Afford Anything - Ask Paula: Is the bank trying to scam my parents…?

Episode Date: August 17, 2022

#397: Nic’s parents are forced to confront earlier than anticipated retirement…and they aren’t financially prepared. Now, a bank is offering to buy a part of their mortgage or a part of their house. Is this a scam?! Jon from Colorado is curious about after tax contributions to a Roth 401k, and would like us to talk about why we wouldn’t recommend it. Anna is househacking, and she locked down an awesome interest rate. But, she’s still carrying PMI and is wondering if there’s a way to remove the PMI without refinancing. Courtney from Denver is a real estate investor who wants to invest in new locations, and wants tips on building out her network. Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode. Enjoy! P.S. Got a question? Leave it here. For more information, visit the show notes at https://affordanything.com/episode397 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention, any limited resource that you need to manage. Saying yes to something implicitly carries trade-offs, and that opens up two questions. First, what's most important to you?

And second, how do you make decisions accordingly? Wise decisions. Answering those two questions is harder than it may appear. It's a lifetime practice, That's what this podcast is here to explore and facilitate. My name's Paula Pan. I'm the host of the Afford Anything podcast. Every other episode, we answer questions that come from you, the community.

And my buddy, esteemed former financial planner, Joe Sal C-high. Yes. Meaning steamed, meeting full of hot air. Nice. Is that what it means? That's the new Paula Pan Dictionary. Yes, exactly. Yes, thank you.

I will try not to be full of hot air today. I'm sure you won't be. But yes, you are a former financial planner. So you've got some street cred. We've got some hot air. Is that you're going to say? I got some hot. No, no. You've got some real street cred. That air is hot. It is hot. I got a hot take. It's going to be good. We got some good questions today. Fantastic questions. Nick is wondering if the bank is trying to scam his parents. That's a fascinating question that we are going to tackle first. And the answer is, duh, of course. Oh, Nick, don't listen to him. At least, uh, not yet.

It's a bank, Nick. Oh, Joe, Joe. All right, send your hate mail to Joe at stacking benjamins.com. John, John from Colorado is curious about after-tax contributions to a Roth 401K. Anna is house hacking and she's locked down an awesome interest rate, but she's still carrying PMI and she's wondering if she can remove that. PMI without refinancing. And Courtney from Denver is a real estate investor who wants to invest in new locations and wants tips on building out her network. We're going to tackle these four questions today, starting with Nick. Hi, Paula. I'm sending this message on behalf of my parents. At the

end of this year, my dad has to retire, and he was not planning to do so. So he's not financially prepared to do that. So this has put him and my mom in an interesting position. And here are how their finances work right now. They have a house that's worth about $2.5 to $3 million, but they owe a million on it. They also owe the IRS about $300,000 in back taxes and about $50,000 in credit card debt. Their savings and retirement accounts are only worth about $50,000. They don't have a big stock portfolio or anything else like that. Recently, they were approached by a bank that offered to buy part of their mortgage or part of the house. They offered them up to 20% of the mortgage. And my parents are intrigued by this because they think

it could buy them a little bit more time in the house to figure out a retirement plan. So my questions are twofold. One, is this partial mortgage thing legitimate or is it predatory? I'm very skeptical of something like this. And I worry that the fine print could bite them in the butt later and maybe they'd lose the house. And the second would be, even if they could go through with that, what should they do after that? It seems like the best course of action, in my opinion, is to just sell the house, downsize, and then put the funds from the house in a smart conservative investment and live somewhere that's a lot cheaper. But I think they need this advice to come from an expert instead of from their son. Thank you so much. Nick, you're

looking for an expert, but you got us instead. Sorry, Nick. But Joe, given that you are an actual expert, Oh, hey. Do you want to tackle the first of the two questions? I certainly want to speak to Nick's second question, but would you like to tackle the first one about partial mortgages broadly? Yeah, this is something that has increased. This type of banking has increased with the advent of a lot of these fintech companies. Lots of these fintech companies will work with you where they purchase a portion of your house today. they will tell you the methodology by which they're going to value the house today.

That's going to be really important to make sure that you get a fair value for whatever portion you are selling it to them. They give you then cash today, like your parents were told, in exchange for a percentage of that house. The cool thing is, and once again, you're going to have to read the contract because you really have to know what you're getting involved in. In most cases that I've seen, you're not forced to sell at any particular time. whatever time you were going to sell, you will then get your portion of the house, the proceeds, whatever the up is. There are a lot of fintech companies out there, Paula, that are jumping on, and not just fintech companies that are jumping on the real estate bandwagon. And they know something, which is historically people that live in a house as their primary residence take care of that

house a lot. And so if you own at least a piece of the house, you are statistically more likely to take care of it, to do upkeep. Therefore, it gives the company freedom from some of the worry about what's going to happen with regard to upside potential or, frankly, you know, downside potential. Is the person going to neglect the property? Less of a chance of that. So you have to read the contract, number one. You have to make sure that you get a fair price for it.

But this is not a scam. This is not a scam. This is certainly innovative and new, but as long as your parents are getting a fair value for the portion of the property that they're giving up, they also are very comfortable with the fact that they're going to give up a portion of the upside on the real estate from then on in exchange for cash that they need today. I frankly like this better, Paula, than what people have done in the past, a strategy that's been riddled with people that scam money. is the reverse mortgage industry. I was wondering if you were going to talk about reverse mortgages. Yeah, and there are some companies that do reverse mortgages and are very, very on the up and up, but because they're so hard to understand, reverse mortgages are very hard to understand.

And because of that, there are a lot of ways for companies to take advantage of people and because of that they do. This is straight up. When do I have to sell? Is there a time I have to sell? How do I know what amount of money I'm going to get? How are you going to value my property? Are there any things I have to do in terms of maintenance and upkeep with regard to this contract? Am I allowed to refinance the house at a later point with my portion of the equity?

Like what stipulations are there on things that I can and cannot do? Once you're clear about those things, then I think it's pretty straightforward. Here's the cool thing about this. My experience in this emerging industry, Paula, is that these companies know it's emerging. They know a lot of people don't understand it. And so their websites are full of information about how it works. And I would spend a lot of time not just on the website, but talking to people before I obviously made that move. Now, Nick, there is a distinction between the question, is this a scam versus is this a good idea?

It's probably not a scam, but that doesn't necessarily mean that it is the course of action. that your parents might want to take. A couple of things strike me, and of course I don't know the full story or the full details around why your dad needs to retire, but it struck me that you mentioned that he was not planning to retire, which leads me to believe that his company, his specific company, is requiring him to retire. And that indicates to me that given that he wasn't planning to retire, which implies that he still has both the health, the physical health, and the will.

willingness to work full-time. If his company is forcing him to retire, it sounds to me like he might just need a couple of months to get a different job. You know, we've got a labor shortage. Jobs are, in most industries, are fairly ample. Your parents, and again, I don't know the details of this forced retirement, but your parents might be able to continue bringing in the income that they need in order to pay off their credit card debt, pay off their credit card debt, pay off their IRS debt and boost the value of their savings and retirement accounts. If that's the case, then this bank offer might not be necessary. On the other hand, let's just assume, hypothetically, that for whatever reason,

your dad must retire at the end of this year and cannot work again. He can produce no additional full-time income. If that is the case, for whatever reason, then I agree with you the course of action that I favor is what you suggested, sell the house, downsize, put the funds into a smart conservative investment, live somewhere that's cheaper. That will provide some degree of income that can buffet their retirement accounts. But even in that case, they would still have to figure out how to get the additional income to, to pay off the $350,000 worth of debt that they have. So I think either way, if possible, to any degree, your parents will still need to produce some form of income,

even if it's freelancing or consulting in their industry. I don't see how the cessation of income producing work could be viable in a situation with this much debt and this little retirement savings. The thing that really worries me, Paula, in this whole thing is that IRS debt, because unless they've negotiated some sort of a settlement with the IRS,

that's a super high interest rate that they're paying. And so if I can, at the very least, where I don't think at all, often I don't think about consolidating debt, let's just remove it. But in this case, at the very least, I think about getting that debt at a lower interest rate.

They do decide to stay in the house and they're able to open a home equity line of credit to move, that IRS debt into the house, I would do that in a heartbeat. I don't want to owe the IRS money. Now, they might have gotten some sort of a settlement that I don't know about again. But if it's just I owe the IRS a bunch of money, the penalties and interest on that debt is devastating for a reason. The IRS does not want you to owe the money. They want you to find another way out of that. But that said, when you talked about the house, that comes, Paula, with a lot of other benefits.

I mean, not only is the house itself less expensive, but the utility bill is going to be over a smaller footprint. So the utility bill goes down. All the upkeep costs go down. The furnishing costs go down. Every single thing affiliated with that house goes down. So it's not this little thing, just the house. It is everything associated with your house and your lifestyle becomes a lot less expensive. that can help them on a month-to-month basis, not just on the immediate basis of needing to downsize from this larger property.

Nick, I hope that helps give you and your parents some guidance. It sounds like Joe and I both favor the option of your parents selling the house, downsizing, paying off their debt, putting the rest of the money into investment accounts in order to build their retirement portfolio. and ideally finding some way of producing income. Again, I don't know the details of why your dad has to retire, but I'm hoping that that requirement is company-specific and not global, which is another way of saying I'm hoping that your dad has the opportunity to work either full-time for a different company or as a consultant, as a freelancer, I hope that he has the opportunity to continue to bring in income

because once this debt is paid off, the big focus that they're going to need to have is to boost the value of their retirement accounts. You mentioned earlier my financial planning practice back in the day, and the strategy that was most often overlooked pull up by people was the income side of the equation. Right. And studies show that, and this is not for Nick. clearly his father's going to be leaving this job. But if you're listening to this,

study shows your boss wants to give you a raise, but you haven't asked. There are also multiple, multiple ways to make money now working on the internet, working online, working all over the place. I mean, side hustle nation is a real thing now. And there's so many opportunities out there to make money. And that side of the equation is often overlooked

because people are so focused on shrinking. they need to shrink the budget. While shrinking the budget is great and having great budget controls is fantastic, but building the income side of the equation, I think we need to shine a closer flashlight at. Absolutely. So thank you, Nick, for asking that question. We'll come back to this episode in just a minute.

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Hustle. That's your commercial payments, a fifth, third better. Our next question comes from Anna. Hi, Paula. This is Anna. I bought a house back in November 2020 with an interest rate of 2.375, which is pretty great. I do have PMI on the house, and I have $13,000 left until I hit that 20% mark and that PMI falls off. Now, with the housing market booming and prices being high, my house has gone up about 30,000. And people have talked. I was trying to read and research online and listen to podcasts about refinancing or using that extra equity and being able to get that PMI off. I was hoping you could clarify that for me. Of course, refinancing and everything I wouldn't want to do because I do have such a great interest rate, but I'd love any advice you can give.

Thanks. Anna, thank you for your question. And congratulations on buying that home in November 2020 and on the equity gains that you've made. So I have good news for you. You can eliminate PMI without having to refinance the loan. The way it works is, first of all, many loans have what's called a seasoning requirement, which is a minimum amount of time that you are required to hold PMI on that loan. oftentimes, and of course, check the wording of your loan because every loan is different, but

oftentimes it's common for that seasoning to be for two years. So you mentioned that you bought this home in November 2020. The good news is that your seasoning requirement might run until November of 2022, which is coming up. Once you hit that seasoning requirement, once that era, that window is done, then you can ask for cancellation. In most cases, you will not need to refinance in order to drop the PMI. You can simply make a PMI cancellation request, make sure that you're current on your mortgage payments, which it sounds like you are, meet any other lender requirements. So, for example, you can't have any other, like a second home loan on that home. You'll probably have to get a home appraisal, but you're not going to have to have to refrable.

finance, so you get to keep that interest rate in most cases. This is why Anna is so brilliant. Listening to afford anything is because she just saved a lot of people, a lot of money, because they think that they have to refinance Paula. And I will also tell you that I got caught in this trap because in my first mortgage, I did not know as a condition of getting rid of my PMI, I would have to refinance the loan. And if you know anything about amortization tables, that's a way of a bank. socking it to you.

Just totally socking to it and drove me crazy. So I very specifically asked the question on another property that I bought later on where I was going to have PMI for just a short period. And I really didn't want to have to refinance. I asked the question. And it was exactly, as you just discussed, it was super easy to do. I had to pay the appraisal fee. And that was it.

Once I paid the appraisal fee, which at that time I think was $300. but it's been a while. So your fee may vary. But I had to pay this fee and it was gone. It just poof was gone. There's something else here, Paula, another side note that I'd like to add, which is when you do a home closing, any type of a closing on a mortgage or just closing documents, so often the closing people will just bring them to the table that day.

you want to always request the closing documents the day before. Because if you've never been to a closing, what happens is they have tabs on this monster stack of documents of paper. And the closing expert, the person who's walking you through this, takes 12 pages of writing and condenses it to three sentences or four sentences. Here, Paula, basically what you're doing is you're showing that da-da-da-da-da. Sign here.

sign here, sign here, sign here. And if you don't request all that stuff the day before, you're asked to sign a bunch of documents that you have not had any time to look at or ask questions of. I've done that with every house I purchased and I still, on that first one in the mortgage paperwork, still missed that I was going to have to refinance. And I've gotten pushback from people before going, why do you need them the day before? I don't think they're going to be ready. Well, if they're not ready, then I don't want to close that day because I need them 24 hours before. Like don't, don't pressure me. I, every house I purchased, I feel like now I, and this is about to be a rant, people. Ooh, rant, rant, rant, rant, rant, rant. Here's, here's what happens

every time, Paula. Yeah. I go to apply for my loan and I tell my lender, I go, hey, I know you're going to need a bunch of stuff from me. So give me that list right now because I don't want the panic call that goes like this. Hey, we've got four hours till closing. And if you don't bring XYZ and whatever in the next four hours, you can't close tomorrow, right? This freak out call that makes it my fault. Every single house I bought, it's my fault.

And I'm the one who's going to pay if I don't, if I don't do that. Drives me nuts. So I've said on every house I bought since the first one. I'm like, hey, I know how this works. And also during my time as a financial planner, I saw this with clients as well, that this happened all the time. Here's what I want you to do. I want you to give me this list of documents you need.

In every single case, still this house that I live in right now, in every single case, Paula, they've always gone, no, you're good. We're fine. I got all of it until four hours before when I get the same, this last house, I got the same phone call. It's like this industry never evolves. They don't, they don't, they know ahead of time all the things they need. why we don't have some sort of a process to get this stuff when it's not in a panic mode. And then again, my lender, who is a very nice person, totally goes, no, nope, this whole thing is going to go south.

If you don't. And you know what? Then I got to drop everything. I've got other stuff I'm doing. And I get this call that, nope, you got to drop it. So then I have to call whoever I'm supposed to be meeting with that day, cancel everything. So I can do my mortgage person's lending. because they didn't do their homework ahead of time.

If you're in the mortgage industry, clean that crap up, please. Clean it up. But Joe, what would you do? I mean, so there are plenty of professions where you can't just cancel meetings because the nature of your profession is that you are a school teacher or a surgeon, right? You can't cancel fourth grade class that day. You can't cancel somebody's surgery. So what do they do?

Right, exactly. Yeah. If you made that call to me and I don't. didn't have the flexible career that I have. I don't know what I do. I'm like, well, I guess I'm screwed. I guess I don't get to buy the house. I mean, and I never thought about pushing back on them. But my house before this, my house in Detroit was wild. I called my bank every day, Paula. I called them every day. And my banker said, why are you worried about me, Joe? We are all set. Everybody's ready. Okay, great, because my seller is ready. I'm ready to move in. The

realtors are ready, the clothes are, everybody's ready. So I just want to make sure that you're ready because in my history with mortgage companies, you have been ready. He's like, hey, we are the least thing you have to worry about. And then a day before I get a call from Hal, my mortgage guy, who said, Joe, we got to push it back a day because we're not ready. And I said, trying to be as sarcastic as possible, Paula, because I am that petty. I said, really, you have to Push it back today. After I've called you the last five days in a row and you assured me that everything was going great.

Oh. You know, sometimes I think that part of the reason that mom and pop investors can make good money in real estate is because it requires so much diligence and patience and follow through to tolerate the industry. When I began investing in real estate, I remember my best friend. said something that really shook my confidence. She said at the time, she said, you know, there are all of these real estate agents and contractors. If they can't be successful real estate investors, what makes you think that you can? And that really shook my confidence. It almost

knocked me out of the game. What I've learned since, and I learned this in part, I went through the training and got a real estate agent license in the state of Georgia. And so I learned what's involved in that training, you know, what agents are actually trained on and what they're not trained on. And spoiler alert, they're not trained on how to be good investors. They're trained on how to be agents. They're extremely separate skill sets. But what I have learned since is that the differentiator that can make somebody a successful real estate investor largely comes down to the willingness to do it, the willingness and the want to do it. The years that I have been excited, about real estate are the years that I have made my most profitable moves. And the years that

I'm just not that into it are the years when everything kind of sucks. The way my portfolio performs is largely a reflection of me. And Joe, I think the story you told about having the fortitude, having the diligence to call your banker every day to be like, yo, we good, we good, we good, we good, And we're not. That is a perfect example of, like, you being into it and you having the patience to deal with the realities of the landscape. I don't know if it was patience. It's actually my impatience with the day before hurry up, which I can't stand. I do not like the four hours before hurry up, the call from my banker that I can't believe you don't have all this stuff.

Yeah, really? You want me to get the last three years tax documents to get. in the next four hours when I have meetings. I keep those right here in my back pocket and I, in fact, have a printer in my shoe. And I can just turn them into a paper airplane and send them over to your office. It just... You know we can digitize files now. Well, yeah, but...

But I like the paper airplane strategy. But sending it securely, of course, paper airplane, not very secure either. But yeah, how about if I take my last three years of tax or... and send those via email to admin at your bank.com. Not feeling great about that either. Yeah. I do know there are some banks working out that. There are some mortgage companies, and I won't name names, but I do know some mortgage

companies where I've heard people on the inside talking about they've worked through these pain points. And consequently, Paula, and this is neat for entrepreneurs, they charge a little more. So if I told you the names of these mortgage companies, which I won't, you will go, oh, they're not the cheapest. No, they're not, but you don't have the painful process. So there are a few companies, but that's like any business, right? If you can pick the lock on people's pain points and you can solve the pain point, you can charge a premium and people will do it. Frankly, I would pay a little more at this point. I'm never moving again. And I'm definitely not,

because I've said before, I love real estate. I love real estate investing. I think it's a great way for a lot of people to make money. It's not for me. So I'm not going that route again. But if I were, I would pay a little more and use this company so I don't get that call. I'm so curious as to what this company is. I'll tell you off air. Yes. Oh, all right. Yes, because the only company here on the Afford Anything podcast, we get free advertising to is Spindrift.

That is it. I'm sure there are going to be people listening who want to know. So I'm going to make this a little juicier. Joe is going to tell me off air. And then I'm going to post it on Instagram. Are you going to? Is that okay, Joe? Yeah, it's okay with me.

Okay, cool. All right. Well, hopefully this motivates some more people to follow me on Insta at Paula P-A-U-L-A-P-A-N-T. Oh, look at you. Right? Look at that. Look at that. Oh, by the way, by the way, I must say this.

I have had at least a dozen fake spam imitation profiles on Instagram. So there are a bunch of fake me's. In fact, if you look at my Instagram profile, I've pinned to the very top of the profile, a screenshot of, if you run a search for Paula Pant, three Paula Pant accounts pop up. I've pinned a screenshot of that. And so this happens constantly. We report it to Instagram.

They take down the spam profile. One comes down. Two more pop up. It's like playing whackamol. It's been going on. It started in October of 2021. It's been going on since then. Anyway, point is, if you do follow me on Insta, please, please, please.

make sure that it's me and not some spammer, not some like fake imitation duplicate account. And also, if you get a DM from someone who is claiming that they are me, they are most likely not me. I will never initiate a DM. I will not ever, ever, ever, DM first. Like, I will never initiate a DM. I'll reply, but I will never initiate. And I'm never going to DM you to ask how your investing is going or how your crypto is going or to try to sell you anything. No, no, no, no, no. So please, that's my. See, look at this. I cannot even ask people to, like, follow me on Insta without having to, how long has this disclaimer run? Like, half the length of the show now? So frustrating. I would post more on Insta except, like, why do I, why would I put all of this effort into it when I just have to couch every please follow me thing with like 12 hours of disclaimer? My, the fake account for stacking Benjamins. Yeah? That was DMing people.

Yeah? I started harassing him. You've only had one? I've had only one. Wow. And I harassed them and I harassed them and I harassed them and I harassed them. And I finally, after about eight days of me just continuing to be annoying, I got a message back from them. Shut the fuck up.

Really? And then two days later, they went away. Wow. They closed the account because I was so annoying. Wow. I am good. I am good. So that's what you have to do, Paula.

Just waste a ton of time heckling your scammer. That is an awesome story. All right. On that note, we're going to take a break for a word from our sponsors. When we come back, we've got two more questions. John wants to know about the distinction between after-tax contributions to a 401k versus a Roth 401k. We're going to talk about that next. And then we're going to answer a question from Courtney, who wants to know how to develop relationships with investors in cities that are thousands of miles away.

Both of those questions are coming up next. Stay tuned. Our next question comes from John. Hey, Paul and Joe. This is John from Colorado. I was wondering if you could clarify an answer you recently gave on a previous episode regarding after-tax contributions to a 401K. You both felt that this was complicated and didn't recommend it. Could you spend a little time discussing the differences between a Roth 401k and an after-tax contribution to a 401k? I think it'd be helpful.

Thanks for all you guys do. John, to summarize the differences, a Roth 401k is sexy and an after-tax contribution to a 401k is not. Roth 401Ks are freaking awesome. I love them. So prior to when Afford Anything had employees, back when Afford Anything was only a one-employee organization, that one employee being me, Back in those days, I had an individual 401K, also known as a solo 401K, and my employee contribution to that 401K was a Roth contribution. And with a Roth contribution, it's analogous to a Roth IRA, I am paying taxes on that

money in the year in which I make the contribution. so I'm contributing after-tax income in the year of contribution, but all of the money inside of that Roth 401k portion of that account grows tax-exempt forever. So all of the gains, all of the dividends, everything grows tax-exempt. And that's flipping awesome. So if you have the opportunity to contribute to a Roth 401K, then I'm jealous of you because I remember those days. Those were the good old days.

And Roth contributions are just, am I a nerd for saying the Roth is my favorite form of retirement account? I have a favorite form of retirement account and it's Roth. This is what Paula talks about on Friday night at the bar. You know my favorite? So what is your favorite retirement account? Because mine is a Roth. Do you have a favorite?

It's my standard pickup line. I wonder why it's not working. It depends on the crowd, right? I think if you're at the economy conference, that's a great one. I'm doing the catch-up rule because I'm over 50. Oh, hey. Fantastic. Oh, boy.

Yes. But not very sexy, Paula, speaking of pickup lines, is I use an after-tax 401K. And there's some very good reasons for that, and it has to do with... That's a deal breaker. Yes, it is. F-TX 401K. I'm out. By the end of the year, you want to move all that money over to a Roth conversion. That is the goal there. So if you are putting money in after tax, the only reason you're doing

that is to get it into a Roth conversion type account. So if you can't do a Roth conversion, do not do an after tax IRA. And the reason is, is that where a Roth IRA, money and a Roth 401k, money goes in and it's taxed. When you pull money out, it's tax-free. After-tax is exactly the same going in, except when you pull it out. It's not tax-free, Paula. Now the interest, the gains, everything on top of your principle is taxable. Here is the kicker.

When you leave that company, when you move your money, when you're trying to take it out, companies don't do a great job of keeping track of that. And if you roll everything into an IRA, which lots of people do when they leave a company, now you have some money that's pre-tax, some money that's Roth, and some money that's after-tax and taxable. The problem occurs when you leave the company, when you leave and you decide to move this money that has a taxable portion of it, nobody keeps track of that, which is frustrating. When I say nobody, 99% of companies don't.

And when a company does keep track of it, Paula, and you roll it over to a different company, the new company doesn't keep track of it. And by the way, generally speaking, too, people will often accidentally commingle these assets with assets that are fully either pre-tax tax deferred, where it's all going to get tax, meaning you have this threat that some of the money, your principal that you've already paid tax on, you're going to pay tax on that money again. And the penalties for getting this stuff wrong are onerous.

The bookkeeping is onerous. How do you determine when you roll over $100,000 and $36,472. And $56,000 is after tax contributions that are printed. that should not be taxed again when you pull it out, how do you keep track of the gains on that money and separate those from the gains on the rest of your money? You can see what a nightmare it is. And after tax 401K, if you're not going to move it to the Roth, is just a huge accounting nightmare and I would avoid it at all cost. And I've never, I've never had anybody tell me a great reason why you should do the after-tax IRA and not do the Roth conversion because I don't think

there is one. The Roth is easily better or pre-tax is better. So do one of those two and just stay away from the accounting nightmare that's the after-tax 401K. And the after-tax 401K, once again, not a nightmare now where it's sitting where it is. It's when you move the money the first time. It is a disaster from that on out. Joe, I think that perhaps what is sparking John's question and what I can understand would be not intuitively obvious to most people is that conceptually the tax treatment of money feels the same. When you put money into a Roth account, like a Roth IRA or a solo Roth 401K, you're making after-tax contributions. So the intuitive feeling is, well, wait a minute, why would one form of aftertax contribution be good and the other form be bad? And largely the answer is administrative.

It is. And another answer is that many times when people make an after tax contribution, they could have made a pre-tax contribution with that same amount of money. And so you're doing something that's going to give you no tax benefit. today and a marginal tax benefit tomorrow versus the Roth versus just doing the pre-tax and getting the huge tax benefit today or doing the Roth, which is a huge tax benefit later. It's this ugly middle ground with this administrative frosting later that doesn't taste very good. A frosting that doesn't taste very good. Joe, you might need a different analogy. I can't think of a single frosting I've ever tasted that has not been delicious.

Anything with coconut is horrible and disgusting. Wow. Hot take. Hot take. We started this episode saying that you were going to be full of hot air and give some hot takes. And now we've heard Joe throw down the gauntlet. Mortgage rant going after scammers on Instagram and now coconut in the crosshairs. Ooh.

Heard it here first. Somebody called TMZ. To be honest, I am not a big coconut fan either. Well, that's why we're friends. Because if you were, we couldn't be friends. Wow. You have very strange friendship criteria, Joe. Our final question comes from Courtney.

Hi, Paula. This is Courtney from Denver. My husband and I currently have two local rental properties, and we're looking to start investing elsewhere. So I have loved your and Sunny's episodes on Invest Anywhere. In one of those episodes, you guys mentioned that developing relationships with other investors in the cities that you're considering investing in has been really key for you. I was just wondering specifically how you went about to start developing those relationships,

meeting up with people in person, other investors in person when you're in town, etc. That will be super helpful for me as I start to look into other cities. Thanks so much for all you do. Courtney, thank you so much for asking that question. Congratulations on your two local rental properties. I am thrilled to hear that you're loving the Invest Anywhere episodes with me and Sunny. Now, to your question, how do you develop relationships with other investors in cities that are far away? There are several ways that I like to do this.

One, I will first ask myself, what are the digital space? in which those investors are hanging out. For example, if you're thinking of investing in Columbus, Ohio, what are the digital spaces where Columbus, Ohio investors hang out? A few of the answers include Facebook groups, Reddit forums or subreddits, RIA's Real Estate Investor Association. If you Google that term plus the name of the city, so Columbus RIA, they most likely will have a website that,

points to their own forums. You could also Google the name of the city and then the letters R-E-N-C, that stands for Real Estate Networking Club. And then you'll find the Real Estate Networking Club that's specific to that particular location. You'll find their website and that will point you to the forums that they use. You can also look for in-person meetups and events that are happening in that location, even though you can't be there in person, go to meetup.com or go to Houston, R-E-N-C.com, or name-of-city, R-E-N-C.com. You know, go to the pages of the R-E-N-C or the R-E-I-A groups that are having in-person meetups, contact the meetup organizer and say, hey, do you all have a WhatsApp thread that I could join? Or do you all,

ever do Zoom meetups? Or is there an email list? Like, as old-fashioned as it sounds, I'm actually a member, I'm still a member of a Yahoo group. Like, those still exist. There's a local real estate group that sends these, like, Yahoo group emails to one another. So those are all ways that you can locate large networking groups. In addition to that, it's also highly effective. arguably in some cases even more effective to reach out to a bunch of specific individuals. So if you, for example, look at the people who are attending an RENC meetup or an REIA meetup, or look at the people who are the specific individual members of a given Facebook group, or who are discussing investing in that city or state on Reddit.

If you look at the people who are participating, you now have a roster of 10, 15, 20, 25, or more specific individuals that you can reach out to. DM them or message each one of them individually and say, hey, I'm a real estate investor. I'm based in such and such location. I'm interested in investing in your city. I was wondering if you might have 15 minutes to FaceTime with me. And if you send out 20 of those invitations, there might be two or three people who say yes. But those two or three people can then recommend that you talk to other people. You can do the same thing on Instagram.

Look for people on Instagram who are posting about investing in the city or state that you're interested in. Find it through hashtags. Hashtag indie investor, I-N-D-U-I investor, right? Hashtag indie real estate. Search the hashtags. Find the people who are posting. about investing in that location, and then DM them and again say, hey, can we FaceTime? Can we have a phone call? And when you come to that call, come prepared, don't ask basic questions. Rule number one is

never ask somebody a question that you could Google the answer for. Come to that meeting, having already learn everything that you could possibly learn through Google searches, and therefore, you're armed with very specific follow-up questions. Hey, you know what? I've been reading online about X neighborhood and Y neighborhood. I'm getting a very mixed and conflicting picture of X neighborhood and of Y neighborhood. I was wondering, what are your thoughts about the distinction between these two neighborhoods, X versus Y? That's the type of thing that you can't Google. That's the type of thing that indicates that you've done your homework in advance. You're not going to waste their time. You know what you're talking about. You value their opinion. People are generally

happy to help people who have already done their homework. But people typically do not want to waste their valuable time on those who are asking like a glorified, let me Google that for you. So come to those meetings with a list of questions. And at the end of the each one ask, hey, who else should I be talking to? Are there any property managers that you really like who you think I should talk to? Are there any contractors that you recommend? And can I get their numbers? Each person that you interact with is a key that opens the door to other relationships, new relationships. And oftentimes, at least anecdotally, what I have found is that my deepest relationships usually come after one or two degrees of introduction. So if I cold introduce

myself to somebody, we might have some initial communication, but we may or may not hit it off and become besties, but oftentimes that person will introduce me to one or two or three others. and the people that I meet through people, oftentimes, at least anecdotally, for me, end up becoming closer, more trusted allies, valuable confidants, people who can really help. The other thing that I would say is make sure that you're also bringing something to the table. Like cookies? Yeah. No, seriously, if you like cookies, I mean, which is another way of saying, if and when you eventually travel to that city, buy you. them dinner.

Or, I mean, if you really want to level up, if somebody's super helpful, send them something through the mail or something like that. Send them a Starbucks E gift card for 10 bucks with a little thank you note. Those types of things are so easy to do and yet so rare that they're often remembered. My son Paula as a case. Your son Paula? Yeah, not my son Paul. It's my son, comma, Paula.

his name is Nick. He owns rental properties in Detroit and lives in Seattle. And when he was beginning his real estate journey in Detroit, he found out very quickly about builders associations, people in the construction industry, about realtor meetings, people that are investors in real estate getting together. And he found that going to those meetings themselves, the meeting itself was largely a waste of time was a was a huge waste of time but what was valuable was you could tell fairly quickly in the room by networking getting to know some of the people in the room and shaking hands and just discussing

what you were up to who was going to be valuable to you later and who was not so he was able to build his own network by going to these meetings even though you know the featured speaker that they had often was not somebody that could help him or he was interested in yeah that was my experience with the RIA meetings as well. The actual speakers was just basically a sales pitch. Yeah. Complete garbage. Yeah. But meeting people was very valuable. And so the digital version of that, you know, the pandemic made our society as a whole much more comfortable with virtual meetings.

So even if you can't physically be in the room, find out who's going to those investor networking meetings and meet with them virtually on Zoom, on Skype, on FaceTime on the phone. By doing that consistently, you'll start to build a network in a place you've never even set foot in. So thank you, Courtney, for asking that question. Joe, we did it again. We did it. And I apologize to everyone who doesn't like rant about coconut. You didn't rant about coconut. You ranted about mortgage lenders. That was fair. I think that was fair. And I still haven't told you who it was. Oh, you haven't. And I need to post that to Instagram. That's right. Yes. All right.

Well, that's going to come up after when we're not on a hot mic. So, Joe, where can people find you if they want to hear more of your rants? Yes, absolutely. If you want me, I've been doing, I've been doing talks at companies at school. You gave a talk at Harvard. I did on podcasting, yes. But I've been talking about stacked, the topic of better money management. So if you are looking for a speaker for your event, go to josalcihi.com, which I'm sure,

Paula, you'll have in the show notes. Really? Seriously? Yes. Hold on. I'm going there right now. Joe. What are you talking about? You've never been to my website?

No. You've never once been to my website? I have never. Joe Salcyhigh.com. That's a thing. Look, it's a thing. Wow. Wow.

Wow. That's you. And you're on there, too. Hey. Scroll down. There's me. Yes. Oh, Joe is a former financial advisor and represented American Express and AmeriPrize in the media.

He was the money man at Detroit Television, WXYZ TV, twice weekly. Oh, he's appeared in Bride Magazine. Wow. I have, yes. Joe, how is your dress? Did you say yes to the dress? So what's funny is that I've also appeared in Child magazine talking about teaching your kids about money, but for a short while, I accidentally had those, is he's appeared in child,

bride. Oh, you forgot the comma. I have, I have never appeared in child bride magazine. Oh, wow. I do not want to be associated with that magazine. No, not me. Anyway, yes, Joe Salccihi.com, you can find me there. Or, of course, at the stacking Benjamin show every Monday, Wednesday, Friday.

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professional advice. All right, there's your disclaimer. Have a great day. And I still haven't told you who it was. Oh, you haven't. And I need to post that to Instagram. That's right. Yes. All right. Well, uh, that's going to come up after when we're not on a hot mic. Who is Mike? Oh.