Mindy: Welcome to the BiggerPockets Money Podcast, show number 336, Finance Friday edition, where we interview Travis and talk about conservatively investing in cash flowing real estate. There’s nothing wrong with the $10 million net worth, but those numbers do seem like you just grabbed them out of thin air. So I would encourage you to look into the the reasoning behind those numbers or create some reasoning behind the numbers and maybe those numbers would change because if you wait ten years to get your $10 million portfolio and then you’re like, oh, I could have retired five years ago with a $5 million portfolio or a $2 million portfolio and I would have been just as happy, then you’ve spent a lot of extra time working when you didn’t need to.
Scott: Hello, hello, hello. My name is Mindy Jensen, and with me as always is my money savvy co-host, Scott Trench. And with me as always is my minty as in minting new introductions about money, co-host, Jensen.
Mindy: That’s awful.
Scott: 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 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 in assets like real estate, start your own business, or figure out what to do once you’ve won with money, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Scott: Scott, I think that this is my favorite episode that we have ever done that didn’t feature Kyle Mast as a host or as a guest. He is so good. Travis has a fabulous portfolio. He’s a little light on his Roth IRA contributions. I will say that, but he is in such a fabulous financial position. I love him so much. This was a fantastic episode and I think anybody listening who anybody who is interested in investing in real estate the right way needs to listen to this episode.
Guest: Yeah, I I I think this guy is just fantastic. He 30 years old. He’s done. He he’s he’s financially independent, way overshot financial independence at this point in time. Um, you know, uh, so humble and so kind of hard work and down to Earth about his position, that he isn’t even really, he didn’t even realize it, you know, really until we talked about it today. Um, oh yeah, I guess, you know, I guess I am finally dependent. by a lot. that was the revelation over.
Scott: Uh, and it’s like and it’s like, and it’s just it’s just fun because he’s he’s got all the fundamentals so perfectly dialed in with such low expenses, such low cost of living, such as high high work ethic, um, that after this kind of five-year grind that he’s executed, he can look up now and be like, whoa, I have incredible options here. Um, and one of the biggest call outs I’ll have from this episode is the job is irrelevant. And this is going to be a rare outcome. Not many people are going to experience this, but it’s just it’s just interesting in his position. His real estate portfolio generates so much more income than his job does today, that it makes his job really very low relevancy to his position and it’s almost like a must to become an entrepreneur or start your own business when you’re in a position like Travis’s, which we’ll find out as we kind of discuss today.
Mindy: I can’t think of one mistake he’s making right now other than the uh Roth contribution that I already met commented on, which isn’t even a mistake. It’s just choosing to allocate his money in different ways.
Scott: Yeah, his fundamentals are so strong that it would outweigh any mistakes that he’s making because his cash flow generation, his expenses are so low. He self-manages and he does a lot of work himself. I mean, it’s just it’s just he his so conservative in his in his outlook that he it just dwarfs any day-to-day mistakes he might be making.
Mindy: Which are few and far between. Okay, should we bring him in?
Scott: Let’s bring him in.
Mindy: My attorney makes me tell you that 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 talk to Travis.
Mindy: Our guest today is Travis. Travis is 30 years old and has a large rental portfolio. He has 33 units across 17 properties. His rentals generate a lot of income, which he currently keeps in the business to fund repairs and new acquisitions. He’d like to retire fat fi level with $10 million in net worth and $30,000 in monthly income. He’s got his spending under control at about $2,000 a month, but he’s single with no kids right now. Something he’d like to change in the future. Travis reached out to us to get a reality check on his portfolio. He is super heavy into real estate with very little traditional retirement savings. Travis, welcome to the Bigger Pockets Money podcast.
Guest: Thanks, guys. So excited to be here.
Mindy: I’m so excited to talk to you. I really love your numbers, mainly because you have your spending super tight. Let’s look at where what’s what’s coming in and where it’s going. You’ve got a salary after tax of approximately $5,000 with additional random income of about $375 a month. There is additional $15,000 in business income. I’m not going to comment on that for the purposes of your personal statement because that stays in the business, which I want to say, hooray for you because it is very important to keep your business expenses and your personal expenses separate because otherwise you’re not going to know what’s a business expense, what’s a personal expense. Uh, as far as your personal expenses, I love this. You’re like, I spend $500 a week. As long as I’m under $500 a week, I’m good. And that’s a great, you don’t have to go super grand if you don’t want to. granular if you don’t want to. You’ve got $600 for food, $450 for gas, 350 for restaurants, 200 for entertainment, 80 for subscriptions. You included $2,000 debt pay down in your expenses, which I am pulling back out because that’s a business expense. Uh, church donations of $440 for a grand total that you gave me of 4120. I’m going to go with 2120 because that $2,000, I would like Scott’s opinion on this, how do we calculate that when he is personally paying down additional mortgage payment from his personal expense when it’s a business expense. So that’s something we’ll talk about a few second.
Scott: I think voluntary debt service is a uh form of savings or whatever, investing, wealth building, debt reduction, whatever you want to call it. So yeah, I think you exclude it from your personal spending and you call it an investment.
Mindy: Okay, investment. Perfect. Uh as far as investments go, outside of the real estate holdings, you are making $3,000 in annual Roth contributions, which is great. You are making $0 in traditional IRA contributions and $0 in 401K contributions. I’m a fan of the stock market. I’m going to say, hey, I’d like to see those go up a little bit. But we’ll get into those numbers a little bit later. Your current 401k balance is approximately $8,750, your traditional IRA balance is $13,000, your Roth IRA balance is about $15,000. But here’s the good part. Your rental portfolio value is $1.7 million with about $900,000 in mortgages for approximately $800,000 in equity, which is you know, okay. Or really, really, really great.
Guest: You can see where the focus has been.
Mindy: Yeah. On that Roth IRA. Uh, cash savings and liquid investments you have about $40,000, personal investments you have about $50,000. Your investment grand total is $1.83 million. If I am counting the full value of the real estate. If I’m only counting equity, it is 941,000. Um, there are random debts, uh credit cards and things like that that are $13,000 that I would love to see you get rid of just because I don’t like credit card debt. Um, your mortgages total, this is the part that gives me the hebibis. 896,000. So, if you look at that mortgage line of almost $900,000 just looking at that, that’s a lot of money in mortgages. However, you are you have 1.7 million in total value assets, uh real estate assets. and how much is your what is your mortgage payment every month? Like total?
Guest: Approximately $5,000.
Mindy: Okay, so you’re bringing in $20,000 and you’re paying out $5,000. I like those numbers a lot. So that makes that 800,000 a little bit less uh squigy. And could you, let’s see, what was your monthly income again? So your monthly income is right at what your mortgage payments are, but what are the odds that all 33 rentals aren’t going to pay their rent at the same time? Like it’s pretty low. I think this is when you just look at the numbers, it sounds kind of crazy, but when you look a little bit deeper, I like what I’m seeing.
Guest: Thank you. Yeah, and it’s something um a lot of times it does make me nervous looking at just the debt side of things being raised a little debt adverse. uh it’s a big number.
Mindy: It is a big number, but you also have good income to cover it. So, perfect Travis, why are you calling us?
Guest: So.
Mindy: What can we do for you today?
Guest: I’m curious if I am too much of a one trick pony, if I am too heavy into real estate while neglecting the other asset classes.
Scott: Yes. Thank you for coming.
Guest: I I I actually disagree. I think you got a like a I got to hear more about this, but my first read is you’ve got a winning formula here. Something’s going right. You’re you’ve got a tremendous amount of of cash flow. surely you have a significant amount of cash flow in this portfolio, although I’d like to to dive into that. And you’ve got a formula that’s winning here. Um, and you know, I I don’t I you’re and you want to you want to go from a million in net worth today to 10 million in net worth in in in some future time period, you’re going to need you can’t diversify your way to $10 million in wealth with your income right now. You have to concentrate and figure it out. So so that’s my instinct um in responding that responding to your are your one trick pony? I like it.
Guest: Correct, cuz I’ve been two years now at of my 401k and my traditional roth, I mean, I invest into the Roth, my traditional IRA, um last two years has been nothing. So I’ve just been focusing all all in one thing right now.
Scott: I like it instinctively. We’ll see.
Guest: Okay.
Mindy: I hear what Scott saying, I agree with his words, but right now you are, what did I say you were 30 years old? You have a lot of um income coming your way. I’m assuming that you are going to continue to get raises every year. You are does Scott, does rental income count against your Roth IRA contributions if you keep it in the business?
Scott: I don’t I don’t know the answer to that. I think I think that um, well, it depends if he’s a real estate professional, then yes, but I don’t know the answer if he’s not a real estate professional. Are you a real estate professional, Travis?
Guest: I am, yeah, recently as of uh this past year.
Scott: So real estate professional means that you’re working in your real estate properties more than any other job.
Guest: Which is true.
Scott: Or his job is related to real estate.
Guest: Yes. Okay. Yeah, yeah, well I worked more, I worked more in the real estate than I do on my my uh W2.
Scott: That’s good. What what is your W2?
Guest: Um, so I’m in construction and I do uh hardscape, landscape, and actually outdoor water features.
Scott: Awesome.
Guest: Yeah. So it it I like the job actually. It’s very fun.
Scott: How how can you give us a little bit of a background of your money story, maybe three, three to five minutes so we can understand how your position came to came to be here?
Guest: Absolutely. Um, so I was raised very dead verse, like I said. I went to college and uh was one of the most stressful times of my life actually because I I’ve seen money going out in loans, but not money coming in in income. So that was a uh stressful time in my life. Got out and went immediately to work and trying to pay off um my debts. I had a vehicle loan, I had college debt, and uh I was in, uh I went to school for civil engineering. I was in that field and I um didn’t end up enjoying as much as I thought I would. I was uh I was good with numbers and management, but it was uh a lot of night shift, a lot of uh a lot of um workload and stress and all sort of kind of thing. and I seen the guys that were older in my industry and I’m like, uh, they weren’t, you know, I didn’t I didn’t see that that’s what I wanted to be when I was that age. Um, so I started looking into investments, um, and then it’s to I looked upon Bigger Pockets, um, and podcast, started looking around like real estate to me made the most sense with my construction background. Um started investing in 2018 and that got us to where we’re at today. Still dead adverse though and I’m still trying to pay down those. I would love to have a um free and clear portfolio someday.
Scott: Could you give us a little bit of a Snapchat as to how someone who is currently making $60,000 a year from your your job, how did you accumulate a million dollars in five years, seven, you know, when you started investing.
Guest: Very slowly, one rental at a time. Um, I was able to basically use the burst strategy.
Scott: not that slowly.
Guest: Yeah. Uh, basically able to push value as in um just uh by value add properties, put that value back in there to bring it back up to market level, pull that equity back out, um, and cross collateralize one property into two, into three, into four and that kind of thing.
Scott: So you somehow managed to, I want to call this conservatively burr your way to a million dollars in net worth. You’ve been buying that heavy value add properties, pulling out some of the equity, but only about 50%. And now I have a a very balanced debt equity ratio across 33 units at a million dollar.
Guest: And the properties that I have are paid off, I’m able to actually leverage them multiple times. Um, so I’m I when I put the when I burn the money back out, I don’t actually pull it out, cash out refinance. I cross collateralize it. So the bank’s able to put a mortgage on that property again until the next one reaches uh the threshold, 20% and then they take that mortgage back off and I’m able to recycle that.
Scott: Awesome. So you’re you’re using a you’re generating a tremendous amount of cash flow which allows you to on average pay down debt, but you’re you’re continuing to buy new properties with the equity in your existing portfolio. Is that is that a good summary?
Guest: Correct. Yeah, so any point in time I’m not really sitting cash heavy because the new cash coming in is either going to old debt, pay down or it’s either going to new acquisitions. So, I am uh I I the uh what you call the uh expression, asset rich cash poor, like that’s my life.
Scott: If if you chose if you chose not to pre-pay any debt and you chose to start taking distributions out of the business, what do you think your monthly cash flow could be right now if you stopped uh if you just started harvesting your profit.
Guest: Um, with kicking some back for maintenance and repairs and vacancies, I would say healthy 10, 10,000. Yeah.
Scott: 10,000.
Guest: You could you could pull out $10,000 a month from your business right now.
Scott: Correct. As it sits, yes.
Mindy: How much do you account for vacancy repairs and maintenance across your 33 units? Is that the $5,000 a month?
Guest: 10% each. Yeah, 10% each usually.
Mindy: Yes. Yes, yes, yes.
Guest: Just because I’ve seen, I I’ve I’ve sat on empty units for four four months just waiting for whatever it is. If you have supply chain issues or this and that and then I’d rather I’d rather air on the uh more conservative side instead of yeah, 5%. Now some of them don’t say vacant at all, um, but the ones that do sit long enough that I’d say on average 10 is safe.
Mindy: Okay. So, you just said some of them don’t sit vacant at all, but on average there’s there is some. If you plan for 10% and you don’t get any vacancy, you win. If you plan for no vacancy and you get a vacancy, you lose. So don’t lose. Plan for these vacancies. You have to run these numbers with vacancy and capex and property management and all these other things, which we didn’t even talk about yet. Do you manage these properties yourself?
Guest: I do and working full-time. So, there there gives me my uh real estate professional status.
Scott: Yeah, so let let me ask you this. Um, what your goal is to get it to get to $10 million in net worth, right?
Guest: Yes.
Scott: And we’re we’re certain of that. You don’t like what why why are you working this job? What what’s the advantage you’re getting from your job?
Guest: Uh it’s a good question. Um, it could be a mindset thing at the end of the day. Um, but uh healthcare, that kind of thing. I have the extra time. Uh managing these wouldn’t take up 100% of my time. I mean I’d say 20 hours a week on this kind of thing. I enjoy the work that I do.
Scott: What what do you do at your day job? Your construction, but what does that what does that actually look like?
Guest: Uh so uh we build outdoor features for residential clients. so like retaining walls, uh we do decorative pawns, fish pawns, waterfalls, um stuff like that. More more of an artistic flare to it.
Scott: What what would be the hopefully he’s considering this as going. If if you stop that job tomorrow and started working on and you were able to flip three houses per year in this area. What would that what what kind of income would that look like for you?
Guest: Uh fairly similar. Three houses a year, um margin on a flip here maybe a healthy 20k. Um, sometimes more, sometimes less.
Scott: And how many would you be able to do?
Guest: Probably three to four, depending with with the guys that I have now, with the teams that I have are now. Now, if I was doing that full-time though, I could scale that a little bit a little bit more.
Mindy: Okay. I want to jump in here and say, how are you going to purchase these properties if you don’t have a W2? One of the things that I see a lot of people posting in the bigger Pockets forums is, I just quit my job. I can’t wait to start investing in real estate. And I’m like, go get your job back because you’re never going to get a loan.
Guest: That’s another big reason. I’m very loable right now as it is with the job and I’d be nervous if there would be kind of a slowdown period where I wouldn’t be loable for a little while until I had a track record back up again.
Mindy: That is yeah, so I would, it sounds like you use the same lender. Well actually it doesn’t sound like that. I should ask you.
Guest: Yeah, I do.
Mindy: Do you use the same lender? I would talk to them now while you still have a job and say, hey, this is what I’m thinking about. I would like to continue to do this real estate. You can see my portfolio, I’m super amazing at everything. I don’t even need Scott Mindy’s help. but I also am considering leaving my W2 job which makes me unable. What are my options? And they can say, hey, we would never give you a loan, in which case you know not to quit your job. or they would say, hey, we’ve got 47 different products here. Here’s all of them and that could like help guide you because when one of the questions you had was when should I leave my W2? Whenever you want because you are there. Like you have the income from the business to cover your expenses which are nothing. Plus cover all of the business expenses and still have money left over for more acquisitions.
Guest: Right. Correct.
Scott: My my instincts are screaming here. there’s four levers. spend less, earn more, invest or create, right? And and from everything about your your situation is saying, why are you working this job? That’s the immediate thing that comes in because you’re making way more money. You’re making twice as much money in a more tax advantage way from your rental property portfolio as you do from your day job. So your lender, um, you’re you’re almost certainly beyond conventional loans at this point. Is that right?
Guest: Oh yeah, that was, yeah, that was a few years back.
Scott: Great. So so you’re you’re your your your lender is if if they’re if they’re smart is not going to care about your personal income the same way they’re going to care about your business outcome. You have what we could what we can see is from my seat is a very well- capitalized, conservative run, um portfolio with a tremendous amount of prospects here and you you’re you’re going to make more in your first year after leaving your job doing your own thing entrepreneurial, um then by a lot probably and your second, third, fourth, fifth year, you’re going to earn way more when you figure this thing out. So so I think I think the instinct the instinct thing that’s that’s popping out to me about your situation is stockpile some cash. So stop paying down debt for like three to six months and build a reserve of 50k plus because you’re going to want that for your first whenever you whenever you do decide to to do something entrepreneurial full-time.
Guest: Right.
Scott: You can look for other work, but it sounds like if you’re make I imagine you’re not you’re you’re not going, you’re not working a job that you could be making 20% more if you went down the street for the next thing. I think you’re probably maxi.
Guest: No. No, it’d have to be something I enjoy.
Mindy: Yeah, so I think you’re going to have to do something. I think I think that from an income perspective, you want to get to $10 million dollars, it’s entrepreneurship. This real estate thing seems like it’s working pretty well. Um so there’s an opportunity for value add there and I would think about how I can set myself up for that situation. How do I get enough cash to feel really conservative. Hey, I can live for a I can live for a year easily on this. and I’ve got plenty to play with for that first or second construction project even if things go unplanned. which was always the goal. Yeah, which was always the goal and then it got there and it’s like quitting your job sounds good on paper then it’s like, I don’t know if I’m ready. that’s a big jump. It seems like a big jump, I guess, I don’t know.
Mindy: Well it’s a big jump if you have $15,000 in liquid in cash, right? I think you said you have 45,000 liquid cash but but you don’t really have 45,000 liquid in cash. You only have like 15,000 in cash because a lot of that’s in stocks and other other different types of things and accross a bunch of bank accounts.
Scott: Correct. I’m actually very illiquid.
Mindy: Yeah. But you can remedy that in three to six months. four months, you’re going you can have 50k in cash, right? If you don’t have too many, if you don’t have any capx items there, you’re you’re going to have plenty stock piled there, um, set aside what you need for your business, figure out your personal situation and and life and and your the risk profile of leaving the job is going to look very different on the other side of $50,000. That for you that’s a year of personal expense. that’s two years of personal expenses.
Scott: Yeah, no, and especially I’ve been very verse to lifestyle creep and uh one of the things I pride myself on because I mean I get made fun of it a lot of times, but uh hey. It works.
Mindy: When you leave your job and start your business and make make bank in the next couple of years, people won’t be laughing anymore.
Guest: Exactly. Yeah, they’re going to ask you, how do you do it? And you’re like, well, remember all that stuff you teased me about?
Mindy: Okay, when we were talking before we hit record, you said that you are on the East Coast and with East Coast properties comes old properties. East Coast investing is older properties. What is the state of the properties that you own right now? You have 33 properties. I’m sorry, you have 17 properties, 33 units. Have you done all the big old capex deferred maintenance.
Guest: So I’m trying I’m working through that right now. I’m putting roofs on. I’m trying to get these things to a point where they’re going to last me the next 30 years and no surprises in 10. So that’s one of the reasons I’m close, so cash light now is I’d rather do the projects now when my expenses are low and I’m not used to spending that money. So I’m trying to do the the roofs and the gutters and the walls and just kind of quote-unquote bulletproof it while I can and I have the energy.
Mindy: Yeah, so with regards to when should you leave your W2? I would maybe encourage you to because you like it, stay there while you are finishing up these big capex projects, just in case if like you open up a wall and all of a sudden you’re like, oh, that’s where that smell was coming from. and now you’ve got a $50,000 project instead of the $500 project you thought you had. Um but how long do you think it would take to get all of the properties up to your I’m done with all of my deferred maintenance and capx.
Guest: Probably one more year of hitting it like I’ve been hitting it, yeah. Just one more year of um intense capitalization into just the capex stuff, the roofs, the walls, you know, the drainage systems, all that kind of thing.
Scott: How much of the $15,000 that we talked about in potential income is going towards towards debt repayment versus investing in capex right now.
Guest: by 75% of it.
Scott: 75. So so most of that is going towards debt.
Guest: most of that’s going towards, yeah, yeah.
Scott: What what’s the blended interest rate on your debt?
Guest: Oh, you would average about five cuz I was getting loans when it was cheaper and now now they’re a little more. So it’s about five, five and a quarter.
Scott: When you when you are getting a new loan, what’s your rate?
Guest: Oh, it’s like six. The last one I just got was six, 6%, yeah.
Scott: And are you paying down the higher interest rate stuff first when with this or?
Guest: I’m actually paying down the properties that are higher equity first um because that gives me more of a leverage to pull in the future. So I’m prioritizing the ones that have more more equity room and bigger value ad. So, on a on an interest standpoint, it doesn’t really make sense.
Scott: Yeah, so so I I think I think we’re we’re we’re starting to ask the right question strategic level, which is how soon can we leave the job um and begin and begin the full-time entrepreneurial thing. I I would I would definitely recommend or I would highly encourage you to stop repaying the debt early right now or if you do pay down the debt early, finish off one one property if you if you want to just check off the box. But stop after that and focus only on the higher interest rate stuff or consider stockpiling cash because what you’re doing if you do the other way is you’re arbitraging your low interest rate debt for higher interest rate debt on the next property. You don’t need to be doing that. right?
Guest: Right.
Scott: So so there’s no and and the cash, not only that, but the cash in your bank account is actually going to give you more flexibility. It’s going to make you feel better about the the the breakup with your current employer. You’re going to be able to finance those projects without taking a lot of line of credit on it. So I think right now is a really good time to stockpile cash. I don’t know how much I something in me is telling me 50,000 is a really good amount because it’ll probably.
Guest: That sounds like a good number to me. Yeah.
Scott: That’ll really cover a lot of repairs. But like I I would not be I I would not I I would be thinking about, okay, I’m not going to pay off any more debt here because my your portfolio already cash flows so so strong if you’re not doing that. and you can just buy the next place all in cash.
Guest: True.
Scott: That’s that’s your plan anyways. why would you why would you trade lower interest for higher interest at this point in time?
Guest: True. Yeah, I hear you. I never really thought about that way.
Mindy: I, Scott, I really like that comment and I Scott and I both are of the don’t pay down your mortgage any sooner than you have to camp, but I can understand when you come from growing up debt adverse and don’t want to have any debt, uh I can understand why you would want to pay that off. If you are like Scott said, if you are going to pay it off, pay off the high stuff first. But I really like his comment, throw every extra like pay your minimum mortgage payment and then throw all of your money into a big cash pile and pull from that for your repairs. Uh, that’s that’s really great advice, Scott. And then in one year, I would re-evaluate. What is the condition of my properties? What is the condition of my bank account? What is the condition of my cash reserves? Uh, what is the condition of my mental state every time I have to go to work? It sounds like you don’t hate your job. You like what you do.
Guest: Yeah, no, I like it.
Mindy: Then there’s no need to or uh there’s no there’s no how do I say this? There’s no reason to quit now and put yourself, like you’re not going to be in a in a squigy financial position. You’ve got the like the best position of anybody we’ve talked to in a long time. You’re doing it right. Uh, but there’s no need to make it any tighter than you have to be.
Scott: I agree with Mindy Mindy’s sentiment. There’s no need to do it. But the big the thing is, your goal is to be at to get to $10 million in net worth. And I imagine that that $10 million in net worth is a very lightly leveraged or no leverage position is your is your end end state goal on that. And you’re not going to get there making $60,000 a year doing outdoor things unless you own the business.
Guest: And I’m comfortable with a portfolio around 50% to 60% leverage. That’s I’m comfortable with that. Higher than that, maybe I get a little too high, lower than that, I feel like I’m not utilizing enough.
Scott: Perfect. So you have to generate several million dollars probably in the next 5 to 10 years because I imagine your goal isn’t to do that at 60. It’s to get there in the next 10, 15 years. Is that right?
Guest: Yes, if you can, absolutely.
Scott: Great. So so you you you the so your job, as great that you like your job, your job is irrelevant already is is not a major factor in that and it’s slowing you down. You could be making multiple times the amount doing more of the real estate business or if you really love that that work, you can go into business for yourself.
Guest: Right.
Scott: And within a few years be earning much more than you are as a a laborer for for your firm right now.
Guest: Correct, correct.
Mindy: That’s a good point too. I would like to point out that Scott is very logical and I am very emotional and the whole should I pay off my debt is more of an emotional concept than a logical concept.
Scott: If you wanted to if you wanted to move in that position tomorrow or or next month, you could just pull out 100k from your property with your lender and that that that resolves our situation from a cash perspective and you’re ready you’re ready to run with plenty of cash and a conservative position. You probably that may not feel right, um, emotionally. but yeah, yeah. I guess. So so if you don’t want to do that, then instead you can spend a few months just stopping the debt paid out, building up the cash position and that will that will feel more responsible.
Guest: No, I like that plan. Absolutely, I like that plan a lot. that sounds that sounds a lot logical to me.
Mindy: Can you go to your lender and get, you said cross collateralizing and that’s a term that I’m barely familiar with. Can you get all of your properties in one loan?
Guest: I can. What’s hard about that is that kind of limits my options um when I do that. I can’t I can’t collateral one out and do and scale like I’ve been scaling if I were to do that. If if I was done building, that would be a great way to to sail off into the sunset. Now you get all in one loan, make that, you know, simplify that, simplify the interest, all that kind of thing. Um but it kind of ties them down and and makes them hard to use individual properties again.
Scott: It’s really hard to get an investment property Heloc right now.
Guest: Yes.
Scott: So it’s almost it’s probably almost going to be impossible for him to get a the equivalent of a Heloc or a line of credit on that portfolio entirely, which is like kind of silly.
Guest: Right.
Scott: But that’s the reality of of real estate investing right now. If someone has a Heloc, investment property Heloc lender, please let let us know. We will we will try to make them famous. Um for everybody else.
Guest: Yeah, they’re not Helocks. I’m I’m just collateralizing the um the equity. so they’re holding one while I while I fund the next one and when I get that one up and going then they let it go. But yeah, it would be nice to get a Heloc.
Scott: Yeah, it would. If you know of a helo, it’s Scott at biggerpockets.com or Mindy at biggerpockets.com and we will
Mindy: An investment property helo, not
Scott: Yeah, investment property. I can get them all day long on primary residence. that doesn’t help when you’ve got investment properties.
Mindy: Right. Um okay, so I would give you a bit of research to do in that you should talk to your lender and just give him your whole picture and say, are there any creative solutions? Is there something that I’m missing? Is there, you know, does your bank offer anything? Can you do anything within your own portfolio? Do you have a portfolio loan that I could, you know, use against these like uh and I’m just, I’m making stuff up right now, but like a uh what’s it called when you wrap a wrap loan over all of your properties so that you can purchase another one and get it up to snuff and then like transfer out of that, like refy out of that into a regular loan and pay off this other thing. Like a a local lender is going to have a lot more options available.
Guest: Absolutely. And I think they’ve kind of seen my strategy so far and they’re kind of familiar with it now. I have used the same ban now for going on four years. Um so I think that it’s obvious I mean, I have a bit of a track record there, so I think that would be a good conversation to have, definitely.
Scott: I’d be very skeptical that you’re going to have a serious issue upon leaving your job of getting continued access to some form of financing at this point with the with the conservative responsible way you’ve you’ve leverage your portfolio and really, you know, and really and really tend to pay it off over time even while you’re acquiring more properties. Or at least improve your debt to equity position, I I I’ll be more precise. definitely um while you buy more properties. So surely you’re lender is not going to say, oh the loss in 20% of your income over here is going to prevent you from getting access to future financing.
Guest: Correct, correct.
Mindy: I’d hope. I brought that up more for other people who are listening, Scott.
Scott: I oh absolutely. I’m not I’m not say that. I’m just say I’m just I’m just saying I’m just excited because I feel like, you know
Guest: No, that’s a great, yeah, I’m definitely going to have that conversation with the lender here soon.
Mindy: Yeah, I would, I would absolutely talk to them about what are the like most creative yet legal things that we can do with this portfolio. I mean, maybe they’ll suggest, hey, let’s take three of them and put them together. That’s different than all of them putting them together and Right. I mean, I’m not a lender, I don’t know what the options are, but when it’s your own portfolio loan, the the rules really open up.
Guest: Mhm. And this is a small local bank. So usually they’re a lot more flexible.
Mindy: I used to be all about like searching for the best rate and that was it. And now I am more into the local banks. Let’s what’s .125% difference on a loan when they’re going to lend me more money than somebody else because they know me and they trust me.
Guest: Oh, 100%.
Mindy: Um okay, so some of your questions were when to leave my WT, we covered. When should I start pulling profits from the real estate portfolio. When do you want to? You could do it now.
Guest: It’s true. I feel like once once that bridge is crossed then you can’t go back.
Mindy: Uh, no, you could put them back in. you could stop taking them in the future. Um, if you quit your job, you will need to take some sort of profit from the portfolio.
Guest: Mhm.
Mindy: because you’re going to have to live on something.
Guest: Absolutely.
Mindy: So, what does that look like? That looks like about $2,000. I mean, if you don’t need to save anything because everything’s been saved within the company.
Guest: Yeah, it and it it is almost miniscule at this point um the affects would be um would be low. from from the cash flow standpoint.
Mindy: Should I diversify out of real estate and move into retirement accounts or the stock market? Ugh, I really really really love a good Roth IRA, just because it grows tax-free.
Guest: Same, and I feel like I’m I’m missing some of these good years when I’m young, putting it in now and like I’m getting that FOMO like uh am I missing out on some of the real estate or the
Scott: Instead, you’re building a million dollar rental property portfolio that can pay for your life right now.
Guest: Tough. That’s true. And every yeah, every time I go to put money in the stock market, I’m like, uh, I could do more over here with that. I don’t know.
Mindy: So you’re doing 3,000 in annual Roth contributions, why are you not doing six?
Guest: I should be. I should be doing six.
Mindy: You should be. So that sounds like an easy win. That’s $500 a month, which is nothing to you. It’s just one more week of spending. So, um, if I was in your position, I would do that for the tax-free growth. I’m not going to harp on you on the 401K because your uh rental portfolio is so amazing, but the Roth IRA when we talked to Kyle Mast on episode 200, he said we’ve been writing a lot of checks lately as a government. I can see the Roth IRA stopping. So there’s, you know, they’re not proposing that yet, but who knows what’s going to happen. I would say as long as you can contribute to your Roth IRA because it grows tax free. Um, and that’s a little bit of diversification in your portfolio while you continue. And it’s not like I hate to throw these numbers around like they’re nothing because $6,000 is still $6,000 and if anybody has any extra, send it to me. Mindy at biggerpockets.com. 3344 Walnut Street. Uh, but it’s only $500 a month that you would be putting into this. And that in the grand scheme of your net worth, that is very little.
Guest: One other thing I was looking at too is uh transferring my traditional IRA into a SEP IRA when I do leave the job, um and then funneling some of the business income into that, um one for a tax shelter and two to be a little more diversified.
Scott: Love that. I think I think that’s again comes down to we got to stop putting all of that 10, $15,000 of excess cash flow each month into the property debt because what you’re doing is you’re arbitraging these opportunities in the Roth IRA or the SEP IRA for paying down 3% interest debt right now, which you can like like I don’t think that’s I don’t think that’s a a good use of your cash compared to these other alternatives. And by the way, you can still do that and in two or three months be be maxing out these these retirement accounts and then spend the rest of the year paying down the debt if you if you if you do want to do that. So. and then secondarily, I would get you in the habit at some point in the next year or two of drawing from the portfolio. The the reason you invest, you built this portfolio is to produce income for yourself and your life with that. I’d start pulling out $1,000 a month, say, no, that’s my dividend. Right. Like I’ve earned it at this point, that’s coming out of this of this of this property. and if you want, just put the money from your job back into the property. It’s kind of a silly. But but I think that would be maybe a helpful mental exercise for you to get used to pulling cash out of the business and having it pay for things that you want.
Guest: No, I agree. and I think I have been verse to that while while scaling just uh so the business was off the ground. now it’s off the ground and I have that opportunity.
Scott: You’re going to have to scale it in the next couple of years while it’s distributing income.
Guest: True, true.
Scott: at some point if you want to get to 10 million.
Guest: Absolutely, absolutely.
Mindy: One last question you had was a review on your portfolio as it sits today. We’ve already talked about your real estate. Yeah, you’re doing great. Your retirement accounts, personal investments and cash total $127,000. So I would review that as a little light and encourage you to uh increase that mostly in the Roth. I really do like the Roth for as long as you can have it. Um, and a review of your goals for the future. I had a question about your goal. You want to retire with a $10 million net worth. Okay, that is a lot, but do how did you come up with that number?
Guest: That’s a good question. Um not nothing specific. I think I just picked that number out of the air.
Mindy: Okay, so that means you could spend $400,000 a year.
Guest: Correct.
Mindy: You’re spending $24,000 a year. I would encourage you, there’s nothing wrong with the $10 million net worth. But I would encourage you to understand why that’s the number. I mean, it’s it just sounds great. Great, then then that’s, you know, if that’s really what you want, that’s that’s I would have a very hard time spending $400,000 a year. Not on real estate, on like regular stuff.
Scott: I Yeah, I think you’re not going to generate $400,000 a year. You’re going to generate a million dollars a year on that portfolio if you continue building this portfolio the way you’re building it.
Guest: To the way it is, yes, yes.
Mindy: And then, well, and the the $400,000 is that I’m doing the 4% rule math, Scott. Um, and that is where my flaw is in my thinking because I’m thinking of the the 4% rule. You’re doing a $10 million portfolio. Yeah. Uh, and you said you wanted $30,000 in monthly income.
Guest: Uh
Mindy: That leaves you with $28,000 left over every month.
Guest: I know, I know. We’ll be looking at uh upping the spending habits from sometime in the future.
Mindy: Which is, I mean, if you’re planning on having getting getting married and having kids, that 2,000 isn’t going to go very far. Um, but those numbers I’m trying to be diplomatic, but those numbers do seem like you just grabbed them out of thin air. So I would encourage you to look into the the reasoning behind those numbers or create some reasoning behind the numbers and maybe those numbers would change. Because if you wait a 10 years to get your $10 million portfolio and then you’re like, oh, I could have retired five years ago with a $5 million portfolio or a $2 million portfolio and I would have been just as happy, then you’ve spent a lot of extra time working when you didn’t need to.
Guest: That’s true. That is true. And then long-term when I get a family and all that kind of stuff, I do want to let way off the gas. um and like have that have that time that I bought back for myself.
Scott: Um you do all the work yourself right now. Um but let’s compute the dollar per hour value of your time. What what what is your you said your net cash flow from the from the portfolio would be about $10,000 per month.
Guest: For yes.
Scott: $10,000 a month is $120,000 per year and you’re also earning $60,000 a year at your day job, right?
Guest: Correct.
Scott: So that puts your time value of your time at $90 an hour. Have you computed it that way before?
Guest: No.
Scott: Okay. So that that’s good and that’s going to accelerate if you continue doing what you’re doing. So when you do work like property management, 50 to 90 an hour is a good ballpark. Like that’s probably the book ends of that of the the value how how how expensive that would be to hire out or do yourself. But you’re going to have to start making those types of decisions as you get into more entrepreneurial stuff as well, pretty shortly here. And stuff that makes sense to do at $30 an hour, which is the rate you get paid at your job is not going to make sense day one with your business because of the way because of your unusual situation um and and how much how much more valuable that business is than your day job at this point.
Guest: Absolutely. And I do want to start offloading the management. That part of the I don’t necessarily enjoy. And there are companies out there that do it, I’m sure they do it way better than me. So, uh that is that is definitely going to go.
Scott: Yeah, so you’re going to find yourself in an interesting position very shortly where if you offload management, you’re going to be like, oh, I I also generate $8,000 a month in cash flow after management expenses. And I could do nothing for ever and spend $8,000. Yeah I I you could go to Bermuda uh next next week or what’s a better island? You know, Aruba, um yeah, yeah next month and spend four months chilling on the beach and easily pay for most of your expenses there uh based on what you currently got. So, something something to think about there, to Mindy’s point, you know, $10 million is great, but like you can do whatever you want right now, if if you so chose to do that. And that’s a powerful feeling.
Guest: It is, yeah. it’s sitting down and saying what I want my life to look like, what I want my day today?
Scott: To be honest, I don’t spend a lot of time thinking about that. I just had the head down worker mentality.
Mindy: Think about it.
Scott: I know, I need to. Just the same same advice we give for different reasons to many people. But I would go someplace fun, warm with a good view, take your your notepad or whatever and just say like three years from today, what does my life look like? It could be anything, right? And and you have a really good shot of going from 8,000 a month or in passive cash flow, passive cash flow that is managed by a property manager discounting for the property management when I say 8,000. So what’s 10% of 20,000 is two. Um, so so you take that and you say, okay, I can easily make that 10 or 12 or 15, right? I have you have your playbook to doing that. And a 50 50 debt equity real estate portfolio is pretty conservative compared to a what a lot of people invest in. I’d like that a lot better than the exact same amount of wealth in the stock market, for example, because from a conservative point of view. So right, what I want my life to look like? Go somewhere warm or with a view and think about that, get out of your house, get out of your environment, just sit down, relax for a day and do it on the day two or three of your little trip. And I think that would be really powerful for you and maybe maybe some things change about those long-term goals because you got you got the whole world open to you right now.
Guest: This was actually the end of my five-year plan as far as like goal wise and now I’m at a pivot point and I’m like, uh I think I’m I think I’m taking uh the deer in the headlight look kind of.
Scott: I think I think it’s a pretty fun position to be in. you should be you should be really uh excited and and proud of what you what because you got you got a lot of good stuff. I think I think I think it’s a pretty enviable position to be in.
Guest: appreciate it.
Mindy: Yeah, you’re doing very well. I am giving you a lot of hassle about not having anything in your Roth IRA or your 401K, but I mean it’s not like you have nothing, you have it just in a different place. Um Right. And I’m a stock market fan too. So
Guest: I do too. I like it. Um it’s just from a dollar to dollar average, I just noticed way better returns in real estate.
Mindy: And you are in a you’re in a an area where you can get good returns on real estate. I’m in an area where it’s a lot, it’s a lot more difficult to get good returns. And you’ve got construction knowledge, you’ve got a team in place. I think you’ve got some things to think about now and just like Scott said, write it down, what is it, what does it look like? And where, how do you want to get there?
Guest: No, absolutely, definitely. Definitely going to take that advice. Thank you guys.
Mindy: Anything else we can help you with today?
Guest: Oh, I thank you. I think you an a on the head there for sure. Definitely gave me some stuff to ponder.
Scott: Awesome. Well, I hope it’s fun. I think I think it’s I think it’s really exciting for you. Um, congratulations on what you built and I don’t have a problem with your real I think I think yeah, you should just consider whether I’m going to arbitrage. I think the big takeaways are figure out what that next chapter looks like. If you want 10 million, you’re going to get you’re going to get 10 million if that’s what you want. But maybe you don’t want that. Maybe you can have something else in the meantime that’s even better. Um than that if you if you think about it and and write it out because you’ve you’ve won the game. Um and then I would say from a tactical perspective, just understand that you’re you’re arbitraging low interest rate debt pay down for other opportunities like stock market investments like um stock piling cash, starting your own business, those types of things. and I would seriously consider slowing that or stopping it to some degree to build up a more flexible cash position first and then consider some of these other asset classes um or or stockpiling cash for that next real estate investment.
Guest: So, I like I like the idea of stockpiling cash, um, especially because I’m so illiquid now. and like you say, asset rich cash poor. So, just having that buffer there, even though I may not necessarily use it or do whatever, would just uh it would be nice to have, nice to see.
Scott: You know what? I’m actually I would say stock pile 25, 30,000 in cash and then go on your trip. Um I think that will that will that will help a little bit. I think that will help a little bit more. I think that will help clarify your thinking a little bit on that front too. Um. And then so I think that’s that’s a big key is that. And then third, understanding the the opportunity cost to your time. um, because you can like your job all you want, but it’s, you know, you’re you’re you’re doing them a huge favor. um I your employer when you could be do, you know, doing something else, the same the same thing for more money long-term and creating your own business because you’re you’re in position to do whatever you you want with that.
Guest: Yeah, and I would love to branch out into some of the other stuff. I mean, maybe, you know, wholesale some of the the leads I don’t chase or like you said, flip, um different stuff like that. So, there’s there’s opportunities there that I’m not maximizing for sure.
Scott: Great. And I think everyone listening should be like, how do how how do I get uh how do I implement Travis’s five-year plan that he just finished? just not a problem at the end of some long weeks, some long weeks in there.
Mindy: Yeah. Yeah, we glossed over that part.
Scott: Travis, this was so much fun. Thank you so much for talking to us today. I really appreciate your time.
Guest: Oh, thank you guys. This has really been um exciting being on the Bigger Pockets podcast in the money group and talking to you guys and making me see things in a different light that I haven’t quite thought about it that way. So, definitely going to take your advice. Thank you.
Scott: Awesome. Okay, we’ll talk to you soon.
Mindy: Oh, Scott, I love Travis. I love him so much. I love his story. I love everything about his conservative approach to investing in real estate and to anybody who is saying, oh well all that money sitting there is just wasted, you should buy more real estate. I want to say that Travis is doing it right and you can invest conservatively in real estate and still come out a winner. Clearly, he’s a winner. The only thing, like I said before, I’d like to see his Roth IRA contributions more just because of the tax-free growth because he’s so young, because there is the possibility that the Roth will go away. Other than that, Travis is perfect and walks on water. I do want to highlight something we mentioned about 20 minutes in. He was considering leaving his job.
Scott: What he is? He’s so good.
Mindy: It was like, what do you want? What are you talking to us for? Okay, sorry. Uh I want to highlight he was considering leaving his job and I brought up the whole W2 job income will give you will help you qualify for loans more for other people who might be listening who might be considering leaving their job who aren’t as lendable as Travis is. Your lender wants you to have income and they will look at your net worth and be like, yeah, that’s cute. Do you have any income? You don’t have any income, I’m not giving you a loan. So if you don’t have a huge amazing track record like Travis, you need to speak to your lender about ways to get loans before you quit your job, not after. That’s why I brought that up, Scott.
Scott: 100%. Yeah, he is an unusual situation because he’s he’s really overshot financial independence to the point where his business generates a lot more income than his job. Uh, and this has only happened, I think with one other guest. I forget his name, but it was one of the first finance Fridays we did, um if you’ll recall, the guy who had uh all those properties in New Jersey.
Mindy: Wayne Lou.
Scott: Wayne Lou, yeah, thank you. You’re really good with that. Um, but yeah, that that was one of the only other situations where we’ve we’ve kind of run into this phenomenon of like, what are you doing with this job? It’s really the biggest drag on your financial position at this point. Um, but so I think it’s really cool. You know, I I have a friend uh who uh uh when he he’s a CEO friend and he has four criteria he looks for when he hires people. It’s uh happy, honest, humble, hungry. Uh the four H role. I think I think that your you know, to echo Mindy’s gushing over Travis, I think Travis is definitely a four-age guy. What a what what a human being. Um on there. I I will call out though one one quick point that I want to just re-emphasize from the discussion. Travis was buying properties, uh fixing them up and then cash out refinancing one a a property here and there in order to fund his next acquisitions. And that is absolutely a phenomenal approach uh and one of the reasons, one a tailwind behind the the growth that he had for the last five years to build this position, right? Because every time he’s refinancing, he’s doing so at the same or even perhaps even lower interest rates on average from 2017 to the present. However, that’s changing in 2022 with rising interest rates. And so that approach no longer um, well, it can it can still work. It can it can still work, but there are disadvantages to it, which in his situation, um and perhaps many of our listeners situation here. I I think you’re better off potentially stock piling cash or paying off the most recent debt first, um if you are going to do that approach rather than your old debt. Keep that low interest rate debt um in my opinion, um, and and forgo getting new high interest rate debt, uh by by stock piling cash and using that to purchase the property instead. So, important nuance there that changed and interest rate dynamics do require a change in strategy and how we think about that. much better to not pay off your debt and stock pile cash than to pay off the debt and then issue new debt like he was doing.
Mindy: Yes, I agree with that. I think that’s a really important thing to bring up. I’m glad you brought that up because I can see his point of view. Oh, I’m just going to pay off my debt. Well, okay, great, but yeah, if you’re paying off the low interest rate debt, don’t do that. Pay off the high interest rate debt or I love the the uh suggestion even more just so stock pile the cash because then you can I mean if you’ve got a big pile of cash and no no place to put it, throw it at the debt later.
Scott: If you’re going to keep acquiring properties, it does not make sense to pay off low interest rate debt and take new new new higher interest rate debt out to pay out to buy the new property. Do something else. Either pay off your debt or buy the property cash. Exactly.
Mindy: Okay, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: From episode 336 of the best episode ever of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying every new beginning comes from some other beginning’s end. I wrote that myself. Closing time.
Scott: Yes, there it is.
Mindy: I watched you find Every new beginning comes from some other beginning’s end, goodbye.
