Afford Anything - Q&A: Two Weeks Until My Tenants Move In And I Have Nowhere to Go

Episode Date: February 4, 2025

#579: Todd is in a real estate bind. He found out six days before closing on a new home that it wasn’t legally sellable. And renters are moving into his current home in two weeks. What should he do? Anonymous is excited about expanding her real estate portfolio. Should she sell her $2.5 million rental property in the Bay Area to do this, or can she keep it and leverage the equity instead? Former financial planner Joe Saul-Sehy and I tackle these two questions in today’s episode. Enjoy! P.S. Got a question? Leave it at https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode579 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, can you imagine what you would do if you rented out your home and then discovered that you can't actually move out? Oh, man. Right. Well, welcome to roommates. Unintended roommates. The problem is, even if you're open to it, the people that you rented to might not be. Well, I would give those people one star on Yelp because I'd be a wonderful roommate. I'm sure you would be, Joe.

We're going to answer a question about that today. We're also going to answer a question from someone who has some money to invest in real estate and is wondering how to kick things off. Welcome to the Afford Anything podcast, the show that knows you can afford anything but not everything. Every choice carries a tradeoff and that applies to your money, time, focus, and energy. This show covers five pillars. Financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double eye fire. I'm your host, Paula Pant.

I trained in economic reporting at Columbia. Every other episode, I answer questions that come from you. And I do so with my buddy, the former financial planner, Joe Saul-Sehigh. What's up, Joe? Hey, I am living here in mom's basement. So I know what it's like living with other people. So I think I'm expertly qualified to answer today's question. Oh, yeah, it's a doozy.

So our first question today comes from Todd. Hi, Paula and Joe. This is Todd from Salt Lake City, Utah. I've been listening to the Afford- Anything podcast since way back when, when it was the Money Show.com. I love what you do, and I appreciate all of your answers. So I ran into an interesting scenario right here. I'm about to close on a home. I'm six days away from closing.

I have the final signing documents. I've made sure that I was closing on time. I went for the final inspection earlier today and come to find out of the final inspection. earlier today and come to find out the seller cannot sell the home. It's a multifamily property, has two, but the lot was never divided into two, so he legally can't sell it until it goes through the city council, apparently. The Planning Commission, a whole bunch of bureaucratic committees that need to approve the splitting before he can sell it. So that will put the seller into default according to our contract.

Now, in order to get a better mortgage deal or be able to borrow more money, I put my existing home under a contract to rent, and I'm going to have renters in here in about two weeks, and I'm not going to be able to close on this other home. I'm just wondering if you've ever run into a problem like this, and what do I do? Don't want to break the contract for this young

couple who's renting my home. They're really excited about it, but I can't move into the home that I don't own either. What do I do? Todd, what a dilemma. First of all, I'm so sorry to hear about this. I know how exciting it is when you think that you're about to close. You're like, great, we're six days away from closing and then, oh, what could go wrong. Wow. Right. Oh, man. Wow. What an absolute doozy. So, A, I'm sorry that that happened to you. That's so disheartening. But to the more imminent pressing question that you're grappling with right now, what do you do? Because these tenants are going to, they want to move in. And importantly, you want to honor the contract that you've made. And I'm glad that you said that. I'm glad that you were so clear about that in your voicemail, because that was going to be my first question to you. Because the way that we would approach this, there would be two different ways that we would approach this, depending on, If you wanted to honor the contract that you made with your incoming tenants versus if you wanted to break the contract. If hypothetically in an alternate scenario, you wanted to break the contract that you made with your incoming tenants, and I'm saying this for the sake of everyone who's listening, there are ways that you can do that. And in an alternate universe, if that was the route that you were going to go down, we could talk about the specifics of how to execute that.

But in this universe, it's clear that you don't want to break that contract. You want to honor that contract. You know that your incoming tenants are excited about moving into your place. I love that. I think that's great. I think it speaks volumes about your character that you want to honor your word. That's integrity. That's principle. I love it. So it now leads to the question, where are you going to live? Because the only possible route that I see is that, you need to find number one a place to store your belongings and number two a temporary place to live I actually find this exciting but even before I get to that Paula are you implying that this would be easier if Todd weren't a man of his word you want to go back on the contract Todd I love the fact

that you're doing this it's amazing that you're a person of your word but you know what you're making it more difficult if you just break the contract things would be better Integrity isn't easy, Joe. It's so annoying, having integrity. I haven't gone through this, but I went through something similar. I owned a house that was a mid-century modern house. It was a beautiful house, if you like that style of architecture. Anybody that bought this house from us, Paula, knew that it was going to require a ton of

upkeep. So when we put it on the market, we didn't know if it would be on the market forever because in a little city like Texarkana, who knows if we're going to find the right buyer in this limited market or if we'd find somebody very quickly. So we obviously opted on the side of we think it's going to take forever. We put it up for sale about seven months before we were going to move and the house sold in two days. And what was funny was we knew the buyer and it was the perfect buyer. And of course it was a person that would love this type of architecture. Had we known they were in the market for this type of house, we probably would have had other plans. But I didn't have anywhere

to live then for seven months. I have to tell you, Todd, this was a huge opportunity that I didn't realize existed because we moved into a small three-room apartment, not three-bedroom, three-room apartment over my friend's dad's garage. So like a bedroom, living room, and bathroom? Bedroom, living room, I didn't count the bathroom. Bedroom, living room kitchen. that was it and a bathroom so maybe four rooms but you know it's funny we're even remembering the time that i lived there i don't even remember the bathroom that's how small this apartment was but i have to tell you it was great it was fantastic for somebody that's always had stuff and had a quote home because i realized i didn't need it i didn't need stuff i didn't need a home i'd lived

in this three-room place and we spent so much time outside because it was so much more fun being outside. My health was better. I walked. I learned so many things from this. And at first I went, Todd, like you're saying right now, I went, oh, man, I'm screwed. And I have to tell you, looking back on that seven months, it was a wonderful, wonderful, wonderful time. The bigger upside Paula, my rent was $300 a month. I saved so much money. But it's funny. I don't remember the money that I saved. I don't remember the financial part of this. I remember the joy of living on less. And I realized that, you know, in America especially, I saw Arthur C. Brooks talking about this just the other day on a video, talking about how in America especially, you know, the goal is more,

more, more, more, more, more, more, more, more. And he said the key to all of the work that he's done when it comes to happiness is how are we happy with less? And I learned this big lesson by being in not the same situation, Todd, but in a similar situation. When I think about the financial element of it, what I immediately think of is that Todd is going to have to pay for moving expenses twice. He's going to have to pay for all of the expenses of transferring his possessions into storage now. And then he's going to have to pay for all of the expenses associated with transferring those possessions out of storage and into his permanent home. Yeah, we did too, right. Yeah. And so if Todd

if you are able to find temporary living quarters that is smaller and significantly cheaper than the place where you will ultimately be living, as Joe did, that can offset some of the added expense that you incur as a result of just paying to transfer everything twice. Because that's the big expense that I see on the horizon for Todd. We found a local storage place and actually did a huge part of the moving into that local storage facility ourselves over the course of four or five days. Right, but there's opportunity cost with that. There's time, right?

Absolutely. No, I totally. Yeah, I agree. But we don't know what the most, I can't find the word, efficacious decision would be on Todd's part there. Right, but either way it's going to cost him. It's going to cost him money or it's going to cost him time, right? There are costs incurred and those need to be offset in some manner.

There's another interesting approach to this that is not my favorite approach. I don't think it's your favorite approach. But if you dig into that contract and you find a way to change the contract, I'm talking about the contract with the people that are moving into his house. To delay the move-in date you're talking about? No, actually not. Do something that you and I did just before we hit record. So Paula and I worked together on a lot of different fronts. And on one front, we just talked about some of the video that we do.

And Paula said, hey, how about if I help you do this thing to make it easier for you? And I'm like, why wouldn't I do that myself? But it was very nice, Apollo to offer to help out. So these people are very excited, but why are they excited? They're excited because they have this new house. They have a place that they look. And if there is a way for Todd to maybe work with them and explain his situation, but help them find a place, find some way to make it mutually beneficial, there's a lot of integrity in that answer as well. And then Todd doesn't have to worry about breaking a contract. Oh, why thank you, Joe.

It was very nice. Oh, wow. Why would you offer you to do that? You're like, well, I don't want to make this thing that we're working on together difficult on your end. I want to help as much as I can. So it would be a win for everybody. Oh, wow.

Thank you. But isn't that true? Aren't that similar, Paula? Yeah. I mean, I guess in both cases, there's a, new set of circumstances, and in order to make that new set of circumstances work for all parties involved, the existing agreement needs to be rethought. And so then the question becomes, how can we rethink the existing agreement in a manner that works for everybody?

The best way to think about that is looking at this decision is a cube. I have my side of the cube. I don't have anywhere to go. We can focus on that. But we also, if we look at the other side of the cube, your new tenant, how do we make it so that we can make it a win from their side, from their decision, and still have it work for you? When you're in negotiation, any type of negotiation, if you can look and see what the other person really wants out of that negotiation and help them still get what they want, but also include what you want, you may be able to change the terms of the agreement in a way that everybody's happy or maybe even happier.

I'm trying to think of what would be examples of that in a landlord-tenant relationship, because clearly the incoming tenants want exclusive access. A lease is exclusivity around access to the property, ingress and egress and the right to privacy within that property for a specified duration of time. That is fundamentally what a lease is. I'm trying to think of specific examples of how that could be renegotiated. The cool thing here is that Todd, I'm sure, has resources and relationships. Let's say Todd knows other landlords who have places that are equally as desirable as Todd's is. And if he's able to help this tenant get a place that they would like as much as they like his,

and he does that just out of his integrity. And because he doesn't want to break the contract, he still wants to help the person, but in this case, he would need to break the contract, but in an equitable way where everybody goes, you know what, I actually like this as much, he could help out these people, he could help out a friend of his in the community who has a house that's of similar value and rents for a similar amount. And he solves his own situation at the same time. Oh, I see.

So basically Todd helps them find an equivalent property. Different lodging, yeah. I know that my son with his rental properties, Airbnb's a few of them. And like any person who's done Airbnb's, you'll never find an Airbnb host who hasn't had a problem where for some reason or other

there's a person at the front door and they can't get into your property either because there were accidentally two listings on two different things and they didn't talk to each other, whatever the reason is. In that case, and anybody who's in hospitality knows this,

everybody knows that mistakes are made but you create lifelong fans and lifelong friends when you have great what's called service recovery. And in his case, Nick has kept his star rating very, very high on Verbo and on Airbnb by, in those cases, getting them a great hotel room for the night instead in a spot in town where it's walking distance to all kinds of cool stuff. And did he pay for that a little bit out of his own pocket in this case? Yes, in one case especially I'm thinking of, he did. But he ends up with a five-star rating that said things weren't fantastic, but Nick made them fantastic. And I would work with Nick anytime, any day, anywhere. When Todd opens up the possibility of how can I help these people and still get what I want,

I don't know if there's a solution there, but that's definitely something to explore. What strikes me about your answer, Joe, is that my approach is applauding Todd for not wanting to break the contract. your approach is actually questioning the premise and saying, wait a second, maybe Todd could break the contract but could do so in a manner that's a win-win for everybody. And so the question, Todd, that I would pose back to you is when you say that you want to honor the contract, and this is something that only you could know through some internal reflection, do you want to honor that contract because you're coming from a place of people-pleasing, but it's not actually going to be that. good for you? Or do you want to honor that contract because, hey, they're great tenants. You want people like them to live in the home that you yourself have lived in. When you've personally occupied a residence, you have an emotional attachment to that residence. And you want to know that you have great incoming people and you like these people and you want them to live there.

And you actually don't mind going off and having an adventure and moving on with your life and leaving that residence. And in fact, you're kind of excited about it. Which of those two scenarios is it? Is it scenario A, where you're coming from a people-pleasing place, but there might be a little bit of like, annoyance or resentment? Or is it scenario B where you're really happy with the situation? You think you found the best people to live at your outgoing home and you're excited to move on. That's the question I would ask you to reflect. on within yourself. And if it's scenario B, then I say, do what Joe did, put everything in storage and find, go off on an adventure. I don't know if you're able to leave the city that you're in or not.

So when I say go off on an adventure, I understand you might not have the capacity at this moment to go live in an RV and travel the national parks, but you can have an adventure locally in your own city or even in your own neighborhood. Yeah, and to be clear, Todd, at the time, and you may be thinking this right now, you're like, it doesn't feel like an adventure. It feels like a nightmare. You know what, for about three days until we found that spot to live, it felt the same way for us. We're like, what the hell are we going to do? What's going on? But it was amazing how many doors open when we gave ourselves the possibility that, you know what, for the next seven months, maybe there are some low-cost alternatives, some things that we hadn't considered, which is the same.

no matter which way Todd goes here. Right. How many times have we done that, though? We said, let's broaden the premise, right? I mean, on this show, you and I've done that a lot. And I think that's often the case. We get so focused on the one thing that we're thinking about that we don't go back up to 10,000 feet and take a wider view.

So, Todd, thank you for the question. Thank you for being such a longtime listener. Ever since back before we were the Afford Anything podcast, back when we were the Money Show, The Money Show.co. I think I might still have that domain. I'm not sure. Oh, you got to sell it now.

Just imagine the amount you'll get for that. Yeah, $10. Historians out there. Yes, thank you for being part of this community for so long. And best of luck with whatever you decide. Actually, call us back, leave us a voicemail and let us know in a couple of weeks. Let us know how this all turned out. I would love to know.

Yeah, exactly. An anonymous caller has a rental property that she inherited, and she's trying to decide if she should sell it and do a 1031 exchange, or if she should hold it, continue to use it as a rental, and then leverage against it in order to expand her real estate portfolio. We're going to answer that question 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. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth third better is all about.

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you want, no matter your style, no matter your budget. Wayfair has something for everyone. Plus they have a loyalty program, 5% back on every item across Wayfair's family of brands. Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday Deals, head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-A-I-R.com. Sale ends December 7th. Up next, this question comes from Anonymous. Hi, Paula. I've been listening to your podcast for about a year now and really enjoy it. Thank you for helping me on my financial literacy journey. Between work, I'm an attorney and raising a family. I let my husband manage all our finances, and now that I'm an empty night.

with a bit more time on my hands, I'm really interested in better understanding finances generally and the specifics of our finances. I hope to sign up for the Your First Rental Property Class, which I believe opens up soon. I have loads of questions, but for today I'll stick with this one. Several years ago, I inherited a residential property in the Bay Area where we also live, which I own outright, and which has a fair market value of between two and a quarter and two and a half million dollars. I've had a tenant in there for several years, but it sounds like they'll be moving out at the end of this summer. I've been interested in real estate investing even before inheriting the house, but other than fixing it up a bit and renting it out, I haven't done anything more, and I'm ready to now. What are your thoughts on the following options?

One, do a 1031 exchange, sell this house and purchase two or more residential rental properties instead, or two, keep this house as a rental, but take advantage of the equity I have in it to help me purchase other rental properties. I'm leaning towards option two because I'd rather hold and add. In both cases, I assume new properties would be out of the Bay Area given the high costs here. Also, I should note that the house currently rents for $5,800 a month and the rental income is not something I rely on to cover any other expenses. I've set aside about $100,000 of it in a high-yield savings account for emergencies or in case I want to update the kitchen and bathrooms when these tenants move out, and the rest of the income I receive is invested, but not earmarked for anything specific. For a high-level picture of my finances, my husband and I each earn a good income, have our kids' college expenses covered, the mortgage

on our family home is under control, and we are pretty well set to retire in several years. I have separate property from an inheritance of about 500,000 insecurities and 5 million in real estate. In addition to the residential property, I referenced already, I own commercial real estate with my siblings, but I would not be leveraging the commercial real estate in any way for my own real estate investing. I also don't intend to leverage any of our community property assets, mainly because my husband is very risk-averse and wouldn't want to participate. So for purposes of my foray into real estate investing, I'll only be leveraging the residential rental property and the $100,000 in savings that I've set aside from it. And if needed, I can access my $500,000,

in separate property securities that I have, though I prefer not to. Thank you for helping me think through this. Anonymous, thank you for the question. And before we get into the answer, the first thing that we have to do, of course, is give you a name. Of course we do. Of course. I want to see, by the way, Paula, if I can, because as everybody, I think, who's in the

community knows, real estate is not my forte. Yeah, this one is me. Oh, I've got a page of notes. Oh, but what I do want to do is see if I can begin to answer the question. Ooh. A la Paula Pant. Oh, all right. Like, see if I can predict the answer.

Oh, wow. A little bit. No, no stradamus here. See, trying to predict the future. Okay. No, just the grasshopper learning from the master. Aw. That's what I'm trying to do.

All right. Okay. So first we give her a name, then Joe tries to predict my answer. And then I answer. That's the order of operations that's going to come next. Well, anyone who knows me, Paula, knows that I like humor, and I like humor specifically at the intersection of finance and humor. I think that this is such a serious topic that we have to laugh about it.

And recently on the Stephen Colbert show, he had on outgoing Treasury Secretary Janet Yellen. If you don't mind, I'd like to play a little clip of that appearance. Absolutely. A couple of fun things to hit here before we let you go. this was a fantastic headline from your time in office. This is from Fox business. It says Treasury Secretary Janet Yellen admits to eating hallucinogenic mushrooms during China visit, quote, delicious.

Secretary, legally, I'm required to ask you, are you high right now? Do I have a wolfhead and a spider body? What's going on? So I think, because that was so funny, we need to name our color. Janet. Are you implying that she's high? I am not. Janet, I'm not doing that. I just thought it was funny. I'm not saying anything about you or your character. Not at all. Although I did wonder halfway through the question. No, not at all. So Janet, I have thoughts, but before I get to my thoughts, because I have a page full of notes written right here, before I get to my thoughts, Joe, do you want to take me? Are you?

You put me in, Coach? Well, remember what I said about the order of operations, right? First, we give her a name. Then you guess what my answer is going to be. And then I answer. I'm so excited, coach. Now we're on step two. What's your guess?

I'd like to thank everyone for this opportunity. I'd like to say a big thank you to the people that got me to this point in the conversation. My parents were awesome. I'd like to thank the Academy. Yes. So, Janet, I think there might be two separate decisions here before you decide whether option one or option two is a good idea because the first thing we need to know is whether keeping option one on its own merits is a good decision. Is this actually a property that we should keep? Huh?

Hmm. That's actually not what I was going to say. Oh, I thought I was doing so well. But, you know, that is a reasonable statement. That is absolutely a reason. It wasn't going to be my statement, but I would agree with the spirit of the statement. It is reasonable. And I learned it from you. So there we go. Wait, was that your only guess? Yeah, well, that was where we start is that these are two separate decisions, yes. Because then once we know the answer to that decision, then we can go out to Paula's convoluted answer that I won't understand about the rest of this. I will now smile and nod.

Oh, yeah. Well, no, Joe. I think that that is an absolutely reasonable statement. It wasn't what I was going to say, but it is reasonable. Thank you. that they can be viewed as independent and distinct decisions. And step one is to determine whether or not the property is worth holding, which would require calculating what the cap rate of the property is. And then that cap rate, remember, is equivalent to the dividend payment of the property.

It's not the total return. It's just the unleveraged dividend. And that dividend plus the rate of appreciation is the unleveraged total return. So in general, that's a good metric to know about any property that you're holding. So, yeah, I would absolutely agree with the spirit of the statement. I will sit down now. You are sitting down. Oh, I am. What I was actually going to say is, Janet, the thing that struck me about your question is that you mentioned that this is an inherited property. And the first thing that I think of when I hear the words inherited property is grief, because this property most likely was originally purchased and held by somebody that you loved. And that means that likely this property has some type of emotional significance. And that's the reason why I wasn't going to immediately go into that calculation of whether or not the property is worth holding.

because oftentimes when you inherit something that has memories tied to it of loved ones who have passed on, there can be significant non-financial reasons to want to hold on to it, to want to keep it in the family, to want to pass it on to your children. And so when Janet said that she was inclined towards option two, she was inclined to hold, You can make a financial case for that, absolutely, because there are heavy transaction costs associated with selling. And particularly, you said the property is valued at somewhere between $2.25 million to $2.5 million. Let's take the higher end of that range, $2.5 million. And let's assume a 6% haircut when you sell.

Joe, what's 6% of $2.5 million? I'm trying to give you a reason to talk. Hold on a second. Let's take out the trustee calculator. No, we can do this in our heads. Hey, Siri, what's 6% of 2.5 million? We can do this in our heads. Come on.

Times 2,500,000 is 150,000. Ooh. Okay, well, that was not done in our heads. That was done by Siri. Which is my head. That is my head. I mean, let's be real. You've outsourced your head.

Okay, so $150,000. That's probably the minimum haircut that you're going to take if you sold this property. And that's a significant amount of money. Now, if we were looking at this through the cold lens of only a spreadsheet, then absolutely, I'd say calculate the cap rate, make sure that it has a solid risk-adjusted return, blah, blah, blah. Exactly, Joe, what you predicted, I would say. But if we're looking at this through the lens of, here's a property that likely has some type of emotional significance.

and if I sold it, it would cost me $150,000. That would be a hit to my net worth just to get rid of this property. Those two things together, combined with her existing inclination to hold, all of that together, to me, paints a compelling case to go with her gut and hold this property. But I will concede that there are reasonable, what Joe said is very reasonable. So I think there are very reasonable arguments to make either way. Janet, there was another thing that struck me about your question. And it was when you said that you're not going to leverage any community property.

You will leverage this particular home, which has a value of, let's say, 2.5 million. Plus you have another $100,000 in savings, which is good cash reserves for this property. that is the bucket of money that you're going to use when you leverage into future assets. The question that I have for you is those future assets that you acquire as a result of leveraging this existing asset, do you intend for those future assets to be separate property or to be community property? Whatever your answer to that question is, I would encourage you to meet with somebody who practice. family law to make sure that the structures are set in place such that if you intend for those future assets to be separate property, they don't accidentally become community property.

I interviewed a family law attorney. We're going to play that interview on Valentine's Day. And one of the points that he made is that many people accidentally end up turning separate property into community property without even realizing that they're doing it. Oh, man. Right. And so I would encourage you to meet with someone who practices family law to make sure that those accidents don't happen, that whatever property is community and whatever property is separate is done with intention.

And that will become particularly important when you leverage against this inherited asset and use it to acquire new property. So that's the second point that I would make. The third point that I would make is that I absolutely agree with your inclination that whatever you buy next, that new property that you're going to purchase, is likely going to be non-local because the better returns are going to be found in low cost of living or mid-cost of living areas. The better returns are going to be found in geographic areas where the price-rent ratio works

in the landlord's favor. But the good news is because you can leverage against, we'll just take the lower end of that range, even at the low end, a $2.25 million property, because you can leverage against that, even if you were to only borrow 70% of that equity, that would still be a significant enough amount of money that you could buy either a multi-unit property outright free and clear somewhere else, or you could make a 25% down payment on a couple of multi-unit properties. So you have a a strong enough base to be able to take that money pretty far in a lower cost of living area. And I do know a little bit about this. There is the disparity in prices in real estate are so

pronounced across the United States that I know it makes your eyes roll, Paula, it makes my eyes roll whenever somebody talks about the U.S., quote, real estate market because it truly is a quilt of many, many, many, many, many, many different markets. And to say that properties in the USA are overpriced, well, in some communities, yes, but in other communities, not so much. Well, what is the definition of overpriced? Because I would argue that the price is an accurate reflection of current conditions. Current conditions, right? The cost of labor, the cost of materials, and the balance of supply to demand. I think overpriced is more based on your expectation of a rate of return that you're hoping for.

And so if I look at the, like if I were to answer that and I look at the North American real estate index, the Nearyd Index, I'm expecting maybe a 10% return for my real estate. And in some places I might have a difficult time projecting that out where it's going to be much easier to do in other communities. Right. which means that in some areas the prices are high, high enough such that the returns just aren't there for investors, particularly for individual investors. Well, and to your point, too, they could be. It's just going to be difficult for us to model out a continued squeeze on the property value, right?

Because that's where it's going to come from, is from the literal lamb value, which, as you know, better than most, that there's two other ways. to make your best deal, which is through the rental income you have coming in, and then second, the leverage that you apply to the deal and how you apply that leverage. Those are two other ways to make money beside the base land value going up. Yeah, the base land value going up is where the appreciation comes from, and the actual structure that sits atop that land is where the income stream, the dividend, comes from. That's why multi-units tend to perform much better, because you're consolidating multiple units of property onto the same singular piece of land. And if you really think of it

from a framework in which you're prioritizing that dividend payout, the underlying land is overhead. You know, it's overhead that may appreciate over time, but fundamentally, that underlying land is overhead, and the structure is the income-producing component. And that's why having multiple structures on that same singular piece of land is so powerful in real estate. That's why you'll get much better, generally speaking, much better returns with a four unit than you would with a single family home. I was actually, so in our course, your first rental property, we had office hours the other night, and someone asked me, why do you have any single family homes, given that multifamily is so much better? Right, exactly, exactly. And my answer is honestly, I never intended to buy a single family.

family homes, every single family home I've ever purchased, I went into the search with the intention of buying a multifamily, but because the deal flow is so much stronger in single family that by virtue of searching for a multifamily home, I accidentally stumbled upon a single family deal that was so good that I just couldn't pass it up. And so every single family home that I've purchased was the result of looking for a multifamily family. getting sidetracked by buying this single family and then going back out into the market to look for another multifamily, getting sidetracked and purchasing another single fam, right? Like I've never, I've never set out to buy single fam.

Welcome to real estate via ADD, everyone. Exactly. This shiny object syndrome. Woo, squirrel. Look at that. Look at that one. But it also shows something else. I mean, to take our joke and make it serious, which is you got to get out there and explore

even see the deals. You found these deals unintentionally because you were out looking for them. Like you ask the universe for a thing and it delivers. It's almost, you know, in that way, it's thematic with what we talked about with Todd, right? Like expand the question and go, what's possible? Do I have other relationships? Do I have other opportunities? These ways I could solve this in a non-traditional manner just by asking a bigger question, the fact that you were out there proves a big point that most of us, not most of us, I think a lot of the time, you know what, I'm going to use me as an example. A lot of the time I'm afraid to go through the door because I'm sure if I go through this door, these five other doors are going to close,

which by the way is not not true. It is 100% true that those doors will close if I go through this door. But I've always found that if I walk through that one opportunity door, five better deals open up versus the five doors that close that frankly I shouldn't have cared about in the first place, walking through the door and getting out there on the thing that you're chasing is almost always. And by almost always, I would think 99% of the time is the better option. Right. Janet, in summary, Joe's guess for what he thought I would say is an absolutely reasonable course of action. There's nothing wrong with calculating the unleveraged total return on the property that you hold, which is the cap rate plus a reasonable expected prediction

of a market-based appreciation. So go ahead and do that because it's generally a good practice to know what that number is on any property that you hold. But I would add to that that if this property holds any emotional value to you, then I would hold it and leverage against it in order to expand that real estate portfolio. And that's what your inclination is anyway. plus that'll save you the $150,000 haircut that comes from making the sale, that transaction cost. But, you know, the thing about real estate, the thing that makes it different from cash, is that any stack of $100,000 bills could be interchangeable with any other stack of $100,000 bills.

whereas a home valued at 100,000 or valued at 1 million or valued at 2.5 million is not equally interchangeable with a different home of an equal value. And that's because real estate has unique attributes, which a stack of $2.5 million bills does not. I would weigh that as well while you're making the decision as to, you know, fundamentally your question is, do I sell or do I hold? So my answer is, if your gut says hold, then hold, because selling is irreversible. That's one component of my answer. The second component is meet with someone who practices family law. And then the third piece is it's time to start deciding what state and what city you want to target for your next rental property, which is a very exciting question.

State of happiness. Oh. Well, thank you, Janet, for the question. we are a month into 2025. We've just had a presidential inauguration. I want to close this out by asking you, what do you see as you peer into the crystal ball, even though I know neither of us enjoy prognosticating? But what do you see coming up on the docket for the 11 months ahead, the 11 months remaining in this year? Well, there are things that are forecasted and there are things that are predicted. There's a big difference between the two predictions aren't any good. We've already been given. We've already been given. some signals, Paul, especially from the Fed, because the Fed does not like the, we change our mind very quickly thing. The Fed likes to tell you what it's going to do and then follow through on what it's going to do or signal that is going to change the way that it's going. So the idea that lower

interest rates are coming with that jobs report that we ended up with in January, at least for the first half of the year, I don't think we can count on lower interest rates. Now, will mortgage rates and short-term rates that are affected by the Treasury, will those finally go from this big gulf between the two and maybe closer, which historically has been the case more often? You could make a case for that if I'm planning. And when I was a financial planner, I would say, yeah, that might happen. However, I think it's best to plan on it not happening.

Because if it does happen, I think we do a what-if, scenario. If it does happen that mortgage rates come down to more accurately reflect where more short-term rates are, car loan rates, short-term line of credit rates, things that are much more closely affected by the Fed versus the 10-year treasury. If those do come down, I run a bunch of what if scenarios, right? If those come down, here's what I'm going to do. But if they don't come down, here is my strategy if all things stay the same. Okay, so I want to talk to you in a moment about what is your strategy in both scenarios, but the first thing that I want to ask you about, and this is actually something that we

talked about in our January 1st Friday episode, it's unusual that the Fed would lower interest rates, and yet investors would signal that they are worried about inflation, even when the Fed gives us another 25 basis point rate cut, which they did in December, investors would signal that they're worried about inflation, and based on the 10-year treasury yield, mortgage rates would go up. That's a very unusual circumstance. What do you make of that? Every Federal Reserve chairman, you can look at a little differently, I think that Jerome Powell is different than Ben Bernacki, different than Alan Greenspan. You saw kind of a different

reflection. But what we've seen from Powell so far is that it's highly based on data. What Powell and the Fed have reflected more, and certainly all Federal Reserve Chairman are going to use data, I feel like there's been less around tea leaves and much more around here are what the numbers reflect. And we're going to do this based on the numbers. Investors don't do that. Investors are looking at specifically what Donald Trump said about tariffs. And what Donald Trump said about tariffs is, I want to put tariffs in place on day one. Now, as this administration unfolds, and even when this comes out, Paula, we may have seen some of this tariff activity already happening. Right. I should say we are recording this episode prior to the inauguration. So we are recording this episode in mid-January. What the Federal Reserve was thinking at the time, also pre, inauguration was, here's the data. What investors thought at the time was Trump has spent a lot of time talking about, I want to oppose these tariffs. Tariffs create inflation, full stop. All the data shows the tariffs create inflation. And if that's the case, then we're going to see

a higher interest rate environment, which is why investors in the 10-year treasury market that more accurately reflects mortgages have kept those rates high. Joe, to your point, that is why investors are unsure of how to price expectations around inflation into the market and are airing on the side of assuming that we're headed for greater inflation in 2025. Paula, it's the safer assumption. Because if I make moves and those moves are based on a higher inflationary environment, and that doesn't come true, anything I put into place gets even better if there's less inflation. If I bet that inflation pressure continues to recede like it has, and I make investments based on that, and it doesn't happen, everything I would invest in gets

worse. And I don't want that to be. I want to plan on the worst, hope for the best. It's a much better strategy to do things that way than to go the other way around. It's why even in an environment where historically we've seen rates of return on investments over long periods of time, over 10%, a good financial planner will base their plan on seven or eight. Right. So the safer thing to do is to plan for high inflation in 2025. Yeah, maybe not the worst, but plan on more of the same. Right. Plan on 2025 being another. inflationary year. All right, in that case, to the people who are listening, what should the average

person do in terms of planning for 2025 being a high inflation year? I think if you plan on that, we need to start from the income side of the equation because nobody begins there and that, frankly, is where you should begin. I found that this is why so many people are getting behind is because companies are great at measuring inflation and looking at its effect on the bottom line. Individuals don't run their finances enough like a company. I think that, I think I may have said this specific example before, but do you think the people at Coca-Cola, when the price of sugar goes up, just goes, oh, man, the price of sugar goes up, there goes everything. We can't know.

What do they do? They raise the price of Coca-Cola. That's what they do. They pass that on. If inflation is high, I need to figure out how to create more income for me. So whether that is negotiating with my boss for a pay raise at work, which statistically, every stat shows You just don't ask. Your boss has other priorities.

They're not, in most cases, they're not willfully, not giving you a pay raise. You just haven't asked and they have other priorities. They're just not thinking about you. Or do I create that side hustle finally that I've been thinking about? Or do I make a move to another company, which every study is also shown. If you move to a different company versus looking for the raise of the promotion, you're likely to find an opportunity that pays you more money. I have to look at the income chain first.

I think that's the first. thing I do in an inflationary environment. Right. And well, not to plug my own product, but I'm going to plug my own product here. If only you had a product. That's, well, it's still under development, but we are gearing up in March we're going to release beta round two. So we take our product development very seriously. We have a long product development roadmap. And right now we're still doing a final round of edits on videos. We're building out the learning management system. We custom build that from scratch. So we have a team of developers who are working. on that. But we have a course that's in the works. It's brewing. It's called Your Next Raise. And it's all about how to negotiate for a raise with your employer. So it's all about, Joe, what you just talked about, the income side of the equation. How do you get that raise? And to your point, that might mean talking to your boss and trying to figure out what the company is even capable of doing, right? And that's going to vary. Are you at a Fortune 500 company or are you at some

tiny little mom and pop shop, their capabilities are going to be quite different. Particularly if you're at a mom and pop shop and they sell a discretionary item and their sales have been harmed by inflation, you might be at a company that's actually performing worse than it did pre-pandemic. Well, that's important too. I mean, in any negotiation, I'm sure, Paul, this will be a part of your course, but reading the room and understanding. And we, and we, mentioned this earlier in the episode, understanding the other side of the cube, right? Right. With Todd looking at his potential renters, well, they've already signed the contract. They are his renters looking at their point of view. How do they win? How do you look at your

boss's point of view? I've been in the case as an employer before where an employee has come to me and did not read the situation at all and asked for stuff that I would have loved to have given them. They just apparently didn't pay attention to the last four meetings in a row where. we talked about the reality of the situation we were in at the time. Right. And understanding that. And I will say this, you know, it isn't about not rocking the boat. And I know there have been studies done that show women especially, you know, don't want to rock the boat.

And I think there's a lot of men that are in that same position. But it's not about not rocking the boat. It's about understanding what your boss can do and can't do. And in that case, I thought I've made it very clear that I can't. And then my employee comes to me and goes, no, I think you really can. Do you think I've been lying to you? Like, why do you work here if you think I'm lying to you? You should probably go somewhere else.

But I wouldn't be afraid of rocking the boat. If that's what you're worried about that you're going to be this person that's asking for more, you need to be the person asking for more or you won't get it. Right. And then, Joe, to your other point, you talked about side hustles. I mean, rental properties are a side hustle. And they're a great side hustle, particularly as we've seen over the last, 15 years, real estate is an asset class that continues to rise. And unfortunately, because we have

an enormous supply crunch in the United States, we have a shortage that's estimated to be somewhere between 4 million to 7 million units of housing across the U.S. Because of that severe housing shortage that we're grappling with, it's an asset class that is only going to continue to rise. Now, I'm going to asterisk, that's a nationwide stat. So localities might be. be different. There might be a very specific town where the one factory in the town closed down and now jobs have fled the town. Population has fled the town. So yes, there's going to be a distinction between Youngstown, Ohio versus Austin, Texas. But broadly speaking, at a nationwide level, we know that real estate is only going to continue going up. And that's why it's such a

great side hustle to get into. So if you can't get that raise at your current company, then look to something like real estate to be able to build your income streams outside of just your W-2 paycheck. So, Joe, we talked about this question began with, what should the average individual do to prepare for 2025 being likely another year where we see rising inflation in higher prices? Look at your income stream, number one. And then number two, then that is to prepare yourself to be able to continue to save at the levels that you're saving toward your goals. You want to protect that ability. There was a Yahoo finance Maris poll that just came out showing that a lot of people in 2024 didn't save as much as they did in 2023.

You don't want to be that person. You want to be able to still achieve your goals because only the second thing then that you can do is cut. and we really don't want to cut our life. But I will say that it's a great time if you haven't thought about those expenses that are really important to me and add value to my life and ones that don't. It's a great year to do that if you expect high inflation because then we can finally begin cutting out those things, those expenses we're paying for that we're not getting the most utility from. It's funny how the classic tenants of personal finance come up over and over in

all of these disparate situations. Yeah, isn't that wild? Right? So in conclusion, earn more than you spend and spend less than you earn. We've never said that at the beginning of a year. Tadda! That is all brand new. And this Paula makes a bigger point.

I mean, this is maybe the second time today, or maybe it's even third time. I've said, hey, we joked about that, but there is truth in the joke, which is what makes it funny, right? Right. How many times have you and I heard about the new, new thing, about the new, new reality. And this doesn't matter anymore. And there's these new set of terms and conditions that I need to pay attention to. And that has never proven to be true. Right. We always come back to the same metrics, the same numbers. And what's the old phrase that my mom says that history doesn't repeat

itself, but it rhymes. And I think understanding that what's old is the new new, new, and if you think there is a new, it's not. It truly isn't. The same metrics. Now, that doesn't mean that some things are going to take off without metrics. And increasingly over time, we're seeing emerging metrics around things like, and I'm talking specifically like crypto. I don't think crypto is the new, new as much as we're getting our arms around what it is and how it actually works and dispelling the charlatans around, this is the new new, instead going, no, I don't think so. And I think there's something here. But we're, we're, establishing the data around how do we track it, how do we understand what its utility is,

where we think it might go in the future, how it responds to different economic conditions, like all that is being created as we go. Right. What have we seen so far from Bitcoin, as an example? It doesn't act the same as gold, which is what the early people thought that, okay, this is our placeholder for gold. We have learned that's not the case. That's not the case at all. It acts much more like the stock market, much more like the growth engine piece of the stock market. Now, will that continue to be true? We still don't have enough data. But I know that there were a few people out there maybe going, Joe, I think the crypto is the new new. I don't think it is. I think it's a new device, but I think it still is we're going to figure out how that responds to the same stimuli,

like we have with real estate, like we have gold, like we have in the stock market, like we have with, I mean, pick an asset class, right? So you're saying it's a new vehicle, but it plays by the same laws of physics. Same laws of physics. Yes. This doesn't defy gravity, to quote Wicked. Ha, that's a fantastic show and movie. Our new movie expert, Paula Pant. I do love musical theater, so I was first in line when Wicked came out as a movie. Should we do afford anything the musical? Oh, I would love that. We sing the entire episode. There is actually a financial independence album that is coming out by Alan and Katie Donaghan. They're making an entire album about financial independence.

So we'll talk more about that once we're ready to. But there is a financial independence musical in the works. How great is that? Well, Joe, thank you so much for your thoughts, for your wisdom, for your joke. No, thank you, Paula. For the opportunity to share my jokes and my wisdom. Ah, well, if people would like to hear more of that, where can they find you? You know, a great place to find us on Instagram.

I've increasingly been on Instagram again. We have never left Instagram. You'll see clips from the shows where you'll see Paula Pant, among other people, and our wonderful videos there and some great lessons. I'm going to be doing something I used to do more often, which are creating Instagram-specific stuff. So come join us on Instagram, stacking Benjamins. Just follow a Stacking Benjamin's podcast on Instagram. Nice. Well, thank you so much for tuning in. If you would like to leave a question for this podcast, something that we will answer on a future episode, go to afford anything.com

slash voicemail. That's afford anything.com slash voicemail. If you enjoy today's show, please do three things. First, share this with your family and friends. That's a single most important thing you can do to spread the message of financial independence. Second, open up your favorite podcast playing app, hit the follow button, and while you're there, please leave us up to a five-star review. And third, subscribe to our newsletter, which you can find at afford anything.com. slash newsletter. That's afford anything.com slash newsletter. We're also still early in the year, and we have a 52-week challenge called one tweak a week. So we're making these teeny, tiny little improvements, very micro improvements every single week, 52 weeks of the year. If you want to join us for the next 11 months, download our free one-tweek-a-week guide at afford anything.com slash financial goals. That's afford anything.com slash financial goals. Thank you again for tuning in. I'm Paula Pant. I'm Joe Salci. Hi. And we'll meet you in the next episode.