Afford Anything - Ask Paula: Talk Crypto To Me

Episode Date: March 4, 2022

#368: Grace wants to buy a manufactured home for rental income. Should she calculate her returns differently for a manufactured home? Alex is curious about cryptocurrency. How should she analyze the returns promised by different platforms and where can she go to learn more about crypto in general? Thomas and his wife have parallel goals of saving for a down payment and contributing to retirement accounts. How should they balance both of these goals? In today's episode, former financial planner Joe Saul-Sehy and I tackle these tough questions. Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode. Enjoy! For more information, visit the show notes at https://affordanything.com/episode368 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 means. Turning away all other opportunities, and that opens up two questions.

First, what matters most? Second, how do you align your decision-making around that which matters most? Answering these two questions, is a lifetime practice, and that's what this podcast is here to explore and facilitate. My name is Paula Pant. I am the host of the Afford Anything podcast. Normally, we're a weekly show, but once a month on the first Friday of the month, we air a first Friday bonus episode.

So welcome to the March 2022 First Friday bonus episode. Every other episode, we answer questions that come from you, the community. And my buddy, former financial planner Joe Saul Seahy, joins me to answer these questions. What's up, Joe? It is such a joy to be back here. You doing this again, although I showed up today. I look like I've been beaten up, Paul. Your eye is red and swollen.

My cat, Cooper, loves to who you know, loves to sleep on my pillow and or next to my pillow. Well, yesterday he slept on my pillow. And I've had this drainage issue lately and I slept right where he slept afterwards. And now the right side of my face is a little, little swollen up. But nobody can hear that on the radio. So I'm just telling you that I'm kind of limping in, but the brain's still working, and we're going to get this done. Joe, you've got a face for radio. I totally do, especially today.

Joe, give us some happy news about your life. I'm going on a 40 city tour to see everybody. Heck yeah. Yes. We've been working on that. We got some good news from Baltimore today. We have some good news in Boston working today also on Madison, Wisconsin and Grand Rapids, Michigan. So tour dates are coming fast and furious.

That's awesome. Look at you. You're going to 40 cities in some number of weeks, some number of months. Yeah, the good news is because of COVID we had to drink. Well, I don't know if it's good news, bad news. Part of me is like, let's rip the Band-Aid off and do it and have fun and meet everybody and get back to Mom's basement where I work. But because of all the holidays and things that happen in the spring, it's really a lot more spread

out now. I think we reach Vegas because you got to end your tour in Vegas in mid-June now. So it's, what, three and a half months? Yeah, three and a half months. Nice. So I can tell people that tomorrow, tomorrow we will be in San Francisco at South Pacific Brewing. And then the following day will be in San Diego with all those awesome San Diego wins. Is that what there?

San Diego, San Diego. I think San Diego. San Diego. Say hey to San Diego. We're going to do that. We'll be at a place called Dirty Birds. And then we go to Project Barley in Los Angeles in four days. So stackybenchments.com slash stacked to come hang out.

Then we have for Portland, Seattle, and then I go to Miami and Tampa and Atlanta before I fly home for my first break. Wow. Look at you. Chris Cross in the country. I know. Jet Setter. Right. Well, speaking of Jet Setter, actually there's no segue here.

What I'm about to speak about has nothing to do with jet-satters, but we have three really interesting but super diverse questions that come from our community today. One person asks about cryptocurrency. One person asks about investing in mobile homes or manufactured homes. And then one person asks a big picture financial planning question about how to prioritize between different goals. Like a cornucopia today. Absolutely.

It's the cross-country tour of different types of financial questions. It is. So we're going to tackle all of these questions today, starting with Alex, who has a question about crypto. Hi, Paula. I am a huge fan of your podcast. This is my first time calling with questions related to investing in crypto and conducting due diligence when it comes to first. that offer investing opportunities related to this emerging technology. Now, this is coming from an elder millennial, the oldest millennial you can get. I'm an antique. I'm really interested in learning about crypto, but to be honest, I don't quite know where I can find legitimate information about it. It just seems like if I

join different Facebook groups or if I follow influencers, on YouTube, I just get some of these kind of investment bros, sorry to say this, but they just seem like really into the hype. And I don't understand what the metrics are for analyzing a coin or understanding the value that they can provide to society or thinking about whether this is going to be, you know, a good investment in the short run or long run. I understand that crypto has not been around as long as the stock market or real estate. However, how can a responsible investor who is really trying to understand crypto go about doing so? There aren't a whole lot of books, obviously, and how do you trust the information that you get? And are there any resources

out there that you use, I'm just really hoping to understand it because I'm a firm believer that I shouldn't be investing in things that I don't fully understand. So here I am trying to understand. So any insights that you could provide into this, I would really appreciate. Thank you. Alex, thank you for your question. First, let's outline the various ways that a person could invest in crypto if they wanted to do so. You could, number one, invest in cryptocurrency. itself, i.e. the coin itself, meaning you could directly exchange some of your money for Bitcoin or Ethereum or any other cryptocurrency that catches your eye. And if you were to do that, that would most directly be akin to a foreign currency conversion. In the way that you might

exchange U.S. dollars for British pounds or Thai bot, you're exchanging U.S. fiat government currency for digital currency. And so when people talk about investing in cryptocurrency, you know, other types of investments, equities, for example, Coca-Cola, Nike, when you invest in a company, you are buying a share of the company's future earnings. When you invest in cryptocurrency, you are making a speculative trade. You are doing something that is analogous to foreign currency conversion by exchanging one method of payment for another. U.S. dollars are a method of payment, and Bitcoin is a method of payment. And so whenever you invest in a cryptocurrency, what you're doing, particularly when you invest directly, you are

essentially placing a currency conversion hedge. So that is one of three methods of investing in cryptocurrency. You could buy the coin itself. You could do so directly. And there are plenty of platforms that can facilitate that transaction like Coinbase or Voyager. Now, another thing that you could do is invest in crypto funds and ETFs. And when you do this, think about how you, and Joe, you can chime in on this. Think about the approach to investing in any type of ETF, right? You want to know what that ETF is holding. What are the underlying assets inside of that ETF? Look at, and I'm not recommending this specifically, I'm just using this as an educational example, ARKK, that is the ARC innovation ETF, if you look at their top holdings, you'll see they've got Tesla, they've got Zoom,

they've got Roku, they have a lot of large cap and midcap equity companies inside of that ETF. They've got Spotify in there. I still don't like it though. I don't like the idea of an ETF for crypto. And I know it's available and I'm glad you're bringing it up. I just really don't like it. Why is that? Number one, I think it's much more pseudo-diversification. It isn't diversification in the same way. Like even the, you know, even Kathy Woods, a ETF that you're talking about, Paula, is going to really, a lot of those companies on your average day are going to go up and down at the same time because they, while they're in different markets, they have the same type of person that trades them and they trade them for very similar reason. So without a day that has news out of Facebook

or, excuse me, meta, or out of Google, nope, alphabet, or out of Apple, or what are these other companies without news happening in a specific industry or at a very specific, with a specific company, they all kind of move in tandem. Well, crypto is that to the end's degree, but there's even a bigger problem, which is when it comes to the whole idea of crypto, and when Alex talks about learning about crypto, I want to learn about crypto. And I want to learn what it's really for. And all you get, all you're getting in an ETF is the volatility.

You're not getting the true reason why you have, why you're using crypto at all. I feel like it takes this cool new technology and encases it in something that's much more archaic and not meant for it. I don't think an ETF is really meant for crypto. If you really dive into what crypto is, and that's what Alex wants, the ETF rips. out the sole of crypto and all you're getting is the volatility that you're trading on. And then I feel like you're like half the people on TikTok that are only trading crypto as a lottery scheme. Let's just get rich quick. It isn't that I want to learn about it or that I want to use the technology or understand it. I just think it's going to the moon. So that's why I'm not a fan. So what about this?

What if instead of an ETF, Alex were to look at crypto trusts. So, So companies, for example, like Grayscale, have two different types of crypto trusts. They have single asset trusts where you can invest in a Bitcoin trust or an Ethereum trust or Solana or Stellar Lumens. You can invest in a trust that represents just one single asset, one single type of coin. Or if you prefer, you could choose to invest in a diversified trust, such as a defy fund or a digital large cap. I think still, unless you're going to have the opportunity.

to use this money. It isn't about crypto to me. It's not about diversification. I mean, okay, own a few different coins. But I'm not as in love with the idea of diversification with crypto. Because even at this point in the game, at this point in the game with crypto, it still is so much the Wild West. And I really look at it now differently than I did three years ago,

where I thought it was all the Wild West. And I certainly now, Paula, think there's two different levels of Wild West. I feel like some of the more established coins definitely have not a floor, but a general agreed consensus that they're going to be around. So you're not going to lose everything versus five years ago. There were a bunch of people talking about the fact that, hey, don't go into Bitcoin because you could lose everything. And well, okay, that could happen. I don't think it's anywhere near as likely as it was five years ago or with Ethereum or whatever, any of the major coins. So I feel like there are two different parts of the Wild West, but it still is.

And if I'm investing in that area, I am doing it partly early because of the volatility. Like, I want the volatility. The volatility is part of the reason why I get in early. So I hear CFPs all the time tell people don't invest in crypto because there's too much volatility and you could lose your butt. That is true. But that's also when the big, big, big money gets made. So if that truly is the part of my portfolio that I'm investing in crypto, why am I diversifying it? I mean, this particular part of my portfolio is not about diversification.

My large cap's about diversification. I want the S&P 500. I want all the all, right? With VTSAX, with the total market index, I want all of it for the purpose of diversification. Is that really why I want crypto my portfolio? Do I want all of it? So what you're saying, Joe, is have the bulk of your portfolio go to diversified assets, like the S&P 500. But in this niche sub segment of your portfolio where you are going to place wild bets, go all in.

Figure out what you stand for, figure out what you believe in, and go all in, in the way that a person might do that with just a small handful of individual stocks. Absolutely. You would analogously also do that with a couple of coins. You and I had this conversation a few weeks ago, right, about strategic under diversification, about strategically taking a little piece of your portfolio under diversifying. I think if Alex truly wants to learn about crypto, buy some crypto, start off really small, but buy the actual coins, buy them what they're for, not this diversified thing so that I have this difference between what the coins being used for and what I'm really trading.

No, get in there and do it. which is funny, Paula, because this goes against, you know, what you and I talk about about most of your portfolio. Part of what you and I don't like about individual stocks is you get emotional about it. If I own a company, you and I were talking about an oil company that you own, I've got a big position in Microsoft in my play account, not in my total net worth, but that's like my main thing. I get awfully emotional about my Microsoft stock.

I don't get at all emotional about my VTSAX, right? I don't get it all emotional about my indexes, which is why you invest most of your money in indexes because you should be unemotional about it. But I think when it comes to this part of your portfolio, going in there and feeling it, knowing what you're actually getting into, I think is going to be a big part of how Alex learns about how it all works. See, while I like the idea of strategic underdiversification, i.e., figure out which cryptocurrency or currencies you believe in. dedicate the wild section of your portfolio to that which you believe in. I do see the logic in particularly the single asset trusts because it allows you to have exposure to the crypto market without having to worry about the security risks that come with directly holding the currency. Like having a hot wallet. Exactly, exactly. And then you have to worry about

cold storage and you know, you can just bypass all of that by. Bystands. virtue of either an ETF or a trust by going to one of these funds, essentially. Yeah, the upside is not trying to get the jump drive out of the trash. Right. Exactly. Which we've heard the how many times we heard that story. Exactly. Exactly.

Yeah. You know, the terms and conditions to any of these storage devices basically say, like, hey, if you lose your password, may God have mercy on your soul, because there is no recovering that. Our mutual friend, Doc G, at the Earned Invest podcast, he tells a story about his son who was given some crypto like, I think it was six years ago, Paula, which means at the time it was very little money, and now it's big, big, big money, and he doesn't know how to get to it. He is no, his son has no idea how to get to it. And at this point, Doc thinks that it might pay for a year of college, this little tiny bit or more. And they can't get to it. So yeah, on that side,

but I don't know if I'm doing it with very little money for education. And I'm learning then about the difference between keeping my money in a hot wallet. Because then there's the other side of the hot wallet, which I find really interesting, which is the fact that in some of these places, you can make your money available in a hot wallet. and get a monster interest rate just by holding it in that spot. So you are risking the fact that this is not FDIC insured. In fact, the bigger insurance on this one is SIPC insurance, right? Which SIPC insurance is the government insuring your portfolio against your broker

running off with your cash. This isn't even SIPC insured. Right, right. Your broker could run off with your cash and there is zero insurance to stop that. Or hackers could get in, right? potentially. But then you look at the whole idea of the blockchain. Like what is the hacker going to actually do with it? I mean, maybe, maybe. But the big thing is, is it learning that, you know, I have friends that are getting 8% on their money just by sitting it in this place

that they have learned about to trust. Can that money go away? Yeah, can. But the more they know about how this stuff works, the better equip they're going to be as the Wild West develops into, you know. Okay, so what if the diversification came not from the selection of the currency itself, but rather from the ways in which that currency is held? So hypothetically, let's say that Alex does some research and decides that she really believes in Solana. What if her method of diversification is holding Solana directly or holding Stellar Lumens directly, but then also going into a single asset trust for additional exposure to that. Same investment, different routes to get there. Yeah, I really don't mind either one of those approaches.

But I think that the – I guess it depends on what the goal is, Paula. If the goal truly is education and to know it, I think that knowing the cold storage hot pocket – I also want to call it a hot pocket. You think that knowing how to secure your crypto is part of crypto education? I do. I do. Because I think if you're truly going to get involved and you use it as a currency, then knowing how to store your currency, I think is part of the stuff. You know, when I was a kid and I lost money because I was careless about it, when mom taught me the lesson about it,

what was it was learn how to take care of your money. This is why we don't leave money in the living room, right? This is why we keep it in a bank account. This is why we're careful with our cash. So, Alex, to summarize what we've just talked about, if you do want to get involved in investing in cryptocurrency, and remember, an investment in cryptocurrency is different from an investment in equities or in companies insofar as it's speculative. The currency itself doesn't generate a stream of income, but you're hedging that the exchange rate between U.S. dollars and a given currency will improve in the currency's favor over time. So if you do want to push into that arena,

sure, you could get some exposure from an ETF or from a trust, but you can also skip all of that, go to a platform like Coinbase or Voyager, and buy the underlying currency itself, or specifically exchange your dollars for a different type of currency. There was a third point that I wanted to bring up, though, and that is that if you believe in the future of cryptocurrency, but you don't want to hedge on any one particular type of currency, you know, you don't know which one is going to be the winner. You just believe in cryptocurrencies as a whole and in their growth and increased importance in our society as a whole. another way to get exposure to this market is equity investing in companies that serve the crypto market like Coinbase.

Not that I'm recommending them, this is not an investment recommendation, but there are plenty of companies out there whose bread and butter is tied to the growth of digital currencies. And by investing in those companies, you gain exposure to the overall field without having to choose any particular type of currency. I think that is an exciting opportunity as well because then, you know, if you talk about education, I think investing in something like a coin base, you also get an education on how they work and how they're competitive or not competitive, which part of what Alex talked about was understanding the difference between these different places that you can make the exchange or hold your money. Investing in those places is neat. And I also think that historically investing in the places that sell the pickaxes and shovels to the get rich quick crowd has paid handsomely. Right. And now the bad news is, is that what I just said, everybody else on earth that's trading stock thinks that. So the valuations on these companies are already through the roof.

So I'm not saying that it's a safe bet to invest in a crypto-related company because a lot of it is based on the future and on speculation. and that they will continue that market share there, but that has been one way people have succeeded in the past. And as I'm talking, it makes me think of one of Michael Lewis's early books called Liars Poker, which is a dated book, Paula, but it's still a fantastic read about Michael's time working for a company called Solomon Brothers on Wall Street

and about how he was an unsuccessful trader. And then he learned from success traders to look at not the first. domino, but the second domino, meaning maybe the valuation on Coinbase is high, but finding out who supplies Coinbase, who makes them able to operate? Who does the plumbing for Coinbase to be able to do what they do? Who do they rely on? You'll find valuations are not through the roof as much because there are fewer people that are doing this type of homework. Right. And that historically, historically, he liked those bets and he became a better trader doing that. That may be

an opportunity too. And think about the lessons that you learn talking about education, trying to learn who supplies Coinbase. Exactly. And not just Coinbase, but like who is at the forefront of using blockchain technology to improve their business processes? So you look at IBM, right? IBM has been a leader in creating blockchain solutions. Or you look at Square. that company Square, which just changed its name to block, right? They're very much at the forefront, but they're a fintech firm. Even MasterCard, MasterCard is partnered with a blockchain technology company called R3 because they understand that they need to either innovate or become obsolete. I remember stories from a few years ago when J.P. Morgan was releasing

things to their clients saying that blockchain was dangerous while Jamie Diamond was taking their very same, was taking their money and investing heavily in that area. Almost like utility companies telling you not to get into solar while they're building solar, which I know is not a fair analogy. And if you're in solar, I know they're two separate things. Right. But any company that is in the business. of verification. You look at docusign. Docusign's been at the forefront of using blockchain

because their docu sign. They rely on gathering and protecting authorized signatures. That's their entire business model. And so, you know, if you zoom out of cryptocurrency and towards blockchain technology as a whole, these are some of the potential plays that a person could make that would give them exposure to both the companies. and the underlying assets that may be at the forefront of the blockchain revolution. I have a podcast recommendation for Alex in this area, Paula. I enjoy listening to people geek out about whatever I'm interested in. And if I can find a podcast that's entertaining and I just get in the middle of a discussion,

even though sometimes it might go into a little jargon, I find myself, if I'm entertained, I'll dive into the jargon with them. and Kevin Rose's podcast, Modern Finance, because of the fact that it's not about one coin, it's about the space. So they talk about many different coins. They talk about NFTs, the most modern stuff in finance. Kevin talks about with some pretty smart people. And I find it to be a really enjoyable podcast. The thing I like about Kevin is he's been in that space for a long time.

He's a guy who's been there and has seen a lot of stuff. He certainly is, you know, Alex talks about finance bros and maybe not wanting some of that. What I do think about Kevin is he definitely is a fanboy of the space. Definitely the glasses have full in Kevin's eye. But going in, knowing that, I like that podcast. So we'll recommend one podcast, one newsletter and one YouTube channel. That way we've got something you can hear, something you can read, and something you can watch. So for the podcast, Kevin Rose, Modern Finance, for the newsletter, Anthony Pompliano publishes a daily newsletter.

It's called The Pump Letter. And that is a newsletter with daily updates that are at the forefront of what's happening in this space. So if you're looking for something that you can read, I would recommend the Pomp Letter as the daily newsletter. And then on YouTube, Crypto Casey is my favorite crypto YouTuber. We'll link to all of those in the show notes. You can subscribe to the show notes for free by going to afford anything.com slash show notes. Thank you for asking that question, Alex, and prompting this discussion about how to get involved in investing in the blockchain revolution generally and in cryptocurrencies specifically. And good luck as you continue all of your research in this field.

It's a really exciting space. We are going to take a quick break to hear a word from our sponsors. And when we come back, we're going to hear a question from Grace about investing in manufactured homes. Is that a viable real estate investment or not? That's what's coming up next. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size.

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my alma mater in upstate New York, even accounting for the monthly rent of the park land that the manufactured home is on, the cap rate on this property would be 19 to 20 percent. It seems too good to be true. So I'm wondering if I'm just not doing something right. Would there be an additional calculation for the depreciation of the home itself since its lifetime is much shorter than a typical rental property? Thanks in advance. I love this question, Paula, and as a guy who knows a fair amount about real estate,

Paula, I do not know how to evaluate mobile homes. But I have to think about a couple things. I think that a lot of these houses like Grace talked about may be a depreciating asset because they don't last as long. But second, in most cases, you don't own the ground underneath it, which I think also is a big, has to be a big player here. But this is not my area of expertise, but those are the first two things that I think about. So how do those play in, Paula? Ooh, okay. I have so many thoughts to share.

Let's begin by going through the vocabulary. First, I want to distinguish between a mobile home, a manufactured home, and a modular home. All three of those terms, mobile, manufactured, and modular, all reference prefabricated structures. And this is in contrast to what's known as, quote, unquote, a stick-built home, which is a non-prefabricated structure. However, they differ in some significant ways. mobile homes refer to manufactured homes that were built prior to 1976. There were two important things that happened in the 1970s. In 1974, the National Mobile Home Construction and Safety Act was passed.

And then two years later, in 1976, the Department of Housing and Urban Development, HUD, created a set of guidelines known as the HUD Manufactured Home Construction and Safety Standards, which is a set of federal standards for manufactured homes. And it governs everything from design and construction to body and frame requirements, thermal protection, plumbing, electrical, fire safety, energy efficiency. And so the nomenclature is that the word mobile home is used to refer to these types of homes built prior to 1976. And the term manufactured home references these types of homes built.

after 1976, which necessarily, assuming they were code compliant, adhere to a much more rigorous set of codes and standards. Now, there's a third option as well, and this is referred to as a modular home. Similar to manufactured homes, modular homes are also prefabricated, meaning that they are built inside of building facilities that are off-site, and then they are transported to the home site. the difference between them is that a manufactured home is built to a set of national standards, the HUD code, while modular homes are built to specific state and local building codes. And that's another way of saying that a modular home is built in a way that adheres to the local codes of the city or county or township that that home is going to be located in, which means the design of that home inherently is locally appropriate, and particularly depending on the climate conditions in that area.

If it's an area with heavy snowfall, for example, or if it's a part of the country that gets triple-digit heat during the summertime, having a home that adheres to municipal or local building codes can make a big difference in the quality of life for the people living inside of that home. And so that's the distinction between a manufactured home and a modular home. Now, Grace, to your question, I'm going to assume that what you are asking about is a manufactured home as opposed to a prefabricated modular home. Because the answer is going to be different depending on which of the two you're asking about. And technically you could use the word manufactured home to refer to either one. But I'm going to assume that you're referring to a manufacturer. manufactured home built only to the national standard and not to any local or state standards. To your question as to how do you run the calculations differently, first, bear in mind that

what, for the sake of conversation, I'm just going to call it a mobile home. A mobile home is personal property, not real property. That's an important legal distinction and financing distinction. Personal property differs from real property in some significant ways. Imagine this. Imagine you go to Home Depot. All right, let's forget that we're talking about manufactured homes for a second. Joe, imagine that you go to Home Depot and you buy a pile of wood and some nails, right? And you carry all of these into your living room. And- Because that's what I do with the wood. Yeah, exactly, exactly. Carry it into your living room and just plop it down. on the floor and then you never touch it again. And then you go back to Home Depot or Lowe's and you buy a giant pile of bricks and a bag of cement and you just plop this all down on the living room floor. But imagine that you don't actually do anything with it. You never use it to build a new patio. You never use it for any useful purpose. It's just a pile of stuff in the middle of your living room floor. And then you go to sell your house. That wood, those nails, those bricks, that bag of cement, those are all your

personal property, right? But if you were to attach that personal property to your home, if you were to use the nails to attach the wood to your home, if you were to use the cement to attach the brick to your home, then it's no longer your personal property. Then it's part of that piece of real estate and it transfers with that piece of real estate. In my case, half of it would. The other half would be wasted. No, the other half would be part of the divorce. because I couldn't have all that stuff in my living room for all that time. I don't think Cheryl would like it. But yes, I get it.

So that's an example of how anytime there's a real estate transaction, there's a distinction between what's thought of as personal property and what's thought of as real property. And mobile homes are personal property. Now, among the many implications that carries, one particularly important implication is that that that makes it much harder to get financing. for a mobile or manufactured home. In fact, often you may have to take out a personal property loan, which is also referred to as a chattel loan. While the good news is these homes are often cheaper, i.e. it has lower capital requirements for market entry,

which is just a nerdy way of saying, you'll be able to save up for it faster, you'll be able to pay for it faster. But I hope you're paying in cash because if you're not, then the financing could be a lot more difficult. So that's the first thing that I would say. On top of that, Grace, to your question specifically, which is how do I assess it? Like, forget the financing. How do I just assess whether or not this is a viable investment? What kind of returns am I going to get? You're correct that it will

depreciate faster. And that's for two reasons. Number one, the quality of construction between a manufactured home versus a stick built home, that manufactured home will just fall apart faster. Number two, Joe, like you said, you don't own, in most cases, you don't own the underlying land. And when you look at a piece of real estate, when you're purchasing a single family home, a stick-built single-family home, you are actually purchasing two things. You're purchasing the structure itself and you are also purchasing the underlying land that that structure sits on. And so, grace to your question about depreciation, yes, it does depreciate faster. and also there is no underlying land to offset that depreciation in terms of what it means for your total balance sheet. Because oftentimes, if you own a stick-built home that's on a piece of land

that you also own, then the structure depreciates, but the underlying land hopefully appreciates and the two cancel each other out. And ideally, the value of that underlying land rises enough over time that it more than makes up for any depreciation in the structure itself. Now, Grace, you also mentioned the cap rate is a lot higher. Well, remember, cap rate doesn't take depreciation or equity gains into account. Cap rate is a measure of your net income stream after operating expenses are paid. And so the fact that there's no underlying land that's growing in value, that's not captured in the cap rate formula anyway.

Depreciation is only indirectly captured in the cap rate formula insofar as it might have an impact on repairs, maintenance, major capital expenditures. But fundamentally, cap rate is a measure of the dividend payment that you're getting from this particular holding. It's not a measure of total return. So are the cap rates higher? Yes. In many cases, absolutely. but is that offset by other, no pun intended, modulating factors, including lack of equity growth, sure. The last thing that I'll say about this is that if you do choose to go the route of owning a manufactured home,

other things that you'll want to be very cognizant about, ways that it differs from owning a stick-built home, relate to the fact that you, as the landlord, would pay rent to whomever owns that underlying land. So if this manufactured home is in a park, you as the landlord would pay rent to that park owner and would have to comply with those park rules. There may be certain challenges related to upkeep of communal areas. There may be additional challenges related to services or service disruption, and there may be additional risk related to severe weather events. So those are all things to keep in mind if you choose to go this route. On the other hand, though, a lot of manufactured homes are pretty recession-proof. You know, in a recession, people often want lower housing costs. And so there is an element of more consistent demand for these types of homes. And on top of that, there's often less buyer competition because you're not competing against the retail home buyer-owner-occupant pool of bidders, at least not in

as major or as meaningful of a way as you would be if you were buying a stick-built home. So that reduced buyer competition, you know, that can get you attractive entry price that would potentially be compelling enough to offset some of the specific disadvantages that come with investing in a manufactured home. In fact, I know that for some of these investors, Paula, investing in complete parks has become a great investment, buying the land. is also another way that people invest in this sector that has become, I think, to some people super attractive lately.

Right, exactly, because then you get both the structure and the underlying land. Of course, comes with its own set of challenges. Yeah. And in some cases, you just own all the land and somebody else owns the structure, but you and then you have the equivalent of an HOA, right? And some of the work that some entrepreneurs have done in this area, Paula, I mean, you've seen, have you seen some of like the social things that people do there about what they've done with landscaping and, and just some of these places are becoming flat out high. You talk about lower cost.

Some of these places become flat out beautiful, high cost of living areas. Yeah, gorgeous with nice communal spaces. Yes. Playgrounds. Crazy. Just beautiful areas. And that's exciting too. When an entrepreneur gets involved in any redevelopment project of a town, I know, and I've bragged about this before, my son owns now, I think he's buying houses 10 and 11, and he's 26 years old and buying rental properties. But he gets, you know what makes him really excited, Paula? They're all in Detroit. And he loves being a part of the revitalization of Detroit. And the houses that he's worked on, I've seen the before and after pictures and the fact that he's turned these old beautiful houses

back into old beautiful houses and rented them out to people that love living in them because they're gorgeous in these old beautiful communities that are being rehabbed. Like, that's fantastic. Right. So exciting that you can make money and do good at the same time. Exactly. It's very gratifying to participate in a community like that and to make that positive contribution. What I will say to everyone who's listening, who's interested,

in any form of real estate investing, whether it's stick-built homes, manufactured homes, homes in your local community versus homes that are out of state, maybe in your former hometown or maybe in your college town, or where your brother or sister lives, right? There are all kinds of different stripes of people who invest in real estate, specifically in rental properties. We have a lot of information in our VIP list that you, we send to people who subscribe to our VIP list. It's totally free. Affordanything.com slash VIP list.

Sign up there. Affordanithing.com slash VIP list. You know, what we've talked about today scratches the surface of just one topic. So real estate, specifically rental properties, it's a very deep topic that carries a wealth of information, a wealth of opportunity, both for building financial independence as well as for,

like you said, Joe, being part of the story of a community, being part of that revitalization like your son is doing in Detroit, helping to bring it back. So afford anything.com slash VIP list to learn a lot more. And Joe, your son is out of state, right? He lives in Seattle now, but he was raised in Detroit. He does, yeah. So he has a lot of knowledge of that community, which I know that a lot of people, you know, a lot of people caution in some of these places where you're buying real estate, make sure you know, you know, you know, the area that you're getting into. And I would say Detroit's one of those areas. But yeah, he had to develop a team. I remember him buying his first house and how difficult it was.

And he got the wrong team in almost every single instance hired the wrong person first. And you know what he learned over time, though? He learned how to interview. And obviously that the more people you interview, the easier it's going to be to find the right people. He also knew that contracts are better than somebody's word. It's amazing. it's amazing what a contract will do and setting expectations ahead of time. And I don't know, to learn that stuff at 26 when I was not that excited about any of those

things is pretty, pretty amazing. As you can tell, I'm a little bit proud dad. Nice. Well, Grace, thank you for asking that question. And if you're not on the VIP list yet, I definitely encourage you to sign up. And best of luck with whichever type of rental property you choose. we're going to take one final break for a word from our sponsors and when we come back, we're going to hear a broad, big picture financial planning question about how to prioritize

between different types of saving and investing goals. So stay tuned for that. Our final question today comes from Thomas. Hi, Paula. My name is Thomas and my wife and I recently achieved a financial goal of maxing out. each of our 401K is the first time in 2021. We definitely owe you many thanks for educating us on how to make that a reality, and we continue to plan reaching this goal every year going forward.

While we're currently happy where we live, we are forecasting a move for our children and be closer to family in about five years. With that in mind, I'd appreciate your insight on how to achieve some additional financial goals while also beginning to save for a significant down payment on our potential forever home. Due to a recent job move, my wife can also contribute to a 457B. While we're still learning about the 457B, we have set a goal to maximize these contributions as well for the tax advantages the plan offers, but are curious how a move in five years could impact those contributions. Second, due to unforeseen lost wages in 2020 due to COVID, I took an early 401k withdrawal of $18,000 allowed by the CARES Act. I now have up to three years to repay that distribution and gain some tax relief.

Because I work in a unionized job, I know my salary should increase over this time as long as the industry I work in remains healthy. With an emergency fund already replenished, 401K matches from our companies and backdoor Roth IRA contributions maxed out each year, how would you balance saving for a down payment with our 401K contributions, $457B contributions, and repaying the CARES Act hardship with trust? all I made in 2020. Thanks for all the time you've invested in this community. Look forward to hearing from you.

Thomas, that's a fantastic question. I can see, Paula, why this seems, maybe to everybody listening and also probably to Thomas, that there's so many moving parts that there really are a lot of parts. So what I like doing in this case, Thomas, is I like starting with the deadlines. And you've got a series of deadlines here. You've one that is imposed on you by the loan, right? That loan has to be repaid on time. Right.

That's three years. Yeah, there's a definite timeline there, and that is a non-starter. So that's got to happen. Second thing is, you've said that your move is in five years. And if that is a concrete immovable deadline, then there is a amount of money that you're going to need for your down payment at that time. So I think in this case, while I love the fact that you. you've been maxing out your 401k's. With those specific deadlines, I think, number one, that 401k loan

has to be repaid because that is completely immovable. To some degree, you might be able to move your moving decision, might be able to change that. But assuming that you can't move that much, I think you just figure out how much money you need to save monthly for that. And then the thing that I would try to build a mode around, no matter what you do, and maybe it's changing your expenses to do this. it already sounds like you've done that to be able to do the awesome stuff you've been doing so far. But then I think the third thing is to make sure you're saving at least to the match, wherever you get a match, make sure you save that toward retirement. But beyond that, obviously, then I like looking at how much money do you actually need to put away into those funds to

make sure that you preserve your retirement. But Paul, I think those first two things being that immovable, I think you just do the math. Just work it backwards and do those too and then make sure you get the match, change expenses to do it. And it's not nearly as complicated, I think, as it initially seemed to me when I heard the question. Right. Exactly. Thomas, the good news is, as you said, your emergency fund is totally replenished, so you're good there. And you're getting your 401k match from your company. You're maxing out your backdoor ross. IRA contributions. And so looking forward, you've got four savings goals that I can hear. You need to repay the CARES Act withdrawal. You need to save for a down payment on the home that you want

to buy in five years. And then you want to make additional 401K and 457B contributions. And so, Joe, I agree with you, starting by prioritizing the two out of those four goals that have shorter deadlines, right? The CARES Act withdrawal and the down payment on the home that he's going to buy in five years, like those have a three-year deadline and a five-year deadline respectively. So the priority needs to go there. With regard to how to manage that batch of funds that he's managing after the 401K matches are already made, after the emergency fund is already fully funded, which it is, right? Those foundational pieces. are laid into place. So yeah, next step is prioritize the thing that happens in three years,

prioritize the thing that happens in five years, and then whatever is left over can go to the 401k and the 457. But that being said, Joe, like you said, the second order question is, does he put everything that's left over into the 401k or 457? Or is there a leeway for some additional goal that he hasn't even mentioned? What we don't know. Yeah. Right. Yeah, exactly.

Yeah. How much does he want to save for retirement? And is it possible that he may not even need to put the rest of it into the 401k and 457? He may be able to first do the three-year goal, then do the five-year goal, then put additional money in the 401K and 457, and then potentially still have money left over for some fifth goal that hasn't even been dreamt up. yet. Yeah, you're saying maybe he can coase a little bit on retirement if he's done a really great job. Yeah, potentially. I mean, he's already getting the 401k match, already maxing out the backdoor Roth IRA. So I don't know what his numbers are, but there's at least that window of opportunity there. And more broadly, I think where I'm going with this is not to get into the mindset that

every penny needs to go into a retirement account. There can definitely be a big temptation to do that because retirement accounts are tax advantaged and who doesn't want to get that tax advantage. But there's also the question of, heck, how much do you need to save? And if you're over-contributing to those buckets, would it make sense to do something else? Which I think we need to also delineate between the 457 and the 401K. I think all things being equal, I like the 401K better. and that has to do with bankruptcy protection and that some 457s are not as protected as a 401K is against bankruptcy. The threat of that is not huge, but the fact that there is this little what if in the back of my mind, I would get the match on both of them, and then I would fill the 401k before the 457 if the fees inside the account are the same.

Everything else is equal. Thomas, I noticed that you haven't mentioned anything about a $4.5. 529 account or a Coverdel ESA account, I don't know if that is something that you would want to consider, but when I talk about the possibility of layering in some additional goals, that could certainly be a contender. Joe, to your statement about figuring out each goal in the context of its timeline, right, this reminds me of something that I often tell people when they're torn between multiple savings goals, right? And let's forget retirement for a second, I mean, because it can be kind of nebulous. Let's take this down to a budgeting question. And let's say that someone has all of

these goals. They want to travel to Greece next year. They want to save up for a new car. They want to replace their iPhone. They want to buy a bunch of holiday gifts, right? They've got all of these different goals, and each goal represents a distinct amount of money and also a distinct timeline. And so from a budgeting point of view, what I always tell them to do is, hey, build out a spreadsheet, right? Here's the goal. Here's the number of months until that goal. Here's what that goal is going to cost. And so here's how much I would have to save per month in order to be able to reach that goal. So you build out that spreadsheet, you figure out what you have to save per month in order to put enough money aside for that goal. And usually, like, nine times out of ten, when people go through

this exercise, they find that the total amount that they need to save is way more than what they realistically ever could. And at that point, they have two options, either eliminate some of those goals or extend out the timeline. No, there's the third one. Make more so that you can save more. Yeah, find a new income stream. Which often, by the way, is the one that's, well, That one, Paul, is most overlooked. But it also is, in a lot of cases, your greatest opportunity. I think it's the most overlooked because it triggers in many people a fear of failure. If the conversation is purely around consumption, then there's no risk that you might not succeed at it.

I mean, sure, you may not reach a certain monthly savings goal, but that's very different than trying to build a business and having it not work. or trying to start a side hustle and having it not work. There are two different four. One is like a personal goal that you just kind of fell short on, like setting a goal to run every day and you didn't make it on Wednesday, so you fell short on that personal goal. That doesn't carry that same fear of failure as, hey, I'm going to pour a hundred hours into building out the side hustle

with no sense of whether or not it might actually work. So I think that's the reason that the make more end of the equation tends to be glossed over. I mean, imagine the rejection, if you go to your boss for a raise and the boss says no, which is the first thing that we all think of. I mean, that's the first thing that always entered my head was what the boss says no.

And then I always realized I'm already at no. I'm at no right now without even asking. So the worst, when you take that, make it the worst thing that can happen to you, if I get where I'm already at. But then, of course, there are a lot of people in study show,

this is women more than men. They do not want to rock the boat. And they think that if they ask for a raise, they might not not only not get a raise, but they might somehow turn that into being out of a job, which is also scary. But by the way, statistically, that happens fewer times than we think it will in our heads.

Statistics show that your boss wants to give you raise may not be the person that is in charge of giving you raise, but you haven't asked yet. And when it comes to side hustles, it just sounds like more work. I think you said it well, Joe, and it might not be fear of failure. It may be fear of rejection. Sure. Because that fear of rejection could happen both in terms of asking for arrays as well as starting a side hustle.

Starting a side hustle also triggers fear of rejection. Yeah. You build a product or service. Nobody wants it. It's a rejection. There's no fear of rejection when it comes to trimming back your budget. Right. I'm not worried that direct TV is not going to love me anymore.

Verizon is not my pal. So that's a bit of an aside, but it's a discussion that I hope would benefit everyone who's listening when it comes to one of the core questions in personal finance, which is how do you prioritize among a long list of different savings goals, each of which carry. a different dollar amount and have a different time table. How do you set those priorities? And so hopefully we just shed some light on how to do it. Bam. Joe, I think we've done it again. We did.

And you're right, a cornucopia of questions. Absolutely. Joe, I know you're currently at the beginning of your 40 city tour, but where can people find you? Besides San Francisco, San Diego. Not in the where in the world is Carmen San Diego sort of sense. Come see me, but we're still making Stacking Benjamin's episodes as well. You can find Paula on our Friday episodes, but we publish every Monday, Wednesday, Friday at StackyBenjamins.com or wherever you're listening to us now.

Your favorite podcast playing app? Only the best ones. Well, 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 do three things. Number one, open up your favorite podcast playing app and hit the follow button so that you don't miss any of our awesome upcoming episodes. Number two, while you're

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