Afford Anything - Ask Paula: Should I Put My Student Loans in Forbearance? Should I Buy a Vacation Rental? and More

Episode Date: February 3, 2020

#239: Lo is in a good spot with her career, but she’s struggling with a ton of student loan debt, and consequently, credit card debt. What should she do to manage it? Anonymous wants to know how to set up a backdoor Roth IRA. Eric and his wife own a property in Savannah, GA that brings in more money as an Airbnb than a traditional rental. They want to invest in more properties and are wondering if this model is the best path to take. James wants to own a vacation rental in the Vermont mountains that he can use when it’s vacant. What features or qualities would make a profitable vacation rental? What red flags should be on his radar? Ayesha is looking at buying a rental property that has a partial HUD claim on it. What kind of complications should she anticipate? Or should she let this property go completely? Shelbi and her husband own a rental property that they purchased for $178,000 that’s now valued at $300,000. They’re looking at a multitude of options - sell it, move into it, or keep it. What’s best given their FIRE goal? For more information, visit the show notes at https://affordanything.com/239 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything. You just can't afford everything. Every decision in your life carries an opportunity cost, and that doesn't just apply to your money. That applies to any limited resource that you need to manage, including your time, your energy, and your attention. And that leads to two questions. Number one, what matters most to you, and number two, how do you align your day-to-day decision-making to reflect that?

Answering these two questions is a lifetime practice, and that's what this podcast is here to explore. My name is Paula Pant. I'm the host of the Afford Anything podcast, and today I'm answering questions that come from you, the community. Here's what we're going to cover. Lowe is in a great spot with her career, but she's struggling with credit card debt and student loan debt. What should she do to manage this? James wants to own a vacation rental in the Vermont Mountains that he can use when it's vacant. What red flags should be on his radar? Anonymous wants to set up a backdoor Roth IRA.

How? Eric and his wife own a property in Savannah, Georgia that brings in good money as an Airbnb. They're interested in buying more rentals and wondering if this is the best path to take. Shelby and her husband own a rental property that they bought for $178,000, and now it's valued at $300,000. Should they sell it or move into it? Or keep it as a rental. Finally, Aisha is looking at buying a rental property that has a partial HUD claim on it. What kind of complication should she anticipate?

We're going to answer all of these questions right now, starting with Lowe. Hi, Paula. My name is Lowe, and I'm just calling because I am making more than I've ever made and went back to school, got a great job, great career. But with that, tons of student loan debt, comes up to be $760 a month with all the options being used, like refinancing the private loans, and then I have income-based repayment on the federal loans. my issue is that I have less than savings than I had before I went back to school and made all this money.

And I also have more credit card debt than before I went back to school and made all this money. Right now I'm making about 80K a year. And I'm just wondering, should I put my loans on forbearance to help increase my savings? Because I know savings is really important and paid out my credit cards. It's worth noting that my credit card debt came from an injury and not from, you know, frivolous spending. So really all of it was accrued in about a six-month time period. and it's going to take me probably as much time to pay out. I'd love your thoughts.

Thank you so much. Lo, first of all, congratulations. I'm very happy to hear that you're making more money than you've ever made. It sounds as though you're really enjoying your new career. And the debt that you have, the situation that you're in is temporary. You will, for the rest of your working life, have this great career with this great income, and you'll be out of debt soon. You're on a great path.

So congratulations for everything that you've built. Now, you asked about forbearance, and before I answer your specific question, I first want to give a brief background on forbearance for the sake of everybody who's listening, because this is a topic that we've never actually talked about on this podcast before. Forbearance, for people who are wondering what that is, is an option to delay student loan payments in case you're temporarily unable to make your monthly payment. Now, while your student loans are in forbearance, those loans continue to accrue interest, and that interest compounds. It gets added to your balance when your loans switch out of forbearance and back into your payment plan. So the interest that you accrue during the forbearance period will get added back to your balance at the end of that period, which means that when you finish your forbearance period, your new balance will be higher than it was at the time that you started that forbearance period. So that's the big drawback to forbearance.

You start forbearance, you have this reprieve temporarily. but then when you have to start paying your loans again, now your balance is higher and you'll start paying interest on the interest that accrued. And so because of that, forbearance should only be used if you're having a temporary problem and need a very short-term solution. For example, if you have an injury or if somebody in your family has a medical emergency and you need to take an unpaid leave of absence from work for two months or three months, that would be an example of a situation in which forbearance would be a reasonable. reasonable option. Now, federal student loans allow you to use up to 12 months of forbearance at a time

and a total, a lifetime total of three years. Private student loans, on the other hand, each company will have a different policy and different offerings. Some companies might not offer forbearance at all, and other companies will offer short-term windows like three months. With private student loans, since each lender is a private entity, there is no standardization. As to whether or or not it's offered, and if it is what the maximum window is. Lowe, in your case, if you wanted to put your federal student loans and forbearance, you are well within that window because you mentioned that it's going to take you about six months to pay off your credit card debt, and given that you can put your loans into

forbearance for up to 12 months at a time, you're well under that threshold. Now, Lowe, before I talk further about your specific situation, I want to make one other clarifying point, because here's a point that often gets confused. in the world of federal student loans, the concept of deferment is different than the concept of forbearance. Now, Lo, I know that deferment is not an option for you, but I'd like to explain the distinction between the two for the sake of the entire afford anything community that's listening. Because there are other listeners who might want to explore deferment as an option. So the other way to delay federal student loans is through a process that's called deferment. and you can do this with subsidized federal loans or a Perkins loan.

Now, unlike forbearance, if you put your loans in deferment, interest does not accrue during that time. Deferment is a much more attractive option, but again, you can only defer subsidized federal loans or Perkins loans. If you have private student loans and the private student loan company talks about deferment, they're misusing the word. They're really talking about forbearance. There is no deferment in the world of private student loans. Okay, so with all of that background established, Lo, here are my specific thoughts about your situation. Now, first of all, you mentioned that you're an income-based repayment. That's great.

I'm glad that you're set up in that structure. The first step that I'd like you to take is to call your credit card company and ask if they will allow you to lower the interest rate on the balance that you're carrying. When you call them, here's essentially the script that you're going to use, call your credit card company and say, Hi there, may I please be transferred to the customer retention department? And once you're talking to a representative from customer retention, what you want to say is, hi there. As you can see, I've been a card member since such and such year.

I've consistently been making on-time payments. And I was wondering if you could lower the APY on my current balance. I've been looking at offers from other credit cards that would allow me to do a balance transfer and that would offer me a lower API. But before switching to a different provider, I would first like to check with you to see if you might be able to lower the API. So call your credit card company. Say that.

You might get sent up the chain of command a couple of times. But if customer attention has the authority to be able to either lower your APY or provide some other incentive, then they'll let you know what that offer is, and you may be immediately able to lower the interest that you're paying or enjoy some other incentive. Like, for example, the last time that I did this with one of my credit cards, I don't have a balance, but I have credit cards that have annual fees, rewards cards with annual fees. So I make a regular annual routine of calling them up and asking for some type of a waiver of the annual fee or comparable promo. And so sometimes they'll give me a promo in the form of, say, an account credit, like a $50 or $100 credit towards my account every month for the next three months or four months. Oftentimes these companies will have certain promos like that in order to retain their customers.

So call them, see what they can offer you. If they can't offer you anything good, then make a balance transfer to a different card. but only do this if this doesn't become a habit. And, Lo, in your case, because your credit card debt was accrued as a result of medical expenses, I'm confident that it's not going to be a habit for you. But I'm saying this for the sake of everybody else who's listening, you don't want to get into the headspace or the game of just constantly playing the balance transfer game in which you're passing the debt around like a hot potato,

but not actually chipping away at it or making any progress. low, I know that's not going to be an issue for you. That's why I'm confident that you can handle the balance transfer. Now, when you make a balance transfer to a different card, here's what you're going to look for. Number one, you want to look for a card with no annual fee, or if it does have one, you want a card with a reasonable annual fee. Number two, you want a card with no balance transfer fee. Now, a balance transfer fee is what you pay. It's a fee that you pay when you move a balance from one card to another. And these fees are often about 3% to 5%, somewhere in that. that range. But there are cards that waive balance transfer fees, at least for a limited period of

time. So you want a card with no balance transfer fee, ideally either no or a low annual fee, and the longest 0% APR out there. Those are the three qualities that you're looking for. Now, if you go to afford anything.com slash balance transfer, that's where we have a link to a carefully managed list that's updated daily based on new offer, sign-up bonuses, rewards, fee structure changes. This list is managed by our partner card ratings, and they have people on staff who continually update this list. So it's a dynamic list. At the very top of the page, they write the date when the list was last updated. And usually it's that same day. So that's where you'll see the most up-to-date offers, bonuses, promos, rewards, specifically related to

balance transfer cards. So again, that's afford anything.com slash balance transfer. And that is an affiliate link, which means there's no cost to you, but they'll pay us for any signups that we send their way. Now, again, I want to emphasize that Lowe, while I think that you're a good candidate for this, for everybody else who's listening, if you have credit card debt that's accrued as a result of poor spending decisions, I do not think that making a balance transfer is a good idea for if that's the situation that you're in. So if you have credit card for other people who are listening who have credit card debt, that's just a result of too many nights at restaurants and bars. Do not do the balance transfer game. All you're going to do is delay the inevitable. Just stick

with what you have. Cut up your current card. Face the music. Pay it off. Don't open new cards if overspending is something that you're struggling with. Now, Lo, once you do that, then only if necessary, choose forbearance as a third option. So basically, your first option is trying to lower the interest rate on your current card. Your second option is a balanced transfer. And then your third option would be forbearance. If you go the forbearance route, continue to make interest-only payments during the time in which your student loans are in forbearance. That way, you won't have accumulated interest that gets added to your loan balance when your loans get taken out of the forbearance period. So use forbearance as the third option and make interest-only payments during this time.

Thank you so much for asking that question, Lowe, and congratulations again on your new career. You're making a great income. You're managing your money responsibly. Very excited for all of the great things that you're going to build in the coming years. Our next question comes from anonymous. And now that I'm giving every anonymous caller a nickname, I'm going to call this anonymous caller, the aspiring Roth IRA account holder. That's kind of a lame nickname.

I'm going to call this one. Oh, I know. I'm going to call this one aspire to retire. Hi, Paula. I listen to your podcast all the time. Thanks for the work you do. I have a question regarding retirement. I didn't start saving until I was dirty because I had a late start in my career.

I have a 401k at work, and I am saving the maximum a lot by the IRS. I get a 4% match at my work. I currently have around $24,000 saved into my 401K. I would like to start an IRA to save more for retirement, but I would like to do a Roth IRA to have different. tax treatments. My current earnings exceed the limit for a road rate. Can you talk about a backdoor real estate, please? Thank you. Hey, aspire to retire. First of all, I'm glad that you're saving for retirement now. Don't worry about the fact that you didn't start until you were 30. 30 is still young. My parents didn't even come to this country until they were 35 and didn't even start saving

for retirement until they were in their early 40s. So you've got plenty of time on your side. and you're paying attention. You've got a 401k. You want to fund a backdoor Roth IRA. So you're doing great. Your question was, how do you fund a backdoor Roth IRA? Well, the good news is the process is fairly simple. So step one, you're going to open a traditional IRA account. You can do this at an institution like Vanguard or Fidelity. Personally, mine is at Schwab. I love Vanguard Fidelity and Schwab are all, those three are all referred to as the big three discount brokerages, so you can't go wrong with any of them. I have accounts at both Vanguard and Schwab. My traditional IRA and my backdoor Roth IRA are both at Schwab. Over there, they refer to a traditional IRA by the name contributory

IRA. So if you hear the name contributory IRA, they're talking about a traditional IRA account. So step one, open a traditional IRA. Step two, open a Roth IRA and for the sake of simplicity, keep it at the same institution. Step three, make a contribution to your traditional IRA, which again is sometimes also referred to as a contributory IRA. Now, you can set up this contribution either in the form of making automatic contributions from each paycheck or automatic contributions from your checking account, or if you prefer, and if you have the room in your budget to do so, for the sake of simplicity, you can make this contribution as one giant lump sum payment. So step three is to make a contribution into

that traditional IRA. Then step four is to transfer the money from your traditional IRA into your Roth IRA. I am old-fashioned and I like to actually call Schwab's customer service and say, hi there, I need to process a backdoor Roth conversion. That's how I do it, but that's absolutely not necessary. You can also just do it online. So when you transfer the money, you will be processing a conversion, a backdoor Roth conversion by moving the money from your traditional IRA to your backdoor Roth IRA. There is no IRS requirement around the length of time that your money has to remain in your traditional IRA prior to when you convert it to your Roth IRA. Personally, I like to let it sit for 24 to 48 hours just so there's a clear record of at least 24 to 48 hours of that money being in the traditional account, which is where it's required to start.

That's technically not a requirement. So there are people who choose to put the money in their traditional IRA and then five minutes later move it to the Roth. But for me, it helps me sleep a little bit easier at night to just to let it season for a day or day. two. So that's step four. And then step five is at tax time, you're going to fill out IRS form 8606. And that's the form that indicates that you have made what's called a non-deductible contribution into your traditional IRA. So just to quickly recap once again, step one, open a traditional IRA. Step two, open a Roth IRA. Step three, make a contribution to your traditional IRA, this is going to be a non-deductible contribution to your traditional IRA. Step four,

transfer that money from the traditional to the Roth. This is referred to as processing a backdoor Roth conversion. And step five, at tax time, fill out form 8606. Now, in the show notes, which are going to be available at afford anything.com slash episode 239, we will link to instructions from Vanguard about how to convert a traditional IRA to your Roth IRA. and we will also link to IRS Form 8606. All of that's in the show notes. You can find that at afford anything.com slash episode 239. Thank you, Anonymous, for asking that question and best of luck beefing up your retirement savings.

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Our next question comes from Ayesha. Dear Paula, running into your podcast have changed my life. It was my first touch point to F-I. I love your thought process. Listening to it gives me a lot of hope and courage. So thank you. My goal is to get into single-family cash flow properties, and I do not own any yet. I currently reside in an expensive metro area under a rent control apartment on the East Coast with my husband. I'm maxing out my Roth IRA and 401k, totaling in 24K so far. I have also 30K in total savings. This includes 10K of emergency funds. We do have over 100K in student loans that we're slowly trying to pay off. I have run my situation through a couple of people in local real estate meetups,

but haven't found a sound advice yet. I'm really hoping you can share a bit of your wisdom in my scenario. I have extended family living in Gwinnett County, Georgia, who owns a single family home. It is a three-bed too bad with a bonus fourth room. Due to health reasons, financial constraints, this family can no longer maintain this house and is in the process of selling or transferring. A bit of background on this mortgage history. The house was originally sold to this owner in 2003 for 153K. The house went into free foreclosure back in 2013 and was refinanced from a bank to FHA loan for 100K as a starting principal. In doing so, there's partial HUD claim on it for 32K, which as far as I understand, was removed from the principal to lower the monthly payments

during this refinance FHP loan process. And if this house is sold, from my understanding, this 32K would need to be paid to HUD. The house currently has 85K left on its FHA loan and it has 4.75% interest rate. After repair value of this house is close to 200k and rent for similar houses in the same zip code is going from 1,200 to 1,600 a month. My question is, what are the best options on the table for me here? Can this property be transferred as is under my name? Or should I buy it via a traditional process as non-owner-occupied investment property? Or should I just let it go and let this family just sell this house as they're downsizing? please know that I do not reside in Georgia, so this would be an out-of-state rental property for me if I were to move forward.

Please help as I trust your insights. Thank you so much, Paula. First of all, thank you so much. I'm glad you're enjoying the show, and I love your goal of getting into single-family cash-flowing rental properties. So let's talk about this deal that's on the table. Now, as a quick background on HUD claims, you are correct. A partial HUD claim is an interest-free. loan that comes from HUD to get caught up on the overdue payments. So the loan does not need to be

repaid until that first mortgage is paid off or until the borrower no longer owns the property. So you're absolutely correct in that if this property were to be sold, that $32,000 partial HUD claim would become due immediately because now that property is being transferred to you. That's another way of saying that if this house were to get transferred to you, the minimum amount that the sellers would need would be $85,000 in order to repay the FHA loan plus $32,000 in order to repay the partial HUD claim, which means they would need a minimum of $117,000, not including closing costs. And so my first question to you with regard to whether or not you should buy this property is what would be your purchase price?

How much are the current owners willing to sell this property to you for? Do they simply want you to pay off the remaining loans and liens, which comes to $117,000 plus closing costs? Or would they want more than that? So what would be for you, what would be the purchase price of the home? If you can pick this home up for 117 plus closing, so we'll say somewhere between 120, to 125,000.

Yet then that sounds like a great deal. You'll buy a property for $120,000, and it rents for somewhere between 1,200 to $1,600 per month. And Gwinnett County, Georgia is one of my favorite counties. It's stable, it's got great jobs, it's fast-growing. Now, obviously, all real estate is local, and it is unwise to make a blanket statement about an entire county,

because every property is contextualized to the neighborhood that it's in, to the street that it's on. But, I mean, if comparable properties are going for between 1,200 to 1,600 and you're picking this thing up for 1.17 plus closing, the numbers at first blush look right. Now, I do have a second question for you. You mentioned that the ARV, the after repair value, is about $200,000. My question is, first, what is the range of estimates for? renovation costs. So how much is it going to cost you to renovate the property in order to get it up to that ARV? Second, how long would those renovations take? Third, do you have a budget for those renovations? Four, how urgent are those renovations? And five, when you talk about rent for comparable properties in the area being between 1,200 to 1,600, I'm assuming that

what you mean is in its current condition. Because the property in its current condition, you is clearly habitable. There are people who are living there right now. So it's not as though this is a dilapidated property that needs a certificate of occupancy. My assumption, given that people are living there right now, your family's living there right now, is that you can, as soon as you buy it,

immediately turn it around, rent it out, rent it for a number of years, collect and accumulate cash flow during those years, and then maybe three, four, five years down the road, once you have a budget for renovations, if you chose to, you could then renovate it, make it nicer, bring it up to that $200,000 ARV, if that makes sense at the time. Then my final question related to those renovations would be, is it even worth renovating it with regard to, if you plan on holding it as a cash flow rental property, would the cost of those

renovations justify the increased rent that you might receive? if you were to do a $30,000 renovation on the property, would it raise the rental value of that property by more than $300 a month? Those questions, the questions related to renovating and boosting the equity of the property. I mean, those can come later because property value is only relevant at three points in time when you buy, when you sell, and when you refinance. Other than that, value is noise. It's theoretical. It's like watching your retirement account balance as it goes up and down through the volatility of the stock market. It's all paper losses or paper gains until the moment it's realized.

And in real estate, that realization happens only at three points in time. Buy, sell, refi. The rest is variance. The rest is noise. So don't get too hung up on valuation. Buy the property. Put a renter in there immediately. Start collecting cash flow.

And then a few years down the road, you can decide whether. or not, renovating makes sense in the context of increasing the rent or increasing the occupancy and lowering the vacancy or investing up front in CAP-X so that you can lower your ongoing repair and maintenance costs. In the context of all of those examples that I just cited are examples of how to improve the cap rate on a property, but the improvement of the cap rate can come later after you first buy and rent out. Now, in part the reason that I'm telling you this, and part of the reason that I'm encouraging you to delay renovations. A, it's because it's obviously not necessary for a person in order to get that first tenant in the door. And B, you mentioned you

have $30,000 in cash, $10,000 of which is an emergency fund. Now, I don't know what your current monthly spending is, but if you go into this investment, then right off the bat, the first thing that I would tell you is to keep a bigger emergency fund because you want both a personal emergency fund, as well as a property-related emergency fund. So you'll want enough money in your emergency fund to be able to cover between three to six months minimum of your personal expenses and also to be able to cover six months of property-related expenses. And so after you fortify your emergency fund, it doesn't strike me that you currently have

a renovation budget yet. that's why I encourage you to rent it out in its current condition for a few years while you wait for the cash flow from the property to accumulate. Now, the final thing that I'll say is that if you do decide to move forward with this purchase, hire a real estate attorney who can perform a title search and who can look for other liens and encumbrances on the property. You want to make sure, for example, that there's no mechanics lien on the property, that there's no other type of lien on the property that you're not yet aware of. You'll also want to buy title insurance and don't cut any of the corners when it comes to paperwork. Saving 400 bucks here or 600 bucks there is not worth cutting the corners when it comes to making sure all of the paperwork is done correctly and that you have a good real estate attorney on your side who is guiding you through every step of the purchase process. But it does sound, assuming that you can rent it out in its current condition immediately, it does sound like a great opportunity because it sounds as though, number one, you'll get instant. equity from the purchase. Number two, you have the ability to later down the road force appreciation

through renovations. And number three, you have the ability to get a good cap rate, both now and later. So, congrats on the opportunity. And if you do decide to move forward with it, congratulations on your first cash-flowing single-family rental. Our next question comes from Eric. Hi, Paula. My name is Eric. And I just discovered your podcast. a couple of weeks ago and I've been binging it ever since. I have a few questions for you related to real estate investing. Firstly, I was wondering what your thoughts were on the Airbnb model versus the traditional renter model.

My wife and I own a house in Savannah, Georgia that we rent out as an Airbnb and it does much better than it ever did as a traditional rental. And I just wanted to see if you think that that is a good model. We're curious if that's what we should look for in future rental home purchases as well. We also wanted to know how the six-month emergency fund should work with an Airbnb model. Do we just base the six months on what the traditional market rent would be for that house? Were it on the traditional rental market? And lastly, you've talked about figuring out a way to determine your net profits would be essentially 50% of the gross, if I'm remembering that correctly.

and once you've saved up a six-month or more emergency fund and you get all of your gross rents, if you're considering 50% of those to be profit, what do you actually do with the money? Do you put 50% into your sort of working budget? And the other 50% continues to go in the emergency fund no matter what, just assuming that it'll be drawn down occasionally by either capital expenses or upkeep and maintenance? anyway, I look forward to hearing from you soon. Thank you so much. Eric, thank you for finding this podcast. I hope that you're enjoying the binging. So let's go through your questions one by one. Now, first of all, you said you and your wife own a house in Savannah, Georgia that you list on Airbnb, and it performs better as an Airbnb than it ever did as a traditional rental.

So should you look for Airbnb optimized properties for future rental home purchases? Now, here's the situation. that you do not want to get yourself into. You don't want to be in a situation in which a property must be rented on Airbnb or VRBO or as a short-term rental in order for you to not lose your shirt. In other words, you don't want to be in a situation where you are Airbnb or bust. Because if that happens, then all it's going to take is for one aggressive city council to just decide that they're not going to allow Airbnbs in that city or that they're going to impose licensing restrictions

that are either prohibitively expensive or incredibly limited, perhaps dispersed through a lottery or dispersed through a first come first serve system in which you're already, by the time you hear about it, like number 8,000 on the waiting list and you're not realistically ever going to get that license. You know, there are a lot of municipalities that have imposed these restrictions on Airbnb's and short-term rentals, and you don't want to be in a situation in which you've signed a mortgage, you own a property, and then all of a sudden, city council yanks the rug out from under you and your entire business collapses.

So make sure that for any property you buy, you have the option of renting it out as a 12-month lease. have the option of renting it out on a long-term lease and you'll be okay. You don't have to be happy with it. That doesn't have to be the optimal situation, but you should at least be able to live with that scenario. So here's a real-life example of what I'm talking about and how this went awry. I live in a condominium building in Las Vegas, Nevada. At the time in which I bought my condo unit, the sales office for that building actively promoted the fact that the Homeowners Association was happy to have Airbnbs and short-term rentals in this building. So the sales office, it was developer-owned, it was builder-owned at the time, majority-builder-owned,

and the sales office actively sold units to Airbnb investors. They pursued Airbnb investors and promoted that there are no restrictions on it. well, over the course of a few years, a combination of Airbnb investors and owner occupants moved into the building, and as you can imagine, the owner occupants were not happy about the fact that half the building felt like a hotel. So a portion of the owners turned into owner activists and started aggressively lobbying both the HOA of the building as well as the city. because the building's located in the city of Las Vegas.

So they started aggressively lobbying both the HOA and the city to have more restrictions on Airbnb and short-term rental guests, as well as to enforce the laws that were already in place, because there were already certain laws that were on the books that were just not being enforced. Right. So you had half the owners doing that. You had the other half of the owners, however, the people who bought these units as Airbnb investments who were freaking out because the units just don't make any sense as a long-term rental. And if they couldn't Airbnb, then they'd be bleeding cash every month.

And so then in my building where I lived, you had these two like just warring factions, half of whom we're saying we bought this as an investment and the other half of whom we're saying, this is our home. And ultimately what happened is that city council passed a law that in a high RISE Condominium Building, you could have up to one unit per floor that's used as a short-term rental, and that that license would be given first come, first served, and that that would be strictly enforced. And so when that happened, all of the other unit owners in the building who were holding these units as Airbnbs, they all simultaneously dumped their units on the market at once.

And so the market got flooded with this saturation of supply of condo units from the same building that were all coming up for sale at the same time, which of course, you know, when supply spikes and demand stays constant, what happens? Prices drop. And that depressed the valuations of all of the units in the building. And it was especially painful for the people who bought these units as investments. because not only did they bleed money in the form of holding costs during the time that all of this controversy was happening, but then they sold the unit for way less than they thought they'd be able to get for it because of the fact that every other investor also flooded the market at exactly the same time. So don't get yourself in that situation. Make sure that if short-term renting is not an option, you can still rent it out to a tenant for 12 months,

and you'll be fine. And as long as you have that plan B backup strategy in place, then you're all right. Okay. Now to the second part of your question, you said that you also want to know how the six-month emergency fund works with an Airbnb model. Should you base the six-month figure? Your question was, should you base a six-month figure on traditional market rent? Here's the answer.

The guiding principle around thinking about the emergency fund or the cash reserve that you have for a property is if the unit were completely vacant for three months, you want to make sure that you have enough money to cover all of your expenses during that three month period. And so if you, in a traditional 12-month rental, if you take six months of gross rent with the assumption that 50% of gross rent goes towards operating expenses, then that means that six months of gross rent, equals three months of operating expenses. Now remember that operating expenses does not include debt servicing, and we're going to talk more about that a little later.

But in a 12-month rental, you want to make sure that your emergency fund is large enough that you can cover a PITI mortgage, if you have one, as well as all of the operating expenses, such as repairs, maintenance, CAPEX, property management fees, because there are many property managers who will charge a monthly fee even when the unit is, is vacant. So you want to make sure that you have enough money set aside that you can cover all

of those costs for a full three months, assuming that your place is completely vacant for three months. Now, how does that change when you have a short-term rental like an Airbnb? Well, your operating expenses are going to be higher because you, as the owner, pay for more operating costs. You pay for the electric, the gas, the water and sewer, you pay for internet, you pay for lawn care. These are all things that a tenant might cover in a 12-month rental in a long-term rental, but when it's an Airbnb, you're paying for the utilities, the internet, the lawn care. You're also, in a short-term rental, you're also paying for cleaning services during every turnover, as well as consumables, like toilet paper, dish soap, sponges, although, of course, under this assumption, if the place

were vacant for three months, that wouldn't apply, so you can set that aside. So, Eric, what I would encourage you to do is calculate all of your expenses over the course of three months and make sure that if this place were to be completely vacant for that period of time, you'd be able to pay every single bill associated with it. Now, finally, that leads us to your final question, which is, once your emergency fund is fully funded, what do you do with the leftover profits? And within the course of asking that question, you mentioned the 50% rule. So first, I want to clarify, for the sake of everyone who's listening, that again, that 50% rule, which is the assumption that half of your income goes towards operating expenses, remember, operating expenses include property taxes and homeowners insurance,

but do not include the principal and interest portion of your mortgage. So a mortgage has four components, principal interest taxes insurance. The principal and interest portion specifically is not included under the umbrella of operating expenses. And the reason for that is because when we analyze any property, we want to look at the asset itself absent of financing. So we do not want to conflate the attractiveness of the underlying asset with the attractiveness of the financing arrangement that we use in order to enter into the investment. So if we assume about 50% of gross rent goes towards operating costs, another portion of it is going to go towards the principal and interest segment of your mortgage payment, assuming you have a mortgage on the

property, and then whatever is left over is your cash flow. Remember, cash flow is distinct from profit. Profit is a slightly ambiguous word because you've got your net operating income, which is the income that remains after you've paid for operating expenses. And from that net operating income you pay P&I, well, the principal portion of that payment is still money that remains on your balance sheet. That is simply the conversion of cash into equity. So the principal portion of the money that remains from your net operating income is part of how you build wealth through real estate because you are building wealth through principal paydown. So you have gross rent minus your operating expenses equals net operating income, and then net operating

income gets spent on P&I, that P principal portion remains a form of wealth building. It turns into equity. And then the interest, of course, is interest that you pay. And then whatever is left over is the cash flow. So what do you do with this cash flow after your emergency fund is fully funded? If you choose to, it never hurts to build a larger buffer of between one to three additional months of expenses. Don't be afraid of having too much cash. It never hurts to have cash. Nobody's ever like, oh, darn it, my savings account is too big.

I don't know what to do. So that's certainly an option. The other question that I would ask you is, do you anticipate any major CAPX cash outlays in the next five years? And what I mean by that is, how old is the roof? How old are the windows? How old is the carpet? How old is the water heater? If there is something specific that is coming to the end of its natural life, you've got a water heater that's been around for longer than a water heater should be, set aside in addition to your existing emergency fund, set aside money for that cash outlay specifically. That way, you know that at the next tenant turnover, you can go in and replace all of the windows because they're 40 years old and they need to be replaced anyway. So set aside money for specific CAPX cash outlays that are coming up.

After you've done that, then the cash flow that remains from that point forward, you can use for, I mean, I like to use it for either aggressively paying off the mortgage or making a down payment on the next rental property. Thank you for asking that question. Good luck with this Airbnb in Savannah and all of your other future rental properties to come. We'll come back to the show in just a second. But first, our next question comes from James. Hi, Paula. I discovered your podcast three weeks ago and I've been listening voraciously ever since.

My goal is fire so that I can spend time on my outdoor hobbies, friends, and family. Here are my background numbers. This is my third high earning year. I now make 143K plus 24K a year in RSUs. My unmarried partner and I have good benefits. $1,400 a month in rent, free utilities, three meals a day most of the year, cheap gym, and others. I have no debt but sold my car with an underwater loan,

so my emergency fund is only about three months' worth. My credit is excellent. As my RSU's vest, I cashed them out and put them into a house-down payment fund, half of which is invested in R-AITs and the other cash. I have about 50K, and I'm fortunate to get 15K a year from my grandmother's estate. I contribute fully each year in my 401k, which is 4% matched, and make a full contribution to my Roth IRA and HSA, as well as save with acorns and cryptocurrency. My savings and job are good, but I have a clear ceiling of 2% annual raises

and no promotion in sight. Given that in my fire goal, I want to buy a vacation property in Vermont near a ski mountain with mountain biking, then expand. I have never owned property, but love the idea of an investment I can use for fun when it's vacant. I will live in Connecticut for the next five years, but after that it's uncertain. With a cheap cost of living compared to my native Silicon Valley, vacation homes seem the best option to accelerate my path while funding my values. So my questions are, one, what should I be careful of here? Two, should I start with a small cabin or go big with lots of beds? It seems the big bucks and ski areas come from large groups, but it's a higher cost of entry. And three, how do I determine potential income and ways to

force appreciation and revenue given seasonal volatility? Thank you again for all your wisdom. and passion helping others. You are a gym. James, first of all, congratulations on being in such a great spot. You're making a ton of money and you're clearly not spending very much. If you and your partner are splitting the rent on a place that's only $1,400 a month plus free utilities, free gym, free food, it sounds like your cost of living is next to nothing, which means presumably you're saving the vast majority of what you make, which is awesome. So congratulations on being in a position where you're simultaneously making really good money and have a super rock bottom low cost of living. Now, there's

one thing that you said within your question that concerns me. It raised a red flag as soon as I heard it. And it was this particular sentence. I have never owned property, but love the idea of an investment I can use for fun when it's vacant. James, the moment that I heard that, that immediately raised a red flag. Because the question that I want to ask you is, are you buying an investment or are you buying for the sake of personal enjoyment? Perhaps you want to buy something for the sake of personal enjoyment and then offset some of the cost of that through rentals, that's fine. But there's a huge distinction between purchasing an investment and purchasing something for the purpose of personal consumption. An investment is optimized for returns, whereas the choice of a ski cabin in

Vermont is optimized for you just like it. Think of it this way. Money by definition is interchangeable. Any $10 bill can be changed for any other $10 bill. And regardless of which $10 bill you're holding, each one at the same moment in time is valued equally. Property, by definition, is unique. A single-family home at 1-2-3 Main Street is not equal to a single-family home at 742 Evergreen Terrace. Unlike a $10 bill, you cannot trade one house for another unless you liquidate the houses and turn them into cash. The process of real estate investing is the process of converting something that is by definition unique, which is property, into something that is by definition interchangeable, which is money.

In order to make this conversion, to do it purely as an investor, you must approach the unique asset with an interchangeable lens, meaning that true investing is property agnostic. Now, when I say property agnostic, what I mean is that if you assume a comparison of two or more properties that feature a similar condition, similar age, and similar risk-reward profile, with similar price to rent ratios, similar cap rates, if you have a comparison of two or more properties that in every dimension of risk and reward meter out to be the same, then you have no preference between one or the other because you are truly investing, which means you are making a spreadsheet-based, math-based decision. In the context, of course, in the context of your

risk profile and your risk tolerance. Now, there is one exception to what I am saying, and that is if you wanted to add an additional contextual layer to this comparison between two similar properties, that additional contextual layer would be if you have some type of ethical objection to one investment versus the other. So, for example, we see in socially responsible investing, if people have an objection to the activities of certain companies, then that ethical or moral filter will narrow the list of or the pool of investments that they're willing to consider. But even then, once you pass your investments through that ethical filter, any investment that

meets your ethical criteria, you're still going to be ultimately investment agnostic. about. Fund A and Fund B would be assuming identical risk profiles, assuming identical potential reward, assuming all of the variables between Fund A and Fund B are identical, and assuming that both of the funds have passed through your ethics filter, then you're going to be agnostic about which one you choose, because these two funds are identical, right? We see this in index fund investing all the time. The same concept holds true in property investing. The reason that I bring this up is because you mentioned in your voicemail that you'd like to support your value of being outdoors, which is wonderful, but you don't have an ethical objection to properties that are not vacation

rentals. So it isn't that you are boycotting the properties that are non-vacation rentals because you're morally opposed to those. It isn't, that's not the case that's going on here. When you say value in this context, what you mean is that you have a personal preference for being outdoors, which is great, but a personal preference is not the same thing as an investment. A personal preference is a personal preference. And it sounds to me as though what you really want is that at a personal level, you just want to buy this place so that you can use it. You want to buy it for the sake of your own personal enjoyment, and you'd like to rent it out so that you can offset some of the holding costs. Essentially, you want to buy it for yourself and create a discount on the cost of it.

And that's perfectly fine, but that's not the same thing as being an investor. There are no full-time real estate investors or investing companies that are setting the filter of what they're looking for based on where they themselves personally prefer to vacation. Think of it this way. Let's say, hypothetically, let's say that I love hanging out on the beach in Costa Rica. And when I'm there, on a trip to Costa Rica, I find this beautiful apartment villa. And it's got beautiful tile floors and huge floor-to-ceiling windows. And it's just steps away from my absolute favorite beach.

And I get really excited about it. and I want to own it and I can see myself hanging out there. And I spin this whole narrative in my head that maybe I could buy this and I could Airbnb it out. And then whenever it's not in use, I could come down here. And it's also exciting and it's also amazing. And at no point in that narrative have I once stopped to ask myself, all right, what's the annual net operating income that this would provide?

And so that illustrates that I'm not thinking about this. In this Costa Rica beach example, I'm not thinking about that as an investment. I'm just thinking about it as something that'd be cool. And from a purely mathematical perspective, it makes far more sense to buy a rental property in Birmingham or Huntsville or Dayton, Ohio, or Clarksville, Tennessee, or Muncie, Indiana. It makes far more sense to buy rental properties there and use the cash flow generated from those properties to rent a beautiful apartment villa in Costa Rica whenever I want to go there. Like from a purely mathematical framework, that most likely will produce higher returns,

a more robust cap rate, a better cash on cash return, and overall better performance over time. And on the surface, these two situations might seem the same. Like in both examples, I own a piece of property that gets rented out. But in example A, I'm owning a piece of property in Costa Rica that I rent out and the returns that I receive are suboptimal because the decision to buy that property was not made by virtue of doing a rigorous analysis. Whereas in the second example, I have done a rigorous analysis and my goal is the best investment and then I use the cash flow from those investments.

So even though on the surface the actions seem the same, in both examples I buy a piece of property and rent them out, there's a massive difference in the types of returns relative to the risk profile that I would expect to be able to receive from each one. Now, that being said, I know I sound like I'm discouraging you from buying this. I'm actually not. If you want to buy this, do it. Go ahead.

Because there is absolutely nothing wrong with your goal being personal enjoyment. Like, it is perfectly 110% awesome to buy something because you love it and to rent it out in order to defray some of your costs. But you got to call a spade a spade. It's just not an investment. And that's fine. Not everything has to be an investment. But just make sure that you're going into it with your eyes open. Being honest with yourself about your intentions and your motivations will help simplify the decision-making process that you use.

So if you do decide, I realize I sound as though I'm really discouraging you from buying this thing in Vermont. And I just want to emphasize, I'm not. Like, if that's where your heart is, if that's where your passion is, do it. A few tips, if you do decide to follow that route. Number one, check the laws in both the city and county to see what the regulations are around short-term rentals. Do you need a license? Do you need a permit? Do you have to pay additional taxes, like sales and occupancy tax?

Do you need any specialty equipment, such as a commercial-grade fire extinguisher? You know, make sure that you're in complete compliance with all of the laws in that area. And I'm just to clarify, I'm not just saying that for the sake of being a goody-to-shoes. I'm saying that as liability protection. If you're in violation of any of the laws and somebody slips and falls and sues you and you've not been complying with the code requirements, then you could be in a whole heap of hurt. So being in compliance with all of the municipal laws around short-term rentals is just a good way to protect yourself legally. In addition to that, just like I said earlier in this episode to Eric, only buy the property if you could, if necessary, could rent it out as a long-term rental on a 12-month lease. Now, that piece of advice is only applicable if what you're buying is a residential property.

So if you're buying a commercial property, if you're buying a cabin that has 24 bunk beds in it, then that's a different story. But if what you're buying is considered residential, meaning if it's a large single-family home duplex, triplex, or fourplex, then even if you do plan on renting it out, make sure that if the municipal laws were to change and that area prohibited short-term rentals, which is something that happens commonly all over the country. When you get an Airbnb unfriendly city council in power, that happens. So just make sure that you have the ability to rent it out on a 12-month lease and you'll still, at a minimum, be breaking even. You don't want to be in a situation

in which you have to rely on this as a short-term rental because if you were to transition it into being a long-term rental, you'd be bleeding so much cash every month that it would create significant financial stress for you. So make sure that you have that plan B to fall back on, just in case the lawmakers change their mind. Number three, you asked if you should start with a small cabin or go big with lots of beds. I mean, effectively that question is, do you go residential or do you go commercial? If you go commercial, then the assumptions that you're making within your spreadsheets around the cost of insurance, around ADA accessibility, around licensing, around compliance.

I mean, the cost assumptions that apply to a residential property do not apply to a commercial property. So if you did want to go commercial, the first thing I would do is talk to other investors in that area who have commercial properties. They probably won't let you look at their P&Ls, but if they do, that would be amazing. If not, see what information you can get from them about that would help you approximate what the operating expenses are going to be. How much do they spend annually on cleanings and turnovers? What level of occupancy and vacancy do they have?

What types of insurance do they have and how much do they spend on it? What types of licenses do they hold or permits? Did they have to retrofit the property at the time that they acquired it in order to meet current compliance, code compliance standards? and if so, in what ways did they have to do it? You know, talk to a lot of commercial investors in that area to see what their experience has been and talk specifically to real estate agents who specialize in commercial properties in that area

because commercial is just a completely different headgame than residential. Similarly, you asked about seasonal volatility. Of course, when you run your spreadsheet, when you run the analysis, you're going to be looking at a full year's numbers. So you'll be averaging out the vacancy and occupancy rates over the span of 12 months.

You'll be averaging out the cost of consumables, utilities, all of the operating overhead. When you run that spreadsheet, you'll be averaging it over 12 months. And the same is true with gross revenue as well. So those are my tips if you decide to pursue this ski cabin in Vermont idea.

And as a final thing that I'll say is, I'm not saying that a ski cabin in Vermont could never produce great returns. Like, I'm not immediately eliminating it as a contender of a property that might produce great returns. There is a non-zero chance that you might run an analysis of 250 different properties, and it turns out that buying a rental near your favorite ski mountain in Vermont happens to also be the choice that produces the best returns, right? that that could happen, but balance of probability states that you are likely to get better returns elsewhere.

That doesn't mean that you shouldn't invest there. It's perfectly fine to get suboptimal returns when you willingly choose to do so. Just be clear about your motivations. So thank you so much for asking that question. And enjoy this if you buy it. I mean, it sounds like a dream come true, right? You're living the dream. So have fun with it, enjoy it, have a great time.

And congratulations again on being in a position where you can think about options like this, you know, where you're making great money, you're not spending a lot, you're on the path to fire, and now the dream is a real option for you. So big congratulations for that. All right. Thank you so much for asking that question. Our final question today comes from Shelby. Hi, Paula. My name is Shelby. I was featured on episode 74 back in April 2017. At the time,

I was almost 27 years old and was wondering how to work toward early retirement while having $49,000 in student loans and only $2,600 of monthly income. I had also asked about how to prioritize my 403B and paying off my student loans. has changed since then. I'm 29 and I quit the job that I had before, opened up a Roth IRA after starting my new job and moved my 403B money into the Roth IRA and began maxing it out. Shortly after, I made a big life change and my husband and I decided to move to China. Last year, I was able to pay off all $49,000 of my student loans while living in China. And now I am saving $3,600 a month until my contract ends in June. and I will move back to the U.S. with $43,000 in savings. Our goal continues to be early retirement. We'd like to start a family soon and buy a personal residence in the next few years. We have a rental property that we bought for $178,000, in which we still owe $134,000 on. This property is in the United States. We've had a renter in the property for six years, and she pays $1,400 a month. Our mortgage is $1,100. We've Right now, the current home market value is $300,000.

And recently, houses in the area that are exactly like ours have sold for that. We have a few questions of what we should do next. Knowing we want to continue with rental properties, do we stay with this rental as an investment for our retirement? Do we sell because we owe so much and it's worth so much right now and use the profit to buy a lower cost rental that could better benefit us and use the rest of the profit to, do a mix of adding to our savings for a down payment for a personal home and maybe toward our IRA as well. Do we move into the rental and save money and sell it in the future so that we can avoid capital gains? Or is there another option that you feel like we should probably consider? Shelby, thank you for calling back.

Thank you for being a long-term listener for at least two years, if not more. And congratulations on all of the major progress that you've made. I remember that call. I remember grappling with that question that you asked, how do you pay off $46,000 in student loans when you only make $2,600 a month? So the fact that you've overcome that, you've made some huge changes in your life, you're living in China, you've paid off your student loans. Like the huge, huge financial improvements that you've made in the last two years and career improvements,

they're amazing. So big congratulations to you for everything that you've done. Let's talk about this rental property. You purchased it for 178 and you owe 134 on it. But it's worth 300,000, which means you have a significant amount of equity. You have ballpark about $166,000 worth of equity in this home, not counting closing costs and transaction fees. The rental income that you're making is not that great because if the tenant is paying $1,400 and a PITI mortgage is $1,100, then that $300 cash flow difference is going to get gobbled up by repairs, maintenance, CAPEX, and vacancies. Now, of course, the amount that those line items are going to cost depends on the age and condition of the property. And the fact that you've had a long-term tenant in there, and you haven't had to deal with any vacancies yet, that helps significantly as well.

But in the long term, given the fact that the mortgage payment is so close to what the rent is, in the long term, this is not a great rental property. This is a property where for as long as you hold that mortgage on it, you will most likely break even at best, assuming that you can't raise the rent, assuming that the rental rate stays relatively similar to what it is. I mean, and as the years go by, you know, rent will increase at the rate of inflation while your fixed rate mortgage stays the same, or at least the P&I portion of your fixed rate mortgage stays the same. The property taxes and insurance do keep going up.

So in that regard, the longer you hold the property, gradually over time, the more you'll make. But given that that delta is so small to begin with, you know, this is not an optimal rental. This is not a rental that I would, if you didn't yet hold it, I would not encourage you to buy it. But the question of, should I hold something that I already have is different than the question of, should I buy something? Because in real estate, transaction costs are quite hefty. And so the first question that I would ask you, with regard to whether you should hold this property or sell it, is financials aside, how much do you like or dislike this property? And what I mean by that is, as landlords, how easy and comfortable is this property?

Is it in a nice neighborhood that has stable, long-term tenants? And I know that this particular tenant that you have has stayed for a long time, but is that the type of thing that you can reasonably expect, or is that a lucky anomaly? And is the property newer construction or very recently, renovated? You know, if it's an older property, is it in great condition with minimal repairs needed? Because if we're talking about a property that's in excellent condition located in a nice neighborhood with stable long-term tenants, then this might be the bond allocation of your portfolio.

This might be the property that's easy. And so you keep it even though the returns are lower because the risk is lower, the hassle is lower, the risk of major repairs or major. your cap-x is lower, the ongoing maintenance required is lower, the risk of vacancy is lower. So similar to a bond, this might be the portion of your portfolio that gives you some type of fixed income payment, or at least an analog to that, with minimal volatility. And if that's the approach that you want to take with this property, then that's perfectly fine. And one of your questions, in addition to whether or not you should hold on to this rental,

you also asked, should we sell it because it's worth so much and we owe so much? Now, it is true that you could be making better use of the capital, but you always have the option of refinancing against this property through either a HELOC, the home equity line of credit, or through a cash out refinance. You could borrow on either a HELOC or a cash out refi, borrow against the equity, and then use that money to buy a second rental property. And perhaps the second rental property you buy might be an older property, perhaps a distressed sale, perhaps it's a foreclosure that you pick up, something that needs renovations, something that holds higher risk, but subsequently also holds the potential for significantly higher rewards. And in that regard, you could diversify the risk profile of the types of holdings in your rental portfolio, counterbalance a few Class A properties,

with a few Class C properties. But if you like this property, don't sell it just because you think that you can make higher returns elsewhere. Yes, you can, but those higher returns also carry higher risk. And if you like the property, then there's nothing wrong with having a stable income producing investment. Essentially, don't sell something that you like and don't hold on to something that you dislike.

Now, there was one part of your question in which you said, maybe if we did sell it, we could use part of the profit to buy a lower cost rental and then maybe we could also use a portion of it to add to our down payment savings to our personal home and maybe also to fund our IRAs or maybe we should move into it. Like, you're floating so many options right now that what I'm hearing is that you don't have a strategy or a vision. To paraphrase Josal Seahai, who is on this podcast with me about once a month or so, he always says, start with the end in mind. I guess I'm not paraphrasing him. I'm quoting him. Start with the end in mind. When you have this many options that you're considering, what you want to start with is what's the

ultimate vision? How many total rentals do you want to hold? And what type of risk profile do you want your portfolio of rentals to have? with regards to the types of neighborhoods, the age of the property, the condition of the property, how do you want to construct or asset allocate that rental portfolio? What ideal cap rate are you looking for among your class A, B, and C holdings? What type of ideal cash flow, whether it's cash flow per door or total cash flow of the entire portfolio once the whole thing is constructed? What ideal cash flow are you aiming for? Joe always says start with the end in mind, so what, for

you would be the ideal end result. What's the vision? Because lower cost rentals, sure, they've got potentially higher returns, but as I've talked about, they also have higher risks. So do you want that or not? There's no right answer. It's like equity investing. Large cap index funds have a different risk profile than a frontier markets index fund. So do you want to asset allocate into a frontier market's index fund? There's no right or wrong answer to that. It's whether or not that's part of your overall investing strategy. And that's the main thing that I'm hearing from your question is I'm hearing a lack of a cohesive strategy. Because once you've got that strategy, once you've got that vision, because then you have that north star against which all questions

can be compared. Your north star is, here's what we're aiming for. Does this particular option that's in front of us fit with that, yes or no? One of the ideas that you floated, You said, hey, should we move into the rental so that we can sell it in the future and avoid capital gains tax? From a purely strategic perspective, yeah, that sounds great. If you decide to sell and you're willing and able to live there for two years first, definitely do that because you'll save a bundle. And sure, technically you could defer capital gains taxes with a 1031 exchange, but that 1031 comes with its own set of headaches. And if you want to hear more about that, for more about 1031 exchanges, you can hear about that on episode, 235. You can find that at afford anything.com slash episode 235. That conversation about 1031 exchanges

starts at the 43 minute and 50 second timestamp. So episode 235 starting at the 43 minute 50 second timestamp to learn more about 1031 exchanges. But to your question of should we move into this property before we sell it, I mean, if I were to answer that at face value, yes, From a tax perspective, that makes sense. From a financial perspective, that makes sense. But again, it strikes me that you haven't yet answered the question of, should we hold on to the property or sell it. And before you've asked and answered that set of questions,

you've also gone one step down the rabbit hole to, if we sell, should we live there first? we're not at that stage of discussion yet. In fact, we're not really even at the discussion stage of should we sell or hold because the discussion stage that has to happen before we can even get to that is what are we ultimately trying to create here? How many rental properties do we want to own? What type of properties do we want to own?

What ideal returns do we want? what ideal level of risk or workload or hassle do we want? What type of portfolio are we trying to construct? So that is the, that's the initial question. And once you've answered that, then at that point I think you'll know whether to sell or hold this property because you'll know whether or not this property fits into your overall investing vision. So thank you for asking that question, Shelby.

and thank you again for being a long-time listener and congratulations on everything that you've achieved in the last two years. That's our show for today. If you are interested in learning more about real estate, head to afford anything.com slash VIP list. We have an email series that we send out with all kinds of information about real estate investing.

How to look for properties out of state, how to learn about different neighborhoods, even if you don't live there, if you don't live in that state, how to calculate cap rate and cash on cash return and various formulas. We have all kinds of information in this free email series that you can get at afford anything.com slash VIP list. So head there, sign up for our free email series, and when we do launch our course, we have a course on rental property investing.

It's called Your First Rental Property. And we offer this course twice a year. We run a spring semester and a fall semester. So if you are on the VIP list, then you will be the first. to hear when we are ready to announce the dates of our spring semester. So again, you can get information on all of that at afford anything.com slash VIP list. That's afford anything.com slash VIP list. Thank you so much for tuning in.

My name is Paula Pant. This is the Afford Anything podcast. If you enjoyed today's episode, please share it with a friend or a family member. That's the single best way to spread the message of financial independence and personal finance. Make sure that you hit subscribe in whatever app you're using to listen to this podcast. Coming up next week, we have an interview with David Stein. He talks about 10 questions that you should ask yourself before entering into any investment. So that's coming up next week. Make sure that you're subscribed to this podcast so that you don't miss that interview or any

of our other awesome interviews that are coming up. Thank you so much for tuning in. Again, if you want more information about real estate, head to afford anything.com slash VIP list to grab that free email series. I want to say a quick thank you to our sponsors, Radius Bank, Billy, PolicyGenius, and ZipRecruiter. And a big thanks to you for being part of this community. Have an excellent, productive, and profitable week, and I will catch you next week.