302: Finance Friday: Can I Live in Flip My Way to FI at 55 Years Old?

Mindy Jensen: Welcome to the BiggerPockets Money Podcast, show number 302, Finance Friday edition, where we interview Rik and talk about cutting your spending and analyzing your real estate investments.

Rik: And so, how can I retire even at like 65 or 67? But I would really like to retire in the next 5 to 10 years because I’d like to play a little bit with my— have that financial freedom. And do some of the things I haven’t been able to do because I’ve always been behind that financial 8-ball.

Mindy Jensen: Hello, hello, hello. My name is Mindy Jensen, and joining me today is my inquisitive co-host, Scott Trench.

Scott Trench: Never question your intros, Mindy, though. But thank you very much for another good show today.

Mindy Jensen: Scott, thank you for a good show today. This is a great show. 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 Trench: 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 just get a little bit more flexibility in your financial position, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy Jensen: Scott, I am excited about talking to Rik today. When I first read his application, which he applied at biggerpockets.com/finreview, I felt the frustration that he had about his financial position. But once we started talking to him, I think that he’s being a little bit hard on himself. Yes, he’s having some cash crunch issues, and yes, I believe there are things that he could be doing better, but I think that he is in a good financial position, especially given all of the situations that he started off with. We’ll start off with a bit of his background to give some context to where he’s coming from, and then jump into his numbers and see where he’s going.

Scott Trench: Yeah, I think Rik has a lot going for him, a lot of positives in here. I think that he wishes he’d started earlier. I’m sure most people wish they’d started earlier, but he’s doing great. There’s a lot of pieces to move here, and I think there’s a lot of fun discussion that we can have, and a really complex but interesting financial position to unpack, and make some moves. So I think we helped Rik, and I am excited to see what he does over the next couple months.

Mindy Jensen: I am too.

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Mindy Jensen: Okay, before we jump in, we need to 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 BiggerPockets 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. Rik lives in a medium cost of living area, is former military, and looking to retire early in about 5 years. He’s looking for guidance on how to grow his real estate portfolio to help him generate enough income to make his early retirement dreams a reality. Rik, welcome to the BiggerPockets Money Podcast.

Rik: Thank you so much. It’s a pleasure to be here. I’ve been listening to you since COVID happened. And I started rehabbing a duplex, and it’s just been such an amazing learning experience for me. So I’m really happy to be here today.

Mindy Jensen: So, Rik, let’s jump into a little bit of your backstory before we look at your numbers. Where does your journey with money begin and what sort of system are we looking at before we look at where your money is going?

Rik: Well, it depends on how far back you want to go. If we start with my childhood, my financial journey started with zero money. And I’ve heard this from other guests on the show as well. My parents divorced when I was 7. My dad was a veteran. He wasn’t working at the time. My mom was a stay-at-home mom raising 2 kids. And my financial journey really started with seeing somebody who was working hard as a mom and then working, trying to pick up jobs, you know, go forward with her education. She started in a mental hospital working as a nurse’s aide, went and got some certification, went back to a hospital. She went on to some more school, got an LPN. She went back to school. By the time I graduated high school, she had a baccalaureate RN. So what I saw was a mom who was struggling financially. We were on public assistance the entire time, but she was going to school, getting a job, going back to school, and getting another job. And so that really set sort of a foundation of hard work for me. And so I started working when I was 12 with just paper routes and stuff, but I was able to buy books and things like that. And I wasn’t very good with my money because I spent it all. Every time I went and made the collections for the newspapers, I’d give it to the newspaper what they needed to have, and then the rest was my money, and it went to things like video games and comic books and stuff like that. Later on in high school, I became a little bit more responsible, and so I would use whatever money I got from work for things like buying new football shoes every season, things like that. So I think I had a good idea of how not to spend money unless I absolutely needed to later on in life, because I didn’t have any money. And then going on to college, I basically did that all with student loans for my undergraduate. And that was because I couldn’t get Pell Grants or anything like that because my mom made too much money. She had gone into the Air Force. And when I went to the financial aid office— I’ve been listening to a lot of the college expense shows you’ve been doing recently. And I went into the financial aid office and I said, well, why can’t I get any Pell Grants? They said, your mom makes too much money. And I told them, but she’s paying back her student loans. She just got out of college like a year ago. So I had about $30,000 in student loans by the time I graduated, and then I had to figure out how to pay all that back, and I just didn’t have the financial literacy to really understand what I was getting into as a college student, taking out all these loans. And so, I had done a lot of jobs that trained me to be like a videographer. I was once a wedding videographer, the worst job in the world. But they always had Swedish meatballs and they were great. The funny thing about that is that this was in the UP of Michigan, and they’re mostly Finnish people. So I don’t know what it was with Finnish people and the Swedish meatballs.

Scott Trench: Oof.

Rik: Some kind of cross-cultural thing going on there. And so after college, I was just kind of burnt out because I was working all of these production jobs, and I didn’t want to go work at a news channel or something like that. So I went out west and I started working construction, but that wasn’t paying me enough. And then I ran into a friend who was working for a fishing company in Alaska, and he came back with a brand new shiny truck. And he made $15,000 in 3 months, and this was mid-’90s. And so I said, this is my get-rich scheme here. I’m going to go, I’m going to work for 6 months, and I’m going to pay off all my student loans. And then we didn’t catch any fish.

Scott Trench: Oh, no.

Rik: So I came back with no money at all after that. And so my last resort was— and it wasn’t like a last resort, it was actually my first resort, but I went and did the fishing because it would have been faster. I joined the military, the Army specifically, because they had a student loan repayment program. And after 3 years of service, they would have paid off a year’s worth of my loans for those 3 years. So I’d be debt-free there. And so that’s what I did. I joined the military. They paid for that. And then I got the GI Bill on the tail end coming out. And then I went back to school for a master’s. And I had to start taking out more student loans, like I didn’t learn my lesson the first time. And I got my MA, and then I went on for a PhD, and I just took out still more student loans. So I ended up with about $60,000 in student loans after I got my PhD. And by this time, I’m old already, and I’m older now, 12 years later. So I’m trying to dig myself out of all of these holes, and I think I’m doing a reasonably good job, but I really just need more help. I’m almost 50. The gray hairs are just coming into my beard, not up here. I don’t have any gray hair up here. I don’t know why. And so, how can I retire even at like 65 or 67? But I would really like to retire in the next 5 to 10 years because I’d like to play a little bit with my— have that financial freedom and do some of the things I haven’t been able to do because I’ve always been behind.

Mindy Jensen: Okay, so I have a question about your student loans. You have the GI Bill and you still have student loans on top of that. Did you exhaust the GI Bill or did you not qualify for the GI Bill?

Rik: No, at the time the GI Bill paid for your classes, your tuition and fees, and I think there might have been a little bit in there for books and stuff, but it wasn’t covering living expenses.

Mindy Jensen: Oh, okay.

Rik: So I was working as a teaching assistant, so I was teaching like the first-year composition course. And first, I went back and got another bachelor’s, which I kind of needed to do because I had, I think, a 2.84 after my first bachelor’s. I was one of those resistant students, like, I just want to take the classes I need for my future profession. I don’t want to take all these other courses. So I did fail Arab Islamic history. That was a really bad one.

Scott Trench: Hmm.

Rik: And a few other courses. And so, but when I was in the Army, I really decided that I really wanted to go back to school, get a graduate degree, and possibly become a professor. And the only way for me to do that was to go back and get another bachelor’s, and I did that. Just went back to my original school, just took the credits for the English major, which cut it down to about a year and a half. So I had enough funding really to get through that first year and a half of school, finish the bachelor’s, then move on to the master’s in English.

Scott Trench: Well, thank you for giving us that awesome backstory with this. And great to hear the goals, 5 to 10 years, getting to financial freedom, having room to play and run with that. Could you tell us about your situation right now in more detail? Income, expenses, assets, liabilities, general situation?

Rik: Definitely. We have one single-family home that we’re living in now. That’s our kind of live-and-flip situation. I’ve actually been working on baseboards all morning. You can’t see them behind me.

Scott Trench: And who’s we?

Rik: Oh, my wife, my wife Kendra and I. And so we moved here during the beginning of COVID. It was that March. We were actually working on rehabbing our duplex. We had one side rent it out, and we had one side that we were living in. So we were house hacking that. And then our tenants moved out. And it wasn’t for COVID-related reasons, but they kind of left in the middle of March. And then I started plans to finish the rehab over there and rent that. And that took me about 6 months. And then we moved over here. So now we have a duplex and we have a single-family home. Our take-home pay is around $8,000. Then we have— Kendra has a car. That’s about $405 a month.

Mindy Jensen: Mm-hmm.

Rik: We have the mortgage, taxes, and insurance because everything’s in escrow for our single-family home, and that’s $1,100 a month. Car insurance is about $123, phones are around $100, electric, internet, that’s around $200. Pets cost around $100 to $150 a month. We have 2 dogs. Then we have things like water, Netflix, Amazon Prime, a pet plan with PetSmart for $78. I think other big items are food. We’ve been using Mindy’s sheets. We used those for January and February, those worksheets. They were super helpful for us because we were spending way too much on food, especially HelloFresh, and eating out. I learned from Mindy also that you can have a separate booze budget. So we have a separate booze budget that is around $200 a month. We try to keep eating out to between $50 to $75 a week. And Kendra has a 401(k). She puts $1,200 into it a month. And then I only put $50 into mine— it’s actually a 457 through my university. I only put $50 into it because that’s the match.

Scott Trench: Mm-hmm.

Rik: So it’s not very good. So that’s really why I kind of focused on real estate, putting my money into that, doing the work myself as much as I possibly can. We have— we put $200 a month away for no-questions-asked fun money, that from your podcast as well. We also have a travel fund that we put $500 into each month. Then those total expenses come to around $6,000. There are just things I think that come up every month that take you over the $6,000 that we plan to spend every month. So I think we’re basically living check to check.

Scott Trench: Yep! What do you guys do right now?

Rik: I’m a professor at a university here in Chattanooga, and she is a nurse. So we have good jobs, but we don’t make a ton of money in those jobs. And we keep our real estate separate, like we really don’t count that as income. And really, it’s just been getting off the ground. So we really can’t count it as income.

Scott Trench: And is that income, the $8,000 a month— is that pre-tax or post-tax?

Rik: That’s post-tax and all deductions, even for investments and stuff.

Scott Trench: So combined income is probably close to like $120,000, $130,000 a year?

Rik: Yeah.

Scott Trench: Pre-tax?

Rik: Okay. That’s about right on.

Speaker 2: Awesome.

Scott Trench: And then what— so how much— what does your wealth situation look like? Can you walk us through cash, your cash position, investments, and debts?

Mindy Jensen: Yes.

Rik: It’s going to be a short list, folks.

Scott Trench: No problem.

Rik: Especially these days. My gosh, I looked at my account this morning and it had lost 12% for my 457. So in terms, I think our net worth is estimated to be about $349,000, which I looked up, like stats and stuff, it’s like, we’re not horrible, we’re above the median.

Scott Trench: Yeah, you’re doing good.

Rik: So investment accounts, we have roughly $120,000 in those. In real estate, I think we have about $275,000 in equity. I have a paid-off car. It’s a truck. These days, trucks are going for a lot, so I don’t know if it’s going to last forever, but I’d estimate that’s worth between $15,000 to $20,000. Kendra’s car still has a lien on it, so if you pay that off, you have about $6,000 worth of car there. We have our travel fund, which is about $2,000 right now. Cash reserves, about $4,000.

Mindy Jensen: Okay.

Rik: And I would also call that our emergency savings other than Visa. Visa is really the emergency savings because they’re always there.

Mindy Jensen: They are always there.

Rik: So that’s our assets. And then in terms of liabilities, we’ve got our duplex, still has $148,000 on it and that’s at 3%. Our single-family home is at $157,000 and that’s at 2.75%. Kendra has a credit card of $5,000. I don’t know what the percentage is on that one. And we used that—that was an emergency fund spend right there. One of our dogs, she tore an ACL, and so we had to get that replaced, and that’s what that cost. Her car loan is at $11,500 at 4%. And then I have a few credit cards where it’s basically all house rehab. So I have one at $11,000 and that’s at 0% financing until April of next year, and I have one at $11,000 for another—that one’s 0% until April of ’23. And then I have $4,000 on a card that I just used to get our floors redone. And then the two other big items, of course, are student loans. I have $54,000 in student loans, but I’m probably going to get those discharged through the Public Service Loan Forgiveness program this summer, because they’re updating the counts right now, but I’m pretty close to that $120,000 mark. And then Kendra has $80,000 from her undergrad nursing degree and then her master’s nursing degree. And because she’s been working at nonprofits too, we can go through that employment certification process, and she’s probably getting close to that as well.

Scott Trench: Love it. Well, thank you for all the detail here. This is great, this is really helpful, and I think we’ve got a lot to work with here. So this is awesome. And I’ll also just say, you guys are doing a lot of right things. You’re building wealth, you’ve got the rental properties, you’ve got the investments going, you’re spending less than you bring in with that, especially when you count how much is going towards retirement accounts. So lots of good things here with that. And we’ve got a clear goal—five years, we want the most flexible position possible ideally, if not in ten years. If we can get there in ten years, is that right?

Rik: That’s right. I mean, if we can make it happen for tomorrow, I mean, you guys would be working some magic.

Mindy Jensen: Well, step one, win the lottery.

Rik: Step one is—

Mindy Jensen: You could just go buy the winning lottery ticket that is going to get you there tomorrow.

Rik: Okay, we’ll cut here and then you can give me the number.

Scott Trench: There’s actually a lottery called Set for Life, which is very confusing.

Rik: Is there really?

Mindy Jensen: Okay, I want to focus on the student loans because it’s going to be a really quick focus. Yours are supposed to be loan forgiveness, programmed this summer—I’m just going to give you a research opportunity to make sure that you have done all the things that you’re supposed to do. You made reference to the 120 payments that you have to make so that you can qualify for the loan forgiveness, and I am just going to make sure that—I’m going to have you make sure that you’ve done all of the things. I know that there were some problems maybe ten years ago, five years ago, with the loan forgiveness plan. So just make sure that all of your ducks are in a row because you’re so close. Kendra’s student loans are a little farther out, so that’s another research opportunity. How far out does she have to go? How many payments has she made? Is she ten years into the program?

Rik: Is she—

Mindy Jensen: Is it—it’s ten years.

Rik: Yeah, it’s ten years.

Scott Trench: Of the plan.

Rik: There’s many payments.

Mindy Jensen: Is she two years into the plan or is she really close to the end? If she’s just in the beginning of the plan, sometimes it’s better to make the payments. If she’s close to the end, sometimes it’s better to just go for that, because there is the loan forgiveness part—you may have to pay taxes on the part that’s been forgiven. And this is where I get into the “I don’t really know what I’m talking about,” so I’m going to send you to the College Loan Investor—thecollegeloaninvestor.com—or Student Loan Planner, to find out more about these programs and make sure that you’re following all the rules surrounding them, and to make sure that it’s the right program for Kendra. Since you’re so close, it is the right program for you, because you’re about to not have to pay all of that money back.

Rik: Right, absolutely. Some of the things that were confusing for me at first, too, is like the annual recertification of your employment. You have to fill out that form every year, send that in, and then they have to do sort of their check to verify that you actually work for that employer. And that’s the form your employer actually has to sign, send to you, and then you should be sending that in—you shouldn’t wait for your employer to submit that for you. So Kendra is farther out because she’s only been in the program for about three years now, and the question is, you can go back if she was working for a nonprofit hospital for several years way back when, and that can count. So you have to go through and get the employment certification form from that employer that says you were a full-time employee from this date to this date. Then you submit that to the program, the PSLF—and it’s really not PSLF, I think it’s Federal Student Aid—you submit it there first, then they update the counts of how many months you have. And so that’s one of my summer tasks, is to get that information from her, get that form all set up so we can send that in, because it could be that she’s close to the ten years and 120 payments, but we just don’t know yet. Okay, so that’s a great question.

Mindy Jensen: Another thing is to look at after you’re retired—do you want to do any sort of work at all? Do you want to teach one class a semester, or zero classes and you’re completely done? What does your retirement look like after you have hit the number where you are generating enough income through your rental properties that you don’t need to work anymore?

Rik: I think in part it’s going to be what I’m doing right now for my part-time job, you know, like managing the rental, doing the rehab. Maybe I want to get out of that, because my hands are starting to fall apart as I age and it’s getting harder and harder to hold a hammer. And so we’ve been thinking about—one of our goals is we would like to travel. If we had a short-term rental, even just one to start with, right, we want to pick someplace where we want to travel to. We have a few cities in mind where everybody is investing, like Destin—like Avery Carl, you know, she’s invested in Destin and Blue Ridge and up there in Gatlinburg. And of course, those are really close to us in Chattanooga—those are all drivable places for us. So that’s really one of our big goals. And then I could be self-managing all of those rental properties as we go. So I don’t see me giving that up, but I do other things—like my first bachelor’s was in painting and drawing and film and video, and so I’d really like to get back to doing some of the art that I used to do that I don’t have time for anymore.

Scott Trench: Let’s kind of look at the biggest—I think the first thing we have to kind of think about is what’s going to happen if nothing changes over the next three to five years about your financial position, right? Right now, you’re accumulating $1,200 a month in wealth via Kendra’s contribution to the 401(k). You’re also paying down the mortgage slightly. But how much cash flow beyond that is being added to your savings account each month?

Rik: Savings account? What’s a savings account?

Scott Trench: How much cash are you accumulating after tax?

Rik: Really none, because all of my cash goes straight to like the rehab, the properties, anything like that.

Scott Trench: So that counts, right? Cash going into your rehab counts, right? That’s an investment—it’s just an alternative to the stock market or other types of investments that you’re putting in there. So how much are you accumulating on average over the course of a year, or monthly?

Rik: I would say monthly, because I’ve been trying to pay it off as I go, even though I don’t—because the significant credit card debt that is in my name, roughly like $22,000, actually $26,000 now after the floor, a lot of that is from doing the rehab. I put in probably $1,000 to $1,750 a month to start paying that off.

Scott Trench: Okay.

Rik: So that’s my leftover cash—goes towards that.

Scott Trench: So I’ll call it $1,500 a month, or $18,000 a year, in cash that’s being generated by your household that can go towards investments outside the 401(k).

Rik: I mean, I would hope so, but I think where I’m getting stuck is that I have to pay off these credit cards. Now, I love to dance around with the zero APRs—move the debt from one card to the next—but I feel like I’m going to have to start paying that off once the rehab is complete, and so everything’s going to go towards that.

Scott Trench: Absolutely. But you’re generating $1,500 a month in cash, and that can either go toward credit card payments, it can go towards rehab, it can go towards investments—but that’s your cash surplus that your household is generating right now, right?

Rik: Right.

Scott Trench: So that’s $18,000 a year, and over five years, that’s about $100,000. So that is, I think, the critical first step in thinking about a situation like this—do you have opportunities to increase income? Does Kendra have opportunities to increase income on a regular basis? And can you cut a few hundred dollars out of the monthly expenses in the next couple of months, and then maybe $1,000 or $2,000 over the next year or two, as you make some—for example, pay off Kendra’s car, no more car payment. That might be three, four years, I don’t know how long the payment is. But those are the kinds of things—if you can think through how to get that number to widen, you can get that from $1,700 or $1,500 to $2,000, $3,000. Now you’re accumulating $36,000, $40,000 a year. That will greatly give you many more good options and much less, I imagine, stress about balancing payments going to credit cards versus rehabs versus other investments at this point in time.

Rik: Yeah. Well, first on the jobs, I don’t think we can do anything. I’m an associate professor at my university, and—as you’ve probably had a guest on one of your previous podcasts—professor jobs are hard to get, and moving around, you’d have to move if you want to get higher pay, basically. You can’t really go in and say “please give me a raise because I’ve been doing these things,” you really can’t even kind of construct that sort of argument. Kendra’s a nurse—she probably has more flexibility to move about, but she started this job, her current job, about a year ago, and she’s been really happy with it, really loves the people and the patients. And I think it’s the stress level of the kind of nursing she’s doing now compared to her past work in an ICU—I don’t see her really wanting to move jobs. So I think things like trying to cut her budget—maybe the booze budget has to go down a little bit—and like her car, I think we could try to pay extra towards that every month. I did that with my truck, because I bought my truck just a year ago, and before it really kicked in, the rehab over here, I was putting an extra $1,000 to $1,500 on the truck every month. So I paid that off in about nine months, really just doing what you’re advising us to do. So maybe we could try that with her car and get that $11,000 down in the next year or so.

Scott Trench: Okay, and Mindy, I think you had a couple of notes about the budget as well.

Mindy Jensen: I do. I see that your phone is $99 a month.

Rik: Yes.

Mindy Jensen: My friend Mint Mobile is $15 a month, so that’s a big savings right there. mintmobile.com/bp.

Rik: I’ve heard that ad.

Mindy Jensen: Take advantage of that. I use Mint Mobile, I think it’s great, it’s solid service—it’s just less expensive. I mean, I don’t notice any difference between Mint Mobile and—I can’t even remember the name, I’ve had it for so long, I can’t remember who I had before them. So that’s a savings of what, $85 right there? $75?

Scott Trench: Yeah, $85 right there. And I’ll say this—Mint Mobile is a sponsor, they’re not paying us for Mindy’s ad right now. I personally, I think they’re great—I personally don’t use them because I want to spend all the money on the data, on the very unlimited, very expensive plan. But I think it’s a really good alternative to save a lot of money. And that would be one of the—

Rik: Yeah, look at that. Okay, that makes sense.

Mindy Jensen: Yes. Another thing to look at is you have Netflix and—well, it says Amazon Prime. Is that Prime or Prime Video?

Rik: The Prime Video. Well, we have the whole Amazon—

Mindy Jensen: The whole Amazon thing, so.

Rik: The whole Amazon ecosystem.

Mindy Jensen: So something I’ve noted, and I’ve noticed, is that when I have Amazon Prime, it is super easy to hit “buy,” but when I don’t have Amazon Prime, or when the item isn’t Amazon Prime, I think about, do I really want this if I have to pay $3 for shipping?

Scott Trench: ‘Cause you’re so cheap.

Mindy Jensen: But get rid of Amazon Prime and see how much easier it is to not buy things at the click of a button when you have to think about how much you’re going to have to pay for shipping. And you have Netflix and YouTube Premium—do you use— are those for the same things? Are those for different things? And do you really need both of them? I mean, I’m a Netflix shareholder, Netflix is great, so I don’t want to tell you to get rid of Netflix—everybody should join Netflix—but this is not for my personal gain, this is for your personal gain. And how much time do you spend watching Netflix? And can you get that someplace else? Can you get that cheaper? Can you go to the library and rent videos? I’m showing my age, but we’re the same age, right?

Rik: No, no.

Mindy Jensen: You go to the library and you rent a DVD. They have Redbox still outside of the grocery store. But seriously, when was the last time you watched something on Netflix? Is this something that you’re really doing?

Rik: No, it’s a great question. That would be the one for us to go—would be Netflix is the one we watch the least. When it comes to Amazon Prime, it’s where I go to buy a dethatcher for the lawn, so my Amazon spending is really just—I click, but it’s usually just stuff for the house. I really don’t buy things for myself. So I would probably keep that, get rid of Netflix. YouTube, I have that because I hate ads, and I actually watch a lot of YouTube for the do-it-yourself videos, BiggerPockets videos. So commercials—I feel like I’m losing time by having to sit through promotions.

Mindy Jensen: Okay, so start with Netflix and see how that works. And change your phone. Your pet plan is $78—I don’t have a pet, so I don’t know what this is or what it covers.

Rik: This is something we have through PetSmart.

Mindy Jensen: It’s—

Rik: and it allows them to have as many visits as they need. Our dogs are getting older, so they can come in and have as many visits without charges—it’s kind of like pet insurance.

Mindy Jensen: Like veterinary visits?

Rik: Yeah, it’s vet services through Banfield Pet Hospital, which is in every PetSmart.

Mindy Jensen: Are you using $78 worth of services a month? I don’t know what a pet costs, so—

Rik: I’m going to say no. We did—we had the dog who had the torn ACL, which cost $5,000, but we had to go to a specialist, a surgeon, for that sort of service. So I don’t know if we’re getting our money’s worth with that—that’s a really good question.

Mindy Jensen: Look over the past three to six months and see how many times did we take our dog there, versus how much it would have cost—like, if you took the dog there once and it would’ve been a $50 charge, but you’re paying $78 every single month for this, that’s an easy thing to cut, but then take that $78 and just put it into an account for six months so you have—

Rik: Yeah.

Mindy Jensen: Pet—

Scott Trench: That’s—

Rik: I think that’s smart.

Mindy Jensen: Fees, in case you need to pay them.

Rik: It’s our money, so it stays with us if we’re saving it.

Mindy Jensen: Yeah. Why are you paying for Amazon Prime Video for the duplex?

Rik: This is kind of a—it’s not really a long story. It was a long-term rental on that side—we had a tenant who moved to Hawaii, we wish we could have gone with her too. And she had really nice furnishings, and so we actually turned that duplex unit into a midterm rental. We bought her stuff, we put about $5,000 into the unit total, with buying her stuff, and we turned that into a midterm rental that was actually generating about $750 more a month than it was as a long-term rental.

Mindy Jensen: Wow. Okay, so that’s just a cost of doing business.

Scott Trench: I would separate out expenses like that from your personal expenses—that’s the business, and you say, here’s my revenue and expenses, and that’s a perk you do to attract tenants, you know—$10 a month for $750 more a month, good return.

Rik: Except we’re ending that, because the rental prices have gone so high, right, in our area, we were actually starting to lose money on the midterm rental. So now we’re converting it back in July to a long-term rental. We’re charging more, so we’re going to be making more money, not paying for things like that at the duplex, not paying for electricity and water.

Scott Trench: Let’s get to the duplex in a second here.

Rik: Sure.

Scott Trench: I have one more item, which is travel savings.

Mindy Jensen: Ah, yeah. Well, there’s two more items—the no-questions-asked fun money, and the travel savings combined.

Scott Trench: I like the no-questions-asked fun money, that’s good, that’s healthy.

Mindy Jensen: You would.

Scott Trench: I like the travel savings though. You’re spending $6,000 a year on travel. Now, that’s fine, you may like to travel and all that, you can definitely afford it to some degree, but I would challenge you—you’re doing a rehab, you’ve got all these credit cards and all this stuff—why not challenge yourself to get travel rewards and use points effectively, if you’re going to be putting large expenses in your rehab onto these credit cards? See if you can knock that down to $200 a month or $100 a month to cover the incidentals, so that you can pay for the flights and hotels with travel rewards. That’s a research opportunity that I think could save you $4,000 or $5,000 in your situation, because of the amount you’re spending on cards for rehabs.

Rik: Yeah! Yeah, that’s a good point too. I mean, we just started this. We’ve been listening to your podcast and so we thought we should have a travel fund because we’ve never had a travel fund and we really don’t ever travel. So we thought it would be a good idea to start one so we could. We’ll go a whole year without going anywhere. So we thought, well, let’s put money aside and do this as something we could use if we want to go down to Destin for a weekend. We could do that. So rewards credit cards is another great idea. I use the Amazon—I have an Amazon credit card which gets me lots of points but no travel points. I have a Lowe’s credit card which saves me 5% all the time.

Scott Trench: Well, the Southwest cards right now, what you can do is if you spend $3,000 in the first 3 months, you get 50,000 points. If you spend $12,000 in the first year, you get another 50,000 points. So that’s 100,000 points. You spend a little bit more, you’re also getting points for dollars spent. You spend a little bit more on your rehab, now you’ve got 125,000 Southwest points, which gets you the Companion Pass for Southwest.

Rik: Oh, yeah.

Scott Trench: Buy one, get one, and do that. So there are opportunities like that to uncover. If you don’t want to fly Southwest, you want to drive and have hotel points, then maybe the Sapphire Preferred or something like that might be a good card to explore.

Rik: I was just hesitant to get another credit card, even if it’s just locked away in some travel lockbox that I can only get to when we’re traveling.

Scott Trench: I think if you’re going to spend money on that—so we’ll get to cash flow management as well—but I think if you’re going to spend money on the rehab, it’s going to go on a credit card, it might as well go on a credit card that’s going to get you travel rewards points if you’re thinking about that.

Rik: So yeah, no, that makes sense. I have a USAA card that gets me points, but it’s very—you know, you can turn it in for cash, but it’s just such a small amount, it’s hardly worth it.

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Rik: So yeah, looking for something that would have bigger rewards would be great.

Mindy Jensen: So this is where I’m going to jump in, because I have done all of this. I have done a ton of live-in flips with rehabs that I am swiping my card on all the time. I will say, open up one card at a time. You want a hotel card, you want an airline card, or do you want—like Scott just said—the Chase Sapphire Preferred card. It has a $500 annual fee, which really, really, really hurts to pay.

Scott Trench: That’s the Reserve card. I have the Preferred card, which has that $75 fee or whatever it is.

Mindy Jensen: Yes. So I didn’t like the great big fee, but you get something like $300 in travel vouchers, like just a credit towards—so now it’s only a $200 fee when you take that into consideration. And then it’s like you more than make up for it if you use the points the right way. And there’s all sorts of articles if you search—I think they’re called Chase Ultimate Rewards points. And if you research those, you earn a point for every dollar you spend, and those points can be transferred to Southwest. So you want to spend 10,000 Southwest points, you transfer 10,000 over. And there’s all sorts of—there’s people who devote their whole life to telling you how best to spend these points. So definitely do some research on those when you’re getting ready to travel. But there are a lot of really great ways to really cash in on—I mean, you would spend the money on the rehab anyway, why not have that fund your vacation? So now your vacation costs you $12 instead of $1,200. I will say, from my own personal experience, open up one card, get that in your head that you need to spend $3,000 or $5,000 or whatever. It’s so easy to do. I have spent so much money at Home Depot and Lowe’s. And then open up another card and hit that spend. But when you open up 2 cards at the same time, you might forget, and then you don’t get to spend on either one of them, and then it’s a big mess.

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Rik: No, that makes sense.

Scott Trench: I don’t think this is your number one opportunity here, but I think it’s an important one. What you need to be focusing on is, sit back and say, over the course of a year, how much cash am I generating? And I mean that by income minus expenses in your personal life. And then, where am I deploying that, is the next question. You’re deploying that right now all to your rehab. And really, you’re putting all that and then some into the rehab, which is why your credit card balances are going up. But if you can get that number to increase from what we can kind of—the $18,000 I’m ballparking it at right now per year—to $30,000, $50,000, $75,000 over the next 5 years, that is the formula. That’s the foundation of the engine that will move you towards financial freedom. And then it’s about, okay, I’m going to deploy that. I’m going to rehab, I’m going to buy real estate, I’m going to invest in stocks, whatever, that can compound. But those investments are subject to the whims of the market to some degree, right? Those will go up and down. So you need this baseline engine to be stronger in the next couple of years. And that’s going to involve a disciplined budget in your case. And I think continuing to be open-minded as the next 1, 2, 3, 4, 5 years pass about income opportunities. Is there a traveling nurse opportunity that doubles her income—that is also a good gig. Okay, maybe I’ve got to make some hard decisions at that point because of the impact that will have on these other bigger goals from a financial perspective with that. So those will be things to think through.

Rik: Yeah, I think that it makes sense to kind of focus on those fundamentals first and get that sort of sorted out, and do what you’re talking about in terms of kind of snowballing that savings and paying off of debt. I guess I’m wondering, what else can I do to make more money?

Scott Trench: So I think the biggest opportunity with that is your housing, which is exactly what you’re doing. So walk me through your single-family house that you own right now. You moved out of the duplex, you were house hacking. What was your thought process with this house?

Rik: It was cheap, and I knew I could fix it up—that was really the whole thought process. It’s kind of funny, the duplex is only 3 doors down the street. And so we tried a new real estate tactic. I believe it’s a new strategy called walking dogs for dollars.

Scott Trench: Love it.

Rik: And so we walked out, we got to know the neighbors, and there was a couple here who had an RV, and they were planning to retire, and they wanted to sell their house. And, you know, it’s a longer story, but basically they wanted to sell it to us. And so I think—houses in my neighborhood right now are—you know, Chattanooga is a cheaper market comparatively, but this house will probably go after rehab for $275,000 to $300,000, and we bought it for a little under $162,000.

Scott Trench: This is the way. This is what I would—this is, I think, the way you solve this problem, right? How long have you lived in the house?

Rik: Less than 2 years. It will be 2 years in August.

Scott Trench: 2 years in August. Will you be done with the rehab in August?

Rik: I hope so. I’m putting in a half bath, so that kind of plumbing, I’m not sure. But yeah, I think most of it will be done in August.

Scott Trench: So you’ve got the summer as a professor to work on the project, to project-manage, to do it yourself, whatever, with that, right?

Rik: Absolutely.

Scott Trench: Okay. So that’s a $160,000 gain that we’re talking about, tax-free, that you’ll be able to redeploy from that. So I think that strategy is really sound. We have a house hack, and you’re saying, hey, most of your wealth right now is because of your house hack and what you’re doing from a housing situation. I love that approach. That’s what BiggerPockets is all about, to a large degree. You are subject to some market risk with that, but I think the fundamentals are really strong for that. How much have you put in? You bought it for what, and how much are you going to have put in by the time you complete the rehab?

Rik: We bought it for $161,500 in August of 2020, and we’ve got about $26,000 into it.

Scott Trench: And how much more needs to go into it to complete it by August?

Rik: You know, I think it’s somewhere in the neighborhood of $5,000 to $7,500. It just depends on how the plumbing goes.

Scott Trench: Great. So, $7,500—maybe let’s call it $10,000, because things never go on time or on budget with a rehab here. And that will put you $160,000 plus $30,000, maybe $40,000, into it, and you’ll sell it for $260,000. So you’ll make a $60,000—how much did you say it would sell for? I’m losing myself again.

Rik: I think it could go for $275,000 to $300,000. I’m adding a half bath—it only has one bath, but it has 3 bedrooms.

Speaker 2: Okay.

Rik: So it’s kind of a smaller mid-century house.

Scott Trench: So this is an $80,000 to $100,000 tax-free gain that you’ll be able to pocket at the end of it, when it’s all said and done, after the purchase price plus the rehab. And you’ll probably walk away with much more than $80,000—you’ll probably walk away with, you know, $100,000 to $120,000 of that, because that cost is now into equity in the property, right? Is that realistic?

Rik: I think that’s realistic. I guess my follow-up question is, should we sell it? I mean, does it make any sense with this particular home?

Scott Trench: I almost always bias towards yes, sell the primary residence if you didn’t buy it with the specific intention of keeping it as a rental long-term. Because let’s do this: you sell it, you’re going to incur some sales costs—maybe let’s call it 8% of the property value to sell it. But you’re also going to be harvesting an $80,000, $100,000 capital gain with no tax effect. So if you keep it as a rental for many years after that, then you’re going to have to pay tax at some point if you don’t sell it before the 5-year cutoff period. So that, I think, is a good strategy at the highest level—to bias heavily towards always selling the primary, even though it’s hard. That’s the property you know, and that’s the one you’re comfortable with. It’s right next to the other one.

Rik: Sweat and blood and lots of tears sometimes.

Scott Trench: But I think the strategy and the way the tax system works should bias you towards that. And then also, you have a personal financial situation to clean up here to some degree. So what I would love to see from your financial position is something like, hey, I’ve got $30,000 in cash reserves after my next down payment on my next property. I’ve wiped out this credit card debt that’s got to be causing you stress and a never-ending game of 0% over here, 0% over here.

Rik: It’s a dance.

Scott Trench: Wipe all that out. Maybe wipe out the car loan, depending—a car loan is probably not at a high interest rate. But I’d love to see the proceeds from the sale go into, okay, I’ve got a $30,000 cash reserve or something in that ballpark, whatever you’re comfortable with—6 months. I’ve got no credit card debt, and I’m beginning the next project with a reasonable, healthy down payment. I would just do this live-in flip again.

Rik: Yeah, the benefit that I have is I can use that VA home loan.

Scott Trench: Yep, perfect.

Rik: As well.

Scott Trench: So then you don’t even need—so then you can have that reserve, and you can put the rest into—you could maybe buy 2 properties with this. You could buy a single, an owner-occupied home with 0% down, maybe a small rental with the proceeds after paying off your other cash. I think that—I would love if we could unwind a little bit, go back in time for you to be in a slightly stronger financial position prior to attacking the current project. And it’s a little like, oh, what’s going to happen with the market later this year? But I don’t think you have much of a choice. I think you have to plow ahead and finish your rehab here and attempt to sell in August at that point in time to harvest the gain. And who knows, maybe you’ll get slightly less gain depending on how the market goes, or whatever—slightly less gain or whatever. And then, who can time all that? But then you’ll be buying the next one at that much lower a price anyway. But I think your live-in-flip strategy is the way for you with this. So focus on that foundation—expenses minus income—and then you live-in flip a few times over the next, you know, 2 times over the next 5 years, and buy a rental with that strong position as things get going. You could be sitting in a position 3 years from now where you’ve got all your credit card debt paid off, you’ve got a second live-in flip completed, maybe that nets you $100,000 to $150,000—you can back into numbers that work like that—in tax-free capital gains. You’ve got your duplex here, and you’ve bought one more rental property. You’ve also got your student loans forgiven, and you have a timeline that’s very clear for Kendra’s student loans. Is that financial freedom? No, but you’re now sitting—you’re much closer to $1 million than you are to $500,000 in personal net worth, with maybe some better options. How does that sound? Does that sound realistic?

Rik: I think that sounds really realistic. I mean, I was always like, 5 years is a dream, 10 years is probably more realistic depending on how things go. So I think that kind of plan makes a lot of sense. I guess my one question is, we’ve been toying with the idea of getting a short-term rental someplace, because we know that the potential for cash flow is much greater than any other kind of rental, it seems like. So we were considering maybe we should just stay here and sit on the equity that’s here. Maybe we can refinance it if the rates come—I mean, the rates aren’t—I don’t think the rates were awful. I bought my duplex at 4.75%.

Speaker 2: Mm-hmm.

Rik: So I know they’re up over 5% these days. But would it make any sense for us to stay here, possibly refinance, pull out cash from there, or refinance on the duplex because it has so much equity, and use that for something like a short-term rental.

Scott Trench: Yeah, so again, I bias heavily towards selling your primary right now.

Mindy Jensen: Right.

Scott Trench: And I know it’s probably different living in it, seeing it, working on it, with all that. But from my seat here in Denver, at the strategy level, I’m just like, okay, you’re going to have $120,000 or $130,000 left in this thing. You can buy your next property and flip it with 0% down with a VA loan. For this, you can pull that $120,000 out. Right now, you’ve got a ton of other debt financed way worse than this mortgage will be. If you cash-out refi, you’re not going to be able to get most of that $120,000 out—you’re going to get like $40,000 out.

Mindy Jensen: Right.

Scott Trench: which does not attack the meat of your financial situation with that. And so it could work out. There could be many other things that you think about in the weeks or months following our call here. But my bias is it’s screaming, sell this place, use the proceeds to reset and clean up, make sure that financial foundation is really strong and you’re generating cash in a snowballing way on a go-forward basis. And then I got absolutely no problem with the short-term rental. I think that would be great if you’re interested in short-term rentals. That is a great thing to do in general. I would just caution you that the vacation—a lot of people want to buy these short-term rentals in Vail. If you live in Denver, I like to go to Vail. Vail is really good at taking money from people who don’t live there. And you’re competing with people who don’t want to make money, but who are very wealthy and just want a place to go that’s theirs that they’ll rent out sometimes. So you’re competing with people who are willing to operate at a significant loss to just offset their luxury vacations with that. So I would really think hard about your short-term rental market. And I wouldn’t necessarily bias towards the place you like to visit the most, although that can be a factor. I would go, where’s the most money? I’m going to make the most money I can for my dollars, and then I’m going to spend it wherever the heck I want. So I’m like, I’m going to make my money here in Denver on properties I know, in a market, in an environment I’m very comfortable with, where I know I’m competing with true investors, not people who are willing to go at a loss. And then I’m going to spend my money in Vail visiting the other—the guy who’s subsidizing me, really, with their fancy short-term rental. So that’s how I would think about it at the highest level, or I’d bias you towards that mentality. And then like Destin, Florida might be a perfect short-term rental market for, because that’s what everyone does there. And it’s not really like a thing, but if you’re biased towards that, you’re at risk of competing against people who are playing a different game than you.

Rik: That makes sense.

Mindy Jensen: That is a really important thing to note, Scott. And yeah, I could not have said that better, because there are—and this is in any market—you need to make the offer based on your numbers, and you are going to be sometimes competing with people who are playing a different game, and that’s fine. It really makes me sad when people are like, I have to win at any cost, make the highest offer possible, win, win, win. And you’re like, but other people are doing different things with their money. And they might be wiping away or kicking taxes down the road through a 1031 that makes it advantageous for them to pay $20,000 more, even though they’re not going to be making much money on this, because they’re about to lose their 1031 protections. So they make the offer that’s higher, and then now they have more time. They’ve just bought themselves more time to go and find another better 1031 plan property down the road. So I do like Scott’s suggestion. I do want to bring up that he’s got a 2.75% loan on his primary mortgage, Scott, and rates are right now—they’re in the high fives. What can you get a property for currently? Like, if you were to go out and buy a house tomorrow?

Scott Trench: I think that is a factor.

Mindy Jensen: Yeah. I mean, that’s not something to be taken lightly. But what, like, what house price are you looking at right now? Could you get another house for $160,000? Or are they already up to $225,000?

Rik: I would say they’re all up around $300,000. Even for something that has, you know, wallpapered bathrooms from the ’70s. And there’s all the brown and gray combos that the fix and flippers are creating these days, which is a very unattractive color scheme. I don’t know why you’d have brown floors with gray walls or cabinets. It’s just really odd. But yeah, anything you want to buy here in Chattanooga that’s decent is probably going to be somewhere in that $300,000 range. Then you’re still going to have to do work on it.

Scott Trench: I think that the interest rate is an interesting thing. If your interest rate is going to jump from 2% to 5% on the property, that needs to be thought through from a financial consideration. You’re going to be paying more. You’re going to be consolidating all of your debt from a blended—most of your debt right now is at a 2.75% interest rate. Then you have chunks that are at higher interest rates presumably, and credit cards that are much higher interest rates. So you consolidate that all into a 5% mortgage. Are you better or worse off with the new property? I don’t know. That’s an interesting question there. But without that as a factor, I would definitely bias towards selling the property and consolidating all of these things. I think that there might be some complicated math to think through about what happens to my blended rate, the risk profile, all that kind of stuff. Most of your high-interest debt is short-term debt on these properties. And you’re not going to be able to refinance that into your duplex necessarily. So, okay, let’s do this. If you decide, you know what, I’m going to keep the place as a rental because of the interest rate thing, the tax considerations, and the ability to clean up my position and pay off these other debts with the proceeds from the sale—they don’t outweigh the overwhelming advantage of the low interest rate I’ve got currently on the property. If that was the case, then we’d still have to think, okay, you’re not going to pull out anything at that point because you can’t refinance the loan. So how do we attack the rest of your financial position from that future state? Right, because you’re going to end this process, you’re going to have no cash, you’re going to be trying to get the next property, and you have this pile of various debts that we have to address one by one or as a group.

Mindy Jensen: I was going to suggest a medium interest rate HELOC.

Speaker 2: Yeah.

Mindy Jensen: Where he can take some—right now he’s got a couple of cards at 0% interest. Great, pay—you’ve got one at 12%, pay that 12% off as fast as you can. I don’t see—

Scott Trench: Well, I think you’re refinancing to the HELOC. That’s what you do. You take the HELOC out and pay off the credit card.

Mindy Jensen: Or take the HELOC and pay that off and keep those 0%. And then there you go. Thank you, Scott. I’m not thinking seven steps ahead. Pay that $4,000 off, and then look at those ones that are 0%, pay those off or wait until they’re at the higher percent, kill those with the HELOC and throw all your money at the HELOC because then you’re paying the lower interest rate. You’re not opening all these credit cards to try and do that. ‘Cause the balance transfer game used to be—we’re both old enough to remember—it was free to balance transfer. And then they started charging you like 3%.

Speaker 1: 3%, yeah.

Mindy Jensen: The transfer fee. And that made it not so much fun anymore. But if you can keep these 0% for 15 months, I think you could knock out the $4,000 while these other ones are at 0%. We didn’t say what Kendra’s interest rate is. We could knock that one out probably while these are still at 0%.

Scott Trench: And then, you know, we can’t just take out a HELOC and pay off the loans. We’re going to get charged a 3% balance transfer fee in order to do that.

Mindy Jensen: No, we could pay those off now, but they’re at 0% right now. It’s silly to pay the HELOC money on when he’s got them at 0% for 15 months.

Scott Trench: So I think that’s fair, but I would say, let’s say you complete the project—you’re in August and you’re at decision time. Am I selling or keeping? I still think you probably have a bias towards selling even after all of this discussion. But supposing you go with the 30% chance that you do want to keep the place long-term, I think then you open up the HELOC and I think you pay off a bunch of these cards starting with the highest interest rate ones, but also some of the ones that are at zero, because you don’t know what the future is going to hold. You don’t want to be sitting here a year from now—you don’t have enough cash flow this year to pay off all of that stack of debts. So you don’t want to be in a position where you’re left holding the bag on these interest rates, and they’ve come in because of bad market conditions or whatever. I don’t think you want to rush to do it, but I don’t think you want to wait. It’s not an emergency, but I think you want to make that decision, consolidate and clean it up, not a year in advance, but months in advance of when you’re going to be running into problems with that, because that HELOC is dependent on—you don’t want timing to come into play.

Mindy Jensen: Well, lucky for Rik, he is a self-professed spreadsheet aficionado. So he can take all this information, run all these fancy scenarios and decide what is the best choice for him. But I do like the idea of opening up a HELOC, because those are going to be a little bit higher than a mortgage rate, but way less than a credit card rate. So if you’ve got the ability to open that up right now, I would do that. And then if you go and sell it in August, they’ll just close that out for you.

Rik: Okay, that makes sense. Yeah, I wasn’t really sure how to go about the HELOC. You know, I know that what they have, adjustable rate loan, adjustable rate.

Mindy Jensen: It’s adjustable rate.

Rik: I was always a little skittish about those.

Mindy Jensen: It’s only on what you take out. So there’s a home equity line of credit and a home equity loan.

Rik: Okay.

Mindy Jensen: And the line of credit, you can borrow and then pay back and borrow and pay back. It’s like this big pool of money that you can borrow from. A home equity loan is you borrow it and then you pay it back, but you don’t have it open all the time.

Rik: Okay.

Mindy Jensen: So you want the line of credit so you can borrow it again if you need it. Maybe some amazing deal pops up down the street where another neighbor wants to go join your other RV neighbors. And they’re like, yeah, I’ll give this to you for $160,000. And you’re like, okay, great. Here’s my down payment, and let me go find the loan now for the other property. And maybe that makes this whole thing really easy, and now you can sell this property. Maybe that doesn’t work out, but having the line of credit open—I really like that option.

Scott Trench: I would definitely go and open the line of credit. In terms of using it, you can then draw it when you need to, to do these things. And you might say, I’m paying high interest right now on card F, I’m going to go with this, I’m going to pay that one off with the HELOC. And I’m going to pay instead of 10%, 3 or 4% on the HELOC here. And I would do the HELOC on your primary, not on the duplex, because you’re going to get a better rate, it’s going to be a lower volume. But I don’t think you need tons of that right now. So I would put it on the—yeah.

Rik: Right. So that would be based off of the equity in the single-family home, our primary residence. And then how do they figure out that value? Do they just look at comps? Like, how do they figure out how much I can get in the HELOC?

Scott Trench: Well, you can get an appraisal, or they may just kind of say, hey, we think it’s probably about this, and we’re going to cut it down to here to be conservative and give you this much. But Mindy will probably—yeah.

Mindy Jensen: Yeah. It’s just like buying a house. There’s either an appraisal where they come out and actually see the house, or they could do a desktop appraisal where they just look at the comps around.

Scott Trench: And they’ll just give you less on the desktop appraisal. They’ll charge you for the real appraisal.

Rik: No, that sounds like a good plan. I’ll definitely look into that right away.

Scott Trench: Okay, awesome. So let’s kind of recap where we’re at here. I think step one is back to fundamentals and basics. You need to generate more cash annually. And the lever we have right now is in your budget. It’s not a ton, but there is perhaps $1,000 a month more that we can pull out of that budget, which is $12,000 a year. That brings you from $18,000 in accumulation to $30,000. It’s a big difference. That’s all of your consumer debt outside of the car paid off in a year with that amount of cash flow generation. That makes things a lot simpler here. Second, I think, is the primary house right now. I still think it’s a little wonky. We’ll see how things are in August with that. But I still think you got a heavy bias towards selling that place and using that as an opportunity to clear out all of these debts and/or the HELOC. And then you’re sitting in a really good spot with easily $60,000, $70,000 in cash that you can deploy towards the next opportunity. Maybe it’s, I’m going to buy another one with my VA loan, put nothing down and fix it up, and I have $30,000 for the rehab as a buffer. And then I could put the other $40,000 into a short-term rental or another property that I’m interested in buying as more of an investment, or the starting chunk towards that next investment with that. And then I think that’s the essence of the strategy we’ve talked about thus far, actually. We have one more item, which is the duplex here, which I think is another huge—there’s probably a few other things, but I want to spend a moment on the duplex. You have $200,000 in equity on this duplex, which means your loan is like $150,000 and the property is worth like $350,000. Is that right?

Rik: I’d say probably closer to about $300,000. It’s hard to find exact comps, but the comparables I’ve seen recently are around the $250,000 to $275,000 range, but they’re not nearly as nice.

Scott Trench: Okay. And what’s your mortgage on that?

Rik: I say that with some small amount of pride, but—

Scott Trench: I love it. What’s the mortgage on it?

Rik: That’s $1,133.

Scott Trench: And the balance?

Rik: I believe that was $147,000, $148,000.

Scott Trench: Okay. So this is most of your wealth is in this property. Well, 40% of your wealth is in this property.

Rik: Yeah. Yeah. I think that’s fair.

Scott Trench: Okay. And then how much rent are you getting from the duplex? Or will you get once you make the change? You’re making some changes. What will be your future state income by the end of the year for this?

Rik: I believe that—well, I know that we’re cash flowing, just offhand, about $500 per door in the duplex.

Scott Trench: And you said you were going to move it from a medium-term to a long-term rental, and that was going to increase, right? So what will your cash flow be at the end of the year?

Rik: It would end up really just going up about $100 a month. So it’d be $1,100 a month in cash flow.

Scott Trench: Awesome.

Rik: For the whole duplex.

Scott Trench: Do you have a bank account for this, or is this getting deposited into your main bank?

Rik: No, it goes straight into a separate account.

Scott Trench: Okay. And how much cash do you have there?

Rik: About $4,000 right now. And that’s because we switched to the midterm rental. We put about $5,000 into it. And then rents kind of skyrocketed in our area, and it didn’t make sense anymore to keep up the midterm rental. And because we’re rehabbing this house, we’re just going to take a bunch of the stuff that we bought over there and bring it over to this primary house. So that took out a big chunk of our revenue last year, and so this year, things are going to be much better.

Scott Trench: Okay, great. I don’t think you have that much to do here, actually, now that we’ve talked about it. I think 50/50 debt-to-equity is a little low on the debt side, but super comfortable. You’re getting $1,000 a month in cash flow from this property. $12,000 a year adds on to your position with this. I do think you have a capitalization issue. Same deal—you have too many of these little debts down here and too much complexity with how you’re going to manage cash flow. Do I pay off this debt? Do I put it toward the rehab? Do I do all this kind of stuff? And so I think when you finish the housing project, your single-family house, this summer, and make your decision to either get the HELOC or sell it, that’s another opportunity here. You want to be—I would be uncomfortable until I had a situation where I had $10,000 to $15,000 at least sitting for that rental set aside. And then maybe another $10,000, $15,000, $20,000 for my personal situation, a $30,000 maybe total lump. But that will get you—now I don’t have to go and drop the HELOC or get another credit card thing to make repairs here. That’s a strong capitalization position. And I think it will help your investing activities if you have a liquidity position that you’re able to build towards and that you’re constantly replenishing with cash flow from your life on an annual basis. And that all can take place by October, September of this year, if you complete the rehab.

Rik: Yeah, yeah. No, I think it’s really useful because, I mean, we make good salaries and we have a good, decent quality of life. But I just—every month I feel like we’re living kind of check to check because of all these rehab expenses.

Scott Trench: Yep. So you can’t stop now. You’ve got to finish the rehab. And that’s going to leave you vulnerable a little bit until the event happens where you’ve completed rehab and made your decision on the next thing, and either stabilize it as a long-term rental that you’re going to keep with the HELOC. But I would encourage you to pull out the HELOC before you move out of it. You could tell your lender that too—you don’t want to do anything nefarious with that. But I think you could get a better rate on a primary HELOC than you will as a rental property with that. So maybe a lender could help us out with that and make sure that there’s—we can ask that in the BiggerPockets Money Facebook group to make sure that there’s no issues there from an ethical or legal standpoint. But I think my bias tells me there’s an opportunity to pull out the HELOC before you move out. And that will get you better rates and better terms.

Mindy Jensen: Which can be found at facebook.com/groups/bpmoney. And I will type this into the Facebook group this morning on the day that this show releases, which is Friday, May 20th.

Scott Trench: What else can we help you with, Rik? Has this been helpful?

Rik: This has been super helpful. It’s answered a lot of questions that have been nagging me really for months as rehab costs. I mean, I’ve been playing the balance transfer dance for decades and, you know, and it’s worked. On the one hand, it’s worked in a particular way, but, you know, there have to be better ways. And I think you’ve given me those better ways of doing things so that I can kind of move forward. And, you know, we had been thinking about possibly selling the house and I think you’ve really kind of confirmed that for us, that that’s something we need to really seriously consider if we want to have a good foundation moving forward.

Scott Trench: Yeah, I think the only major blocker to selling the house for me would again be if there’s a huge interest rate spread and you’re effectively reconsolidating all your debt into a much higher interest rate. That would be the only way that would be a major problem. And it still might be more advantageous in that one because it might allow you to do a bigger flip with more upside downstream to some degree or something like that. But I think that there is a situation where it may not be. There may be an alternative. So think it through with that. But I don’t know what the right answer is there, but I bias towards the sale generally in these types of situations.

Rik: Now, are there any resources for figuring out that kind of comparison? I do love spreadsheets, but I don’t know how to use formulas. So I am pretty much like, you know, addition and subtraction sort of level spreadsheet skill.

Scott Trench: Interesting. I think this is a spreadsheet exercise, unfortunately, because I think you have to kind of say, okay, what are my— what’s each debt? What’s the amortization period? What’s my interest rate on it? And it’s not just interest rates, it’s also the amortization period, right? So it’s which ones are variable rates. Your credit card rates are going to go up in an increasing interest rate environment. Your HELOC’s going to go up in an increasing interest rate environment. Your mortgage is going to be fixed most likely for 30 years. So just because the mortgage rate is lower risk than these other types of debts. So I think there’s a multifaceted thing. I think you have to go in and say, here’s debt 1, here’s the interest rate, here’s my payment terms with that, here’s debt 2. And then it will be some math, but also some subjectivity.

Speaker 2: How do I feel?

Scott Trench: Which one do I want to pay off first? Because it’s technically better to leave this one here, but it could go up a lot in a rising interest rate environment. And that’s going to give me some stress next year. So I think that’s why it’s inherently a spreadsheet exercise. Although there may be some resources out there. We’ll have to, again, ping our Facebook group for that. Maybe I’m not thinking of them.

Mindy Jensen: Yeah, I think the help of an existing mortgage calculator will help you with the amortization schedule so you don’t have to do that one yourself.

Scott Trench: That’s right.

Mindy Jensen: And then just, but yeah, like Scott said, it’s going to be subjective. Oh, okay, my interest, my payment right now is $1,100. And when it goes up, it would be, $1,700. Ooh, that doesn’t feel good at all. I want to stay here. Or my payment is $1,100 and it would go up to $1,300. That’s more doable. Maybe I do want to do this. I think it’s going to be more like $1,700 or even $2,000 because not only are you paying a higher interest rate, you’re also paying more for the property. So I’m not saying don’t sell. I’m saying look at your options and it’s entirely subjective. But, you know, run the numbers.

Speaker 1: Numbers don’t lie.

Mindy Jensen: And when you have them, like, I’m just making numbers up right now. When you have them in front of you and you’re looking at real true numbers, you can— it could be very easy to make the decision. It could be really hard. That’s, you know, that’s why it’s your research opportunity and not mine.

Rik: We’ll hope for the easy decision.

Mindy Jensen: Okay, Rik, this was super fun. I really enjoyed going through your numbers and I heard you struggling with your situation when I read through your application, but you’re doing great. Just because you’re having a bit of a cash crunch now doesn’t mean you’re not in a good financial position. So I hope you’re feeling better about your situation. I think you’re doing a lot of great things. I think a little bit of rearranging, a little bit of, you know, rethinking this versus that, and you’ll be doing phenomenally. I’m not sure retiring in 5 years is going to be the case, but 10, I think, is a really great doable goal. And the 5 years is more just because we’re about to enter, you know, a period of down markets.

Scott Trench: Well, that’s perfect for you. Right, because you’ll be starting your investment, you’ll be doing the bulk of your investing journey over the next 25 years.

Rik: Right, in a downturn. So I should get the HELOC now and not wait.

Mindy Jensen: I would definitely start talking to different lenders.

Scott Trench: That’s why I’m like, you never time the markets here, but there’s definitely a first time in history, most Americans think now is not a good time to buy a home. That came out from Gallup this week. Now, paradoxically, people think that prices are going to go up for housing. So that’s interesting. But it’s— people don’t think it’s a good time to buy a home. Investor sentiment for the stock market is bearish right now overall. And those are all things to consider with that, which is why you like to act with more speed here. But again, we’re recording this in May, and your timeline is to complete the rehab by August, right? Got to do that, I think, at this point. It’s just too close to the finish line and lots of other things happen. That’s a gamble I think you need to take and finish out as quickly as possible with it. But it could be bad luck where if there’s a problem in the meantime. But I think that’s the sense of urgency I would apply to completing this project over the next 3 months to make sure that you are in a much stronger position to attack the second half of the year and the next 3 years.

Rik: Yeah, it makes sense. So what you’re telling me is I should stop working on the baseboards today replacing those and move on to researching HELOCs and finding and talking to some banks.

Scott Trench: I’m telling you the opposite. Finish the baseboards, finish the rehab, get the project done. So you have the option to sell and/or your house will appraise at the maximum value when you need to get the debt financing for the rehab.

Rik: I think that was my question. Like, so don’t do the HELOC now because the project’s not done and you won’t get that high appraisal.

Scott Trench: Talk about the HELOC. It might be that the property is already worth enough more where you could consolidate some of these things. And you’re like, oh, I get a balance, I can get a HELOC of $70,000 right now. I don’t need $70,000. Great. Game over. I don’t have to worry about that. And I can take that and begin consolidating some of the debts at this point, maybe the ones that are not 0%. But some of them you could knock out. And you could draw down on that and have a little bit more cash to some degree to finish the rehab a little bit more comfortably. So you might do that now. That might be a good— but, you know, when you come home from the appointment with the lender, you finish the baseboards.

Rik: Yeah, yeah, absolutely. Maybe I could buy better knee pads with the HELOC.

Mindy Jensen: Okay, well, Rik, thank you so much for your time today, and we’ll talk to you soon.

Rik: All right, thank you so much.

Mindy Jensen: Scott, that was Rik, and I really like where he’s at right now. He wishes he started earlier. Well, don’t we all, Rik? I think he’s been too hard on himself in the past. And I think that we really shared with him and showed him that he’s not doing as bad as he thought he was.

Scott Trench: Yeah. I mean, Rik’s doing great. He’s got hundreds of thousands of dollars in wealth. He’s got a number of moving pieces. He’s got a number of advantages. I mean, if we list out all the things that are gonna be different, perhaps one year from now, right? He’ll have accumulated $20,000 to $30,000 more in cash. He will have gotten $55,000 in student loans forgiven, which by the way, we should have reminded him he has to plan for the tax consequences of that student loan forgiveness. He will have completed his home project and likely be able to harness the home equity in there either with a home equity line of credit, which will help him consolidate other debts, or by selling the property and redeploying it into cash-flowing rental real estate, and perhaps a rehab, a second rehab, and another live-in flip, which can propel his wealth. He’s got a great job. His partner has a wonderful job as well. They’re doing great. And they could be having $100,000, $200,000 more in wealth in the next 18 to 24 months, and maybe multiple hundreds of thousands more in the next 3 to 5 years by pursuing their plan. So lots of good things going on here. Lots of advantages. And I think he’s going to have some good wins over the next couple of years.

Mindy Jensen: Yes, in months and years. I think his goal of 5 years retirement might be a little too aggressive, but I think 7 to 10, he will be able to realize his dreams and be able to retire and travel the world, do whatever he wants to do, and sit really, really pretty based on some of the actions that we have suggested today. Here’s a fun fact.

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Scott Trench: That’s right.

Mindy Jensen: Okay, Scott, should we get outta here?

Scott Trench: Let’s do it.

Mindy Jensen: From episode 302 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying ready, set, go, Joe.