BiggerPockets Money Podcast - 158: Are You Under Leveraging? Finance Friday with Investor and Agent Wayne Loux

Episode Date: January 1, 2021

Happy New Year! With the first 2021 episode of Finance Fridays, we take a look at Wayne Loux’s investments, income streams, and overall finances.  Wayne is like many of our listeners: working a W2 job, but also supporting himself and his family by having 1099 income from being a real estate agent. On top of that, Wayne has over 10 rental units, spread throughout different multifamily properties. He also has solid retirement savings and cash on hand. With all this income, Wayne wanted answers on whether or not he should lessen his time at his W2 job, take more cash out from equity in the multifamily properties he owns, and other common real estate investment questions. Scott and Mindy go through different strategies that can help Wayne grow his portfolio. From 1031 exchanges, to setting up self-directed IRAs, and cash-out refinancing to build an out of state portfolio.  These are questions we hear from many investors on the BiggerPockets forums, so stay tuned because Scott and Mindy just might answer a question you’ve had! In This Episode We Cover How to value your time as a high-earning professional Putting family over work, even if it means stepping away from an income stream Which investments should you put money into when all your bills are being paid? SEP IRAs and Self-Directed IRAs Using 1031 exchanges to lower your tax burden when investing  Finding jobs that can scale your income (and leaving those that don’t) Whether you’re over or under leveraging your current portfolio  How to speak to your partner about big financial steps And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums BiggerPockets Calculator Check the full show notes here: https://www.biggerpockets.com/moneyshow158 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 158 Finance Friday edition, where we interview real estate agent Wayne Lux and talk about reevaluating a rental portfolio to generate more income and reevaluating W2 employment to spend more time with the family. Two of the five or six properties, I would say, have seen greater appreciation because we've purchased them around 2007, 2008. And then the rest was thanks to you guys, actually, because Bigger Pockets was introduced to me by a friend of mine and a colleague. And she said, you got to listen to them because you're doing everything that they do, but you don't have any real focus right now.

Hello, hello, hello. My name is Mindy Jensen. And with me, as always, is my Excel spreadsheet, love and co-host, Scott Trench. I always love your formula for introductions, Mindy. Thank you. I know my husband is putting garbage away. and it's right behind the wall. Oh, I'm going to shoot him dead.

I can't hear it. Oh, you can't? Mindy always, no, I can't hear it at all. Mindy always laughs at the, at those because Mindy will have one of those things and she'll say, maybe this would be a good pun. And I've always like, I got a, I got a formula for that, that Excel pun. I don't know. Sorry, I'm going to go with this, but if I use her intro, she won't laugh as much.

But if I give her a different, I don't know. a new pun on the spot. I get her going. But you are my Excel spreadsheet letting go. That's right. And you do have a great formula for our introductions here. You're always calculating new ones. Okay. Scott and I are here to make financial independence less scary, less just for somebody else, and show you that by following the proven steps, you can put yourself on the road to early financial freedom and get money out of the way so you can lead your best life. That's right. What you want to retire early and travel to Maui, go on to make big time investments in assets like real estate, start your own business, or simply just get a grasp of what's next in your already

strong financial position. We'll help you build a position capable of launching yourself towards those dreams. Scott, I am super excited for today's episode of the Money Podcast because we are introducing a new day, a new episode. Every week we are going to now come at you with two episodes, the Monday episode, where we tell a money story. and the Friday episode where we review someone's finances and give them tips and tricks for how they can work their finances better so they can reach financial independence. That's right. I'm really excited about the new format we've got here. Today, we're going to review Wayne Lux's financial position. And Wayne is either a millionaire or very close to it

with a very high income and a lot of good problems there. It was really fun to, I think, point out some of the the potential areas for leverage in his portfolio in life and what he can do to make the most of his really strong current financial position right now. I have a lot of fun with this. I'm really interested to see what Wayne does with the information that we discussed today. And I think you're going to learn a lot by reviewing his position and seeing what decisions he has to make. I completely agree. I love his story. I love that he has spent the last few years, maybe 10 years, steadily building real estate. portfolio and now it's time to reevaluate that portfolio because it has increased so much in value. And also reevaluate what he wants out of life. He has a brand new baby and he is excited to

maybe step back from a W-2 job that takes time away from his family and spend more time getting to know his young sons. Scott, our attorney Matt, makes me say the contents of this podcast are informational in nature and are not legal or tax advice and neither Scott nor I nor big pockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax, and financial implications of any financial decision you contemplate. That's right. This is just for fun. It's informative, not informative, it's entertainment purposes only. That's right. You're just here for the jokes. Now, should we bring in Wayne and tell them what to do with his money?

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Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leen or Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being.

What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive. back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP Money. Wayne Luxe, welcome to the Bigger Pockets Money podcast, Finance Friday, first episode of the

brand new year. I am so excited to talk to you because you have a lot of the business. a situation that actually is not that uncommon and a lot of other people are also in your financial situation. So I would love if you could give us a little bit of background on what you do and where your money's coming from. I appreciate it, Mindy and Scott. Yes, so I have been a real estate agent since 2006 in the state of New Jersey and I also help out a general contractor in Manhattan early in the morning hours. So I have the 1099 employment from the real estate

and then the W-2 from the general contracting. So we tend to have a little bit of a security blanket with the W-2 employment. And then with the variable commission-driven business, you never know what in during the month because with COVID especially, things are getting delayed and move to different months. but it's been very interesting to say the least.

2020 has been wild. What would you say your kind of stable W-2 income is per month? I would say it does vary a little bit, but it's salary for right around like $4,000 net per month, right around there. That's a comfortable number. Okay, great. And then how would you kind of say your real estate commissions come in?

Every year's different. This year has been very, very good. I can't complain. Definitely one of the better years. I think we saw a lot of New York City transplants coming into the suburbs of Jersey. So definitely going to have an interesting ending to 2020. So I want to touch on this for a minute because I'm also an agent and I have also had a wild year. I have sold more real estate this year than I have ever in my life. And it's insane. I am closing five properties this month, which is not, I have a full-time job. So that's like, I have two full-time jobs now. Yeah, you guys have people. I know. It's, it's a wild ride.

But what are you doing with all of the money that comes in? So thankfully, my wife and I, we made some big moves in 2020. March 10th. We actually closed on our new primary residence in a town that we wanted to raise our two. kids and the house that we moved to actually has sort of an ADU set up in the back of the property. So that cut down our living expenses quite a bit. And then we were pretty intense with saving for a vehicle for her, got rid of leases. So we bought her car outright. So we've been saving for other investment properties. We've been saving for our kids college. We've been saving just for our general, like my SEP IRA. So we've been putting money aside for certain buckets and doing a

better job starting around like 2019. We really got a budget down. And then 2020, we're just hitting it hard. And as of, geez, I think it's been since late September, we've been more focused on going after paying off our lowest income producing property just to get that mortgage paid for because COVID was a real eye-opener for us to get a paid-for property that has the rental income that maybe if my wife wants to step away from her job, she could do that later on. And what does your wife do? How much does she make? She is a department chair for a Board of Education in New Jersey and she, or for a school, township, I should say. And she's a little over six figures.

Awesome. And so what is your expense situation? look like. Thankfully, we cut that down quite a bit. Our mortgage after we received the rent from the tenant, we pay about 2,500. And then we have no car payments right now. We have only one vehicle because my wife is actually on maternity leave because we got our second kid in May. As I said, 2020 was wild. So, yes. Thank you. Yeah. And now we're focusing on getting that property paid off. I do have to purchase a vehicle and I'd say a month or so, but I've also stocked a few dollars away for that. So expenses wise, just utilities. And I think our credit card debt that we took on when we purchased this home for a few remodels, we threw it on a zero month, 18 month, zero percent

interest for I think it's like seven grand, which I mean, I could pay that off any day. So it's, right now our expenses are practically nothing, which is fantastic. You have a solid mortgage expense there, but it's not very significant relative to your household income here. So you've got a large ability to accumulate cash based on what I'm understanding about your financial position on a monthly basis. Sometimes a lot, but almost every month you're going to be able to accumulate, you know, even in a month where you have no commissions, you're going to be accumulating a good chunk of cash. Yes. Thankfully, we've kind of positioned our our lifestyle now to go ahead and just start saving a heck of a lot more. And that's kind of where

I'm not at a loss, but I definitely want to focus on either filling more buckets or going gazelle intense on paying off the property because COVID definitely threw some curveballs our way. Awesome. So, okay, go ahead, Mindy. I was going to ask, are all of your properties located in New Jersey? Yes, predominantly, I have 11 doors technically, and then a couple of garages. that we rent out. But the 10 out of the 11 are in New Jersey. One is in Pennsylvania. Okay. Because New Jersey has a pretty interesting rental law that you can't just kick somebody out. Yes. You have to give them the option. Yes. It's very tough to be a landlord in the state of New Jersey. But so far, I've been very fortunate with some really good tenants. And, you know,

COVID did delay a few rental payments here and there, but we're working with them and, you know, having the higher income, thankfully, we've been able to cover them for the most part. So it's been pretty good overall. And the cash flow from that from those properties pretty much covers my mortgage payment as well. So we're able to put a lot of money away if we wanted to. Awesome. So it sounds like you've got a really strong financial position. You make a lot more than you spend. You've got a significant portfolio of assets. You've got you know, can you give us a little understanding about how that portfolio in particular is capitalized, debt and equity, and then your cash reserves? Sure. So cash reserves, up until about 2019,

we were very, very light on keeping cash reserves. We've built that up a little bit more, thankfully because of COVID. It's amplified that. Then we are huge proponents for lines of credit. We tend to credit card hack quite a bit and get out. to Maui as much as possible, believe it or not. And then with the lines of credit, if we ever need to, we ever need to access something, we have that available to take care of any repair. But we're trying to keep about, I'd say, 5 to 10,000 per property just to keep us in a safe zone. Great. So you've got access, you got a very well capitalized portfolio with all that. Any other assets of note? So my wife and I, we've been pretty good.

good with contributing to our 401ks, 403Bs, CEP IRAs. I opened up a Vanguard recently. She has a Vanguard account. We put some money aside. And then I've been dabbling in Robin Hood here and there. That's kind of just like play money on the side. But yeah, that in total, we're probably pushing about 550,000 in all combined retirement accounts. Great. And then you have a cash reserve for your person. life outside of the rental property? And how much is that relative to your monthly spend? A couple months, sir. I'd say, yeah, I'd say it's probably about 10 months worth. All right. So you got a rock solid financial foundation. This is what I think a lot of people aspire to,

when they're sitting out in their personal finance journeys, you've got a significant cash reserve a buffer there. You've got multiple sources of income. You've got multiple investments that you're attacking here. What's the biggest challenge you've got here and how can we help you? Biggest challenge was, I mean, up until last month, I really haven't been focused on filling certain buckets. I would love to hear your guys input as to what you would do moving forward with, I mean, come December, we're going to have three incomes. So that's going to change the numbers again. And, you know, we're going to be able to manipulate things a little differently. And should I be focused on getting that one property pay off? Should I dump more money into my

SEP IRA for come tax season? There's so many different options. And yeah, I would just love to pick your brain about where would you go given the situation. No, absolutely. So first question I'd have for you there is a general, you know, and I'll try to help narrow this down a little bit. So it's not so wide here. But like a general, what do you want? want. How do you want to be spending your time? When do you want that by? And like, for example, are you looking for a way to kind of just maximize your lifestyle right away? Or are you thinking, you know what? I'm enjoying this. I want to put more time in and make more money and build up a bigger nest egg and enjoy that a little bit later, you know, in a five-year time frame.

How is that, how are you kind of thinking about that? It's a phenomenal question because I have two young kids, two young sons, one's three and one's six months. I love the time that I had with them during COVID and I think I'd like to gain my mornings back. So probably getting rid of the W-2 job in the morning would be my first goal. Do I necessarily need to pay off the property before then? Probably not. I could probably pull that trigger right now. But there's some level of comfort knowing that I have a little bit more stable income when, God forbid, the market does turn like I've seen it. Okay.

I'm more of a don't ever pay off your mortgage person because right now we've got super low interest rates and you've got sub 5%, sub 4.5% on all of your mortgages. So what we did instead of paying off our mortgage was save up that amount of money and put it in an easily liquidatable fund. so like a high yield savings account in quotes because they're like 0.8% just so we could have it and pay it off if we needed to, but then we still have the mortgage so we don't have that money gone essentially. So that's something that you can do or consider doing. Of course speak to your wife because having you both on the big page is the best advice ever.

I have a couple other questions, though, about your financial. situation. Does your wife have opportunity to contribute to a 457 plan? I believe she does. I got to look into that. She has been employed at this position for about three years. I think she was able to when she was a teacher, but now she's at the administration level. So I'm not 100% sure if she does have that option, but certainly something to look into. That is an even better option because those funds are, they reduce your taxable income. and who wants to pay more taxes than they have to. They, once you separate from employment,

she's able to get access to those funds with no penalties. I think she has to pay taxes on it. You definitely want to speak to a CPA about this, or I'm sorry, a tax professional about this. It doesn't have to be a CPA. But she won't pay any fees to access those funds, which is nice. You said that she might eventually separate from employment. That is kind of like the best of both worlds.

You reduce your taxable income, but you don't have to wait until you're 59 and a half to access the funds. So I would definitely work on or look into the 457 plan and see if that's available to her. You said that you have a SEP IRA, and I'm wondering why you chose a SEP IRA over a self-directed solo 401K. Do you have full-time employees other than your wife? No, I don't. Actually, so my tax account suggested the SEP back, God, probably seven years ago and just kind of rolled with it back then. And somebody else asked me the same question, why not do the solo? So another option for me, I can definitely try and look into that a little bit more.

I'm going to say, so I'm just writing this all down for me. That's okay. We're recording this, so you can listen to it again. Do you use your SEP IRA to invest in real estate? I have not, no. Okay. Yeah, I have not utilized any retirement accounts to invest in real estate. It definitely could be an option.

When I zoom out and look at your financial position, it sounds like move of your time is going to generating that $4,000 a month in income from your contractor job. Is that correct? It's a good mix. I definitely say that I spend an even amount of time with real estate and the general contracting company. How much time are you spending on the WTO contractor job? It varies. Pre-COVID, it was busier. Now my mornings are a little bit lighter. So I start very early in the morning, usually about like 445, and then I've got about an hour commute into Manhattan. And then I'm out any given day, it could be 10.30 up to about 1 o'clock. But thankfully, real estate most of the time doesn't really kick in until mid-afternoons. Okay, so this is a eight-hour-a-day job, basically that you're getting this for about $4,000 a month. Is that right?

Yeah, net four. for. Okay, after tax, you're saying. Yeah. I think that's probably, if I'm, if I'm zooming out and looking at your overall situation, you're a millionaire or close to it between your real estate equity and the investments you just described in your cash position. You have a household income well into the six figures and those types of things. Your time is extremely valuable. And work in a full-time job for $70,000 a year, you know, it seems like a non-scalable option to me. Like, looking at this when your real estate income is this high and you've got other opportunities with those types of things. So I'm not saying like, go out and quit your job tomorrow and think

about it. But I would approach your situation with that framework in mind. If you're a millionaire with that kind of stuff and your household income is, I don't know, 200, I'm making this up 200, 250 a year, right? That puts the dollar value of your time at like $125 an hour. I mean, I guess maybe half of that between you and your wife. But like you have those options. and those types of things. And so what I would be doing is I would be thinking like, is that scalable? Am I going to be generating a lot more income from that job in the next year or two? And if so, maybe that's worth it. If not, maybe I got to refocus on my real estate business or something scalable here because you guys can easily get by on one income

right now. You could probably retire, frankly, or pretty close to it. You know, you probably we want a little bit more padding based on what we know emotively of our listeners and financial positions to permanently retire with that. But I think that's the central problem that I'm if I'm looking at the 80-20 rule, your time is being spent 4 o'clock in the morning till at least 10 o'clock or 1 o'clock in the afternoon on this job that I don't think is, I think it's a scalability problem that you're facing right now. What do you think? What's your reaction to that statement? I totally agree. You know, It wasn't that obvious to me pre-COVID.

I definitely valued my time with my family when there was the shutdown in New York City. And I completely agree. Just a little backstory, the owner is my father-in-law of the company. So I do have a little bit of, you know. It's completely scalable. Believe me, I don't want to go that route. But, you know, I'm also doing him a favor by helping him in his company. And it does have its perks.

I mean, we've had many, many vacations paid for from all the expenses that we've used for the company. So travel hacking, I mean, we've gone so many places thanks to the business. So there's a little bit of that element that kind of keeps me second guessing leaving. But you're absolutely right. I've thought I could be utilizing my time in so many different ways. And it's in the near future. I've had the conversation where I'm probably going to be scaling back that line of work at least three days, maybe four days a week instead of the five, and then eventually just phase it out

because we've put ourselves into this position. As of 2020, pretty much, we've got our budget and our expenses down to something that's extremely manageable. No, I love it. And look, I think what's awesome is we've had a lot of folks who really struggle to get into a position where they're able to earn that kind of income. But because of your situation, I think that you've, to me, it sounds like you're on the cusp of having outgrown that if you're looking for like the next steps there. You've got a large and growing and scaling real estate business. You've got a variable you can afford to focus more heavily on the variable income that you're earning with the real estate commissions because you've got that stability from your wife's employment to cover what looks like household expenses,

which you may not even, yeah, and even if both of those dry up entirely for 10 months, you've got 10 months of emergency cash reserve in the cushion. So your position is so well capitalized that I think it's just about the obvious in the sense of like, where is my ROI and my time coming from? And if that ROI is not above a set level that you think is acceptable, which I would pay at $100 to $125 an hour in your situation, frankly, I wouldn't do it. Well, there is the added wrinkle that it's his father-in-law. So I would, which you didn't say at first.

Yeah. I 100% get that. Yeah. There's a back story. I proposed to my, you know, at the time girlfriend, which obviously is my wife now. And I think that night, he was like, you're going to come work for me. So it was definitely like one of those like, sure, you can have her hand, but you're going to, you know, come work in Manhattan. So is there, so you said you might want to scale.

that back. And that was going to be my suggestion. My husband eventually retired, but when he was still working, he's like, I don't want to just cut the cord completely. Can I go part time? And his office was like, sure, we don't care. It was a lot of anxiety for him, I think, to talk to them about it and to, you know, I'm going to do it. I'm going to do it. And then when he finally did it, they're like, fine, whatever. That's awesome. So that was the conversation about two weeks ago. it was like, I'm going to scale back on the time and they were like, okay, that's fine. Well, what's happening, though, is he's getting this skill set of a millionaire business owner for 50 grand a year, net, you know, whatever it is, right?

And so that's great. And I understand that dynamic. But I think that if I'm thinking through your situation, I would be thinking about how do I fairly and amicably begin the process of finding a good solution here? because the reality is you're just going to be more valuable to, I would imagine, without knowing anything else, just by hearing your position how you handle your business and your affairs, I have to imagine that you're a valuable employee. So lots of compliments flow in your way, you know, with all that. But, you know, I imagine that that's going to be a central problem

for your father-in-law, the business owner, in the sense that you probably provide a good value there. Some solution, if I'm just thinking through the problem beginning to articulate, it that way. One solution that potentially presents itself is finding a succession plan there to, you know, who is somebody who really wants that job who can afford to give more time and will go all into it because it really is their opportunity to grow. How do we find that person and groom them potentially to begin taking that over for you? I think that there is one gentleman who could take that position, but he's already impressed. He does not want the role. So it's a work in progress. Definitely. We'll see when the time comes. If I do want to ramp it up and say, hey, listen,

I want to cut this out completely, then we're going to have a different conversation. But it's in the works, I would say. Yeah. And you ever know how that conversation can go? Because maybe there's a bigger opportunity there. Maybe that, maybe once the problem is exposed and it's very politely and professionally and understanding the dynamics between, you know, of the family, the family dynamics there. Maybe there's a way to have that conversation productively where you say, look, for me, it's not scalable given my position anymore. You know, you could even share this podcast potentially and say, look, I didn't say it. Scott said it. With this, you know, here's the,

here's the situation as I'm seeing it right now. And I'm wondering if there's a better way to spend my time here. Maybe there's a chance to take even more significant role in operations if that's something that you wanted or begin scaling back or whatever. But the current status quo, I think, I think that's the elephant in the room in your financial position right now. Yeah, I 110% agree. The timing of everything has been probably the biggest struggle, only because my wife has been out for the past six months on maternity leave. So having just the two incomes right now,

we kind of dipped our toes into the new lifestyle and the new house and tried to navigate COVID with all of our tenants. So the dust is settling, I would say. it's definitely within the next, you know, couple of weeks to months where something's going to happen, whether it's going to be one of us moves from, you know, our position.

Well, great. Beyond that particular problem, are there any other big challenges that you're facing around that? COVID has thrown so many curveballs. We owned a previous house that was our primary residence. We ended up having to give seller financing to that purchaser because of they were trying to,

close right at the end of March, early April, and they couldn't get financing because banks were tightening up a little bit. So we have some money tied up in another property. We'd love to know your thoughts on potentially somehow trying to get those funds out of there sooner because it's a three-year balloon with a 30-year amateurization. So I don't mind being the bank for him, but I would love to gain access to those funds to invest a little bit more soon. that's for sure. So you're the debt holder on how much? That property, he owes $190 on. So you're owed $190,000 at 4% interest and you're not going to get that back until three years from now. Yeah, we're about seven months into it. Has he tried to refinance? I asked him a million times to try and refinance

and he's like, money's just so cheap right now. He just didn't want to do it. And I kept saying almost like, you know, you can even get lower than the 4%. Why not take that opportunity? He just doesn't seem to be motivated. Do you have any power to enforce that? Or is it just kind of like, is it more, you're going to have to use diplomacy here and get him to want to do it? Yeah, I think he's just going to want to or need to, you know,

have that push or some reason to. I think beyond your push of just like, you know, look, I'm going to call the entire note due. in three years when it comes due. You can either have that looming over your head or you can refinance all the sunshines and the interest rates low. But yeah, if he's not motivated,

unless it's worth it to you to financially incentivize him to speak to a lender and get that going. I mean, what is his reason to? I would just want to because I don't want a balloon coming up. In three years, rates could be 5%. Or more, probably not, but they could be. Yeah.

For those listening, by the way, balloon payment is when you have a mortgage. And in this case, the borrower is paying interest only it sounds like for three years. After three years, the entire $190,000 balance will be due to wane here, right? And so that's what a balloon payment is, as opposed to a traditional mortgage that amortizes over time. You pay off the entire mortgage over the period. Correct. Yeah. So what are his plans when he doesn't have that $190,000 in one level? some. He's an independent contractor, so I think he was going to take like a line of credit out on his business or some type of credit line from his business to pay it off. Why, I don't know.

We need to talk to him because he needs to. He needs to hear this too. Wait, I think this was a bad loan on your part, frankly, with this. Because, because I've put him myself in his shoes, he's paying 4% interest only for a couple of years. That's a really light payment. And some people, I don't know this person, but some people are of that mindset of like, oh, wow, like I can either pay four percent, which is nothing, probably like a few hundred bucks a month at most, right? Or finding out a convention, you know, or 1100 or 1,200 or 1,200 on this thing? It's roughly a thousand. Oh, so he is, you are amortizing the loan. Yes, over 30 years. I'm sorry. I didn't, I don't know. Okay. I'm sorry. I thought it was interest only. It's not that bad of them. Sorry.

I retract what I said earlier. I'm happy to hear that then because in my head, I'm saying I thought it was a pretty good deal because he was not getting financing at the hour with the way the pandemic was moving at that time. Yeah, okay, great. So, yeah, I think that could, an interest only could be demotivating. But in this case, I just think you're the bank at a 4% interest loan. And the difference between you and a traditional bank is you can't just go and sell this load on the mortgage market because it's not a, you know, doesn't check every box on the conventional mortgage market.

So it's a little bit more risky for you. Maybe in the future, you charge a higher interest rate to compensate for that. But in the meantime, I don't think you have much leverage in arbitraging this particular money you have tied up there. Yes, I would say, I would try one more attack with him and just say, you know, you don't know what's going to happen in three years. You don't know where we're going to be. You don't know where lending is going to be. Right now, interest rates are ridiculously low. And, you know, he doesn't know where his business is going to be in three years.

Why would he risk? I mean, did he give any sort of down payment? on this property? Yeah, it was a hefty down payment, which basically took care of the entire mortgage, the commissions, all the fees. So it was large enough that I felt comfortable moving forward with, you know. So he's risking that down payment. He's risking a lot. You're in a really defensible position. You're not going to lose a lot of money, I don't think, but you're not going to be able to get access to that generate a higher return than 4% it sounds like for the foreseeable future. Yes, exactly. And I would love to, utilize that in a different way at this point. But unfortunately, you know, it's kind of tied up.

What would you do with the money if you had access to it? Probably out-of-state investing. The prices for multifamilies, I'm a buy-and-hold investor, so I'd be looking for something at this time. Okay. So your intention with investing is not to be passive in the sense that you're going to invest and, you know, really dump more money into the stock market or index funds. you want to go more heavily into real estate and get that a little bit better of a return. Yeah, I've had a little bit more, you know, better returns with real estate over the last, oh my God, since 2007 was when I bought my first property.

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Getting ready for a game means being ready for anything. Like packing a spare stick. I like to be prepared. That's why I remember, 988, Canada's suicide crisis helpline. It's good to know, just in case. Anyone can call or text for free confidential support from a train responder anytime. 988 suicide crisis helpline is funded by the government in Canada. You've been investing since 2007. Let me ask you a little bit about your current portfolio.

But you say you have a lot of properties that have appreciated significantly in your portfolio. Yes. two of the five or six properties, I would say, I've seen greater appreciation because we purchased them around 2007, 2008. And then the rest was thanks to you guys, actually, because Bigger Pockets was introduced to me by a friend of mine and a colleague. And she said, you got to listen to them because you're doing everything that they do, but you don't have any real focus right now. And the, I guess it was, Mindy, I think it was when you were doing. the podcast with Beardy Brandon.

I don't know if you were covering for somebody at the time or if you were the co-host at the time, but that's pretty much when I dove into the podcast. I was covering for Josh Dorkin, who eventually stepped away and we replaced him with David, but we didn't have a replacement. So I jumped in any chance I could. What year was that? Out of curiosity. Was that 2017, Scott, or 2018?

I think it was 17. Yeah, I think it was 17. Yeah, 17 sounds good. 17 is, yeah, because 17, I started listening to you. guys and I bought another multi and then went on to do a flip. You guys really motivated me and I can't thank you guys enough for just lighting a fire under me. Well, nice. Well, congratulations. You've applied that to some astounding success here and have a lot of really good options in your life. The reason I was asking about the properties is, could you give me one example of a property that you've owned

that's appreciated considerably? And what is your mortgage balance and what's the equity balance on that property? Okay. So one two family in Jersey was purchased for 265 back in, I think it was 2010. Needed some work about $25,000 worth of work. We could probably sell that right now for about $475, maybe $500 because the market is definitely increased. Rental income on that is roughly around $3,300 a month. Mortgage payments about $2,000.

And our equity, I think we only owe $151,000 on it, something like that. Great. So let's say, let's call it 500 of value and 150 in debt. That gives you $350,000 in equity. Yes. Now, this is a great problem to have at a problem that a lot of investors, including myself, have right now, which is where you have too much equity relative to debt. Real estate on average returns worse than the stock market without the use of leverage. So what I would do is I would take that property and others like it in your portfolio and I would run them through, you know, I'll plug our bigger pockets calculators here. I'd run them through the bigger pockets calculators, and I'd say, what does my five-year return look like if I'm purchasing this property today with zero closing costs because I already own it, those types of things, right? And what does my return

look like over the next five years? And what happens to my return if I pull out a significant chunk of cash, still maintaining my overall conservative bent on my overall financial position that you've done a great job with? you know but but if i find a way to capitalize just a little bit more actively what does that look like i bet you that you jump from a 10-ish percent compound return over the next couple of years to an 18 to 20 depending on on how things go and how you with what assumptions you use there it's funny you ask or funny you say that because i am in the middle of uh trying to get a line of credit from one of our properties to try and you know leverage it a little bit so a lot of the banks unfortunately have tightened up that process and um

We're working directly. I think TD is one of the only bigger ones that are handling ELOCs at the moment. So what I did recently is I just straight up cash out refinanced. I did it on two of my properties that had that situation. And I'm going to find a way to deploy that cash. The second loan will close in the next three or four weeks here. I'm going to find a way to deploy that cash going forward. But that's how I'm handled the situation is with the straight up cash out refi

because I lock in that lower rate for, I just, I'm literally refinancing. at a lower rate, my payment's only going up by a few hundred bucks in aggregate, and I'm getting access to all this additional cash that I think I can find reasonable ways to deploy. So it's about being conservative with that. That's an aggressive overall stance, but underlying that is my holistic conservative financial position with a strong cash buffer and those types of things. But I think that's probably your other big leverage point in your existing portfolio is thanks to that great problem you have of buying a property so many years ago, experiencing hundreds and hundreds of thousands of dollars of appreciation, and now being an efficient as a result,

thanks to a really good problem. Yeah, it definitely is a good problem to have. I guess my only concern would be, again, going back to these COVID conditions with tenants and being reliable on payments and stuff like that to take on further debt and stuff like, and to take on and leverage that property, maybe I don't want to do that with all of the money. them, but one could certainly change my return, absolutely. Absolutely. Yeah. So it's just, that's a personal preference thing. It's, it's a way to drive returns with the incremental risk, and it's completely personal preference. You have no bad options, whereas it comes to your real estate portfolio, thanks to a decade of smart investing. That's a really nice problem

to have. You have no bad options. I'm going to throw out a different option. I want to challenge you to go back and really review the numbers on your property. $3,300 a month in rent on a purchase price of 280 is fabulous. But $3,300 a month in rent on a value of $4.85 isn't as good as you could be doing. So go back and review, are there five properties for 11 units total? There are, yeah, there are five total properties and 11 doors and a couple garages, yeah. Okay, so I don't think that the property that used to be your primary residence is available for a 1031 exchange because you bought it as a primary residence. But the other ones that you purchased as an investment property, if the numbers no longer make sense, consider using a 1031 exchange to take that money, take it maybe out of a less landlord-friendly state and move it to a slightly more landlord-friendly state where you can decide to not renew leases on somebody who. maybe isn't your favorite tenant.

It's a great idea. I've always kind of flown solo with my investing. I have a couple business partners, but out of state investing, yeah, I would definitely have to start networking and getting a feel for different areas. And I mean, what better place to do it than on BP. So I've been looking just not as aggressive. Wow. If only there was a book called the Long Distance Real Estate Investor, Scott. That's right. Do you have a copy of that book? I believe I'm not a reader. I am an audible listener. So I probably downloaded that.

I definitely have Scots on there. I have a couple others of the BP books, but I'm not 100% sure if I have... David Green. If you don't, we'll go ahead and send you one. I appreciate that. Yeah, I do have it. That's an excellent book.

And I would definitely read that. Start looking at other markets. You had mentioned investing out of state. If you've got all this money just sitting there in these real estate deals, you have to make a smart choice, make a smart purchase, don't sell them before you've got something else to buy. The 1031 can be, it's got a lot of rules involved in it.

For those of you who are listening who haven't participated in this, a 1031 exchange is when you have purchased a property as an investment. You decide that you want to buy another investment property. You sell this one. You don't pay any capital gains taxes if you follow all of the rules surrounding the 1031 exchange. You essentially kick the tax can down the road. So this is a great way to sell these properties by new ones and not have to pay taxes or do any of those awful things.

But please connect with a qualified intermediary before you do anything with your 1031 exchange because, like I said, there are a lot of rules. And if you miss just one, all of your 1031 exchange bonuses are gone and then you owe a lot of taxes. Yeah. So another way to think about that is to say, I'm buying this property. for $500,000 with $350,000 down, what could I do alternatively to that and run those analysis in parallel? Understand, it's not $350, it's $325 or whatever it is after closing costs. Your closing costs being a little lower, I imagine, because you would facilitate the

sale as an agent. I listen to this and you're not an agent, you'll have to hire closing costs than Wayne here. But that's another big advantage to that. And I think in terms of your assets, that's where I think the leverage will be right now, is in reexamining your existing portfolio, acknowledging your wonderful set of problems, and then just deciding, hey, do I just want to pay off the debt? And I'm fine with, like, pretty mediocre returns, but complete freedom and stability with that. Or am I looking, you know, is that something, am I interested in driving higher returns and rethinking my overall strategy with that?

But just know those numbers, stare at them. And the decision will become a little more helpful. think. Totally agree. And it's great advice. I will certainly sit down and revisit those numbers. Great. Well, to me, those appear to become some of the big items in your financial position is the job and the allocation of capital that you've got within your real estate portfolio right now. Did we miss anything or is there something else you'd like to discuss? I'm looking at my list right now. I mean, you definitely answered a few of my questions as far as you know, where you would go. And then I knew you guys kind of were going to lean towards

leveraging more of my equity and purchasing properties. Curious what the community would say as far as being within this COVID realm and whether paying off one would be a little bit better just to have a little bit of a comfort level. But I do see the value in leveraging and just going so much further with it. So yeah, I'll probably just have to go that route and revisit the numbers. Well, let's do this. You've already shared a lot of the numbers here. What if we say when this episode releases, let's go ahead and have a forum thread on the bigger pockets, on bigger pockets, we'll pin it and see if we can't get some investors to chime in on your set of good problems. I think a lot of people have the same set of issues that you're having right now. I've passively, not passively, but I've slowly and maybe not completely intentionally as a business acquired a portfolio of properties that have gone through the roof and value. you and now I'm like moderately rich, but I don't know exactly how to leverage that for what I want in life completely right now. That's, I think we'll get a lot of good feedback. I think you'll get some people saying, no, let's pay them down. And I think it'll get some people that say,

you know, releverge them. Keep doing what you're doing. I have no idea, actually. I'm interested to see what the community will have to say about that. Yeah, I think it's a great idea to just throw it out there. I mean, you know, a lot of the listeners are probably Dave Ramsey listeners also. so they'd probably say pay it off. And, you know, I've went down that rabbit hole of all different podcasts. And sure, I would love to have paid for properties and have the cash flow. But you can just grow so much more. And if I had a little bit more time on my hands without that job,

yeah, I might be able to, you know, go out of state and see some other opportunities out there. I think those two are directly, those two items are going to be directly linked in whatever path you decide going forward. Yeah, absolutely. I'm curious, and this is more of Wayne should think about it than Mindy needs to know the exact dollar amount answer. But I'm curious what portion of your expenses are covered once you have no mortgages on your rental properties and the current rental properties and the amount of money that they're bringing in? At that point, if I have, I would say I would be able to have two or three properties. were paid off, I'd have enough to cover our monthly expenses, and then we would just be

saving everything that we earn. So, yeah, I would say, yeah, probably three, three properties. I really like that as a framework. That is a great, I think that's a great question, Mindy, and I think that's a great, another piece of data there. Hey, what if it's, I'm going to just, I'm going to create an inefficient portfolio that gives me complete peace of mind. And then with the of it, I'm going to capitalize it for long-term value creation. That might be a great middle ground. That's actually a noodle for myself, you know, because there's a lot of appeal to something like that. The expense, of course, that apportion of your portfolio may be underappreciating over the next 10, 20, 30 years. But the benefit is complete freedom to exercise. You go after some big

bets, for example, with your time. Yeah. Yeah. I think my wife, having these past six months with our second son would absolutely love to, you know, gain a little bit more time with the family. And so to have some expenses covered would easily open that door for her. And yeah, that would be something

I'd love to do for her. Yeah, that's another, that's a whole other one to think about there. I love it. I want to suggest a money date with your wife where you sit down and the kids are asleep or they're at a babysitter, you're out to dinner, or you're locked in the car,

with her, get their asleep at the back, to suggest a money date where you sit down and you lay it all out. So, you know, do a little preparation when you are getting ready for this, have all the numbers, have all of the, you know, look into other states that you might want to invest in. Oh, we've got, you know, two million dollars worth of real estate in New Jersey. And if we took this money and did a 1031 exchange to, you know, Kansas City, we could buy a 301 unit apartment complex and cover all of our expenses plus all of those expenses and never have to work another day again or, you know, whatever. I made that up. Don't quote me on that. But for anybody listening.

Find us that deal. Yeah, I want that deal too. Yeah. But, you know, do a little bit of research into the different areas if you've got more than one state that you're interested in and just see what's available, what's a good idea. I can't get a 35 unit apartment complex in Manhattan. for $2 million, right? I would want that. Definitely not. But maybe in Kansas City that's an option, or maybe it's $3 million, or maybe you could take on a little bit more debt combined with all the properties that you have and really

have a super awesome deal in the works that could, the argument for multifamily is that when you've got one unit vacant in a single family home, you have zero income. But when you have one unit out of 35, you still have 34, 35th's income coming in. and that's just better than zero. And maybe there's a way to think about, hey, I can take on more financial risk if I'm going to reduce operational risk by freeing up my time to work on that project.

Right. So there's a whole bunch of different options there along the lines that Mindy is discussing. But again, I think I love that we got a chance to discuss the job thing because I think that whatever you decide there is going to be, I think that's going to be a huge component of that and something to bring up

I think a money date is the perfect way to bring that up, actually, because of the context we discussed earlier. She's been a strong advocate for me to take more time away from that business, which is her father's business. But yeah, she's definitely on board with it. We've had a couple money dates. She's definitely more of like the visual learner. So she needed some charts and graphs and some things to color in to make it exciting for her.

because she wasn't really into the podcast and all the numbers. But I can definitely have another money day with her and say, let's scale out six months to a year. Where do we want our life to be? And I think it's a great way to bring it up. Well, if that's the case, I'll plug it one more time here. I don't usually do this at the show. But look, try the bigger pockets calculators.

If you're not a pro, we'll go ahead and give you access to them for however long you need to make that happen. But go ahead and try those out and use, I think that visualizing what that's going to look like to your financial position and the returns you can get by making those changes. I think that will be helpful as part of that because I think that's the most leverage you have right now in terms of your assets. Excellent. Okay, Scott, let's recap what it is that we are suggesting Wayne do. Number one, review all of the finances on the properties that you own and make sure that they still make sense. Some of them still might make sense and that's awesome.

Make sure you've got the right amount of rent that you are charging your tenants. Make sure that you have tenants that you really want to keep. Make sure the properties are properties that make sense financially. And like Scott said, run them through the bigger pockets calculators, which can be found at biggerpockets.com slash calculator. I don't actually remember what the URL is, so I had to run on both. We have an editing team. They'll cut off all that garbage and just make it sound like I'm awesome.

The second thing is to determine the dollar value of, your time and your wife's time and create an exit plan from activities that you do not enjoy, which earn below that threshold, right? Perhaps including your job. I think that's the second key there is you guys need to agree on that. That's a great money date topic. You say, here's what I think. What should I narrow it down to? Yeah, I love that. Yeah, that's going to be a huge conversation. Yeah. And tagging on Scott, number three is have a money date with your wife. Put out all the numbers. This is what everything means. This is where we are.

This is where we want to be. And here's my plan to get there. Or, you know, what do you think? Here's a couple of ideas. What are your choices or what are your thoughts on those? Because when you tell your wife, this is how it's going to be. I don't know about your wife. But when I hear that, that is not how it's going to be at all.

That does not fly in our household. No. Yeah. So, but when you say this is where we're at, this is what I'm thinking. What is your opinion? What do you think about this? It starts a conversation and it isn't you against her. It's the two of you against the world.

And I think you guys are going to kick the world's butt. I hope so. We hope to be out in Maui just like Beardy Brandon in the next, I don't know how many years. But that's our goal. That's for sure. Maui is a beautiful place. I think it's sunny there today. Certainly not New Jersey weather.

Wayne, this has been super fun. I really appreciate your time. And I really appreciate you reaching out and asking us to review your finances because I think this is going to be helpful to a lot of people who are in a similar position. I really appreciate your time. Guys, it was a pleasure and keep up the great work. Okay, thanks, Wayne. And we'll talk to you soon. Happy New Year.

Take care, guys. Happy New Year. Thank you. Okay, Scott, that was Wayne Lux. What did you think of this episode? I really enjoyed it. I think it's just fun to, it's, what a privilege you and I have, Mindy, where we get access into the complete financial pictures of folks. And we get to kind of just understand what's going

in there, look for the leverage points, and try to point out those things and share our learnings over time with that. It's just so much fun to hear this kind of stuff and figure out how we can help folks. I think a lot of people are in Wayne situation or close to it or within a few years. and to hear about the problems he's going through with really what is a rock-solid approach to personal finance, I think is really eye-opening to a lot of folks. I think it will be really, really helpful for people to listen to the different aspects of different people's finances. I think everybody listening can learn something from everybody that we showcase on the

Finance Fridays. Yep, absolutely. So if you enjoyed today's episode and your interest, in looking at more, we're going to post Wayne's portfolio information and some of the details around that. And he's going to give a little bit of context around that to the BiggerPockets forums. You just go to BiggerPockets.com slash forums and it'll be one of the pinned top topics on there. And for the entirety of today, Friday, January 1st, you'll be able to find that and go and look at what other investors around the community are saying about Wayne's portfolio and what

and next steps that you should be taking. So go check that out at biggerpockets.com slash forums. We'll also link to the specific thread in the show notes so that if you're listening to this later, you can go back and review it. And those show notes can be found at biggerpockets.com slash money show 158. Scott, should we get out of here?

Let's do it. From episode 158 and the new finance Friday, I am Mindy Jensen and he is Scott Trench, and we are saying adieu, cockatoo.