BiggerPockets Money Podcast - 174: Finance Friday: Reaching Semper FI (Financial Independence) Before Retirement with Fabio

Episode Date: February 26, 2021

Real estate investors are known to have their hands in 20 different pots, this is doubly true for Marine and real estate investor Fabio. Fabio is a Captain in the Marine Corps and has been in service for the past 21 years. He has at least five years left before he wants to retire, but is poised to hit his “freedom number” (or what others call their financial independence number) soon. Fabio has rental properties throughout the country: a duplex in San Diego, a house in Arizona, a BRRRR currently in the rehab stage in St. Louis, and his residence in Illinois. The problem? Some of these properties aren’t cash flowing as much as Fabio would like. He also has a high interest hard money loan on the BRRRR property he is rehabbing, plus a loan taken out against his retirement account. This presents a handful of different options: should he sell some of the houses that aren’t cash flowing in order to pay back some of the high interest loans or wait to refinance? Which debt should be taken care of first? How can he leverage his current assets to help him build a bigger real estate portfolio.  If you’re a long-term real estate investor, you’ve probably been in a dilemma like this before. Stick around for all the lucrative options Fabio can use! In This Episode We Cover Keeping monthly expenses low (especially if you’re about to retire) Taking advantage of the equity you have in different properties  Coming up with a “Freedom Number” then shooting for that goal What to do with houses that aren’t cash-flowing  Taking out loans from a 401(k) or TSP account  Which loans to pay off first (depending on time and interest rate) And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, show number 174, Finance Friday edition, where we interview Marine Corps officer Fabio and talk about real estate, burying, and paying for college. I've been trying to figure out how to get to this fine number because I don't necessarily want a giant real estate portfolio, just a couple of properties to kind of support it. I was thinking if I can just do one property every eight to nine months with my own money done over the next five years, I'll still accumulate a few. Hello, hello, hello. My name is Mindy Jensen,

and with me as always is my low-hanging, fruit-slaying co-host, Scott Trench. I don't know how you always produce these great intros, Mindy. Scott and I are here to make financial independence less scary, less just for somebody else,

to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting. That's right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business, or figure out the path to retirement on a military pension. We'll help you reach your

financial goals and get money out of the way so that you can launch yourself towards your dreams. Scott, I am super excited to talk to Fabio today. During the course of our conversation, we will talk about real estate because that is one of the methods that he is choosing to pursue financial independence. And he also gets some advice from the CEO of Bigger Pockets, the Real Estate Investing Social Network, that says maybe real estate empire isn't really what you need unless that's what you choose, which I thought was very interesting today, Scott. Yeah, of course I like real estate. I invest in real estate. I think it's a great tool. But as Brandon Turner likes to say, people don't want a drill. They want a hole. Right. So real estate is one.

of many, many tools in the toolkit for building wealth. And in my opinion, the 80, 20 of this situation wasn't real estate. It was something else. I think that real estate is the 20. And to do that, it's got to be made passive. It's got to be made automated and systematized. And it's got to fit in with his overall core strategy. And so yeah, I think it's a great introspective or dive into real estate investing as a potential toolkit in building wealth. And I think we had a great discussion around it. The reason we focused on it again today is because that's just where the bulk of his mind share and liquidity rest is in real estate right now. Yeah, I really enjoyed the conversation with Fabio today and I'm really happy that he reached out. Before we bring in Fabio,

first, my attorney 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 Bigger 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. And this actually is some advice that I give to Fabio during the show as well when he contemplates selling one of his properties. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening.

That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch, keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun, calculating quarterly estimated taxes? But somehow, every small business owner ends up doing it. Your dreams of creating, selling, and growing,

get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Sound makes everything easier, expenses, income, profits, taxes, invoices even.

So reclaim your time and your sanity. Open a found account for free at found.com. That's FODD.com. Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. 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 Leaner 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 is 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. Today we are joined by Fabio, a 21-year Marine Corps officer who is hoping to spend another five years or so in the Marine Corps. Semperfy. Oh, oh, he's pursuing Semi. Semper Fai.

What, nice job. That's a great one. He is a newlywed with two teenage children, so paying for upcoming college is also on his mind. Fabio, welcome to the Bigger Pockets Money podcast. I'm so excited to talk to you today. I'm super excited. This is awesome. I feel like I'm meeting celebrities here.

Well, yes, I am. Scott's just a regular joke, but I'm very famous. Everybody knows me. Everybody who listens to this show. That's it. So let's get a little bit of backstory. You're in the Marine Corps, so you have, I would say, fairly steady income. Unfortunately, defending the country isn't going to go out of business anytime soon because

not everybody loves us, even though they should because we're awesome. So let's talk about your income and expenses. Yeah, so like you said, I'm a Marine officer, so my income is pretty steady. And I've had quite a few pay races just over the years. I start off as enlisted, eventually finish my degree. and became an officer. So I'm a captain, but because I've been in so long during my enlist of time, my pace a little bit higher than your average captain.

But with 21 years in and my wife who started a new job recently between the two of us, we're making about $9,800 a month. We do try to keep our expenses relatively low. So between our mortgage, insurance, personal expenses on like miscellaneous stuff, some loans that we have right now, we spend about half of our income every month. And the other half is savings and a bird that we just started last year, first bird that we've ever done.

So I feel like we're doing pretty good with the savings null, saving about half of it, a little less than half. But as I get closer to retirement from the Marine Corps, I'm just trying to figure out how I can accelerate some of these things. Because for a long time, I was thinking, you know, kind of the regular retired 65 kind of thing. I was working towards that. But lately, especially with COVID,

I've been kind of changing my mindset and trying to accelerate this a little bit. Well, first, let's celebrate this 50% savings rate. I think we're doing okay. I think you're doing awesome. So yay, Fabio, that's fantastic. And the burr, how is that going? And is that a local burr,

or is that a long-distance burr? It's relatively local. I'm in Champaign, Illinois, but the burr is in St. Louis. So a little less. has been three hours away. So I'm able to go there about once a month or something, kind of check it out. I do have family in St. Louis, so they kind of drive by and everything and check it out

for me every now again as well. Ah, okay, perfect. And Burr, for those of you who are listening, who are confused by that, that is a buy. Oh, gosh. Buy rehab, rent, refinance, and repeat. I get all the R's mixed up. Burr. And you're about to burr because you're getting ready to have a big gold cold front coming

into the Illinois area. So three hours away, that's not so bad. What part of the burr are you in? You've got the B done. So right now we're in the rehab. Rehab. Okay. And what needs to be done on the property? So this was a full rehab, which was a little nerve wreck and it's a little nerve wrecking still. I bought it for 25K and hoping to get it to a place for around 180 to 200. So it was a fourplex with very small one-bedroom apartments, and I'm converting it into two-town houses with three bedrooms on each side. So from top to bottom, everything has to replace the furnace.

The heater's put in the whole new AC system, which it didn't have, replacing all the floors, new kitchens. I mean, the whole works. I want to come back to this burn a little bit, but before I do that, I want to construct a balance sheet. We've got a great income statement here, and we don't need to dive, I don't think, too deeply into it,

unless you direct us to because you have a 50% savings rate. That's extraordinary and really effective. And it means that you're generating 5,000 or so a month in savings. Is that about right? It's a little bit less than that. And part of that right now, it's being needed up by the private money lender that I have for the bird. But another thing I'm trying to figure out is do I want to continue to a business expense?

Right. Yeah. So your personal spending is not crippling your ability to move toward retirement. You're thinking, how do I, I'm generating a ton of cash, how do I deploy it and my other assets more effectively to move towards five. Plus, you got a pension, all these other types of things coming into play. Is that a good summary of this we discussed so far? Okay, let's build a balance sheet right now. What are your assets and debts against those assets?

So I have a duplex that I bought in 2016 in San Diego. I was returning to the States from Japan after being there for a couple years. and I knew that I wanted to invest in another property. So I bought a duplex there, house hacked it through Airbnb, which helped me save a lot of money. Awesome. I ended up getting deployed to a middle east. So I turned that instead of doing Airbnb,

I turned those both into long-term rentals, and I've had them as long-term rentals ever since then. I bet you did fantastic on this. What does that look like? Oh, it's not a cash flow on property. I'll tell you that. And that's another thing that I'm debating, do I want to keep it right now.

My plan is to keep it as long as possible, but it's definitely not cash flow on being in San Diego. go. I bought it for 505. The loan was down to about 488 last year, but then with the rates dropping so low, I went ahead and refinanced it. Right now, I owe 497 on it, refinanced last year, so still have 29 and a half years. But the interest rate was super low. I got it down to 2.6. And actually, it even dropped a little bit more later on in the year, which I wouldn't know, but nobody knows. What do you think the asset value is? So right now, it's valued at around 6.6.5. 75. So it's gone up quite a bit in the few years that I've had it there. A lot of us see that

California people are moving out. So I don't know how it's going to be long term. But I still think it's going to be a good long-term investment. There's still people that want to live in San Diego. Yeah. I definitely want to live there. Everyone's so expensive. The rent is 3,300 a month. So it's definitely nowhere near the 1% of rule or anything like that. But I kind of see it as more as a long-term appreciation and tax, tax leverage. And what's your payment on that? After I refinanced, it was 26, around 2650 a month. Okay, so you're lucky if you break even after the other expenses.

Is that what you're kind of saying with the, you know, vacancy allowance, maintenance, those types of things? So the payment is 26, around 2650, but I'm paying $3,000 a month. I like round numbers, so I just kept it at $3,000 a month. And so it should be, if I keep it at that really, should be paid off around 22, 23 years. Okay, and then let's keep walking through your assets.

What other assets do you have? We have another property in Southern Arizona that we have. My wife bought that in 2011. Right now, she owes about $77,000 on it. The appraises at about $125,000. But there's a lot of actually just over the last six months, they've started building a lot of new properties around there. It's almost tripled in size just in the last year.

there might be some appreciation there in the future. Also not really cash flow right now. The payment on that is seven, I think it's about $750, $7.75 a month or so. And the rent is $800 a month. And she hasn't really raised that. She's had the same tenant for about three years or so. So we could raise it a little bit, but, you know, it's been a good tenant. We haven't had an age to them.

So we're kind of keeping it as this. We had another property in San Luis, but we sold that about two years ago. a house right now here in Illinois that I bought when I moved here a year and a half ago, almost two years ago. And I'm planning on selling that next year. Initially, I bought it with the intent of keeping us a long-term rental, just like I've done the previous ones. But one of the big place on this was that they had a deal where there was a tax abatement program for the first five years. So basically, I'm getting, in the three years I loaned house, I'm getting about 17 grand back on taxes. That kind of makes up for a lot of the loss. And there has been,

good appreciation in the last two years here. So it should be able to sell that I make a few thousand dollars on top of the down payment and everything that I put into it, which I'll redeploy there to another property somewhere else or something else. Okay, so you'll have some, how much, how much liquidity? Sounds like you've already made your choice to sell that one. How much liquidity do you think you're going to net out of that down payment plus the benefit? Are you going to come into like 30 grand, 40 grand?

Yeah, so right now I owe 177, I believe, and it's a price at 210. if the appreciation continues through this year, hopefully it does. Then I should make about 30, 30K or so. Maybe a little bit less depending on fees and all that. Okay, great. Well, I'll get back what I put into it and then some. Where are you going to live when you sell that house? Will you be deployed someplace else or are you in Illinois for a while?

No, no. So I'll be here until summer of next year after that. I still have no idea. I won't know until around January of next year where I'm going. It could be overseas. It could be somewhere in the States. No, no. There's still a big question mark of where I'll deploy that money, either a burr or I think I've got my wife on board with doing a house hack.

She didn't really want to do it before, but I think she's coming around to that ideas. So this might be our opportunity to do that. Love it. And you're in a college town, right? Has real estate been affected in the college town? Is the college actually having in-person classes right now? So I'm super fortunate because this university did stay in person. They managed to, we weren't sure I was going to make it, but they did.

They were very progressive and aggressive with their plan. So the market for the students has not been that bad. That said, where I bought the house is not on campus. It's outside of campus. So it's more of the professionals and grad students that kind of live in that area. So it still works as a rental. There are people who rent there at a much higher rates. but you don't make quite as much as the buyroom rentals

that the people are doing here on campus. But yeah, they haven't really been affected. They're still doing well. Oh, okay, that's great. Okay, so we've got the San Diego Duplex, the Arizona House, the Illinois home that you're getting ready to sell. You mentioned the Burr in St. Louis, and that is, you said you bought it for $25,000, but you have a hard money loan on that.

What is your payment every month? and how soon do you think you'll be done with that? But the payment on that is 12-22 a month. It should be done. The goal is to be done within the next three months. So actually a little bit less now by the end of March, end of March, middle of April to be done. And ideally to have it rented by June, July, the very latest.

And what do you think the ARV will be on the property after you finished? Minimum 180, but a lot of the properties in the area that are townhouse like that are going for 200, a little bit over 200. But if I can hit at least 180, the numbers will still work. The rent of that will be $1,000 per townhouse, so $2,000 a month. And then if it appraises for 200, I'll pull out 70,000 or 70% of the refinance, the 140. So the numbers should make sense at that point. And how much is the construction going to cost you? So all in all, I, when I worked out their numbers initially, I worked it out to 120 for the rehab. but my brother who lives and said,

Louis is actually helping me with some of that stuff. So I'm hoping, and we're going to be taken over our part, because a big part of it, we had a contractor doing, so all the major stuff is a contractor doing it. My brother and I are just doing the floors, the painting,

someone kind of like the basic stuff. The fun stuff. Yeah. So you bought the place for 25. You're going to put 120 into it, maybe less if you can, but some of that you're just going to arbitrage by not paying somebody else.

You're going to do it yourself. Right. So it's a hundred and five. 145 in and you think it will appraise for 180,000 at the end of that, allowing you to extract much, but maybe not all of your cash, if things go well. Right. Okay, great. And ideally, we'll keep the total rehab around 100, 110.

And most of the major stuff's already done. So as we're coming towards the end, it looks like I'll be able to hit that 100 to 110 rehab. And if we do hit the 200 ARV, then the numbers will work out even better. We won't have any money left in the deal. That's great. Let's keep going. I think we're going to come back to this because it seems where a lot of your mind share is going is to this burr right now. What are the other assets we're talking about here? Do you own more real estate or are there, you know, retirement accounts, those types of things? Yes, I didn't mention the TSP, the Thrift Savings Plan, which is kind of like a 401k at a civilian job. So I started investing in that when I was very young in the military. Didn't really know much about it. Just needed the whole 10% thing. One thing that a lot of military people don't know, and I didn't know for a long time. was that they only do 10% of your basic pay, not your total pay. So like our housing allowance and money that we get for food, and if we're deployed, combat, so on pay stuff like that,

it's not accounting to that. So for most of my career, I was not putting in actual 10%. It was maybe more like 5% or 6%. So it didn't accumulate the way that I would have liked. That said, the reason I started doing it early on is because of the calculators, and I know you guys talk about that a lot. and the calculators, I keep saying if I'm doing 10% of this, it'll hit a couple million dollars by the time I retire.

So to answer your question, right now I only have around 35K in the TSP. I did have caught a bit more, but I pulled some of that money out in order to help with the bird last year. So that's, I see him in this face. And I know that's kind of like a big no, no, no, I told her that in the email. So that's another reason why I wanted to get you guys' thoughts on that. Should I pay back that loan? Should I keep it in the bird?

I'm trying to accelerate five. So we've got an asset of $35,000, and we've got what sounds like a liability where you owe your TSP some money. How much do you owe your TSP? 100K. Okay. You have a loan against your TSP,

or you pulled it all out? Alone. So right now the payment plans are paused, but whenever I am paused, I have to pay it back. And then if I don't, obviously, then I pay the time. taxes on it. Okay. My idea for that would be to pay it back because then you have 135 in your

TSP instead of just 35. And Scott, I would be really interested to hear what you think about taking the disbursement because you have to pay a penalty too, don't you? With the TSP, it's a 10% penalty. It's just like the 401k. It's a 10% penalty plus taxes at your current income level. I think that's going to end up costing you a lot of money. And if you can throw all that money back from the burr, that might be a really good thing to think about. I have a bias in terms of my opinion about that, but I am not, I want to get the rest of your balance sheet first and see if we're missing any other assets or those or other types of debts that are going on. Yeah, so a couple more things. Right now, I have 86 grand in savings,

and that's what I'm using for the burr. I've already put almost 50K into the, into the a bird deal. But next month in about two or three weeks, I'll have the private money lender go do an inspection and all the money that I've put in. They'll do the inspection. They'll give me that back. But I started this bird with about 130, 135, and I've spent about 50 of that already. And was those, were those savings accumulations you had previously, or are those savings that you got as a result of taking out this private loan? So it's two things. So I had some savings already. 100K came from the loan. And then last year I had just under 30K saved up because I'd been saving up for,

wasn't sure if I was going to do a bird, what I was going to do. But then when COVID happened, I remember talking to my coworkers about it and saying, 100K came from the hard money loan or from your liability against your TSP? From the TSP. Okay, great. And then I had just under 30K saved up last year. When COVID happened, I kind of saw it as an opportunity. I remember telling my friends,

I'm either going to delay my retirement by one year or I'm going to accelerate it by a couple years. So what I did is I invested that money in some stocks, which I generally don't do. And it was, I guess, a good year for rookies to do it. So I was able to actually make pretty good money on that, just under 30K into almost another $100k. So that's where I have some of this money. So I still have the $86K in savings plus the $50 that I've spent in the borer.

And then I still have as of last. Last week, I know the market dropped a lot. Last week it was about 42K still left in some stocks. Now, I'm keeping that in stocks for now, just as a backup for emergencies and stuff like that. Sorry, the last bit. You have 80K in the savings, 50 went into the burr. So it was 135. And then what was that last bit in stocks? How much is in stocks? About 42K right now. 42K at stocks. Okay, great. Any other assets or debts that we should know about? So debts, we did have my wife's credit card that last year, but we paid that off. This month, or this semester, actually, is her last semester of college for her bachelor's degree. So we're looking at about $7 or $8,000 or $8,000 that we'll need to pay off.

Right now it's a student loan for this semester. But as I told her, I don't really want to have that loan on our budget, on our spreadsheet. So we'll probably take some money out of savings and just pay that off this summer once she's done with school. Other than that, our cars are paid off. Do we have a motorcycle that I'm probably going to sell this summer just because now that I'm living in Illinois, I don't get to ride it. I was in San Diego before this,

and I wrote a year round here. It's just sitting in my garage, so I'm going to sell it this spring. Probably get $5,000 out of that. Cars, we're going to keep till they run into a dirt unless we get deployed overseas, then we'll probably sell them at that point. And I believe that is it.

Not really other debts or anything. Awesome. So I'm building a picture of a $300,000 net worth in that range. Is that kind of how you're paying it? Yes, between the equity from the houses and all, yes. And yeah, you're really heavy in real estate here. Let me ask you this. What's been your savings, like how much savings do you kind of generate prior to this year on average? Your 50% savings rate, have you sustained that for some time or is that relatively new? No. So it's very throughout my whole life. So like They said, I've been in the Marinole for 21 years.

And I've always been big on savings. Just never really knew what to do with that. Some of that money was not used to well. At one point, we had a student loan with my ex-wife. We paid off at the time. Probably was not the best thing to do because we could have invested it. So it's kind of long story short, it's varied from anywhere from 15% to 40% depending on the years. The last three years or so is where I've really kind of intensified that and started off

at around 30%, 40%, and then this past year, with my wife now working, and she moved in with me, we've been able to bump that up, just under 50%. I think it's around 46, 47% savings rate. And that's about 4,500 a month or so. If we're counting the birth payment and all that, yes. So that's really good. That means you're accumulating 50, you're going to, on a future state basis, be accumulating $50,000 after tax each year in wealth.

And so I just want to state that because that's a, that's a, that's no joke in terms of savings and annual accumulation. And many of the decisions that you are going to be faced with here around your real estate portfolio and those types of things need to be in that context of this is a one year of savings decision. This is a two year decision, those types of things. And the fact that your savings rate is so high gives you that phenomenal advantage of being able to do it through that lens. You're not making, if you were saving $10,000 a year, then you're making a 10 year decision. which is totally different than a one year, if that makes any sense in terms of those contexts.

So, yeah, I think, like, the story here is that most of your wealth, the over 50, over half of it, is just in your San Diego duplex, right? And then everything else is about the remaining, maybe third is what I've kind of got here. Do you agree with that as an assessment? Well, if I pay back the TSP loan, then a lot of that will be tied up in there. If I keep that and keep working on a diverse, I would say it's probably about half and half between the equity of the San Diego property and the cash that I've got available now. Okay, got it. So, yeah, you've got a lot of leverage going against this spur,

but the clean asset is, the equity is all in your, the net worth is all in your San Diego duplex. Okay, and then your goal, again, is five years. What's the timeline to- retirement? Yeah, to semperify. Oh, to semperify. I love that.

I got to remember that one. So I've said 10 years. I'll be 41 this year, so actually nine years to five. But honestly, with the way our expenses are set up and everything, we don't spend that much. So I think we can hit that a little bit sooner. That's kind of why I've pulled the trigger on the TSP because I remember what podcast you guys talked about,

but it was a long time ago. I heard the term freedom number. So our freedom numbers, you know, somewhere around five, five grand a month, six grand a month. if we really want to push it a little bit. And if I retire from the Marine Corps today, half of that is already covered. I'll be going to promote it this year in five years

with that promotion and the added years in service will be about $4,000 a month. So we've got a massive asset yet to disclose here. That's not, that's been masked by all this, is your pension, right? So what's that pension going to look like at your finish line? So right now I'm planning on doing at least five more years. And I want to stay longer,

but it'll depend on the ability, give me if it's a job that I enjoy or not. So if I retire in five years, that'll put me at 26 years in the Marine Corps. My retirement pay will be right around 4,4,300 a month. So you could have a really easy part-time job that, or your wife is still going to be working, I'm assuming, that will cover the rest of that. That's, yeah, we need to definitely mention the military pension because that's going to really help you out. But also this Burr in St. Louis should help you out as well. I did very dirty numbers on a mortgage calculator and $140,000 at 3% is going to be like $6,700 a month. And that's not, that's just P&I. That's not taxes and insurance. I don't know what the taxes are in St. Louis.

But that's, I mean, that's $1,000 a month right there, assuming that all of the other numbers come in, you know. So that, I mean, that and your military pension has you kind of covered. That's what I'm thinking. That's the elephant in the room here. That's the massive asset. That's a million plus dollar asset right there, as far as I'm concerned, or at least it will be within that five years. The military pension?

Yeah, that's, I mean, the military service in general is the massive asset that we're not talking about because you mentioned very casually housing allowance, but we didn't talk about your housing allowance what you're getting versus what you're paying in your mortgage. Is that a wash or is that? So here it's pretty much a loss. wash. My housing allowance here is right around 1,600 a month, and I'm paying 1345. So I'm saving a few a little bit. Okay, so you're making money. That's great. You're making money on your

housing allowance and because they just give you $1,600. They don't see what you're paying. And so then that is, so you sell your house. I don't know about champagne real estate. Because it's college town, I was a little leery about it. But if they've continued to stay, open, you know, maybe that's not such a bad deal to maybe continue in the house for a little bit longer. When I zoom out on your position here, what I see is you got it. Like the retirement is there. It's in your hand and you want to continue working. It sounds like for the next couple of years. You just want that option at retirement. And you're there. Like that pension is going to, it's going to do it for you. And let me just throw this out here and see how you react to it.

But why do you have real estate in four different cities right now from? that way, what's the game plan there from a strategic lens? Well, the reason that's happened is because the military moves me around. So basically, wherever I've lived, I bought a house. Okay. Yeah. And that's worked out well for you. You got several hundred thousand dollars in wealth from it over time here.

But like, if we're zeroing in that five-year target, I think that's the elephant in the room is figuring out that strategy, that core strategy and what you're going to do there. And then making it passive because, like, you don't want to be in five years managing a sprawling real estate portfolio that has different property managers of different competency levels, frankly, and spread across different cities. Well, you're going to be like, dude, I'm making $200 a month on this freaking duplex in St. Louis and my property manager stinks. And what am I doing?

I got $4,200 a month in my pension. I could be chilling on the beach, you know, doing this. Instead, I'm on the phone dealing with that. Anyways, just that's a future state to avoid. If, you know, on the other hand, if you have six properties concentrated in one area, that you've got really well run or operationalized, or you have figured out this sprawling empire here and you feel really confident about it as a strategy

and unlike the diversification. But I think that's like the biggest piece of the puzzle to me right now from a strategic lens is thinking about how does that portfolio advance your fundamental goal here from a strategy perspective? And then I think we've got to talk about your financing things here because you're sitting on $86,000 in cash and you got a hard money loan

and you got a loan against the 401. hey, something there feels like there's some fine tuning that we can do to operate, to tweak your financing approach and how you're financing again, your burr in particular here. I'm interested to dive into that. I think you're right that that's a, that's a big piece there. But I think it's going to be that burr and then the real estate, the real estate strategy, the burr, and then what we do with the San Diego duplex from a strategic lens, because those are the big money movers and time sucks for you right now. Right. What do you think? Am I on to something? No, that's definitely something that my wife and I discussed a lot last year before we bought the property in St. Louis was that now that we're here in the Midwest, it kind of gave me an opportunity to dive into that market a little bit more.

So we're doing this first bird kind of testing the waters, and if it all goes well, we do want to have a few more burs in St. Louis. And, you know, if we get $200 a property and we get five, and we're between five and ten properties there within the next five years, I think that'll help cover that gap between my pension. and the rest of the money I don't need to get the FI. And I do plan on keeping working after the Marine Corps. My wife plans to keep on working, but I want to hit that number, at least on my side, so that we have options. One of the things we talk about is maybe not having a job that pays, but going somewhere and volunteering for a year or something like that.

It's just kind of having that flexibility. Yeah, so Scott loves the concept of low-hanging fruit, and the lowest-hanging fruit that I see here is the Arizona house. It's not worth a ton. 125 is still, I mean, still 125. It's 50 more than you owe on it. And it's not bringing in any money. Yes, you've got a tenant who is presumably easy to manage.

Otherwise, you would not continue to rent it out to that person. What's like if the tenant left, I'm assuming it's a woman, but it's probably not. If the tenant left. Oh, good, I was right. Okay. So if the woman left and you were able to raise the rent to market rent, How much more are you getting? The market rent right now is not that much higher.

It's a three-bedroom house and that it has gone up a little bit, but right now it'd be around 875, maybe 900. Okay, so that's not even really worth raising on a good tenant who's been there for a while. But also, you're making no money on this. You're losing money on this deal, even though you're making $50 a month. There's a lot of other things that go into that, into the numbers that take that $50 right out of your pocket and a whole lot more. If this was my portfolio, I would look into selling that as soon as I could. It just doesn't benefit you to continue to hold that.

And you could take that $50,000 and throw it at another burr or throw it back into your TSP. There are going to be capital gains taxes and depreciation recapture when you sell that property. If she bought it in 2011, did she live there at the time? Did she live in it off and on for about a total of three or four years? Okay. that's too far ago to qualify as your personal residence. So if you're not going to move back into that property,

I would sell it. I would take the depreciation recapture. I would take the tax hit and just move on. I would also talk to a CPA about that because I'm assuming that you've been depreciating the property for the entire time that it's been a rental. But if you haven't, the government doesn't care. They assumed that you did and they tried your depreciation recapture. So that's something if you have been, which is great. But if you hadn't been, then I would suggest talking to a CPA to maybe amend your tax returns for years past so you can take the depreciation before you have to recapture it. I just want to say I tend to agree with Mindy on this. You, as far as I concerned, when we factor in that pension, are a millionaire, maybe one or one and a half times, two times over with that. And you've got this

property in Arizona with 50,000 in equity that is probably appreciating at a tiny little rate that's not cash flowing. And look, I get it like it's hard because you're going to spend, you're going to spend 8% of the price of the property and seller fees between the agents and all those kinds of things to unload the property. But I just think it's a distraction at this point that's almost immaterial relative to your position. And again, you're talking about a decision that's less than probably one year of savings with that and a chance to consolidate and with your portfolio. It's not make or break either way on this. This is probably the easiest or tip of the iceberg as far as your as far as movements on a strategic approach.

But I just, I just completely, I would just tend to agree with Mindy on that property, it seems like, is far flung and not was not built intent with the intention of, uh, of building your overall position long term. It could be a better asset to redeploy into. Yeah, no, definitely when, when she bought it, it was meant to be her home and just circumstances change. She turned a to a rental. I'm curious to hear your opinion. One thing that her and I talked about with his property is keeping it at least for the next few years. And then when her son, who is in eighth grade right now, when he goes off to college in four and a half years, maybe you're selling that at that point in order to help pay for his college? Do you think that'd be worth it? Or would it still be

better to sell it now and maybe put that money into bonds or something to protect it until you guys to college? I don't know that selling it now versus selling it in a few years is going to make much difference to his college fund. And with you being military, having the GI bill could be maybe more helpful to paying for his college. And you take this money and put it into a different place in your current situation where you can grow that more. You know, put that back into your TSP. You put that into your, you know, another burr in St. Louis, if this one works out. Yeah.

So we invest in that money somewhere else might be better. Yeah. I think if you intend to spend money on college, you know, and you want it to be really low risk, you just dump it into a savings account or a CD or a bunny market or something and take the small interest rates of those types of things. But in general, if you're looking to build your wealth, I think you deploy your wealth around the best overall blend of risk return that you love. like across your entire portfolio and leverage that mathematically to then give the best advantage

to paying for whatever it is you want downstream, whether that's college or something else. So, you know, again, it's in a long-term lens, for 50 years, I just don't, like, I just don't my money into an index fund and set it and forget. If I needed it in three years, I might not do that because I might want to, you know, I might want to put it in something that doesn't have a chance of being super volatile in the meantime. But I don't think, you know, that rental property every year, the bigger pockets community predicts the next recession is coming right around the corner, right? And then that for the last seven years has been a terrifying ride for me since I bought my first property, but it keeps going up. One of these days, they're going to be

right. So are you really, are you really at any lower risk by keeping it in that property until your son goes to college? I don't, I don't know. I don't think so. I think you're taking that same risk on, you know, without that. I just think, again, from a strategic lens, having this particular property doesn't seem to be moving you towards any of your goals. And I think it's a distraction on your mind share to a certain extent. And it doesn't seem to be going anywhere is where I'm kind of picking up. That's, yeah, that's also what I was going to say. The duplex in San Diego is a little more difficult to just dismiss outright, even though

it's not making a lot of money. It's not losing as much money as the Arizona property is. And it's in San Diego, which is my, like, favorite city. So yeah, there's stakes in that one. That's, that's 175 grand equity that we just discussed, right? And, you know, you saw that one. You're pulling out 140 or 150, which you can do some real damage with in that. And so that's a bigger, that's an interesting decision. What are you thinking with the San Diego duplex? So another thing that I've looked into is that the way the property set up, I can actually build another duplex on that property. I've been thinking about maybe in

the future once I've got a little bit more. capital actually doing that. It would be about 300 grand to build another duplex onto the property, but would add another half a million or more in value. So I've kind of been towing with that idea, but that's probably something I would do a couple years from now. Is it zoned for that? Yes, it is. So there's a lot of duplexes and fourplexes in that area and that property specifically is already zoned for that. Do you think your work in St. Louis is preparing you to handle that projects? Not right now. I think maybe in the future, if I do a few more burs or something like that, then yes. And I know a lot of people jump right into it, but I'm a little bit more conservative,

more, I guess, careful on that side, especially being this close to retirement. It's like, I'm close. You're about to retire. And look, we just said, hey, the pension might be a million plus dollar asset. But in the reality of the current situation is that that would be betting literally all of your net worth or very much close to it on this particular project in San Diego remote. That's a hopeful, hope one day, not a practical reality of your current situation as far as I'm concerned, right? So I think that's the right assessment. But you believe, I guess absent that project, because when you think about that project, ideally the buyer, someone who were to buy your duplex, would factor in that potential into the purchase price. And that would be reflected in

lot value and the value of that duplex in general. So I just think, I think that's, that's a good one to really think through, maybe talk to a couple agents in the area and see what their opinions are, maybe a couple of investors, and just test your assumptions a little bit more on a gut check level and say, am I really going to build another duplex on this from scratch within the next five, 10 years? Or should I really be like, okay, that's a potential of this and somebody who does that more close to the thing can do that. Because I got a duplex where that's a potential outcome as well. But I think it's less than a 10% chance that I actually pull off that scrape and rebuild project. And the much more likely outcome is that somebody buys it from me and does that project.

No, it's definitely a very intimidating project to think about. Yeah. Yeah. Do you have a contractor out in San Diego? No, I don't. Oh, okay. I will send you the name of the guy who built my house in law. Mont and then move to San Diego, he does stairs. Oh, these are the best, most quiet stairs, rock solid. And that is a tough thing to do. Like everything else he does is great, too. But the stairs were like amazing. So I'll send you his name after we get off here. He's fabulous. I just think that this duplex deserves a significant bigger piece of your mind share. I'm using that

a lot. But I'm detecting that all of your attention and focus is going on this Burr in St. Louis. And that may be correct because that's where you plan strategically to deploy a lot more capital over the coming years. That's great. But right now, you've got this big pile of money sitting in that property. And I think you've got a couple of ideas here and there about it. And I think you should really test those, validate them and make a decision on that property. And that decision might be to do nothing and just do exactly what you're doing with the current structure. But I think that that's that's the that's more than half of your current wealth that you have access to pre-pension. And so I think I just think there's a big decision coming with that property that deserves a little

bit more attention and thought. And I think, you know, I'm skeptical that we're going to build another duplex on that lot in a short-term time period, frankly. You'd be right. Well, short-term, but he can hold it for five years and then figure that out. Do you know David Perrae? That's true. But I think that's got to be more of like, okay, I am going to do that. Yeah. No, there's definitely, yeah.

It's, I mean, it's something I want to do, but it's not any time soon. And I don't know that I'll ever get to that point, but it's one of the things I think about is if the military decides to station me in San Diego again, I can house hack it. So while I'm there, I can build onto it. But again, it's still a lot of if, so there's definitely nothing concrete about it. Yeah. Do you know David Perrae? Yes.

Okay. I was going to say he's in. San Diego, he can connect you with some agents who can look at the property, look at the address, and be like, oh, yeah, you could totally do that. Or, oh, that's a terrible idea. I think San Diego was awesome, but I know that not every part of it is awesome, although every part of it's awesome when you live in the Midwest. Okay, sorry, Midwesterners. I lived in the Midwest for a long time. Oh, geez.

I don't say anything. Listen, I lived in Wisconsin, and the sun would go behind the clouds in October, and April, it would come back out. I am spoiled in Colorado where we get 330 days of sun every year. And we are way going off the rails here. So let's get back to this is now our show. It's Fabio Show. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing.

And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going. And more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward. It's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier.

It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in a needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple.

Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsor jobs helps you stand out and hire the right people quickly.

Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide.

There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed, dot com slash bigger pockets. Just go to indeed.com slash bigger pockets right now and support our show by saying you heard about indeed on this podcast. Indeed.com slash bigger pockets. Terms and conditions apply. Hiring, Indeed is all you need. When you want more, start your business with Northwest registered agent and get access to thousands of free guides, tools, and legal forms to help you launch

and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. with over 1,500 corporate guides who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data. And all services are handled in-house, because, because privacy by default is their pledge to all customers. Visit northwest registeredagent.com

slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money-free. 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. And let's talk about the burr now because, and I want to know, why do you have a $1,200 payment on this burr, but also $86,000 in cash? Like how did that come to pass with all that financing? So basically, I can have the private money lender to an inspection any time, but there's a $140,000 fee. every time they do an inspection. So because I have the money for it, I've been paying the rehab out of my own pocket

with the intent of when the contractor finishes the first part, the first major part, then having an end. We're fundamentally, though. What was the private money for? Was that used to down payment or the finance construction? Or what was that? So for everything, yeah, for the rehab, the purchase, the whole gamut from start to finish.

And so I'm hearing that, again, I'm hearing, I started this process with 35-ish in cash. I pulled 100,000 from my TSP. And now I've got another loan on top of that. How much is the private loan for? So it'll be for the rehab plus the purchase of $145. Okay. So fundamentally, what I'm confused on is if I've got $145,000 in this and I've got $135,000 in cash,

why did I take that loan in the first place? Yeah, why do I have a private money loan in the first place? So initially I was going to do it all on my own and then talking to the agent and all, and he's actually an agent that found out on bigger pockets. He connected me with the private money lender. And so what kind of got me onto the idea of it is that I could I could take the loan on and do more projects at once,

which I've wanted to do. And I've been looking at more properties. I just haven't found anymore. So my plan was around month four. or so to get another property. I just haven't found another property that makes sense with the numbers. If I did it all with my money,

then I would only be able to do one at a time. So I haven't been able to start in the second one, but that's kind of the intent behind, or was the intent behind it. Still just searching. I see. So here's what I don't love at the strategic level, again, with this approach, is I've got equity sitting

in these other properties that are not fundamentally serving me. And I've got a pretty good cash rate and a good savings rate, good chunk of savings, and I'm borrowing against my TSP, my military 401K. And that's a really low interest rate, borrowing activity net of all that reality.

But then I'm also going to go on and take a private money loan, which I think increases your risk dramatically on your first burr in particular with that while you're proving the grounds. What I like, and I don't know what the, right way to do this is maybe there's some thoughts that we could have here, but it would be great to de-risk this project or complete it and get it off the books. Do your next burr, if you're

going to do another one, which sounds like you are, with a better source of capital. Cash, you already have low-interest debt that you can get somewhere else. And then when you feel like you've got your operational engine churning, then seek the private money with the high interest rates and those types of things. Right. And so that's, I think, what's fundamentally my challenge with the way you've structured your debt on this property. I think it's just, and I don't think it's like causing you problems. I like the instinct to take a lot of cash. And right now you're at a low risk perspective because you've got a ton of cash that you're sitting on and can handle a lot of

things and you're almost through the rehab. So you're not in like a risky situation. You're just costing yourself some money and not optimizing your portfolio in my view at the strategic level. No, you're absolutely right. What I realized once I started looking for a second property is that without a deal flow, this is just taken longer than expected. So I really could have done it with my own money and saved almost $10,000 in this monthly payments of a private money lender had I done it with my own money.

In my head, when I first started, I thought, you know, four or five months in, I'll be able to find a second property and jump right in. Reality without a deal flow, it has not been that easy. So, yeah, it's been taking longer. All the cool kids use private money as well, which is not helpful, right? So it's like, I would use private money. That's what a real investor does. No, real investor uses private money because they don't have the access to the other

better sources of financing out there that they can get and they've exhausted those options. Then they go to private money, which is way more expensive. What's the interest rate on this private money loan? I don't have it on here on my paper, actually. I don't remember off the top of my head, but. I bet it's north of 10%. It's, yeah, I think it's, so it was actually, yeah, it was supposed to be 14% and when landed at 12%. Yeah. So, I mean, that's my fundamental problem. That's probably more than the rate of return you might be getting on some of your equity investments in real estate, right? And that's a 14% guaranteed return. So I think, I think that's the elephant in the room in terms of the financing piece for me. My recommendation would be to think through how to avoid that at all costs in the future, using your own position. And then use that as the next.

option when you're truly out of other financing sources and you feel like you've got a real winner of a deal in an operationalized business, that's a tool you can use for scale from that point rather than the tool to get started. Because that's just, again, that's going to, it's going to bleed you probably about $10,000 or $15,000. Again, not a, you're doing a lot of things right and your position's going really well. But, and so that's like a three-month setback in the context of your wonderful, strong financial position. But I think that's just, that would be my observation. No, I think you're right. And as I've been trying to figure out how to get to this five number, because I don't

necessarily want a giant real estate portfolio with just a couple of properties to kind of support it. I was thinking if I can just do one property every eight to nine months with my own money, then over the next five years, I'll still accumulate a few. You've won. Why do you need to build a rental property empire unless you want to? If you want to build a rental property empire, do it. But you don't need like you've won.

You only need like four of these guys to completely. pat over what you currently spending in retirement with that with that pension i think so that that's another that's another big piece of the puzzle for in my mind yeah that is why scott is here to say things like this and you've won you've won you earned it right this is 21 years in service i can only imagine what that kind of career is like for that i'm six years into service here at bigger pockets so but yeah that that's phenomenal um so at the highest level and so that's where it's like hey let's make this and a nice, pleasant winner rather than a stressful, high-interest way to go about building this portfolio. Yeah, so let's look at this loan and, you know, is there a penalty for early payoff? Do you have the

funds right now to pay everything off and be done with that loan? And back to your TSP, how frequently can you take a loan from the TSP? I mean, obviously you can only borrow what's in there. But once you pay it back, is there a time frame before you can borrow it again? Yeah, it's about three months after you pay it off that you can take a loan again. Okay. Okay. So I'm wondering, and this is more like planting a seed, look at how much you currently owe the hard money lender and how much you have left in your bank account and see if you can cover that and maybe pay that off, focus on getting the property done. How much longer do you have on your rehab time frame?

So hoping to be done by end of March. End of March. Okay. And is there any opportunity for you to go down there like it is only a three-hour drive every weekend and just crank it out and get that done a little sooner? Right now I'm actually finishing a master's degree and we'll be done here in April. Oh, okay. After that, I'm going to have a lot more free time.

But right now, it's pretty busy between work and school. All right. So we got our hands in a couple different pot. here as well. How about this? You got 86K in cash right now, right? Your loan is 140. Can you get a HELOC on that San Diego property? So I actually looked into getting the HELOC last year, but with COVID, they weren't doing it. I haven't looked into it recently. So that's a good question. I think if I'm, you know, I don't, and you don't want to deplete your cash position position too much. I think you do want to be sitting on a pile of cash that you can finance operating

activities at this burr at the end of the day. I mean, I think below 25 grand is getting you into risky territory in general cash. But if you could get a $75,000 helock, that's going to be at 3%. You pay off this hard money lender, this private lender with that and plus some of your cash position. Now you're financing your borr at 3% or 4% instead of at 14%. It's still a short short term debt and you still have to refinance and pay off that he lock. Don't get complacent about that helo just because it's at a low interest rate because you still have to pay that off. Then you've got to pay off your 401k. I think that this private money situation at 12% is really costing you every month that you're not addressing it. And so maybe that's the right opportunity or a way to leverage your San Diego position to a certain extent right now.

Definitely. Yeah, I hadn't thought about that. Ever since last time, when I looked at the hillock, it wasn't available. I haven't looked into it. So definitely going to do that. Yeah, I think things have changed at that point. And I think people, you know, I wonder if you're going to have any trouble at this point. Yeah. An alternate thought is that since we.

we're at the beginning of February right now. This episode is airing at the end of February. You have basically one more month of hard money payment, and then you can hopefully refi out of that. Well, he's got to finish the rehab, generally speaking, and maybe even place a tenant before you can refi out of the... Oh, oh, you're right. You're right.

I forgot about the... So I'm probably May or so when I'm refinancing. Yeah, and this is probably... This is costing him $1,400 a month. in interest, $1,200 a month in interest, right? It's probably interest only. So an entirety of that $1,200 is probably going to interest. So this is like the elephant in the room with your finances here. So I think that that's the, yeah, to me, I mean, you can move that down to 3%. Now you're paying $300 a month. That's a $900 savings activity. I don't know what else you can do in your life

to generate $900 more in free cash flow. I don't have anything like that effective. And so Arizona. Yeah. So yeah, there's a way to come into more liquidity. Like that would be, that would be an interesting thing here. Arizona is probably building your wealth at a rate of like 200 bucks a month or something like that if we're being generous with the appreciation rate, right? Boom, you sell that. You take out 25K after taxes and all that, which is not that much. And you get that he lock. I bet you between those things, you've got it, you've got the puzzle pieces coming together to get out of this a little sooner and de-risk your position. And then from there, I wouldn't approach the next burr right. away. I'd sit for a couple of months and let that burr do its thing. And now you're generating instead of $4,500 a month, $5,500 a month because you no longer have this $1,200 leaking out of your bucket. And you're going to accumulate 20 grand in four months. World's going to look a lot different after you're accumulating that kind of cash that quickly. And your next burr will be that much easier to finance and tackle. You'll also have that operational experience that you've just invested

in. So I see a position for you towards the end of the year where you're financing the burr with much, much better debt terms, perhaps a consolidated position and aren't in and are going at a steady pace. That's still very aggressive. It's probably like one property a year, but it's not six properties all at once. You know, you do one property a year and then two a year in 2022 or something like that. And that's a really, that's a really nice cadence of wealth building that for you will be really sustainable with that savings rate and those types of things. Absolutely. Right. One last piece of the puzzle here, and I think this all ties together with that burr, is the money you have in after-tax stocks right now. And Mindy has a good point around these types of things to make sure that you're not incurring short-term versus long-term capital gains. But assuming you've held those positions for more than a year or two, you might be able to sell portions of those stocks and redeploy them either into TSP or other retirement, things like that or to give yourself some liquidity. When I think about index one invests, I think I'm going to get a long-term 7 to 10% return. Right now, you've got a 12% return by getting

out of that hard money loan, that private money lender loan. And so there's some arbitrage potentially there, although I wouldn't incur a significant short-term capital gain, which is going to be tax at your ordinary income level in order to do that. But I might incur a long-term capital gain. We're splitting hairs a little bit with that. But in general, that might be another source, another piece of that puzzle that can come together to help you get out of that financing challenge there. And by the way, that financing, you think you're going to be done in May, and you might be. But what if it goes into September? I ever think anybody that does their first burr goes a little longer than they were hoping in terms of being able to refinance. So,

so you may have six, seven, eight thousand dollars left in interest payments on this loan before it's all said and done. Something to, that I think, again, you can you can avoid with some creative and moving some of the puzzle pieces in your portfolio together. Absolutely. That's a great point. And so when I bought the stocks last year, it was kind of spread out between March and June. I definitely want to keep them in there at least until June. And what I was thinking with that money is just putting it into a high yield savings,

if you can still call them that today, just as an emergency fund. Yeah, that, you know, I like, I love an emergency fund. I'm a huge proponent of an emergency fund, but I really want to see this hard money. loan get wiped out. And I think that should be your first focus. And then the emergency fund. We spoke before we started recording. We didn't actually say this during the recording. You're able to sock away $2,200 a month just into a savings account from your regular. What? I thought it was $4,500 a month. The $2,200 goes into the cash. After the, yeah, after the private money loan, it's paid off and everything.

How much, how much is it per month? $2,200 a month in savings and then private money loan, $1,200. I said, okay, I got that wrong. Okay. So we're saving at a, we could be saving at a $3, $3, $3,500 a month rate, not a $4,500 a month rate, but that would be, that would be immediately achievable after the hard money loan is paid off. Yeah.

So I, like, and what I was going to say is you could crank out a six-month emergency fund pretty quickly just based on that. and you have, you know, there's, I think there's a lot of other opportunities for that. But I have to agree with Scott. And I really like the fact that he was able to look at that and be like, whoa, whoa, why are we doing this? Because at the outset, oh, I'll just borrow this money. It's great. I am so cheap.

I could never get a private money loan because 12% gives me hives. But I see why that would be, you know, and it can be a great opportunity for the right opportunity. And I like the burr in St. Louis. I would love to see you get another one like this after this one's done. I'm assuming because you didn't say you had a terrible experience with your contractor, I'm assuming that you've had a good experience. They've done what they said they were going to do for the price that they said they were going to do it. Maybe not quite in the time frame.

They're always really ambitious with those time frames. But yeah, Scott said the burr might go a little long, double your cost estimate and triple your time estimate. And then you might almost come in right where you're thinking you're going to come in. For the first birth, for the second birth, then you'll, you will recognize, you know, oh, I didn't have to go with this. I could go with this and it's off the shelf and it's ready now and I could do this. And like, we all make mistakes with our rehabs. It's, it is a thing. But you're coming in, it sounds like you're coming in lower than your rehab estimate.

Well, and part of that is because my brother's going to be helping me with, with the floors and a lot of stuff. So I'd saving me several, several grand between. Is he getting, is he getting any economic? for that that are part of the fact that the equation? Yeah, I'm paying my brother for that. Because he's going to be doing it on the weekends. Right. Okay, good.

Yeah. Cash is good. Not these complex, you know, the partnership's fine, but just if it, yeah, hopefully he's trading his time for cash, not equity or anything with that. Yeah. Okay. No. Okay.

Well, I think we have a pretty good set of suggestions here, Scott. I think we're both in agreement that the Arizona property doesn't really do you many favors. I think you're in agreement as well. talk to your wife and see how she feels about letting it go. Sometimes selling something can be kind of difficult, especially if it's your first property. Sometimes you don't care. I had a hard time selling my current property or my last property just because we were there for so long. The San Diego property, I would really, it's still bringing in the difference between the mortgage and the rent is $6.50.

I wouldn't say that it's losing your money. not generating the kind of cash that you want it to be generating. But if you want to live in San Diego down the road, if you can build another duplex on there and turn it into a quad, I can see that as an opportunity where you don't have to sell it right away. You can put more time into it. So definitely reach out to those agents that we talked about. The St. Louis thing we've talked about, you're going to continue that burr, pull the money out, pay off the loan as soon as you can by leveraging some of the other opportunities that you have. And then we didn't really talk too much about paying for college for the kids.

But you've got the GI Bill. You said you're getting your master's. How much is left over from the GI Bill that you're using that you could share with the kids? So actually, I've been very fortunate way I've worked everything out with the military. I got my bachelor's degree for almost free. I paid maybe $3,000 over the years. just with different programs in the military. And then the master's here in Illinois,

I work as a marine instructor at the ROTC unit at the University of Illinois. So by working at the university, they consider me part of the staff. And as part of the staff, I'm getting my master's degree for free. That's awesome. Can your kids? Can your kids go to school there for free

because you are at severely discount because your staff? They could. Unfortunately, by the time they're ready to go to college. child won't be here anymore because I only have a year and a half left. Ah, okay. Should have had kids sooner. Yeah, that's our biggest face there. Hopefully I could go back in time.

I'm going to give a shout out to my client, Sean, who is doing the exact same thing in Boulder. Oh, nice. And he listens to the show too. Hi, Sean. He's a Marine Corps, ROTC instructor. And I think he's working on his master's as well. Yeah, I haven't used any of my GI Bill. So the way I initially had it set up to where it was all going to go to my son,

not with my wife and her having a teenager as well. I split it so that some benefits are going to my son, some going to her son, and we're able to move that back and forward depending on their needs for college. But if they both go to college full-time at a public school or something like that, then we will need more than the job bill

because that only covers four years at a public institution. At the end of the day, you're going to have to pay for that college some way. I just don't see how the area, Arizona property, the dollars in the Arizona property are any different than dollars somewhere else, you know, in your San Diego or whatever, right? You can finance that with any of those dollars. And I just think that those dollars in particular in the Arizona property aren't part of your core strategy and aren't material enough to make a difference with that. You sit here in three years.

If it's three and a half percent appreciation, you know, you might get a eight percent compound. I'm making these, completely pulling these numbers out of the out of the air. I got no idea. I think he's getting like a 1% compound interest. I think it's not really, I mean, it's not moving the needle at all. I don't know how much mental bandwidth that takes up from you, but I would just sell it and take that money and put it towards something else that will generate more than negative $50 a month. Yeah, I mean, you're negatively cash flowing on that because you're with the spread between

your rent and your mortgage is very small, and you're, you're piling up a liability in the form of that roof when it's going to be replaced. or your fridge or whatever it is, right? That you're not calculating at this point. There you go. Okay, well, Fabio, this was fantastic. I think that we have covered a lot of things. I think we've given you a lot of things to think about.

I would like to see you start contributing to your TSP again once this burr is all wrapped up. We didn't really talk about that too much. But I think just consistently contributing to your retirement account is a good plan. There's very few instances when I recommend not. consistently contributing to your retirement plan. Yeah, the only reason I wasn't sure about that is because, you know, because I'm so close to reaching the five number that in my head,

I was thinking what's more important in reaching my fine number now or the retirement plan at 65. And I joke with my wife, I'm between being a Marine and all the risk-taking activities that I do between riding motorcycles and snowboarding and all that, I might not make it to 65. So it doesn't like that joke. But that's kind of one of the things I'm focusing on is trying to reach FI faster. So I don't have to worry about retirement at 65. I get it.

And I wouldn't, you know, I'll say, well, I agree with Mindy. My agreement is less of a strong position because as far as I'm concerned, your retirement account is the pension. So we got like a million, million. And again, I don't know what the asset value that is, but like a 50,000, 40,000 a month is going to be 48,000 a year. You're looking at over $50,000 in income guaranteed by the U.S. government. That is a significant, a high value asset, right? That's going to be, that's probably, I'm probably way conservative in a million to $1.5.

It's probably a $2 million asset. And so when you got $2 million in your pension, do I really need to get to $250 in my 401k, my TSP, at the same time. So I kind of get that from that stance. I do think it would be great to pay back the loan and those types of things and shore up your financial foundation. So you're not having to use short-term debt except for, you know, in targeted cases, short-term debt's a great thing to do for a burr. And the best short-term debt for that burr is probably going to be a helock. And then maybe a loan from the 401K rather than private. money in this case until your business scales for an operational standpoint. But yeah, like,

I think contributing back to the TSB will be great, but I don't think it's, I agree with Mindy, but I don't, I don't know. I also kind of get the skepticism like, okay, you know. I hear what you're saying, Scott. I'll allow it. All right. Okay, Fabio, I hope this was helpful. I hope this gives you some ideas to consider and to, you know, just reshift your focus a little bit. And was it helpful? Absolutely. This is exactly what I was looking for. Oh, good, good, good. Okay, well, I want to know how this plans out. So when you've made some of these changes after you sell the Arizona house and after you refi out of this or pay off this loan, I want to talk to you again. And all of these are just suggestions or thoughts and what we're doing with that.

So, you know, this is going to be your decisions at the end of the day. So we're not telling you to sell the Arizona house necessarily with official advice, all this disclaimer and that kind of stuff. It's just that's our take based on what you presented us today. Those are some things to think about. And I think hopefully they help you frame your overall plan. No, and you guys make a lot of sense. I mean, you definitely gave me a lot to think about. So obviously got to talk to my wife about it.

She's the boss. Yes, I was going to say that. Happy wife, happy life. Do not make big financial decisions without talking to your wife. But yes, I think that is awesome. Set up a money date. Have a nice conversation. Okay, wonderful. Fabio, thank you so much today for coming on and sharing your information with us. I think as other people listen to where you are at, they can start to see similarities in their mind or, ooh, I was going to buy this house and now it doesn't really turn out that it cash flows very well. Maybe I'll look for a different deal or, you know, however it works out. And I'm not dogging your wife for buying a house that didn't cash flow. I bought a lot of houses that didn't cash flow anything. So, you know, I just think that it's time to take the money.

money and run. Thank you, Fabio. This has been fantastic. And I hope that you reach Semperfi with it as in as short a time period as possible. That's awesome. Absolutely. Thank you, guys. This was great.

Okay. Thank you, Fabio. We'll talk to you soon. Thank you. Bye. Okay, Scott. That was Fabio. I thought it was awesome.

And I really loved your Semperfi pun. That was awesome. It wasn't my Semperfi pun. It was my Semperfi pun. It was my Semper-Fi pun in the beginning that I said, but it came from Scott, like always. But that's great. I think it's great. None of us have made that connection before.

Pursuing Semper-Fi. And I mean, that's a big part of his plan is his military pension. So he really is pursuing Semper-Fi. And now I can't wait to talk to all of my Marine Corps friends to tell them that, too. Absolutely. I'm really liking these Finance Fridays because we're getting such a diversity of backwark grounds and money stories and situations here. And, you know, it's interesting because we thought, I don't know, I thought at first that it was going to be a lot of folks who were getting

started and those types of things. But I think we found that people with net worths in the $500, the $1, $2, $3,000 million ranges still are struggling with with a lot of clarity and getting a simple, scalable approach to their money in place. And I'm just, I'm so grateful for the opportunity to dive in and so thankful that people like Bobio come on the show and share all this detail with us so that we can we can learn alongside you guys are listeners with it. So just any feedback on the Finance Fridays would be really appreciated. You can leave it in the Facebook group at facebook.com slash group slash BP money. And we'd love to see it and check it out and then have a discussion around it. Yes. And we would love to talk to you about your finances.

If you would like to come on and share them with us, you can apply at biggerpockets.com slash finance review. And we have had mainly men applying to the show, which is not a bad thing. I love my men, but I also love my ladies. So ladies, if you would like to have your finances reviewed, please come in and apply. Ping me, Mindy at biggerpockets.com, and let me know that you'd love to share. We are not here to make fun of you or make you feel bad or like we're not the Howard Stern of finance. We just want to look at your finances.

And sometimes when you're in the middle of it, what? Oh, I just love it. Like one of a nice little lockout blow for Howard. He can be abrasive. And we are not. But sometimes when you're in the middle of your finances, you can't really see. other options or you have it in your mind, I have to do this. And sometimes if you do this, it's a little bit better. And we would love to look at your finances and see what suggestions

we can make for you. So please fill out the form at biggerpockets.com slash finance review. Okay, Scott, should we get out of here? Let's do it. From episode 174 of the Bigger Pockets Money podcast, he is Scott Trench and I am Indy Jensen saying I'm late for my bus, gigantopithecus. Whoa. Awesome. Bye, everybody. Bye.