that that’s a balancing act, right? Uh there there’s an art to that. You, you know, one one school of thought is if you chose to pay off the student loan debt to just go all in and stop everything else and and and crush that uh and that’s effective, right? That’s a lot of for a lot of people that’s better than a math approach. For you guys, it may be, you know, I like my my match. I’m going to take the match. There’s a couple of other things here. If you I if I have a great rental property deal, I’m going to pounce on it in the meantime, uh maybe one or whatever because that’s that’s our portfolio and that’s what we you know, we’re obviously very proficient at uh generating income and and and building wealth through real estate. Um so so maybe there’s a a balance there, uh but I think that’s again, that comes down to that like that this exercise of just figuring out, what do I want to be in three years? Do do I want that so badly that I’m willing to just accelerate it and forget math, um or do I or am I willing to take a more balanced approach to get there? Um that’s that’s right for us. So I I don’t think there’s a right answer to that. Um there will be a mathematically right answer to that. Um, but I I I get I don’t think I have a math problem here.
Mindy: James, how old are you?
Guest 1: I’m 41.
Mindy: And Bianca, how old are you?
Guest 2: 35.
Mindy: Okay. So at that age, you still have several years before traditional retirement. I would absolutely contribute as much to get the full match as possible. Um, I think you’re in such a great position. I mean, let’s look at, you’ve got the 110k, you throw that at your debt and now you’ve cut your debt essentially in half. I’m just looking at the 200s. I should also consider the 50. So 250, now you’ve got uh 140 leftover. That is now 14 months of your super crazy payments. Um, I’m sure that Bianca might be able to work more hours. Maybe you could pick up, um, only if it’s worth it. Like, don’t do side hustles that are going to pay you an extra $5 dollars, like that’s not worth it. But if you can find ways to generate more income to get this paid off, I think you could do it in, I mean, 14 months. Now we’re talking one year of not making, um, 401k contributions. The market’s been all crazy. So, I don’t know how frequently you can change your contributions. If you see that the market has just been going down, down, down, maybe you do want to jump in and buy when it’s on sale. Maybe you want to stick with it and say, you know what, for this next year, I’m just doing my 3% to get my total match from them and that’s all I’m going to do and every single dollar is going to go to the debt. And then now in one year at the end of 2023, you are debt-free and you can do whatever you want. So instead of 19 years and 24 years for the 50,000, you now have to re-evaluate where you’re going to do in one year. Yeah, yeah, I that’s that’s the point. It’s it’s wild. What if you could do it by before next June? What if you were debt free before next June? And is that something that you’re comfortable with? Maybe, maybe not. That’s a conversation that you guys have to have outside of this phone call, but that’s I mean, how huge is that? Next June, you have no more student loan debt. And then of course, you would have to replenish your, you know, your cash reserve and there may be some things that come up. And like Scott said, if you made $80,000 a year, I wouldn’t be telling you all of this, but you make a lot more. So, let’s say, let’s go nuclear and say, okay, all four properties, the HC system all blew and the roofs all blew off and now you need to put put stuff back on there. You have places you can go to borrow. Maybe you don’t borrow from your 401k and now you’re back up to the end of 2023 and all of that happens, and now you can borrow from your 401k to cover that expense or, you know, you take 75 of this 105, 110 that you have and put it towards that and you keep a little bit more of a buffer. Hey, what what do you think would be an would that be an owner occupied? No.
Guest 1: No. We are owner occupying one of the properties. Uh, that’s the one that’s sitting at the lowest rate that you see there.
Mindy: Okay. I would say I’m not sure that you can get a five 75 rate on a non-owner occupied property. unless you got a quote really recently, the quotes that I’m getting are high sixes. Oh, okay.
Guest 1: low sevens. Sixes, yeah. okay.
Mindy: Um I’m not in the same state but uh they are preventing me from getting a loan on my property. Yeah, I think that’s really hard right now. I think I think you can get a better interest rate as a source of debt from your IRA. and I think you’re going to you might have a better one from your personal residents.
Mindy: Could he borrow from his IRA? He has a 401k and an IRA. Can he But can he borrow from his IRA as well? because then you’ve got your 110 now, 50 from your 401k, 50 from your IRA. That’s 210. You’re practically debt-free by September. Well, there’s still the debt against the IRAs, but you’re paying that back to yourself. That’s a way different debt than paying student loan debt for 19 years or working for 19 years. So, just more options to think about.
Guest 1: what what what are your thoughts here? What’s the next what are some other things that we can help you out with today? I know before we kind of went this direction, we were also talking a little bit about, um, looking into bigger investment properties at some point, um, and just we have we don’t really have experience with anything larger than a four unit, but we we would like to, um, and just any thoughts that you might have on that.
Guest 1: and I want to one thing is like I I’m fearful creating just a new job for us, right? Like right now we’re doing all the maintenance, we’re doing all the all the property management, everything. It’s all us. And so it feels like time is tight already and so I always have this fear of growing and figuring out systems to make sure that we’re not just creating a new job on top of the jobs we already have.
Scott: Well, I think that property property management is a is a great one to start. So one one one of the one of the issues here is when when did you what was your financial position like when you bought your first property?
Guest 1: Yeah, so I was not far out of school at that time. So it wasn’t great. You know, I it wasn’t bad by any means. Uh I was fortunate enough to pretty much have no student loan debts myself. So I when I saved up the the down payment, I bought the duplex that we currently live in. and that was the first property, the only property that I owned for probably 15 years and then we just happened in the other ones really in recent history.
Scott: So so here here’s what’s going on right now. You you earn I would imagine 25k a month before taxes. Might be a little aggressive but it’s close. Okay, let’s call it 250. little less but yeah, it’s close to that. Yeah. We can call it 250. Okay. Then we then we have another 100k at least in wealth accumulation from your portfolio on average, that’s going to completely depends on the market conditions and other things. But on average, we can maybe expect at least expect 100k. So, um the the the value of your time if you if you were an individual, right if we were merging as an individual, that’s 350 a or $350,000 per year in wealth accumulation and you divide that by 2,000 hours. Um what is that? That’s going to be uh $175 an hour. So when you started uh your journey, you were not earning $175 an hour. You were earning substantially less than that, probably like $20 or $25 an hour. and so it made perfect sense to do all of these things yourself, right? rent managing property, management, um managing contractors, those types of things. but you have at some point in the last 5 10 years, clearly crossed a hurdle where you’re probably doing too much of the work yourself and negatively arbitraging the value of your time, at least at at at as it’s currently valued for some of these activities. And so I think that would be a really good exercise to say, what what am I doing right now? and let’s let’s cut you in half um because you know, you’re you’re two people. But what are you doing right now that’s less than $100 an hour in terms of value of time and how do you make sure that that gets outsourced? You start hiring that out. Um you can maybe take a tax discount and say it’s 80 bucks an hour. Okay, I’m not going to hire all those those items out. and when I have items that are above $100 an hour, I’m going to make sure I’m doing those personally. Um and I think that’ll be a good mental model for you on that and you should start underwriting your properties to that. putting that management cost for example into the the property analysis, especially when you underrate a the next larger property. Um Otherwise, you’re right, you’re going to create, you’re going to continue compounding this problem of more and more income and less and less time. Um which again, I think is is a uh a solution that you can solve for with your nice vacation and coming up and saying, here’s what exactly what I’d like my my life to look like on a day-to-day basis in two or three years. um and you’ll be able to I think that framework will be helpful. I think so and I think that she has opportunity with her business too uh on a dollar per hour average to we should probably be looking at that too. Yeah.
Scott: Yeah, that that could be that’s true as well in the um uh uh sorry uh um Bianca, do you do you own this business or do you have control over the the income generation? I I own the business. Awesome. So that’s perfect, right? That’s a great that’s a great framework for that um to to think about how to how to do exactly that that that same activity. And a struggle to give up that control too, which is I think part of why you want to be an entrepreneur, but then it’s hard to give up that control when the time comes to to take advantage of that.
Scott: And the first the first the first time you do it or the first couple of times you’re taking a big risk and you might uh uh you may very well have it be more expensive than if you were doing it yourself. But over the long run it will be it will be cheaper.
Guest 1: Yeah. What what else can we help you with? Does does that answer your question about real estate? I mean, I think so. I I think that part of what we were struggling with is is time management and trying to understand when is it appropriate for us to start allowing somebody else to do some of this, right? So I think that we have an exercise look through and and and try to figure out when we could or maybe now we start hiring some of that out instead of doing it all ourselves.
Scott: And you’re you’re an interesting sweet spot. You’re not you’re not in an area where you can do outsource everything. You’re in an area where you should outsource some things and do other things yourself still. Um that that that hurdle where it’s obvious you should do outsource everything is you have not crossed that yet, but you you’re not not too far away.
Guest 1: I realize this might not make the podcast, but can I take a minute to celebrate uh my wife and and what she’s contributed because if you look at just the numbers, like you’re looking at, oh, she’s only got $20,000, 278,000 of debt that she’s brought into the relationship and and I I want to be very clear about how she’s also contributed in other ways. So, you know, in two aspects really, for me personally, my job, I was at a crossroads probably about three or four years ago and I could have either stayed with the company I was at and advanced or jump to a different company. And for me, like a level of comfort, you know, I’m like, I’m just going to stay on that even though I knew that that company was not long for this world. She encouraged me to leave which led to multiple relationships and changes that led me to where I’m at now. And probably in the last three years, I’ve seen a 35% increase in my income based on those changes. So, you know, that that was a huge contribution alone, but also then, uh, somehow with real estate, she convinced me to buy a duplex a couple years ago that was well beyond my comfort level. a real dump. A real dump. Well, well beyond my level of expertise to fix it up and and somehow she convinced me to buy it and with her help and with uh some very generous family members, we did fix that one up. We ended up selling it last year, tended to it into the 40 uh the four unit that we just bought which she also identified that property through a client. So through both of those things, I I just want to make sure I I give her props for everything she’s brought uh financially. and honestly, we’ve we’ve probably turned about $200,000 equity to about $400,000 equity in those two moves of of real estate. So
Guest 2: Trying to make up for all the money it cost you. So thank you.
Scott: I I love it. And and and and for for what it’s worth, I don’t think Mindy or I, hopefully no one listening to this has any doubt about the the the fact that this is a partnership that that has that that has contributed to the wonderful situation that you have right now. Um, and and you’re you’re a great couple and great team on on this journey. Um, and the only reason we’re looking at the finances separate is for the uh because because of the boogieman that we’ve we’ve identified that we’re gonna we’re gonna try to conquer soon, hopefully.
Mindy: I knew the only reason you were successful was because of Bianca. And that’s absolutely going into the show. That’s awesome. That’s lovely. But yes, I think that it can sometimes seem a little impersonal with the show where like, hey, we’re really only looking at the numbers. I can make this a 19-hour show and talk about lots of different things. I love that you celebrated her and I love that you shared this. That’s that’s very, very important and that says a lot about your relationship. It’s not just, you know, wow, I think of her as this burden. She’s so great. Here’s all the things she’s doing. I don’t think of this as a financial issue at all. So yay. I love this. I am making notes all over the place. I love this show. I am so excited for this show. This is it definitely went in a different direction and I’m so, so, so happy for the opportunities that you have. I think that it would be a lot of fun to just sit down. I am very, uh, visual. So I would want to sit down with the big opportunities and, okay, we can pull 50,000 from this account and 100 from this account and 20 from this account, and we can like mix and match and be out of debt tomorrow, or we can do it a little bit slower and be out of debt in two years, or we can do it, you know, all these different ways we can do it and just think like, how would that free up all this time? How would that free up all this mental head space? I really think it would be fairly easy to be out of debt conservatively in two years without making a ton of changes. But you could be out of debt like tomorrow, if you really wanted to pull the nuclear option without really changing a whole lot of your future trajectory because you’ve got $4,000 in monthly income from your rentals, and you’ve got the almost, and that’s uh, let’s see, yeah, that’s more than half of what you would need for your your spending, and then you’ve got the other half in your, uh, brokerage accounts.
Scott: I completely agree with Mindy and I would just say that the three-year picture is probably the easiest one to start with because it’s so believable to have it all paid off and have a strong cash position and have your 4,000 in rental income. and if, you know, Bianca wants to keep doing her uh running her business, um between the $4,000 in rental income and the income from her business, that’s a and and easily a $50 to $100,000 cash position if you choose to maintain that or rebuild that, um, you have you have complete freedom from there to to consider doing something entrepreneurial with an infinite runway. Um so and a nice cash reserve. So that and that could be in real estate, it could be whatever whatever else your your your your um exploration of your passions takes you over the next couple of years. Uh I think that’s that’s a really realistic position and then you can just say how do I accelerate that um bit by bit? What’s the is there is there an acceleration that I’m comfortable with that I would be willing to to do to make that happen faster because you just let the current run rate happen and that will happen to you if you just reallocate it towards that those outcomes.
Mindy: This was so much fun. I’m so excited for all of the options you have. Thank you so much for your time today. I really appreciate you taking the time to chat with us because this is a really, really fun show.
Guest 1: Thank you for having us. This was really eye opening and helpful and gave us both a lot of peace of mind. I think to to look at it that way.
Mindy: Awesome. Well, send us a postcard from your beach vacation where you’re going to talk about all of these things.
Guest 1: We’ll do.
Mindy: Okay, we’ll talk to you soon.
Scott: Scott, that was such an awesome episode. I loved how we started down one path and then we’re like, wait a second. You could just pay this off now in the next couple of years and then have you get 17 years of your life back to do whatever you want. And yes, you only can spend a dollar once. So you are going to pay off the student loan instead of buying a house. But you are only they they have potentially the ability to repay all of these loans in like one year with all the, you know, financial monkey business that I suggested. and yes, that would put them in a slightly less than super, super secure position by using up all their current cash savings. But they make so much income. I don’t really have a problem with that. Um there are other options I would have given people in different situations. If they had three years left on their repayment plan, if they were making $80,000 a year or $50,000 a year. If they were in all sorts of other debt. But they’re not. For this particular situation, I think aggressively paying off these loans is the best choice for them so that they can get this huge amount of time back in their lives.
Scott: Yeah. I I I think that the the the ultimate goal here and it probably comes after around two million plus in net worth, but you like Mr. Money Mustache has a great analogy. He says, uh the way you feel about money should be like how you feel about tap water, right? You’re not going to like turn on the faucet and waste it and all that kind of stuff, but you know, it’s it’s just a utility that you’re going to you’re going to access here. And they these guys, um James and Bianca, are are so close or should be, they’re just on the cusp of being able to view money in through that lens. They just need a little bit more work. They’re almost there with their current spending um and in a couple more years they’re going to easily crest that threshold um just by paying down the student loan for example. Um and instead coming into today’s show, they were thinking I’ve got this monkey on my back for 19 more years or 24 more years um for the for the second part of the student loan debt. It’s like no, no, we can so easily just zoom out, take your whole portfolio, say what do I want to get to? What’s holding me back? And reallocate, right? And and think through reallocate both your existing portfolio or reallocate where you’re sending the cash that you accumulate on a monthly basis.
Mindy: Okay Scott that is great I can’t argue with that at all.
Scott: Should we get out of here?
Mindy: Let’s do it. From episode 338 of the Bigger Pockets Money podcast, he is Scott Trench and I am Mindy Jensen saying ooh take the money and run.”}
}
.
