Mindy Jensen: Welcome back to Finance Friday. Today we’re talking with a married couple who are both 29 years old, who would like to become work optional by age 40 with a $2.5 million portfolio. They recently inherited two rental properties and have a lot of decisions to make. Should they invest more? Should they leverage their real estate, or should they buy another rental property? Today we’ll walk through their options and what could help them reach financial independence faster.
Katie: Hello. Hello. Hello.
Mindy Jensen: Welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me, as always, is my loves-a-good-inheritance co-host, Scott Trench.
Scott Trench: Thanks, Mindy. That introduction really stepped it up. Really appreciate it. Today we’re so excited to be joined by Katie and Ian and talk about the crossroads they’re at right now, where they built a pretty good portfolio, over $1 million in personal net worth. And now, on top of that, are receiving close to $1,700,000-ish, $700,000 to $800,000 in a combined stock portfolio and real estate assets that they’ve inherited, which bumps up that number. So this is an interesting challenge and a core part of the FIRE journey, and we’re excited to talk about it. So without further ado, welcome Katie and Ian.
Katie: Hi, thank you.
Ian: Hey, thanks for having us.
Mindy Jensen: I’m so excited to talk to you guys today. So you guys have built a pretty impressive portfolio for being 29 years old. You’ve also built a pretty impressive portfolio for being any age. This is a great financial situation that you find yourselves in. I’m going to run through this for the audience. I see a total income of $178,000. Minus your 401(k)s, and married filing jointly, your estimated taxable income is $94,000. Expenses are $72,000 a year on $178,000 gross. I’m not really concerned about your expenses, and I don’t see anything really crazy sticking out there. So $6,000 a month, $72,000 a year, doing pretty good. Over on the assets side, we have a grand total of assets of $2.3 million, minus debts of $600,000, which are mortgages, for a total net worth of $1.7 million, which is broken down into $136,000 in traditional accounts, $250,000 in Roth accounts, $35,000 in HSAs, $373,000 in after-tax stock and bond portfolio, $0 in crypto — so you already have my heart — and $537,000 in illiquid financial portfolio, which is real estate.
Scott Trench: I just want to observe here that I talk to a lot of BiggerPockets Money listeners, and often people will come in and they’ll show a portfolio that looks like this, and it’s their finished portfolio. Like, “I’m done, I’m at financial independence, I’ve hit my numbers, here I’m at.” Just to put some perspective and context around what Mindy has said here, you have a really well-developed, mature portfolio that is well diversified, balanced across the various tax-advantaged and after-tax accounts. Your real estate is very responsibly leveraged, your home is responsibly leveraged — I mean, the word “responsible” keeps popping up here. It’s just an absolutely incredible and remarkable position you guys find yourselves in at 29 years old. This is something people have been spending two decades in the FI community to build toward. And it’s the finished product that I see over and over again. So I just want to put that perspective in here to ground the rest of the conversation — this is a winner’s game here. And now it’s about taking this really wonderful situation and optimizing it to provide the life that it should provide. Is that how you guys feel about it?
Katie: Yes. Thank you. It’s taken a lot of hard work to get here. We had to make a lot of sacrifices.
Mindy Jensen: What is the Dave Ramsey quote? “Live like no one else now so you can live like no one else later.” There are a lot of people who are looking at you house hacking, being married but still having a roommate, etc., and they’re like, “Oh my goodness, why would you do that?” And then they’ll see this portfolio and be like, “Oh, how’d you do it? I guess we’ll never know.” It’s a head-scratcher. How on earth do you get this? You get this way by making sacrifices.
Scott Trench: This accumulation of wealth screams “I kept my expenses low, I prioritized after-tax investments and real estate across my journey, and I had pretty high income for years.” And it screams that both of you did this independently, and then together as a married couple. Is that approximately right? Can you give me a little bit more detail about the story here?
Katie: Yes. So I bought my first house five years ago or so and got lucky enough to have roommates, and they covered the majority of the mortgage. And once I figured out that I needed to budget more — since I’d bought a house — I went ahead and dove into personal finance and started budgeting pretty hardcore, investing every extra dollar I could, bumping up my 401(k) wherever I could, maxed out my Roth, did all of those things while still being interested in real estate and keeping my eye on the rental market around us. And then we actually stumbled across a seller-financing property, so we seller financed that. We rehabbed it ourselves. It took about six months, three or four nights a week, every single weekend, 12-hour days, Saturday and Sunday, and did that with our own two hands, which was incredible but also crazy to think back that we did that. And we got that rented out. We were pretty responsible during that time, making sure that we were saving diligently while also having large expenditures going out for the rental property. And then, other than the roommates in my previous house — once we moved in together and had renovated the house that we live in to force a lot of equity into it — we got a roommate, a travel nurse, and house hacked for probably the first year that we lived together. And that covered the majority of the mortgage, a good half of it maybe, because we had kept our expenses so low and prioritized keeping our mortgage as low as possible.
Scott Trench: So Ian, can you tell us about your journey here?
Ian: Yeah, absolutely. So I have always loved finance. That’s what I studied undergrad, and I have been investing since I was 18 years old, pumping money into a Roth IRA where I could. Very fortunate to have learned about that and just kind of stumbled in and met the right people along the way. But right now — I worked in consulting in the background, but right now I’m in data engineering, have been doing that for a couple of years, making good money, taking advantage of employee stock purchase programs, throwing as much money into a Roth 401(k) as I can, along with traditional investment routes as well. And just trying to minimize life costs and spending where I can. We really do live below our means. We don’t really like to shop or spend money on cars or anything like that, so we try to squirrel away all our extra money where we can, just because we do really want to be work optional as soon as possible and live the life we want to as well.
Scott Trench: This position, if I’m doing very ballpark math — this career trajectory for both of you, frugal habits, wonderful FIRE-first-forward thinking here — produced somewhere in the ballpark of, I’m going to say, $1 million, $1.1, $1.2 million in total net worth combined. And we’ve been boosted up to the $1.7 million mark by a package of inheritances, including two rental properties and about $185,000 in cash. Is that right?
Katie: Yes, that’s correct.
Scott Trench: Okay. And I believe that $185,000 in cash has already entered your financial position, and the properties are in transit. They may or may not be in your possession today, late July 2026, but they will be within a few weeks. Is that the right way to understand that?
Katie: Yes, one property has been transferred, the other one is having some issues, so we’re working on that.
Scott Trench: And then the question, I think fundamentally, is: we have worked hard, we’ve built this wealth, and now this position snowballs us much further along. We may or may not be at our targets yet, but what do we do now? How do we play the hand that we’ve been dealt between what we’ve built and what has now been lumped on top of that, and make for the best life we can? Is that roughly the shape of the question and the discussion today?
Ian: Yeah, I think we’ve been very diligent with our savings and paying down our homes and being in the position we are. And I think we just want to see how we can continue to grow it and leverage it in a way that’s responsible while making sure we can take a step back and enjoy the next couple of years as we start to think about having kids, but also trying to multiply it as much as we can while taking some risk at this point in our lives, since we are relatively on the younger side.
Scott Trench: Should I frame that as, “I want a stable floor and a rising ceiling”? Is some combination of that roughly the shape of what we’re asking here?
Ian: I think that’s fair. We are pretty risk-on, so to speak, so we are willing to take some risk. But yeah, I’d say that’s fair.
Scott Trench: Okay.
Katie: And since I’m a realtor too, and having grown up around real estate, I’m very comfortable with the idea of keeping rental properties, managing them ourselves, and acquiring more. So I think we like that our portfolio is a mix of index funds and stocks, and then some rental real estate too.
Mindy Jensen: Yeah, that was going to be my first question — do you actually want to own rental real estate?
Katie: Yes, I pretty much manage our properties at this point since I am a full-time realtor. It doesn’t faze me at all, the texts and the calls from the tenants — I just manage it as they come and make it as easy for them as possible.
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Mindy Jensen: Do you have real estate professional status?
Katie: I will this year. Essentially, I left a high-paying W-2 job that was not a good fit for me, so I went into real estate full-time. But I’ve had my license for a few years, so this will be the first time we can claim real estate professional status, which will be nice.
Mindy Jensen: Okay, make sure to keep track of all of your hours, because that is a huge red flag to the IRS when you have real estate professional status. So dot all your i’s and cross all your t’s when it comes to that and keeping track of it. But that is huge for potential tax advantages. Scott, do you want to talk about their rental properties? Is there any way that they could leverage some of the rental properties that they have for a huge tax bonus right now?
Scott Trench: Before we get to that, we have to talk about the income, right? So just as a framing here — if we go into a real estate career, one of the temptations is to buy a bunch of real estate, cost seg our properties, claim losses, and do that fairly aggressively to keep our taxes low. And there’s something to be said for that. But I think a better framework is to time those cost segregations, or those purchases, around years where your income is very high. We don’t want to use the cost seg in a year where we’re in the 12% federal tax bracket, in my opinion. We want to use that if we have a year with a big gain, in the 32% bracket if we can. So I like to think of those properties, those cost segregations on the rental properties, as bullets in the chamber that we fire in the right year across that journey if we’re going to use the REP status there. So that’s a choice you guys have about when you buy, when you close on properties, and when you cost seg and fire the depreciation rapidly. The rest of it, you follow the accounting rules. That would be the framework I’d have there. Let’s talk about this year’s income though. So this year you said you’re going to have $178,000 in gross taxable income, all of which is going to be taxed at ordinary rates. It looks like most of which is self-employment income. You’re planning to defer $41,000, because you’re very responsible, have a high savings rate, and go through your tax-advantaged stack. It appears you’re almost all the way — not quite all the way. And then that’s going to leave you with about $103,000 after tax to spend, and you spend $72,000 on your lifestyle. So that gives you another $30-ish thousand. Does that all seem correct to you guys?
Ian: Yep, yes, that’s right.
Scott Trench: Awesome. I want to call out that when you sent us the personal financial statement for the first time, you included the expenses for your business, Katie, and for the rental properties in your expense register, on a monthly basis. And then I asked you guys to separate that out — thank you for doing that here. And the reason I did that is because when you think about your financial independence number, I believe you’ve got to separate out your business expenses, rental property expenses, and those types of things from your life expenses. And your portfolio is much closer to financial independence right now, at your current household spending for the two of you, than I think you might have previously thought when you were including those expenses in your register, right? Because if you stopped working and lived off your investments, Katie, you wouldn’t have those realtor expenses. And the rental property expenses are, I believe, an income stream net of cash flow. That’s where we’re at there. So that’s the framework here. And in that context, I don’t think that your REP status will necessarily make a big tax change this year. It’ll have some impact, but I don’t think it’s a major strategic lever we play in 2026. What do you guys think of that? Is that the first time you’ve heard this, or how are you thinking about that approach?
Katie: We had kind of thought about the real estate professional status but really didn’t think about pairing it with a high-income tax year, which I like a lot. I think that’s very smart as we think about acquiring properties down the line, but definitely something to consider. And it’s nice to hear that we’re doing better than we thought we were, because I think our whole portfolio screams responsible and pretty conservative. We always like to estimate too high, which is probably why we included the business expenses and the rental expenses — just because it’s good to be conservative and then be positively surprised at the end rather than negatively surprised.
Ian: And I think too — I mean, the way we think about our investments, and why we pump money into Roth now versus next year — I really do believe that as time goes on, we’re only going to make more money, whether that’s through W-2 and kind of being work optional, which is the direction I’m going, or just picking up real estate deals when we want to. But I do think, with all the rentals and more things to come as time goes on, we’ll just continue to make more money.
Mindy Jensen: Katie and Ian, you have four rental properties, or will have four rental properties in the next couple of weeks. I’m looking at the cash flow numbers, and one of these things is not like the others. You’ve got a rental property that kicks off $18,000 a year and a rental property that kicks off negative $5,400 a year. When you add it all up, it actually would be better if you had two fewer rental properties, from a cash flow position. Is there a reason why you keep the property that starts with an O and the property that starts with an F? Is there a reason that you keep these?
Katie: Yeah. So the property that starts with an O, the one with a negative $5,400 cash flow — that was actually the first house I bought, and I didn’t analyze it at all. I just bought it because I liked it. I think it’s good long-term appreciation, and that’s kind of more what we’re banking on. I think we definitely recognize that our lifestyle would have to subsidize the property instead of the other way around. But I think too, we’ve had some bigger expenses — the heat pump over there is pretty old, so it just needed more maintenance, and we had to remove a big tree. We had to replace flooring this year. So again, I don’t think those expenses will come up again. I mean, the heat pump will, but I think we’re just being overly conservative with that one, knowing the age of the systems and just having recent repairs done.
Mindy Jensen: So the numbers on this one are: rent is $2,000, mortgage payment is $2,002. So you’re already losing money on this property, just with that — it costs you money to have this as a rental. Could you take the equity in this property and deploy it someplace else where it wouldn’t cost you money? Because I understand that you bought it without running numbers, and — hey, I’ve bought lots of houses without running numbers too — but this one, I don’t see a reason to keep holding on to it.
Ian: Yeah, the loan-to-value on this one is not — I don’t even think we’re at 80%, so we can’t take any equity out of it the traditional route. We have talked about, kind of long-term, taking money out of properties and playing that game. But in terms of this one and the other one, I think we really are looking at it long-term, 30 years — let’s have a nice asset that is paid off. I know that’s kind of the short-term game, not as smart, but given our position, we feel comfortable doing that at this point in time.
Katie: And that one too, for context, is an FHA loan. I put 3.5% down and financed the closing costs, because I did not know better, in my opinion. So that is why the mortgage is very high on that one considering the value it was bought for. But I think too, we’d also consider throwing a large chunk of money at that — maybe, I don’t know, $30,000 — when we refinance it into a conventional loan, at that point getting that PMI off that loan as well, which would hopefully bring down the overall mortgage payment too.
Scott Trench: I’m going to go further than Mindy and go full, I’m in camp sell this property here. And here’s where I like the framing of how we are laying this out here, right? Because we see the property has gross rent of $2,000. We see that there’s a principal, interest, taxes, and insurance payment of $2,002. So $2 negative right there. I’ll say this, I don’t believe your expense number elsewhere because you put $450 for additional expenses for this property. But if we count vacancy at 5 to 10%, you know, that’s $100, $200. If we have a property manager, which you will want one day, I think you should iterate this, you’ve got another 10% right there. That’s $200. So now we’re at $300. Then we’ve got the maintenance. Then we’ve got any landlord-paid utilities. Then we’ve got any CapEx, the new roof, those types of things, which you’ve got to build up and are having and piling in there at $150, $200. So when we add those in there, this property is deeply negative. Now, what I think is interesting is I also asked 2 other questions here in this sheet, right? One is, how annoying is this property? What’s the PITA score, right? You can spell that out. This is a family-friendly show for now. And then the prospect score, right? What do I think this property is going to do? And you guys said this property is really easy, not a PITA at all. And it’s really optimistic about the prospects of this property. And I think it’s really interesting because most of the time when I talk to investors, the negatively cash flowing property is the real painful one. So tell me more about that. What’s going on behind those 2 numbers here that this property scores really easy and optimistic for you?
Katie: The property with an O, that one is just, it’s turnkey. It was turnkey when I bought it, brick rancher, so low maintenance. It’s a 3-bed, 1-bath house. Just other than the heat pump having some age on it, it’s just not that annoying. And then in terms of optimism, I think the area is going to continue to appreciate. I think since I’ve bought it, it’s gone up to about $330,000 and I bought it for $270,000. So over 4 years, we’ve gained $50,000 in equity. So I feel pretty optimistic that that’s going to continue to go up, especially as we look at the suburbs around where we live and how appreciation in general is going up. So I think that’s why we feel more confident about that area. But I can also see the perspective of the negative $5,400 every year.
Scott Trench: It’s got an acre of land on it?
Katie: No, I think it’s on maybe a quarter, a quarter acre, third of an acre.
Scott Trench: Okay. Yeah, I grew up in a suburb, you know, 40 minutes out of Baltimore in a rancher. That sounds exactly what you had. But we had an acre with some woods to play in as well. So I can see the appeal of this. If you lived in it or whatever, I can picture the house I grew up in in this property. What is the mortgage insurance premium on this property? Is it more MIP or is it PMI?
Katie: I think it’s MIP with the FHA loan. So I think I want to say it’s around $175, $200 a month. But because I only put 3.5% down, I’m not able to refinance and get that off, which has been part of the problem, especially since rates have gone up and it’s a 5.375% interest rate versus today’s rates as an investor.
Scott Trench: When did you move out of this property?
Katie: August 2024.
Mindy Jensen: No, you’ve got 3 years, Scott.
Scott Trench: No, it’s 2026 right now. That’s 2 years. That’s 2 years.
Mindy Jensen: Yeah, but you’ve got 3 years to—
Scott Trench: Oh, you’re right. Yes. What am I doing? I was like, oh, the cutoff’s 2 years.
Mindy Jensen: Okay. So, Ian, I think you might have misunderstood me when I said take the equity and put it someplace else. I wasn’t talking about pulling money out of this loan. I was talking about selling this property outright. I have moved around a ton in my life, so I don’t have a lot of connection to any particular house. It would be very easy for me to sell my first house. In fact, it was. I did, and I moved on 20 houses ago. I just don’t see this as being a great house forever, and it doesn’t really matter what the interest rate is. Like, would you buy this now?
Katie: With the knowledge we have now and the way we analyze properties, no.
Mindy Jensen: So why do you want to keep owning it?
Katie: And that’s something we’ve tossed around too more recently. I think we like having rental properties, but if this one, our lifestyle has to subsidize the negative cash flow, you know, the numbers don’t make sense, especially for what we want long term. So I think that’s definitely what we’re going to consider.
Scott Trench: And you’re a realtor, so you don’t even have the transaction costs associated, or a chunk of the transaction costs associated with moving on from this. The case for selling is overwhelming for this property from my seat, you know, just as an instant reaction, because we have negative cash flow, we’re almost certainly understating the negative cash flow on the property. You have a tax-free capital gain on this property when you sell it that goes away next year. I thought it was next month, because I was doing mental math so poorly. So you have a year to sell this thing before you hit that cutoff anyways. And then you are very knowledgeable real estate investors that intend to be active in the local area. You could redeploy this almost certainly into a better cash-flowing or performing property. And the issue I think with this property fundamentally is it is a house, single-family house, and the highest and best use of the person who is likely going to pay the most for it is going to be the family that wants to lock in for the next 20 years and raise their family there in this particular area is what I’m gathering. And that’s why it’s not working for you fundamentally as a rental and doing the right work here. So I think that if you redeploy it into like a small multi or something like that, it’s possible the numbers look very, very different for your situation because that is an income property and drives that. And you may— and you have easy and optimistic. I would challenge you if you can find something in the local area or within a reasonable vicinity that has both of those characteristics as well and redeploy into that that’s not so deeply cash flow negative. But that’s one man’s opinion as an instant reaction to this set of numbers and conditions that we’ve shown here. What’s your thoughts here?
Ian: I think that’s fair, right? At the end of the day, we want to be numbers-based and focused. That’s what I do a lot in my day job. And that’s how I want to live my life. So yeah, I think that’s certainly something for us to think about as we try to clean things up and just focus on cash flow.
Katie: Especially with the capital gains exemption, when you live in it 2 out of 5 years, it’s important to consider.
Mindy Jensen: Yeah, that goes away in August of next year.
Katie: Yeah. So probably next spring.
Mindy Jensen: Yeah. And I was going to say, I don’t know what your current tenant situation is, but if you could get them out right around the spring selling season, you could host a lot of open houses there, get more clients as well as sell your house. Let’s move on to property number 2 on the street that starts with an F. Those numbers are significantly better. You make $11 a month positively after your $250 of monthly expenses. It’s got an annoyance factor of 2.
Scott Trench: Yeah, we’ve moved up the scale on the PITA score here.
Mindy Jensen: That’s out of 3. It’s not 2 out of 10, it’s 2 out of 3. So this seems like it’s kind of a pain in the bottom, and you have average prospects. I don’t know that I would want to continue to own this property either. And you’ve got $116,000 in equity in this property.
Scott Trench: And I’ll also pile on here to Mindy. Sorry guys, I know we’re piling on for some of these, but I also pile on and say again, I have trouble believing the expense numbers on this property, excluding the mortgage payment, because we have $1,650 in rent. If we have a property manager, that’s $165 at 10% there. And you have a $250 monthly expense roll for this property. So the next $100, you know, $85 needs to include all your landlord utilities, which I bet is a single line item on its own, all the vacancy, all the CapEx, all the maintenance. And so I think we’re actually fairly negative on this property from a cash flow perspective as well as the first one.
Ian: Yeah, one thing we decided to do when we did this, because it was bought via seller financing, right around $145,000 or so, and we had to do a cash-out refinance to pay off the note. So we decided since we were already going to get hit with that 6.5% interest rate when we refinanced this last year, we’re like, let’s go ahead and take some equity out. And we took out $30,000 knowing that that was going to eat our cash flow monthly. And we decided to put that $30,000 into the market. So that was a conscious decision we took. Because we know at the end of the day, you know, we’ve got all this equity in these houses, we want to use the equity and not just let it sit. So we decided to take out that money just the way the deal was structured and put it into the market.
Scott Trench: So that’s one decision, right? Like pulling money out to invest in something there, we have the— what do we think we’re going to get there? But when we talk about this property, what’s the thought process here for what you guys want to do with it? And you can tell that we’re gearing up, you know, on a— we think this one’s a sell too, based on these numbers. But what is your— what’s your thought process on it?
Katie: I think this one has decent chances of appreciating. The area, it’s one of the more affordable areas in the suburb that we live in. So I think it’s going to continue to appreciate over time, which is why we’re pretty hopeful. I think we also like all the equity that we’ve built in it. We forced— what was it, $120,000, $130,000 of equity? And so that $30,000 that we pulled out for the mortgage when we refinanced, we actually— that was almost pulling out the majority of the funds that we’d used to renovate the house. So I think in terms of selling it, I mean, what do you think?
Ian: I mean, maybe I’m foolish on this part, but I do kind of like the long-term play, just building the equity. And really what’s important to us is leaving a legacy for our children. So I know it might be, for lack of a better term, shooting us in the foot now. You know, I don’t think we really mind as much the minimal cash flow on this one, just because we’re playing a different game with this. I know, like, numbers make sense, and we could sell it and put that money somewhere else. That’s just how we’ve been thinking. But we’re open to thinking differently.
Katie: Thinking about where this one is in relation to the other properties that we have, it’s nice to diversify to a completely different area that has different chances of appreciation than maybe some of the other areas we own.
Scott Trench: Before we even get to, like, expenses on these, right, we look at the asset value here of $289,000. And the rent of $1,650. And that gives us 0.57% rent-to-value ratio on this particular property, right? I bought some properties in the last couple years, right? One was a quadplex for about a million bucks with gross rents of $7,600 per month, right? Still not like fantastic, but you have a meaningfully different amount of cash generation on that. And I’m wondering if these single-family homes in this area just cannot deliver you with high financing cash flow in this situation. I get the instinct here. We want to build long-term wealth. Real estate, we think, is going to appreciate in line with inflation or a little faster over a long period of time. And leveraging against that is a good use of time. Like, I’m all for this approach, right? I spent 10 years talking about this over at, you know, BiggerPockets. And I do this personally here. But is this the right asset for you in this environment, in the single-family homes? Or should we be going to multifamily, or can we be adding value some other way? That, like, these ones, these two are not working. And we’re gonna have the same problem with the next two properties as well, if we add leverage to them.
Katie: I think in the suburb that we live in on the East Coast, it’s really difficult to find anything that meets like the 1% rent criteria to the value of the house. I mean, we’ve been looking for years, and it’s almost impossible to do that, you know, and that was with an off-market property that we were able to force a lot of equity, and it would have cash flowed better had we not pulled out a little bit of money from it. But yes, I think that’s definitely something to consider. And maybe we do end up selling it just because it doesn’t make sense.
Scott Trench: Let’s talk about these next 2 properties here. So let’s consider it like totally paid off, right? This is something I like, right? Like that property I just told you about, that’s what it is, it’s paid off, right? So net of expenses, which I estimate to be about $2,500 a month, I’m getting $5,000 a month in free cash flow, right, from their $60,000 a year in income. Now that waxes and wanes, right, with tenant turnover and those kinds of things. But that’s like a conservative forecast for me for that property. We’re not there on those assumptions on your properties here. Maybe you can operate them cheaper. I don’t know. But you know, you’ve got these next 2 properties, you got a $347,000 single-family home, likely in one of these same areas, you consider it an easy property, low PITA, and are optimistic. This is one of the inherited properties that has transferred to you, right? And we have $2,000 a month in income for that property with $1,500 in monthly cash flow. Now, what’s awesome about this property is I believe that that property should have been inherited at stepped-up basis. So there’s no gain or depreciation recapture embedded in this property. And you, Katie, can transact this property immediately with much lower transaction costs, right? There is seller and buyer agent closing costs here. So that’s a really strong sell case. It’s never going to get better to sell the property than it is today. We’re going to have that same problem here. If we refinance this property 80%, I actually don’t know, I haven’t, I should have run the math ahead of time, but you’re going to have a number that’s larger than your rent, I can tell you right now, in terms of your total financing costs. So we have a wonderful problem and setup here. And I think we’re not giving you what you were hoping to hear from this call about this current portfolio. I’m not saying you can’t invest in real estate. You clearly want to, and you clearly have added value to these properties. You’ve clearly made money. But the hold is different from the value-add. If we buy a property for $200,000 and then spend our nights and weekends adding value to it, and it becomes worth $350,000, right? And we put $60,000, $75,000 into it. That’s a wonderful outcome. That’s a real win. But we now have to evaluate the stabilized asset as something we’re going to hold. And that’s where the next several hundred thousand dollars is made or lost is in that analysis. And I think that’s the problem we’re running into in this market is you guys have not done anything wrong. You’re not doing anything foolish. You’re very wonderfully responsible. You’ve done a great job with this. But the whole decision about how to allocate the portfolio doesn’t seem to me to be working here. Unless we just say, you know what, we just want a stable paid-off portfolio, we’re not trying to drive any returns at all. And we just want the cash flow from it from the paid-off side of things. Then we have a case for keeping the property here. And we can have a really tax-advantaged income stream here. That’s a different answer to a different problem than what you came into today’s call stating as your problem. How am I doing? Is this— is this not— this is not fun. But is it helpful here?
Katie: Yes, it is helpful. I think to, you know, kind of facing the music that these first 2 are not doing as well is helpful. I think for the 3rd one, the one that I’ve inherited, that one is very meaningful. We’ll probably never end up selling that one, but that $500 monthly expenses is CapEx, vacancy, and property management. So the property management is probably about $200 of that, which is pretty high. So we could consider pulling that off. I think what we would consider too is if we were to tap equity in this one, maybe pull out— if it’s worth $347,000, $350,000, maybe we pull out $100,000, $150,000 to either pay off some of the original properties, pay those loans down and refinance those, or even considering buying another property and kind of balancing out between gaining equity and diversifying through buying other properties, but also having low mortgages to hopefully help with cash flow too.
Mindy Jensen: If you sold those first 2 properties, you would make $6,000 a year more than you do right now and free up $190-ish thousand in equity. So instead of pulling money out at a high interest rate on the rented— the inherited properties, you could free up that $190,000 in equity and take that and buy more rental properties with better numbers.
Katie: And maybe we do that. Maybe we look into buying just one that has a conservative mortgage that actually cash flows a lot better, and then, you know, our portfolio is smaller and easier to manage, but it also cash flows better, which fits our lifestyle and our goals in the end.
Scott Trench: So this is illustrative. I would actually hypothesize you are unlikely to use one of those bullets in the chamber with the cost segregations on the 2 remaining properties, because property 1 was a former primary residence, which will— you’ll be able to exclude a big chunk of that gain or all of the gain. And then the second one is a $116,000 equity position, maybe
Scott Trench: Yeah, yeah, perfect. So but that would be, that would be one way to think about like that bullet in the chamber thing there is, is that would be like, that would be the strategy at play with the trade-off. You have an art now, art problem about when to fire them. I think that that’s fair. Now, if we’re going to keep the $347,000 single-family home, so we have 2 properties, $347,000 and $315,000. So about $660,000, $670,000 in asset value here and equity, all at stepped-up basis that you can realize. Property 1, we don’t want to sell because of various sentiments attached to the property. Does Property 2 have those same sentiments that we don’t want to sell?
Katie: Yes, but I would think I’d be more likely to sell that one than the first inherited property. This one too is severely under-rented. These, the tenants have been in there about 10 years. I think they’ve raised the rent once or twice. So I mean, that one would probably rent for $2,200 fixed up, but I think we viewed it and it probably needs $15,000 to $20,000 worth of work inside just due to tenants living there for 10 years and smoking in the property.
Scott Trench: Okay, so at $2,200 a month, that would become your best rental in the portfolio. It still would not meet a cap rate hurdle for a true income property like a duplex, triplex, quadplex, or small, small multifamily property. But we could get up to about $20,000 in net operating income. Although again, we’re using really, really low expense estimates, $2,200 minus $369. I don’t think you’re going to operate a property like this for $369 a month long term. I think it’s gonna be, you know, closer to $600, $700 a month. And at that level, we have an okay income stream here. But between the two of those properties, you know, if we, if we agree with generous assumptions, we could get to $35,000, $40,000 in annual cash flow on the paid-off portfolio. It’s just, I don’t know if that’s a retiree’s portfolio, right? A paid-up— two paid-off rentals providing that income. It’s great. But it’s, it’s in conflict with your stated goals.
Ian: I think part of our goal too that we’ve started to think about, like, in the next couple years with kids, and just frankly if we want to slow down and take a foot off the gas with work, is just having that money rolling in and being able to live off part of it, invest the other part of it, like, is really attractive to us. So I think, like, cash flow is probably one of our main priorities, especially just so we can slow down if we decide to. So I think those 2 properties, or at least something along those lines, or properties like that, would be something we’d hope to have, or maybe something even better.
Scott Trench: Then that, that works really well with all this, right? Then we sell off the 2 that are not cash flowing. And we keep the 2 that are cash flowing, we put that in there, we accept that we’re not getting a great return, we are banking on appreciation to some degree. But we’re doing that in the context with no mortgage. And we’re not going to get rich this way. But we might have a higher floor on our situation, more optionality, when, you know, the kids, you know, come in future years.
Mindy Jensen: If you get rid of those 2 properties that aren’t cash flowing, you’re going to have $39,000, $40,000 a year coming in, and And you spend $72,000. Kids are going to make that go up, of course, but that’s half of your income doing nothing. And I mean, not doing nothing— owning rental properties is definitely not doing nothing. But these are both under management, right? Both of these inherited properties?
Katie: Yes.
Mindy Jensen: I would dial in the expenses, make sure that you’re really counting the correct expenses. And honestly, whenever this current lease ends, I would increase to actual rent.
Scott Trench: This is what I did personally, right, is a version of what you’re talking about here, right, with a portion of the portfolio paid off producing income, and another portion of the portfolio levered, thought of separately, you know, some income comes from it, but I don’t really, I don’t really like count on it in there. I count on the income from the paid-off portfolio here. The difference that I want to call out here is these are not income properties. These are houses that are relatively poor performers from an aggregation of properties.
Ian: It’s a wonderful situation.
Scott Trench: But I think like the textbook play, the numbers would say, sell these ones too, and redeploy them if we want to own real estate into higher rent-to-price ratio properties. There may be sentimental reasons not to do that. But the time to do that, if you’re going to do it, is now before you have depreciation recapture and, you know, other sale proceeds. I think it’s kind of like apples to apples, right? I sell this property and I buy the one next door. That’s a duplex that, you know, I don’t know if that exactly exists. But that concept applied still gets you your appreciation and prospect scores in the area, just maybe with a different cash flow number.
Ian: Yeah, I mean, I, I think you’ve certainly opened our eyes to— I think we’d be more interested in selling the first 2 properties we discussed and deploying that money into something else. I don’t know, multifamily properties are a little pricey around here, so, you know, we might need to see if we can find one off market or structure a certain deal. But I think you’ve certainly opened our eyes to something else.
Katie: For context too, the multifamily properties in our area go for I mean, minimum $600,000 to $700,000 for a duplex. So it’s with rent prices to where they are, it’s just tough to make those work as well. But I think I like the idea of pulling out the equity in those first 2 and deploying it into one property that cash flows better.
Scott Trench: Walk me through that $600,000, $700,000 for a duplex. What would be the rents on that?
Katie: I think if we rent each, maybe if it’s a 2/2, what would you say, $1,800 each, $700,000 mortgage, maybe.
Scott Trench: Then you’d be worse off. The rent-to-price ratio is not better on the duplex. In your local area based on that math. I don’t, I don’t, I don’t have to actually go and look. But I would challenge that assumption and go actually look at it. Because that’s, that is the decision you’re making here is there’s a value to these that is vastly superior to the alternatives. So I would actually go in and state the counterfactual realistically. I’d bet you that your price is a little lower on those duplexes than you’re envisioning if those are the rents. But maybe that market is just a little different, not, not a ton lower, but lower enough where there’s more of a decision.
Katie: I definitely think we can stand to analyze those rents further and make sure that those numbers are spot on. I know the prices of the multifamilies are pretty spot on for the fair market value, but definitely need to look into those rentals a little more.
Ian: Well, we always joke too that we’d get a multifamily before 30. So maybe this is our call to action to sell these properties and do that.
Scott Trench: That would be the analysis because you’re making a really big decision here that the numbers are saying are not there. And I think that’s where you should, you should just stare at that. That’s fine. Right? It’s just know that, know the cost, right? What’s, what’s this going to cost us? That’s how you can, you can put that out there. This is again, a real win in the portfolio. You guys have created value and made money in real estate here. And now the question is, what do we do now that we’ve stabilized and add value toward these 2 properties that we’ve held? And what do we do with these properties that are not really their retirees rentals, right? There’s somebody, somebody bought these a long time ago, paid them off, right, and lived off the income, right, and had tenants that they knew in them. And now they’re Now they’re yours. That’s the challenge that you’re fundamentally facing. I think a lot of people face this problem. You know, people don’t like to talk about it because it’s uncomfortable in the context of inheritance, but it’s, it’s a tough— there’s a whole bunch of things going on.
Katie: What is your opinion on it with the 2 properties that we’ve inherited? If we, you know, get those closer to market rent and everything, what if we pulled a little bit of cash out of those to buy another property that cash flows as well? Like if we had— if they were lightly levered?
Mindy Jensen: I would rather see you sell the the 2 that you owned and pay no tax on that $73,000 that you lived in and free up that total of $190,000 and use that money instead of taking out a loan on these properties at the current rates.
Katie: Okay.
Scott Trench: Again, we have conflicting goals, right? This is why it’s so hard, right? And you should have conflicting goals. You’re 29. You’re not 59, right? Like here, this is not 30 years in the future. You’re not sure. if you want cash flow or appreciation right now, and you have to pick across the portfolio, or you have to segregate the portfolio and think, this is my cash flow portion, and this is my appreciation portion over here. Because we just kind of were waffling back and forth between like, like, and so like, that’s kind of how I think about it, right? It’s like, okay, there’s a portion here that I want to just spend. And then the portion that’s going to be the appreciation play. And there’s a little bit of circularity there too, because I locked in a lot of those mortgages at low interest rates on there. And you’re not going to have that option here with these ones here for the cash flow. But I think fundamentally, the problem with this portfolio for the cash flow play is the low rent-to-price ratios that make everything downstream harder as you attach financing. So you can attach financing to the properties, but you’re going to find you’re going to get to a relatively low loan-to-value ratio before you break even. on a cash flow basis with honest expense assumptions. And that’s going to make it very challenging for you to pull out as much as you’d like and still get the aggregate returns on the portfolio. So that’s why you have a hard decision here in the context of a good situation. This is a difficult analysis, I think a lot of people are going to struggle with. And again, I think that one answer to it is leave them paid off and enjoy the cash flow as a high floor. That’s a real win for the portfolio. Another one is, design a fictional perfect portfolio that is realistic in your area, that’s mostly attached to income properties, I would assume that your rent-to-price ratio on the income properties is going to be better than the single-family homes. It should be better by a meaningful amount. I think, I think that you will find that to be the case when you go, when you go shopping in the current environment and say, that’s the counterfactual here. And we could take this and put it in there. And now you have your analysis and you can make a decision there, not an unreasonable one to just sit with the paid-off properties and enjoy the cash flow here. Maybe that’s, maybe that, that’s, that’s, you know, what whoever gifted these to you would have wanted for the properties. That’s a great outcome.
Katie: The goal of our conversation here is just to make the smartest choice possible while preserving wealth and also maybe preserving some of that optionality. So do you mind if I ask about the investments too that I inherited?
Scott Trench: Let’s do it.
Katie: I inherited about $185,000 in investments, and it was held with a financial advisor who charged 1.25% and had It was a moderately conservative portfolio, so it was returning about maybe 5 or 6% annually. So my first step was firing them. I removed all my assets because I figured we can do index funds, but I just put that in my taxable brokerage since I wasn’t sure what was the best place to put it, especially considering if we’re going to FIRE in about 11 years or so. So I just want to get your take on that too.
Scott Trench: What’s the other option you were considering? I mean, after-tax broker, putting it into the after-tax brokerage account, sticking it in, you know, the long-term investment portfolio seems like a very obviously correct answer to me, but I don’t, I don’t know what, what were the other alternatives that had you worried about it? Like, like investing in real estate, for example?
Katie: I think we’re, we’re happy to kind of hedge our risk in terms of half real estate, half stocks, half index funds kind of thing. So I think with that, we’re more so considering, should we use it to max out Roths? You know, should we just let it ride in taxable brokerage? Like, what is the way to balance flexibility while also minimizing taxes too?
Scott Trench: Use the code POCKETS at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code P-O-C-K-E-T-S. Let me reframe this here. So where do I put this? You add this to your after-tax brokerage position because that’s all you can do mechanically with the cash instantaneously, right? Now we have a separate question, which is what are our order of operations to be from an investment standpoint here, right? So, so for example, the Money Guy’s FU, financial order of operations, is I think really gold standard item here. And we— and you flow with that as the— as your starting point, and you deviate from it based on your specific goals and interests where they apply, right? We would say a standard order of operations in a situation like this might be take the 401 match from your employer. Katie, I don’t think you give yourself a 401 match That’ll be for you, Ian, on that end.
Katie: Working on setting that up.
Scott Trench: Then I think, I think, you know, their employer stock purchase plan, if it’s particularly advantageous, or you move it down the stack if it’s less advantageous, or eliminate entirely if it doesn’t exist, right? Then we’ve got the HSA, which is, you know, arguably one of those first ones to max. That’ll probably be available through your work, Ian, I’d imagine. Then in your situation, your federal effective tax rate is, I think, the 12% bracket right now.
Katie: I think so. I think we estimated about 22% just to be sure. Like, just to be conservative again, because my income fluctuates. So in case we get pushed over the edge.
Scott Trench: This is an interesting one because you have variable income, so you’re not sure you’re going to be at the 12% or 22% bracket. So either way, in your situation, I personally bias toward the Roth because I think you guys are going to make more money and be in higher income tax brackets later on in the 12% or 22%. But let’s say you were pushing to the 32% bracket, 22% versus 32%, or your income fluctuated wildly, Katie, with real estate sales and of stuff. And some years you’re in the 12%, some years you’re in the 32% bracket, right? If that were there, then we have an easy one because we’d say, okay, the 32% years, we’re going to max the 401, then do a backdoor Roth. And in the 12% years, we’re going to do the Roth first and then the 401. So in this case, I think this year, based on the income you stated, you’re going to be in the 12% bracket, but you should, at the end of the year, you can true that up. And I think in many cases it will be wise for you to try to time this a little bit later in the year to make these decisions as your income is variable. Because the arbitrage will matter in terms of the order of operations in some of these situations. So I think in this case, if we go with my hypothesis for this year, we’d have 401 match, HSA, Roth, remainder of the 401 as your building blocks there. When you add kids in, you can do the 529 or the Trump accounts as part of that, but that would be the general stack in a simplified way. Does that make sense?
Katie: Yes, it does.
Scott Trench: This cash, this $185,000, cannot go— it’s more than you could— than would be available to go through the entire stack. You would just move through your stack normally and don’t bring in the brokerage into long-term investments is perfectly fine play.
Ian: Cool.
Katie: I guess thinking about years to come too, would we just, if we wanted to just max out the Roths with this cash and the investments, would we just kind of transfer those assets into our Roth IRAs at that point?
Scott Trench: Why are you conceptually bucketing this $185K into Roth investments rather than just this goes into the after-tax and every year we’re going to have income? And we’re going to move through the— I’m just curious. It’s not, that’s not wrong. It’s just not, it’s just, I’ve never thought about it that way. I always think about it as, you know, with the income I’m going to generate this year, here’s my order investment stack, basically.
Katie: Yes, I understand that. I think I’m bucketing it like that in my head since we’ve been so focused on Roth IRAs, traditional IRAs, and making sure we get our 401 matches and doing as much as we can in our 401s. So I think the after-tax, like, that’s just the last on the totem pole for me since we’ve been kind of trying to hit all the other boxes. taxes first. So it just feels like we’re skipping a lot. So I just want to make sure we aren’t skipping any major steps there.
Scott Trench: I would write out the order of operations, make your judgment call about Roth versus 401 or traditional IRA, um, you know, defer the deferred account first, and then map to that. But like, your, your financial statement reflects really sound judgment on this because you’ve got a much larger Roth balance than traditional, which is exactly what it should look like for someone with your income and your age, in my view. in this situation, and you have a large after-tax position that’s been bolstered by this recent inheritance. So it’s textbook, whatever you’re doing, you’ve clearly got this answered correctly. And then when your income goes into higher brackets, you’ll naturally shift to the deferred portion. And you’re also completely circumventing a problem we see all the time, where people who are too aggressive with the deferred and not enough on the Roth have all this in deferred and then wake up in their mid-30s or early 40s and have all their pre-tax, you’re not going to have that problem at all. You’ve crushed it. You’ll, you’ll, they’ll then appropriately want to max out the deferred accounts at that point in time, likely because your income will be high. So I think you guys have crushed it on this one.
Mindy Jensen: And as a self-employed real estate agent, you have the ability to open up a self-directed 401k, a solo 401k, which allows you to put in the same amount that everybody gets per year. What is it, like $23,000? And your company can match your contributions, up to 25% of your income, up to like $70,000. So in these 37% tax bracket years or 32% tax bracket years, you can decide, okay, this year we’re going to put everything in the deferred accounts and bring our taxable income down. And in the less successful years, you can decide to do Roth money, or you can do a combination of both. But I like the self-directed solo 401k. The self-directed part means that I could invest in real estate if I chose to. Scott has thoughts on that, and that’s a story for another show. But having the ability to put all that extra money into the 401k can be really powerful.
Scott Trench: In a year or two, let’s say your career takes off, Katie, and you continue to crush it in your profession here. Your income gets fairly high. You’re starting to convert a lot into the 401k. But then let’s say that in year four you have a bad year, okay, you don’t have a lot of sales, and the rental property gives you some pain in the rear. That might be a day to do some of those cost segs or buy that extra rental property, and then do your big conversion event because you’re a real estate professional. Those are just the pieces to have in the back of your mind about when am I going to fire these bullets. It probably makes sense to offset, to bring your income from the 32% bracket down to something much lower in a specific year, rather than to use them quickly in lower tax bracket years. But yeah, I think that’s right. I think, Ian, you’re going to be able to, with this cash and your income situation at a high level, it’s going to allow you, if you want to, to go down the whole stack — the HSA, the Roth backdoor, mega backdoor, the 401k traditional contribution, or the Roth 401k. Roth 401k would probably be my bet, honestly, if that’s available through your work, Ian.
Ian: Yeah, I was going to say that is exactly what we’re doing now. We’re pretty much maxing out my 401k around that $23,000 mark.
Scott Trench: The Roth 401k or the traditional?
Ian: Roth 401k. And then the HSA is getting maxed out. And then I also do get an employee stock purchase program, which is 15% off, so I’m maximizing that too. I’m bullish on my company’s stock, but I probably need to just sell it and then put it into an index fund and diversify. But yeah, we’re taking advantage of everything we can.
Scott Trench: And also in your situation, the problem we see with a lot of that is people are all in on their company, and you don’t even have that problem here. So that would be more of a side bet here. So on the company stock — yes, that’s probably textbook, and it’s not really as big an issue for you guys as it would be for other people who are too concentrated in their one employer.
Katie: Yes. And I have set up that self-employed 401k to kind of direct funds there. I actually moved everything out of my traditional IRA into my self-employed 401k to do a backdoor Roth, because we were kind of locked out of that for a little bit without doing the pro rata rules. So just knowing that we have that set up, and working to figure out the contributions on the employer side — which is weird when you’re the employer and the employee, but that’s an S corp for me.
Ian: So.
Scott Trench: Look, you guys, you’re asking questions, but you already know the answer. You’ve got this perfect. This is textbook, and your financial statement reflects that. You know the textbook, and you are executing the textbook. You’re doing it, you’re crushing it here. It’s an income question each year for how you want to allocate these funds. I think you should be more precise. You don’t want to be conservative, you want to be right on your tax bracket for any given year. You’re not going to know at the beginning of the year with your situation — that’s very normal. So at the end of the year, you’re going to want to do that. And you may want to defer some of those decisions until later in the year if you’re on the bubble between a low income tax bracket and a higher one. That’s a very fine-tuned adjustment here. And your cash position — your after-tax brokerage position, your cash position — will allow you, if you so choose, to in some years go further through the stack than your income and your spending would otherwise allow. That’s all that the after-tax brokerage position does, and that’s how I’d frame it. But you guys are perfect on this front. The only deviations you’re making are artful guesses, and I think I agree with you down the entire stack that you just shared here.
Katie: Thank you. We’ve listened to a lot of BiggerPockets to figure all that out. So glad to hear we’re doing it right.
Scott Trench: It’s like, oh, the scoreboard reflects it too. At the highest level, you guys are easily top 1% wealth position for your age bracket, if not a top 1% household for your income bracket yet.
Katie: Yes, we’ve been very fortunate, and we’ve made a lot of good choices and had a lot of lucky strikes too. So it’s a combination of all the above. And, you know, the inheritance too is an unfortunate situation to be in, but I just want to make sure we use it in the best way possible and don’t squander it, because I think a lot of people don’t know what to do. And I didn’t feel comfortable turning to a financial advisor who’s going to charge me a 1.25% rate for managing money. I just felt more comfortable asking you guys, the professionals that I’ve listened to for so long.
Scott Trench: Well, this is entertainment only here. I think if you want professional advice, then that’s where the hourly or advice-only section comes in. And I do think there are some really good CFPs out there who charge the AUM or whatever. But I think that it’s a little harder in the real estate world in particular, because those don’t necessarily intersect with the assets under management. And so I think that’s where a lot of real estate investors feel like — I don’t know if it’s true, but feel like — they can’t get the inputs there. But I think there’s plenty of places to go get an hourly or advice-only consultation. We are partnered with Domain Money, for example. And then we’re also partnered with Nectarine. So Domain Money is like the firm if you want the comprehensive financial planning, and then Nectarine, Hello Nectarine, has the flat fee or advice-only section where you can get more of those hourly engagements. And both of those are on the website at BiggerPocketsMoney.com. But those would be places to go to get that next round of it. This is just instant reactions in an hour on this, but hopefully it was helpful in the sense that it gave you some questions to think about and challenge some things.
Ian: Yeah, I think we’re certainly going to think about those two initial properties. That wasn’t even something we had considered, so thank you for your inputs.
Katie: Yes, I think we’re going to be eyeing the spring market pretty heavily next year for both of those. So I think that the numbers make sense, and it’s nice to have that reassurance too, that they served a time and a purpose at one time, but that purpose is no longer serving us.
Scott Trench: I think before you go to the financial planner — I think that what’s fundamentally missing in all of this is, it’s a huge win. It’s literally a top 1% outcome in almost every category that we can quantify here. It’s just, what do we want? That’s not a question that the CFP is going to answer for you, or the CPA. It’s, do I have a written “what do I want” statement here, right? We can also help with that on biggerpocketsmoney.com, at biggerpocketsmoney.com/resources. You can see what I want — you know, an example of a goal-setting process and vision with the Trench family’s kind of “what we want” vision statement there. But maybe that would help you to some degree if you spelled out exactly what you think you want. And you don’t have to settle on it — you can just make it a hypothesis for now and let it evolve for two years. But that should answer some of these questions, so you’re not flip-flopping between “I want cash flow” and “I want appreciation,” “I want cash flow and appreciation” with the portfolio. You can make a decision that’s at least grounded in a written hypothesis for what you want.
Katie: I like that idea. We’re definitely going to check that out after this. I think too, it’d be nice to revisit it kind of annually, as life changes and circumstances change, and just kind of always keep an eye on where your goals are and where you stand in comparison to what you want at that time.
Scott Trench: Yep.
Mindy Jensen: You can find that at biggerpocketsmoney.com/resources. It’s the second item in the resource library. We also have the personal finance statement, which is what you guys filled out for the show. And we have the investor policy statement template. I created this in conjunction with Bob Haynes, who came on the show a few weeks ago to walk through the investor policy statement and the investor philosophy — your investment philosophy. And that’s just another tool to help you kind of figure out exactly what you want. Once you know what you want, you know what your portfolio looks like, then you’re not second-guessing yourself. You’re just going back to your statements all the time. Oh, that’s right, we did want to buy five more rental properties, and this one fits what we’re looking for. Or, hey, we’ve decided we don’t want any more, even though this is an awesome property — we’ve decided we’re good.
Ian: I love that you mentioned that, because we sat down about three weeks ago and did our investment policy statement. And we’ve got sizable equity positions in certain stocks, and as things go up and down, especially in the AI space, it’s like, what percentage of our portfolio do we want to be allocated to some sectors or some stocks? Love that you guys have that. Thank you for that. We are already using it.
Mindy Jensen: All right, Katie, Ian, thank you for sharing your situation with us and sharing your numbers with us. This is always really helpful for Scott and I, and also really helpful for people out in the world who have similar situations. So we appreciate your transparency.
Katie: Thank you for having us. It was wonderful, very insightful, and we got some homework, but we’re excited about what we heard.
Ian: Yeah, thanks for your time.
Mindy Jensen: Yeah, I would love to hear what you decide on those two properties.
Katie: Yes, we’ll update you guys for sure.
Mindy Jensen: Perfect. All right, well, we will talk to you soon. Thank you so much for your time.
Ian: Thanks, y’all.
Katie: Thanks. Bye.
Mindy Jensen: All right, Scott, that was Katie and Ian, and that was a really interesting situation. They have done a lot of things right, and had a little boost with a bit of an inheritance.
Scott Trench: I am kind of excited to see what they do with those two rental properties that they originally owned, because, like you and I said, we think that money would be deployed… I just want to call out that what’s so fun about finance in general is you take this portfolio and what they did before the inheritance, and you give them an A+, right, across a lot of these decisions. House hack, rental property that they added value in — they took a $145,000 property and made it into a $289,000 value property. Her primary, they added value to. They’ve invested according to a very defensible order of operations. They’ve got a very clean, clear picture, top 1% net worth. I mean, it’s A+. And then yet there’s so much more that they can do to get their philosophy to be completely coherent, to make a grounded set of written decisions from — from a discussion standpoint. I think it’s really hard in personal finance, and this is what elite looks like relative to their age. I think it’s fantastic. I think they’re doing a great job, and I think there’s just ever more to think about.
Mindy Jensen: I agree, Scott. I think the goal-setting template would go really far for helping them decide truly what they want, and you can find that at biggerpocketsmoney.com/goals.
Scott Trench: We’re trying to make these resources available to help with these frameworks, right? Like the goal-setting template does not give you any answers — it just helps you set what you want on paper, which then helps derive a lot of these, right? Because half the questions in personal finance are “what should I do with my money?” Well, what do you want with your life? Right? If you want this with your life, then you’re going to do this with your money. And if you want that with your life, you’re going to do that with your money. And it really changes the entire cascade downstream, as you saw today, right? If we want maximum wealth in 10 years, maybe we buy a bunch of levered rental properties. We probably reposition the portfolio and lever it up to the point where we’re about break-even, and drive those returns with a lot of value-add. If we want a stable, easy decade raising our kids with less terminal wealth, we do something different. And that’s what makes this so hard and so fun.
Mindy Jensen: It can be really hard to figure out exactly what it is you want. And filling out the goal-setting worksheet doesn’t mean that that’s what you’re stuck with forever. You can tweak it every single year. I liked what Katie said about changing and revisiting every year to make sure that they’re still going in the direction that they want to be going in. Scott, you have been quite busy on the BiggerPockets Money website creating all of these resources, so thank you so much for sharing all of this with our audience. I keep getting so many emails from people — oh, this was so great, this helped me really, really focus what I wanted. There’s a lot in there.
Scott Trench: These are all open source, so you can check them, read them, provide feedback. I’m going fast, so there’s going to be the occasional spreadsheet error or data source that needs to be fine-tuned. Email me at scott@biggerpocketsmoney.com if you find any of those. I’m constantly shipping iterations to these, but hopefully they’re useful in helping make directional understandings about how to frame big choices in life, and kind of get a great rough draft ready to go for your finances. I think that’s the ambition, right? How do we help produce the best rough drafts on the internet for these things? And the fine-tuning definitely belongs with the professional and the line-by-line specific work.
Mindy Jensen: But you can take all of these resources that we have on our website and take them to your professional. That just gives them a better understanding of you as well. You’ve done all the work ahead of time.
Scott Trench: Yeah, the personal financial statement is meant to be printed, right? You can see your assets, net worth, your income and expenses, your rental schedule, your debt schedule, alternative assets, pensions — those kinds of things. It’s meant to be like that so we can do a better Finance Friday, for example. Hopefully that translates to many applications for what you’d be working with with other folks. And then all of it is also designed to be uploaded to AI, which I think belongs in the conversation. It’s not the only part of the conversation, but I absolutely believe that AI belongs in the conversation for many folks who are comfortable with that, in beating up assumptions and all that kind of thing. So you can download it, fill it up, and then use that as a way to ground a discussion, project, or incognito, depending on your preference, chat with AI.
Mindy Jensen: And Scott, we’re having a sale on these items right now. They’re free, just like before, and in the future they will always be free.
Scott Trench: So go check it out. BiggerPocketsMoney.com/resources is the hub for all that. And yeah, give me any feedback, especially from folks who are particularly nerdy and tax savvy. If you find stuff you can debate, or that needs to be reframed, or outright errors, which have been found occasionally in these, please email me at scott@biggerpocketsmoney.com.
Mindy Jensen: And while you’re at biggerpocketsmoney.com, sign up for our newsletter. I send that out every Wednesday, and we talk about some pretty interesting things in the newsletter and on our blog. All right, that’s enough of that, Scott — we should get out of here.
Scott Trench: Let’s do it.
Mindy Jensen: That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench, I am Mindy Jensen, saying gotta go, dodo.
