Mindy: Welcome to the BiggerPockets Money podcast, Finance Friday edition, where we interview Alan and talk about short-term rentals, credit scores, and student loan debt.
Scott: The other big problem here is your credit score, which is not great right now.
Scott: The approach I like the best is to either just pay down the debt, or go a good old-fashioned index fund investing, instead of sticking all that cash in your bank account, sit tight for a year or two. You’re going to generate 50, $100,000 in free cash flow over the next year after tax at the current rate that your your life is going, and you’re going to be right back in the same position but with a cleaner balance sheet at that point in time and a better credit score. And during that year, you can put together some really clear business plans for rental property investing, short-term rentals, rent by the room, whatever makes sense in your local areas that could produce that passive cash flow.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my real estate loving co-host, Scott Trench.
Scott: You’re supposed to say thanks.
Scott: Oh, thanks. Go again, go again. Sorry. I was not paying attention.
Mindy: Are you new?
Scott: Yes.
Mindy: Let’s start over. Hello, hello, hello. My name is Mindy Jensen and with me as always is my real estate loving co-host Scott Trench.
Scott: Ah, and with me as always is the foundation of our real estate investment around here.
Mindy: Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott: That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like short-term rentals on a lake, or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Scott, I am excited to talk to Alan today because he has a very interesting financial situation. He makes bank. He makes a really great salary. But he has had some past financial mistakes and now has a bit of a debt scenario that he needs to contemplate paying off. And he also is interested in retiring early, which is why we’re talking to people here anyway. And he has a great financial uh great um home situation where he is able to short-term rental a portion of his house, but if he moves out, he will not be able to do that anymore due to the short-term rental laws of his city. So, he’s got some decisions to make, and but like, the best part of his whole situation is that his income is covered. He is making such a great income and that is one of the biggest problems that we see on this show is that I want to do all these things but I don’t have any income. Well, he’s got that covered.
Scott: I think Alan has a really strong set of financial fundamentals in his financial position, but that his goals are not well as well thought through as they could be, and his investment philosophy is not well rounded out. And then compounding that is the fact that he’s kind of stuck in a pretty good overall position because of a couple of great decisions he’s made in the past, but that make it almost hard to go back on that, right? For example, his house is so great, his living situation is so great, how can he possibly leave that and go on to another another housing situation? That lever of house hacking or scaling your portfolio through owner occupant um strategies is not really available to him because his current situation is so strong and he won’t be able to replicate it.
Mindy: That is a problem that I think we’re going to see a lot of people facing in the next few years, uh just the next year if you believe some of the reports that are coming out. But with interest rates rising, it’s going to be really hard to find a fantastic deal. And that doesn’t mean that there aren’t deals out there. That doesn’t mean that you can’t be buying real estate now even with the high interest rates. It just means that finding a fantastic deal is going to be even harder than it was before. So, um I am excited to bring in Alan, but before we do, my attorney makes me say 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. Someday I will have that memorized, but today is not that day.
Mindy: Alan, welcome to the Bigger Pockets Money podcast. I am so excited to talk to you today.
Guest: Thanks, it’s great to be here. I’m excited to talk to you both.
Mindy: I am excited to talk to you because I see some easy wins and some research opportunities for you right off the bat. So, let’s jump in and review your finances. Easy win, huge, huge win that you’re having is your income. Your W2 income gives you approximately $12 to $18,000 a month, not a year, a month. Now, that’s a huge swing. That’s an entire salary in some cases swing. So, I want to review that in a little bit, but let’s celebrate the fact that you are killing it in the income front. Um not only that, but in addition to that, you bring in $2 to $4,000 a month as a short-term rental, primary house hack situation. So that’s another bunch of money coming in. Awesome job. You have $120,000 in savings, which is fantastic. Now, let’s look at your debts. You have $100,000 in student loan debts, which are currently deferred, and I’m assuming you’re making no payments on, which is a smart decision. You’re saving the money and then I’m assuming that you’re going to pay those off as soon as the deferment period ends, but of course we’ll get into that in a little bit. Um, you have a $290,000 mortgage at 3% for 30 years. I’m hoping you’re not going to pay a dime more than you need to on that because 3% is not the current mortgage rate right now. Um, and you have $3 to $400,000 in equity on this house, so that’s another celebration. You bought well, hurrah. Uh, for expenses, I have $500 a month in utilities, 105 in homeowner’s insurance, $450 a month in property taxes, $65 a month in car insurance, and the rest of your average monthly expenses is $7,000. The research opportunity that I see immediately is to break this down into really, really small categories to see if there’s any place that you can cut some larger expenses out of. Um, I have wife’s retirement accounts as traditional IRA, $50,000, Roth IRA, $15,000. I see no Alan’s retirement accounts. So that’s another thing that we’re going to discuss today, Alan. Um can you give us a very brief overview of your money story?
Guest: Absolutely. So, my money story kind of began, I guess we’ll put it in we’ll start at at college. Starting in college, um just going for a general bachelor’s degree, not really sure exactly what I wanted to do. So just kind of changing my majors around and living off of my student loans essentially. And eventually I, you know, started just working some odd jobs through my early 20s. I was a line cook at a restaurant where my wife and I met. We were working at a doctor daycare making like nine bucks an hour. Um so I really never made much more than like like $10 an hour for several years. And so to supplement that, I was using student loans to pay for my expenses and taking out credit cards and kind of racking up bills on those just to kind of pay for my everyday life. And then I kind of got my my act together a little bit and went back to school and started my career that I’m in now, where I started to actually make decent money. I started off making about $30 an hour and working 36-hour weeks. And since Covid, I had an opportunity in healthcare just because there’s been such a big need for my profession. I’ve been able to increase my hourly income from $30 an hour to the most I was making recent was $125 an hour. So, I’ve definitely really kind of making a lot more money in in this field than I ever thought that I would. So, that’s kind of where I’m at now. I’m making making a lot more money and because I’ve been making so much more money, I’ve been thinking a lot about where I really want my life to go financially, and I decided that I don’t really want to do the traditional work till I’m 65 kind of thing. So, I’m hoping to use this period where I’m making a lot of good W2 income to try and prepel myself into a sort of financial independent kind of situation in the near future here.
Mindy: Okay. And what are your goals for post work life?
Guest: Post work, I would like to, you know, not really have to do too much more than just manage my Airbnbs. I mean, because the plan is to do just get as many short-term rentals as we can. So I really wouldn’t like to do too much more than, you know, whatever I have to do with property management companies, and then use my free time from there to travel. My wife and I both love traveling a lot. Um we go places several times a year. So just traveling and we’d like at some point to open up kind of a farm sanctuary. So I guess that would become our our jobs, our kind of retirement jobs would be running something like that. So really just kind of the freedom to to travel and then turn whatever hobbies and interests we have into somewhat of a career, you know, maybe make a little bit of money from that as well.
Scott: Awesome. So in a couple of years we want to be financially independent with a short-term rental empire that allows you to have a farm sanctuary as your full-time game. Yeah, exactly.
Scott: Love it. That’s super clear. We can work with that. Is that is that within three to five years, seven years? What’s what’s kind of your ideal?
Guest: Yeah, um ideally three to five years. Um that’s kind of my ambitious goal. I’ve kind of given myself a 10 year deadline like at the most because I’d really like to, you know, spend no no older than 40. I’d really like to continue working. So three to five years ideally, no more than 10, that’s kind of what I’m working with right now.
Scott: Awesome. Um anything else we should know about your financial position?
Guest: I guess I’ll go into my variable income, which I foresee potentially being a barrier in the future. Right now, like the the least amount I’m making is like 90 bucks an hour. I’m currently making $90 an hour, but starting in September, I’m going to be going back up to the 125 an hour. Um but I’m not entirely certain how long I’m going to be making this rate of pay. I’ve currently been making this amount of money for almost two years, but I foresee that eventually going away once, you know, hospital systems kind of I’m sure they’re trying to figure something out so they can get us back to our original pay rate. So I’m not counting on always having this kind of income. So that’s my biggest barrier. I did before I started this new journey towards a financial independence, I I got my master’s in clinical research. So that was kind of my backup plan. I can make about the same amount of money that I’m making now in that field, so I could always switch over to that if I needed to. But currently I’m making the same I would doing that and I only have to work three days a week, so I’m going to stick with this as long as I can.
Scott: Um could you walk us through your house hack and um how how that operates, you know, what what part of it do you live in? How much are you renting other parts? How much would it rent for if you were to move out and make it a full-time short-term rental? Can you do that with the walls in your region?
Guest: Uh sure. Yeah, so we have a house um right outside of downtown Portland, Maine. And it comes with a two-bed, one bath um apartment above the garage and it’s detached. So we can, you know, our guests have their own driveway and their own outdoor area that’s fenced off. So it’s completely separate from our house. We live in the main house, so we don’t have we’re not, you know, doing the complete reversal where we’d be living in the smaller area that I know some people do to make a bit more money, but we’re giving ourselves the full house and then just renting out the unit in the back. And um the most we’re renting it for is 145 a night, which unfortunately we were rent capped. Um they’re treating us like we’re a long-term rental, so we can only go up by a certain percent each year. I forget what that is exactly. But the main issue is if we did move out, we would not be able to short-term rental this property full-time because Portland has a law that uh you can only short-term rental a property if it’s owner occupied. So us staying in our house right now with our low interest mortgage, renting this place out as often as we can is really doing that’s that’s making us a decent amount of money enough that my wife was able to quit her job. But moving forward, we would have to find some other properties to short-term rental if we were to move out of this one.
Guest: Is that your plan to move out of this or are you going to are do you plan to retire here? Uh yeah, we plan on moving out. This is our first home, so it’s we we more got it because it had this unit in the back, so we’re like, well, we want to live in this area and this apartment’s going to, you know, help us afford to do that. Um but we do plan on moving. We’re not sure exactly where yet, but definitely not our forever home. So eventually we’ll either, you know, sell this place and, you know, collect the equity to buy another home or we might just keep it and turn into a long-term rental and just get still a decent amount of income from that, but.
Scott: When when I observe your financial position, um the things that jump out at the highest level are your spending where we kind of have, oh, we have $500 a month for utilities, a mortgage, property tax, and then $7,000 of other spending. And so that that I think is a really important lever here to understand where that’s going. um on in months where you make $12,000 on the lower end of your income range, you’re probably saving almost nothing. Um and when you and you’re your savings are probably coming from the months where you make the higher end of that range, um to a large degree. um on that on that 12 to 18 k and I think you should get to a place where even in the lower months, you’re saving a good percentage of your income, like 20 or 30%, and that will involve getting control over that 7,000. So I think that’s one key lever. and I think the second big lever is going to is going to be your house. Um it sounds like you do not plan to stay in there long term and that this house is going to have a very different economic profile for your family the day after you move out than while you’re living in it. While you live in it, it’s a moneymaking machine um and that will evaporate essentially the day that you move out. And so you got to figure out what to do with the equity in that house downstream. Uh and then the third big point is um what you’re doing with all this cash. You’re sitting on a lot of cash, but you don’t have um a good a good way to kind of um deploy it right now.
Guest: Yeah, yeah. I do want to add that um the 7,000 a month includes um all those other monthly expenses. Um so the the mortgage and the utilities and all that is lumped in with that 7,000. So it’s not a 7,000 on top of.
Scott: Oh okay. You have a good clear understanding of the household spending and and it really and it can send a thing my my mistake there, I apologize.
Guest: No, that’s okay. Yeah.
Mindy: Do you know how the $7,000 breaks down? Or is it just, well, I know I spent less than 7,000, so I’m doing okay.
Guest: It it was more like we were just looking at, you know, the general breakdown that our our bank account um homepage showed us for how much we spent every month and we were kind of surprised by it. We’re like, oh wow, we’re spending $7,000 a month. I had no idea we’re spending anywhere near that much.
Mindy: Ah.
Guest: So we’ve got our, you know, our general monthly expenses with the mortgage and the utilities and everything, which we can’t control, but it’s not that bad. But then yeah, there’s, you know, another $4,000 that we’re spending a month, we don’t we don’t really tighten the belt too much. We definitely enjoy ourselves and we travel a lot. So a lot of that money is from travel booking flights and hotels and whatnot. We also like to go out to eat a lot and we go to events and so there’s just a lot of we we just have a very active on the go kind of lifestyle. So that’s generally where the the meat of that that $7,000 is going is just our our travel and excessive date nights, I guess.
Mindy: Okay, so research opportunity number one is travel points and travel rewards. Do you have a favorite airline? Do you have a favorite hotel? They have a credit card. I can almost guarantee that they have a credit card. I have a Hyatt credit card, I have a Southwest Airlines credit card, and I swipe on my Hyatt credit card for every purchase because I can pay it off at the end of every month. If you’re not going to pay it off at the end of every month, don’t listen to anything I’m about to say. But assuming that you can, put all of your purchases on one card. This helps you track your spending, it helps you earn a lot of points. I have like 60 something free hotel stays coming up, but all of the travel that I’m doing right now is for work. So, I’m not using them for work. I’m going to let work buy me hotel stays at Hyatt so I get more free hotel stays. So there’s a way to still travel but not pay so much for your travel. There’s a way to still go out to eat without paying so much for going out to eat by um maybe not going out to eat as much. Uh your local airline, your local uh airport may not have a ton of airline options. So find an airline that you can get a credit card for and start earning points on those to uh reduce your travel expenses. When you you just said something very telling. You said, we had no idea we were spending $7,000 a month. We know we spend 3,000 for these fixed expenses, but we have no idea what that 4,000 is all about. I think that you need to track your spending really carefully for a couple of months and you may start to see things that shock you or you may start to see things that you’re like, yeah, I’m okay with that. And either way, you’ll at least know where the money is going. Um like Scott said, on an $18,000 month spending $7,000, you still have $11,000 left over. That’s a lot. On a $12,000 month, if you’re spending $7,000, that’s technically $5,000, but is that $12,000 in your pocket or $12,000 pre-tax? Uh, that is pre-tax. Yeah.
Mindy: Pre-tax. So that’s probably closer to the $7,000 that you’re spending. So like he said, it’s going to be a lot more difficult to save any money when that’s all that’s coming in and you’re spending it. So I definitely want to see some tracking of spending just just to see where it’s going and to make sure that what you’re spending on is what you value.
Scott: If you have a bucket of $7,000 in other spending, then I think spending is a big problem. If you’re spending $7,000 in total to fund your life, inclusive of your mortgage payment, utilities, all that kind of good stuff, then I think that there is some belt tightening you could do and I think it would be good to get control over it, but I don’t think I think that you’re going to you’re you’re going to accumulate large amounts of cash in a general sense here. So I think that that, you know, then I would pivot it to how badly and how fast do you want this goal? If you want it in three years, for example, then you got to buckle the belt and move into this unit above your garage and Airbnb out your main house to get the the much higher rents um that could that would come with that. Um and then start getting aggressive about the next things. If you want it in seven years, um you can probably do exactly what you’re doing from a lifestyle perspective and then just make some bigger some bigger moves there. If you want it in 10 years, you could probably even increase a little bit and you’ll still get there if you’re able to do a couple of um again, those those those bigger money moves. Yep. Um what walk me through your short-term rental income here. You said you’re locked in at a cap of $150 a night, right?
Guest: Yes. 149 a night. 100 uh 45.
Scott: 145. And and how many nights a year are you going to rent that thing out?
Guest: So, let’s see. So, pretty much from, let’s say, April through October, we’re pretty much booked every single night. Portland’s becoming more and more popular, so we’re we’re booked pretty much every night as long as we keep it open, granted my wife does all the flipping herself, so when we go on vacations and stuff like that, we just close it down. We’re hoping to eventually find a good property manager that can, you know, take care of that for us while we’re out of town, but we’re very concerned about our reviews right now. We have we’re super host. We’ve got like a 4.98 percent on Airbnb. So, we don’t want to lose that. We’re kind of concerned that a property manager might lose us some of those points. So, I’d say probably a good five, six months out of the year we’re booked every single every single night. And then during the off season in the in the winter, still booked pretty much every weekend. So, it’s not it’s better than we thought it would be where we live just because there’s not too much to do where we are, but we get a lot of local tourists coming to stay with us as well. So that’s been good as well.
Scott: What what what would um the rates be if you could charge whatever you wanted?
Guest: If we could charge whatever we wanted, it I don’t think we would charge too much more than we’re charging right now. Maybe we might go up to, you know, 200 bucks a night at some points during peak season over the summer. But part of, you know, trying to make sure that we have good reviews and people are happy is making sure that we’re, you know, charging a rate that people are happy paying. So we don’t want to overcharge them and make them feel like they’re getting ripped off. So we probably wouldn’t go up too, too much more than we’re we’re charging right now at maximum.
Scott: What I’m what I’m trying to get at is is your your city is conducting bad policy. They’re they’re they’re they’re they’re taking money out of your pocket and putting it into the guests’ pocket who are from out of state um by capping that by capping that price. You you cannot control that. um but what that what the the there’s always a blessing and with every curse with this. The blessing should be that you’re able to get a large amount of occupancy out of this would be the logical leap I would make, right? And say, okay, um my my average is going to be 149 a night but my minimum is going to be seven nights during these periods of periods of the year. Um what kind of games and research can you play throughout the year so that you’re able to just fill it up to close to 100% occupancy given the fact that you are artificially capped on your pricing. Um there should be an opportunity, I would think with that with some wiggle room that and that would be the only lever that I think you can play right now or pull right now given that you can’t increase price.
Guest: Just trying to fill it up every day.
Scott: Yeah, with with my by by by considering minimum minimum stay requirements. You must you cannot stay for the weekend in the off season, you must stay for the week. So, you know, uh uh during the peak season you have to fill up the entire block of days that I have available in these times. You cannot stay for these things. And I think that will help you with your scheduling as well. You’ll have fewer unit turns, um issues, um for for your wife there.
Guest: Yeah, that’s true. I mean, we we do have a we did end up opening it to one-night bookings which ends up being a lot more work as you said, but we we had noticed when we because we were originally doing I think like three or four night minimum stays, um and then we had all of these little holes throughout the month that when we opened it up to one-night bookings, we we went from, you know, having, you know, 25 nights booked to having all 30 booked. So just getting just kind of filling in those holes by doing the one-night bookings. Over the winter, I’m I’m not sure if we would be able to fill it up for a full seven days just because most people are just looking for a quick weekend getaway. So I I don’t know if we restricted it to you have to stay for a week if we would get more or less bookings. I’m not sure about that.
Scott: Okay. So it it sounds what I’m hearing you say is you feel reasonably optimized on the pricing strategy here and that this isn’t really a major lever in your financial position to get more income out of the current short-term rental. There maybe be tweaks, but it’s not the big it’s not the meat of the the journey here. Yeah. Yeah. I do, I think we’ve kind of optimized the space that we have to work with. Um just because I mean maybe if it was like a more of a niche property, people might be more inclined to book it for longer periods of time, but since it is just a a unit above a garage, it’s mostly just people who are looking for a quick getaway here and there and not booking for long periods of time. Granted, we haven’t tried putting the restriction on it to see, you know, like what we did if we did restricted to, you know, you have to book it for the full week, um just to see what would happen there. So that’s definitely something that we could try out this winter.
Scott: So something to think about as you contemplate your decisions going forward is it isn’t just should I rent out both units uh long-term when we leave? Uh you could find somebody to rent out the smaller unit as their long-term primary residence, and then they rent out the main unit as their short-term rental which isn’t getting around the uh short-term rental unit laws. It is operating within the short-term mental laws. You’re not renting it out because it’s not your primary residence. They’re renting it out because it’s their primary residence. So and then you work out some sort of split with them or some sort of like higher rent um for the whole property. Oh. Uh that is an opportunity, an option to look into. I’m not sure exactly the laws, yeah. Um but it’s their primary residence when they rent there. That’s, yeah, that’s interesting. I hadn’t thought of that.
Mindy: These properties, how much do they bring in?
Scott: We’ve been looking for quite a while and we kind of were initially starting, you know, looking for a place hoping to find something that we liked around 350. Um but after about six months of looking for lake houses and kind of striking out, it looks like we’re probably going to have to spend around 450 to 500 minimum to look for what we’re looking for, which would be probably like a three-bed two bath lake house that should be able to over the summer should be able to bring in probably three, 350 a night. And how much annual income is that? This is a very seasonal business here. So what is it going to be on an annual basis?
Guest: We’re hoping that it should be able to bring in, you know, at least, you know, if we’re looking at over the summer, we’re hoping it should be able to bring in at least at least 7 to $10,000 a month over the summer, so we should be able to get a minimum of $50,000 a year on that. And then hopefully if we are able to rent it over the winter, which we’re not positive on how well that’s going to go, but we do see that they do pretty much get booked out, you know, a year in advance over the summer. And then in the winter, there’s definitely still more holes, so we’re going to have to play around with that a little bit more to see how frequently people are coming out of the winter to book those. But I think if we made at least 7 to 10,000 a month over the summer, that would at least cover us enough to get us through the full year of um mortgage payments and everything.
Scott: So I I do not think that this is a winning formula for you to retire early um and do this based on those numbers. So, if you get let’s say you get $50,000 in annual short-term rental income from this property and your buying a $500,000 property with uh $100,000 down, you’re not getting that loan for less than 6% on not in an investment property that’s not your primary. Yeah. Um so that that’s going to look at at a 6% interest rate, you’re looking at about 2400 a month before taxes and utilities. Um so that’s 30 grand uh in in in principal and interest right there. Plus you have taxes and utilities. What are taxes and utilities going to be in this location? This location will be the taxes will be less than where we are now in Portland. It looks like they’re usually averaging about 3,000 a year in property tax. Utilities probably would be pretty similar, probably would be about 500.
Guest: That’s six so now we’re at 30,000 plus 3,000 in taxes, plus 6,000 in um 6,000 to 7200 in utilities. That puts us at 40 grand. And then how about insurance? Insurance, I’m not sure what we’d have to pay for um homeowner’s insurance on on a lake house. I just know that we’re paying around 100, 105 for our home, probably about the same.
Scott: That’s 42,000, and that’s before you have to replace the roof for CapEx, that’s before you have to do any maintenance to the property outside of cleaning. The cleaning bill I would not include in the calculation because I pass that to the guests as a cleaning bill. Um but but you’d still have to find somebody to do that. I would not I I not think your your wife would have would would want to drive out an hour uh multiple times a week to clean the property for an $8,000 um profit before maintenance and CapEx expenses. But these these back of the napkin numbers don’t don’t work for me as at the highest level on this property um in a compelling way right now with with this. And you can contrast that to your current property where you’re making 4 grand, two to 4 grand a month on a $1,500 mortgage payment. I mean, it’s just your your current property and you you probably could do way better if you rented out the main house um instead of the the unit above the garage. You’ve got a much bigger winner there, probably because you bought many years ago and have a primary home mortgage on that at 3%. I think this is going to be the real crux of it is is, do you have a viable short-term rental strategy here in this location? And when you actually analyze those numbers um all the way down the line, do you get to something compelling? Is for example, the $50,000 annual income estimate way low? Like does that feel does that feel way low or do you feel like you can get way more than that? That’s probably that’s on the lower end. Again, I this is just kind of a a very rough estimate on how much we’d be making. But that’s that’s kind of my estimate if like subtracting the off season months. So I think that’s about how much we would make during the spring, summer and fall, we’d be able to pull in that much money, and then however much we’d be able to pull in on top of that over the winter, which I’m not really sure what the market’s like for that. We’d definitely have to reduce our nightly rate and probably won’t get runched out as much. So it might be a similar situation where we’re only we’re still getting rented pretty regularly but only on the weekends and only for like 200 bucks a night. But yeah, as you get to what you’re saying, it is it is more of I guess it would be more of a luxury investment because I mean we definitely like the idea cuz it’s, you know, something fun for us to utilize as well. But in terms of cash flow, we would definitely be restricted there like you were saying. I mean it is tough cuz cuz like I said, we are restricted so much on our ability to get short-term rentals in Portland. Like I’d love to get another get like a multi-family here in Portland and Airbnb that out and that’d be perfect, but unfortunately, we’re definitely restricted on that. so we have been looking at neighboring towns that have a little leaner laws on that, but we’re not sure if they would get as much tourism.
Scott: What your what your credit score?
Guest: It’s about 646 right now, I think is like the higher one.
Scott: Okay. So the interest rate on any loan that we’re talking about would be even higher than what I just articulated. It’s not terrible, but it would it would it would definitely increase it by probably 100 basis points there.
Guest: Yeah, I was approved for a loan at 6.57%.
Scott: Was that an owner occupied loan or an investment loan?
Guest: That was that’s a owner oc, just a standard owner occupied loan.
Mindy: When you applied to be on the show, you shared some barriers that you have, the poor credit scores, student loan debt, which we mentioned at the beginning of the show, and the variable income. Uh let’s explore the student loan debt. You currently have approximately $100,000, which is at 0% deferred by the government due to Covid. No payments do right now. But once it comes back into unferment or whatever that’s called, you’ll have uh 80,000 at approximately 5% and 20,000 at 6.5%. Scott’s magic theory of interest rates is that if it’s five and under, you don’t pay it off early. If it’s seven and over, you do pay it off as fast as possible. And both of yours fall in the middle with uh do what it makes you feel comfortable. Yeah. So we are of no help there whatsoever. You also have $120,000 in cash that it sounds like you’re thinking about using for the down payment on a house. What is your plan for your student loans once they become payable again?
Guest: The plan will I’m I’ve kind of, you know, got my fingers crossed for some sort of forgiveness that may or may not come through. So I’m planning on, you know, paying them back when I have to, but there is currently a bill in Congress to forgive student loan debt um for frontline healthcare workers. So that would be great for me if that does end up going through. Um so I’ve kind of got my fingers crossed for that. It sounds like Biden may have finally made a decision that would forgive 20,000 of what I currently have. But other than that, my my plan would just be to I would just have to start making payments on those. And yeah, I don’t know if I would pay too much more towards it at at the, you know, 4.99% interest rate and I might try and save the rest to still, you know, accumulate money for down payments. One of the things I was kind of looking for for guidance on was, you know, do you think it’s it’s smarter to pay the absolute minimum on that and just keep moving towards saving up for those down payments or would it be best to just kind of get those off my plate entirely?
Scott: I think we got to start with the end in mind here and and zoom back out and say, your goal, as you stated, was to uh in three to five years, retire early and have a um, you know, a a a a farm uh essentially here and and you wanted to use that with do that with through short-term rentals. And I think that what I’ve kind of uncovered in this is that is that is really a wish right now. You don’t have like a clear plan to buy those short-term rentals um and what what would actually be profitable and how that would make money for you at this point in time. and that needs to be refined. I’m not I I know you can do it. You know you you know that short-term rentals can be a powerful um wealth generator. But you’re you you do not have a you don’t you don’t have like, oh, these are the properties I I’ve identified, this is the cash flow I can generate throughout the year, this is how what my expense profile looks like and this is the return and this is what how I’m going to operate it. You have I kind of have this lake area, maybe my wife can drive out there and clean it a few times uh in between tenants. It’s not a business plan right now. And so I think you should reset um your goal is, um I’m I’m gonna ref I’m going to reframe it for the rest of the a conversation today with your permission, of course, if you like this. Um but to to I want the most flexible financial position possible in three years from now that affords me the best and the most amount of life options among which might be this farm. Is that does that work from a a repositioning standpoint? Yeah, sounds perfect.
Scott: Okay. So I think if we if we start with that premise, then we can acknowledge and say, okay, here’s what you got going for you. You make a ton of money, you spend a lot less than you make, and you’ve got a great house hack. Your problem is you’re kind of stuck in that house hack because there’s no conceivable living situation that you could replicate in the near future that is as good as what you’re currently got going on from probably a lifestyle and cash flow perspective. You’ve got a really low interest rate mortgage, a tremendous amount of equity, which is also another problem. Most of your net worth is in this is in this home equity and then in your wife’s retirement accounts, although you do have 120k cash. So you’ve got a flexible position, but yeah, you’re also kind of stuck, which is a uh a paradox. All of your debt that you have is in this quasi realm of should I pay it’s not really bad, it’s not really good. It’s in this quasi realm of I probably can invest a little bit more. And so you have all these shades of gray in your uh financial position that makes it really hard, I think to to commit to any one direction. How how’s that sound? Is this is this kind of how you’re feeling? That’s, yeah, that’s total nail on the head, like we’ve for quiet for the past couple of years, we’ve definitely just felt exactly as you said, stuck. We’re like, where do we go? How can we, yeah, get a good cash- flowing property where we’ve got, you know, the best setup right now. We don’t want to stay in this setup, but there’s not really any place for us to go that’s going to, you know, give us more net income than we’re getting at the moment. So yeah, I definitely what what you’re saying about getting a clear picture on, you know, actually getting a business plan for our short-term rentals as opposed to, yeah, we have a we know short-term rentals are a good idea, but we definitely haven’t refined exactly how we’re going to execute the short-term rental plan and get the highest ROI on that.
Scott: So let let’s also acknowledge that in spite of having all of this gray zone, which can be frustrating because you don’t have any clear options, you also have many good options because of the strong fundamentals of your current position. You you pay nothing to live. In fact, you get paid a lot of money to live in your home and your area. You make a tremendous amount of money. um your wife is able to operate this really second job that is putting two to $4,000 a month in your pocket um over the course of the year. And so life is good there. I don’t think I don’t think without a clear plan that’s super aggressive, you’re retiring in three years, right? Or five years or seven years. You might, but like you’d have to get something aggressive there. But you can have many hundreds of thousands, maybe even close to a million dollars in personal net worth and a and a position where things are more clear and stabilized, but you’re going to have to go down one of I think a couple of routes. So the first route, option A that I would recommend is just pay off the debt. You’ve got $120,000 burning a hole in your pocket in your bank account making 1.5% and right now you’re paying, you know, a higher percentage rate on various uh various debt, um that will come out of deferment soon. May you don’t pay all of it, maybe you pay some of it, but you know, the debt is a guaranteed return. It’s pretty high interest. It’s not like that that’s that’s an easy button. The second would be to, you know, and I would say, you spend what, like 7,000 a month and that includes all your housing expenses. So and you get two two to four of that back. So that’s three a month from your your um Airbnb income. Really, really you’re spending 4,000 a month. If you knock that down to 50,000, you’re savings, you got a year of financial runway sitting in the bank account, net of your Airbnb income. That’s that’s pretty good. That’s a a year is a lot and you can you can take that $70,000 and invest it either in a rental property or start putting it into um uh uh some stocks there. The the other big problem here is your credit score, which is not great right now. So I wonder um now that I’m talking through all of this, if the best the approach I like the best is to either just pay down the debt or go a good old-fashioned index fund investing instead of sticking all that cash in your bank account, and sit tight for a year or two. you’re going to generate $50, $100,000 in free cash flow over the next year after tax at the current rate that your your life is going, and you’re going to be right back in the same position but with a cleaner balance sheet at that point in time and a better credit score. And during that year, you can put together some really clear business plans for rental property investing, short-term rentals, rent by the room, whatever makes sense in your local areas that could produce that passive cash flow. That was a long rant. How does that how does any of that sound?
Guest: No, I like I like a lot of what you said there. Cuz that was another question that I I had was I’ve been kind of, you know, holding back from investing in in index funds or stocks at all. I played around with crypto a little bit, but I’ve never really pulled the trigger on on making those stock investments and that’s kind of been where I’ve I I’ve been at and was looking for some clarity from you guys if it is a better idea to put that money into short-term rentals or like you’re saying, it sounds like it might be a better idea to kind of like you said, kind of clear the slate and put that money into some index funds and clean up my debt a little bit. I do definitely feel stuck in this gray area right now, so it would be nice to be able to just pull out of that instead of struggling to maybe get you know, into a stronger financial position but without a real clear plan for that. So I guess I I’d like a I don’t know, I don’t really know too much about stock investing. So I don’t know what the best way to go around that would be. I opened up a vanguard account that’s about as far as I’ve gotten, but my my wife she has some retirement accounts set up back when she was working a W2 job and I’ve kind of been holding off on that and just taking as much money in my paycheck as I can to just save for a down payment instead of putting anything towards stocks and getting a company match or anything like that. So that’s definitely something I’d like to look into.
Mindy: I want to say that index fund investing is fantastic. I do it myself. I know that Scott does it. However, we are entering possibly, probably, a period of volatility. So, just because we say just because we suggest index fund investing, please be aware that there will most likely be some volatility coming up, but you’re not investing for tomorrow. You’re not going to take the money out in a week. You’re taking the money out down the road. And past performance is not indicative of future gains, but the stock market goes up and to the right with a whole lot of little bumps and squiggles, but it goes up and to the right, I firmly believe which is why we sit here and talk about how investing in the stock market is such a great idea. Um you said you don’t know how to invest in the stock market and that’s valid. There’s a lot of people who don’t know how to invest. This is something we should be teaching people in schools and we’re not. And there’s this little book called The Simple Path to wealth where J Collins comes in and tells you this is how you do it. and it you you’ve started with your Vanguard account. Now you need to put some money in there, but that’s not all. Once you put the money in there, you have to tell the money where to go. So, make sure you do that as well. I have heard some uh heartbreaking stories about people who put money in the account and then don’t do anything with it. It will just sit there as cash generating zero dollars. They thought it was invested. Make sure that it is invested. Um Vanguard should be able to walk you through this. It it should be pretty easy to do um anyway. But uh this book is called The Simple Path to wealth. It’s by JL Collins. It’s available everywhere books are sold, including Amazon. It’s a wonderful book and I highly recommend getting that. We keep not talking directly about your credit score, and I want to not in a accusatory fashion, but in a helpful manner. Um when we were talking before we hit record, we asked you what your credit score is and how it is this 646 number. And you said that in your early 20s you made some credit mistakes and you, you know, were late on payments. And that is 35% this is actually kind of shocking. I have a an article that I’m going to link to in our show notes, but 35% of your entire credit score is made up of on-time payments. So if you have a late credit a late payment, it dings you. If you have several late payments, it really dings you. 30% of your credit score is how much you owe. If you have and that’s more like credit utilization. If you have $1,900 on a credit card that has $2,000 limit, you’re basically using almost all of your limit. It for some reason, this looks like a a bigger issue than if you had that same $1900 out on a card that had a $20,000 limit. Then you’re doing great. The same $1900, but when the credit limit is is smaller, when you’re utilizing a a higher percentage of your available credit, the FICO doesn’t like it and that dings your score. 15% is how long you’ve had your credit. So if you have a credit card that you’ve opened for you’ve had open for a long time, keep it open. Every once in a while charge something on it to make sure that it stays open because that is your length of of credit history. My husband has a credit card for like 25 years. We never use this card, but every once in a while he’ll go and like charge gas on it and then go pay it so he doesn’t forget to pay it. um, just because that’s the card that he’s had open the longest. Uh 10% is your credit mix and 10% is new credit. but that 35% of your um is your payment history is the same as your credit mix, your length of credit history and your new credit all at once. So, something that you can do to make sure that you’re making your payments on time is to just schedule automatic pay. If you don’t want to do automatic pay, you can put it in your calendar as a calendar reminder. It’s so important to to pay your bills on. And I had late payments too. Like, don’t get me wrong. I was the first time I got a mortgage, she’s like, um what about this bill that you paid late one time? I’m like, I don’t remember that. I don’t know. Um but it it like it was it was three or four years before that that she was still asking me about this. I’m like, why are you asking me about a bill that I paid 30 days late one time three years ago? Um another another thing that’s really easy because you have the income, I wouldn’t recommend this to anybody who was um a little more paycheck to paycheck, but as soon as the bill arrives, write the check and send it off. If you’re a write a check kind of person, if you’re an online payment, as soon as you see it, go online and pay it because you have the income because you have the the balance in your account, just pay it and get it done with and then like what does it matter? You’re missing that little float for uh three weeks or whatever. It’s it’s better to pay the bill than to have that little float. Does that make sense?
Guest: Yeah, absolutely.
Guest: So that’s, you know, that’s for everybody. But. Yeah, I have I have actually been doing that. I’ve been, you know, using credit cards the way you’re supposed to be finally, but I have like, you know, paid everything down except for we’ve got the one card now that we earn miles on and we we will max it out. so if they do if the it credit karma at the wrong moment, it might drop the score a bit, but we do pay it off every month. We never carry a balance on it. So it going forward, we should be good to go, but like I said, I still have those remarks on my account that are just going to stay there forever, I guess. I was hoping that like once I paid them off, that they were going to go away, but I guess they stay on regardless, so.
Mindy: Ahh, they stick around forever. Um one last thing, is there anybody in your life that has a really great credit score that could add you to their credit card as an authorized user? and you don’t have to ever take possession of the card to be an authorized user. You could just when you’re added to their card, their good credit score kind of like morphs onto your card as well, or your score as well.
Guest: Well, yeah, I am on my mom’s card, which is good cuz that gives me a much longer credit history also. I’ve thought about asking my in-laws maybe because I know they have good credit scores, but I’ve just been too nervous to pop the question, yeah.
Mindy: Have your wife ask. See if she can get on there.
Guest: Well, yeah, I know she she is on her on her father’s credit card, but I’m like, maybe I should ask if I can get on there too, but yeah, got to work up the courage to ask, I guess.
Mindy: It sounds like there there are some tactics here, but the the real key is just time needs to pass for this credit score to rebound and and to to to to get back up into the 700s and then eventually 800s here. Um and lesson learned, we we have some some things there. But but I I don’t think it really changes the strategy at a high level. It just changes the interest rate you might get on an investment property loan. And I don’t know if rental property investing is a is a move for you right now because I think there’s a deeper education and kind of a business planning issue that you need to resolve first to be very clear on what you would do if you were to pull the trigger and and have that become really, really clear. So, I I again, when I when I zoom out and look at your position at the highest level, you’re in such a strong fundamental position because of your income, fairly low relative spending, and then your house hack that is a monster uh for for uh uh investment for you. And I think I think you’re stuck in a good way in your home, um for that because you have such a I I just can’t I can’t fathom how you would possibly reproduce that result right now in a similar set of circumstances because of good you you know, you made some good decisions a few years ago. So I think you ride that and you do one of three things. One, I really like the Dave Ramsey Style approach for you and just crushing your debt. And I know you have some question marks around student loan forgiveness and all that kind of stuff, but I think your income is super high and you’re not going to qualify for a lot of those programs and you’re also putting a taking a lot of power out of your life and giving it to somebody else, the government um over over that decision. So I really like the Dave Ramsey approach as kind of option A and I think that’s the easy button. you can feel really good just being like, you know what, I’m going to pay down the debt and I’m going to rebuild my my emergency cushion, and then a year from now, I’ll have read 10 more books on investing and personal finance and I’ll be working with a clean state slate, high income and a house hack and no debt. That’s pretty good, no personal debt besides the home mortgage, which I think is a is a pretty good option. Item B would be to come up with a investing philosophy, which would likely center around what Mindy suggested in the Simple Path to wealth. Um that’s a book about index fund investing and why it’s just such a powerful long-term way to generate wealth. I think that in 30 years, you’d be slightly richer if you went with a simple Path to wealth on average versus paying off debt in your range, but that it’s so close that it’s almost a material. It’s like a 1% spread um on the one to 3% spread with a lot more volatility of ups and downs to invest in stocks rather than pay off debt at 6 and a half% interest uh at this point in time. So that’s that’s option two. and then option three is to continue getting creative with real estate, which I think could be a really good option for you in about a year or two from now. um and I think as your credit score improves and as you get more sophisticated in your business plans and your ambitions for what you want to invest in and why you think it will make a lot of money um uh down downstream you can particularly that more. I would not buy a vacation home as a which which I think is really what one way to frame the strategy you came in with today, um, as a as an Airbnb rental. I I think that a lot of people have this this concept, oh, I’m going to buy a short-term rental in a place that I like to stay and that’ll be my like second home. That’s great if you are already rich and you want to do that, um as a as a lifestyle maneuver. But I think that if you want to go and visit this beach house, the best way to do it is to put invest your money in the highest income producing, best risk adjusted returns you can and then spend it renting from somebody else at at the location with that. I think that’s usually going to be a much more a much better economic decision than trying to turn in really your favorite um your kind of your your hobby or the place you want to visit a little bit into an income generator. I think it’s going to be a lot more more challenging for a lot of folks. Va va Lake House rentals is a uh um are Lake houses Lake housing is a rental sport, like boating, um not not not something to own unless you’re going to use it all the time, right? Like you know, every weekend of the year you’re going out there. Maybe maybe you have a more cost effective option to buy at that point. But so that’d be that again, that that first choice, I think I think debt repayment is an easy button and kind of where I’d steer you. I think Dave Ramsey is going to be would be the um a phenomenal option here. Maybe index 1 investing and then third real estate investing, but I’d really think about tackling real estate investing from a a position of of a better educational framework. um and when you have a better credit score, maybe a year or two from now with with with the rates. what do you think about that those are three takeaways?
Guest: Yeah, no, I like I like a lot of what you said there because that was another question that I I had was I’ve been kind of, you know, holding back from investing in in index funds or stocks at all. I’ve only I played around with crypto a little bit, but I’ve never really pulled the trigger on on making those stock investments and that’s kind of been where I’ve I’ve I’ve been at and was looking for some clarity from you guys if it is a better idea to put that money into short-term rentals or like you’re saying, it sounds like it might be a better idea to kind of like you said, kind of clear the slate and put that money into some index funds and clean up my debt a little bit. I do definitely feel stuck in this gray area right now, so it would be nice to be able to just pull out of that instead of struggling to maybe get you know, into a stronger financial position but without a real clear plan for that. So I guess I I’d like a I don’t know, I don’t really know too much about stock investing, so I don’t know what the best way to go around that would be. I opened up a Vanguard account but it’s about as far as I’ve gotten but my my wife she has some retirement accounts set up back when she was working a W2 job and I’ve kind of been holding off on that and just taking as much money in my paycheck as I can to just save for a down payment instead of putting anything towards stocks and getting a company match or anything like that. So that’s definitely something I’d like to look into. I would not I think you’re right. I think Dave Ramsey would would would be the the um a phenomenal option here. Maybe index 1 investing, and then third real estate investing, but I’d really think about tackling real estate investing from a position of of a better educational framework, um and when you have a better credit score maybe a year or two from now with the rates.
Guest: Yeah, absolutely, because I’ve already it’s it’s already been sitting there longer than I wanted it to, but I was hoping to have invested it a while ago, but we’ve just been having a hard time pulling the trigger, which may have been a good thing because we might have, you know.
Scott: If you have a hard time pulling the trigger, I suggest that by year’s end you go Dave Ramsey and pay off that debt. Yeah. That’s an easy button. It’s not a bad choice. You’re not going to you’re not going to get crushed by doing that. Um you may be the opportunity cost items, but um at the very least, you’re not getting hosed on the opportunity cost of not doing the other items and you’re arbitraging the into high interest rate debt with your 1.5% API in your savings account.
Mindy: Anything else we can help you with today? Or is this has this been been useful?
Guest: It has, it has. Um, it’s actually, yeah, it’s been very useful especially, I guess I hadn’t really wrapped my head around the numbers for our current short-term rental plan, which you’ve definitely given me a ton to think about in terms of not pulling the trigger on a lake house, which which definitely sounds less appealing to me now. So I’m definitely feeling more comfortable with the idea of sort of, you know, repurposing my position financially in the next year and focusing on that to still continue my my short-term rental goals, but with better credit score, better understanding of the market like you said, just kind of resetting what we’re what our goals are here and looking for that flexibility, but also breaking down the numbers more and getting an actual business plan instead of just lofty day dream of having the perfect lake house that’s making us tons of money when that’s not actually going to be the case. So lots of good info. I’m definitely going to dive into this.
Scott: I love it. And and you know one more thing to think about is you get a dumpy old warehouse in the that’s not very very pretty to look like look at and that pays you the income then you just spend that on the the lake house. So it’s just it’s just where the where’s the dollars coming from um and what’s the net return? Just think of him like it is this is a dollar printing machine. It doesn’t have to be a a beautiful lake house on the thing. It could be the most efficient way to harvest cash and and generate appreciation long-term. And then I’ll spend that on the way I want to from our lifestyle long term. and that’s where the investing philosophy will come in. I don’t know if it’s real estate, I don’t know if it’s stocks, I don’t know if it’s debt paydown long-term, but I know it’s going likely one of those three. It could be something else, um but it but likely and you got to decide, I do think that real estate can be a great one, but I’d I think that’s a for you to explore next year when your credit score is eclipsing 750, 725. Yeah, it is pretty it’s still all pretty new to me. Like, you know, I’ve been doing a lot, you know, listening to you guys and trying to learn more about about investing in real estate, but it is still a pretty new idea because just a little under two years ago, I was on the set path, you know, making 50, 60 grand a year and planning on retiring when I’m 65. So I only just kind of changed my way of thinking in terms of investing for financial independence. So still definitely have to do a bit more research and get a more thorough understanding of all that.
Scott: I love it. it’s the it’s the 500 hours of self- education that that that on the other side of that, you feel very confident about what you’re what you’re going to do and how you’re going to invest and all that kind of stuff. But until then it’s all overwhelming and all, they’re all million ideas, but I don’t really know what I don’t know about all that. And yeah, the confidence will come. Just keep keep learning passively, listening to podcasts, reading books, whatever, absorbing frameworks and it’ll it’ll get clearer for you within the next year, I promise.
Guest: Yeah, that’s what I’m hoping.
Guest: Yeah.
Mindy: Thank you so much for your time today, Alan. This was very interesting and we will talk to you soon.
Guest: All right, wonderful. Thank you so much.
Scott: Scott, that was Alan. I thought you had some very sound advice for him. I know that that’s probably not what he wanted to hear, um but I do like that you were able to show him mathematically rather quickly that the lake house might not be the best place for him to put his money right now.
Scott: Yeah, I I I think that um Alan’s central problem we talked about this a little bit after the recording is is really just he’s beginning his financial education to a large extent. He’s made some really good choices, he’s got some really good financial fundamentals in place, but he’s he’s not yet sophisticated with his for example, real estate investing philosophy and strategy and how he wants to go and and do that and how to analyze the deals with all those things. And and that the price of entry into real estate is we’ve often said is 500 hours of self- education. And I think that lies ahead of Alan before investing in real estate. And I think that as part of that deal, um spending the next year uh amassing that self- that those hours of that self- education, he will also improve his credit score and be in position to do that if he so chooses a year or two from now. Um and then I I do want to point out that we, you know, Dave Meyer calls the problem uh with Alan’s housing situation, the lock in effect. And for Alan it’s more pronounced than most because he is um he’s got low a bad credit, but this this problem is this. Alan can’t recreate let’s pretend he didn’t have the Airbnb the Airbnb on his house. He has a 3% interest mortgage. He can’t sell that place and go move somewhere else. He’s going to forfeit his 3% mortgage and then get a 6% mortgage, 6 and a half% interest mortgage. That’s that’s what he was quoted for his personal residence for Alan there. So he’s stuck. He’s got to stay in this house hack because to move is just a is going to totally change his financial position or totally change the quality of his lifestyle in a general sense. I think think a lot of people are going to experience that with their primary residence right now. and so that’s that’s an interesting dynamic of 2022 and the federal reserves intent was to do that. Um they don’t want people buying more real estate because that creates inflation. So I think there’s I think there’s going to be a lot of folks that are that are in for that and that’s going to be a challenge in terms of scaling portfolios now is that’s going to be really hard to recreate success um with a couple of the with with those serial house hacks especially if you’re in a place where Airbnb is uh only allowed for owner occupiers. So an interesting set of conundrum there. And then lastly, one other point I wanted to make was around the uh choice between paying off debt, investing in stocks and real estate investing. I think that for Alan, the choice between investing in stocks and investing in and paying down his debt, which is typically at a five, six, six and a half percent interest rate, I think it’s a coin flip. I think in 30 years it’s going to be really hard to tell which would have been the better decision for him. And so when you have a decision like that that can lead to analysis paralysis. and literally, the coin flip decision-making protocol might be a better way to make a decision like that because at least you’re making a decision. Either one of those decisions, paying down debt or investing in stocks for the next 30 years and moving that in there is probably a better bet than then then continuing to dump onto the pile of cash that he has sitting in the bank account.
Mindy: Yes, absolutely agree. And that is, I like that, a coin flip. So, Alan, grab your quarter, flip a coin. Heads, it is pay off the student loans. Once the deferment period comes up and tails it is continue making the minimum payments once the deferment period comes up and invest your cash into the stock market. And just a bit of of advice there, if you are going to invest, invest the the amount that you’re going to invest, put it all in at once. Don’t try to dollar cost average your way in, just put it all in at one time. Michael Kitzes from episode 120 gave us that advice. He said time in the market is better than trying to time the market. Um so Scott, a few things that a listener in a similar situation could do after listening to this episode is number one, if you find yourself in a position where you are spending money but you don’t know where it’s going, track your expenses. Track your spending and see where your money is going. Track it super granularly, track it vaguely, but track it in real time to see where your money is going and make sure that that’s where you want it to go. It’s super easy to spend, oh it’s only a dollar, oh it’s only $20, and then all of a sudden, only $20 has added up to an extra $1000 a month that you didn’t really need to spend. Um if you find yourself spending a lot of money on travel, look into credit card rewards programs. Go to The Point Sky or Nerd Wallet and look for what is the best credit card for my specific situation. If you’re flying a lot, look for an airline car that gives you the most rewards for your buck. If you’re staying in hotels a lot, look for a hotel cart that works for you. Um self- educate like you said, Scott, educate yourself before you start investing in something. If you’re going to invest in uh the stock market, if you’re going to invest in index funds, the simple Path to wealth by JL Collins. I think he sold 80 bazillion copies of that book for a reason. It’s a really great book. Um and if you are going to invest in real estate, make sure that you have a good credit score. You will get the best rates, you will get, you will get better rates on everything when you have good credit.
Scott: And I would say, uh whenever you’re thinking about buying a vacation home in a market that you like to visit, run away. I do not think um that that or or or do that after you are a multimillionaire and want to enjoy the property uh outside of investing for financial reasons. I I I believe that that is one of the lower probability ways to build wealth is to invest in a vacation home in a market that you would like to stay in. Invest in a vacation home if you want to do short-term rentals, invest in a short-term rental market that you think has the best long-term prospects that will make you the most money and use the profits to stay in a vacation home in the market you want to go in, right? It’ll be a remarkable coincidence if those two are the same thing.
Mindy: Absolutely. I have run the numbers in my desired vacation rental market and it does not make any sense for me to buy a house there.
Scott: You’re not competing with investors in your in your market. You’re competing with people who are uber rich and want a place to stay um whenever they’re they’re going out there. It’s not it’s not a investment market and those towns are experts at extracting money from the people who buy from out of state and who invest from who quote unquote invest from out of state.
Mindy: That is a really good point, Scott.
Scott: Not saying don’t invest in short-term rentals, I’m saying don’t do it in the in that market that you like to go with your family on every vacation because it’s almost 95% of the time going to be a less lucrative option for you than alternatives.
Mindy: Okay, Scott, that was a good point and we have gone very long this episode. Should we get out of here?
Scott: Let’s do it.
Mindy: We’ve come to the end of this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jenson saying shine bright, Starlight.
