BiggerPockets Money Podcast - 230: Finance Friday: In My Mid-50s, Do I Have Enough to Retire Next Year?

Episode Date: September 10, 2021

Retiring early can be a daunting task. Not only do you have to do more, with less time, but you have to stay diligent on your budgeting, expense tracking, and investing if you want to hit your goal by a certain age. Today we talk to Lisa, who wants to retire next year, in her mid-50s. While most people think early retirement means retiring in your 20s and 30s, this isn’t necessarily true. Retiring 10 years early, like Lisa, is a massive accomplishment, but requires the same skills needed for retiring decades earlier. Lisa has three pieces of property: a cash-flowing rental in pricey Boise, her primary residence in Washington, and a plot of land in North Idaho. She’s tinkered around with ideas of using her primary residence as a short-term rental, but unbeknownst to her is the fact that having a short-term rental could bankroll her retirement. She also has a sizable amount in retirement accounts, but none of those assets produce cash flow. Will Lisa be able to retire using the 4% rule with her retirement accounts? Or, should she use this last year of employment to double down on cash-flowing assets like rental properties?  In This Episode We Cover Using the 4% rule to calculate how much you need to be invested to retire  Leasing out your home as a short-term rental while you travel  Choosing cash-flowing assets over assets that merely appreciate  Calculating out your TRUE living expenses (with the Mindy Method!) Profiting off of land purchases and when the right time to sell is When the appropriate time to raise rents on a tenant is And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show 230 Finance Friday edition, where we chat with Lisa and talk about financial independence starting a little bit later in life. I always thought I needed a million to retire and I'm not so sure anymore. It's kind of scary out there. But I think you need more. I think I might need more. But I really, really, really want to retire next year. Hello, hello, hello. My name is Mindy Jensen, and with me as always is my thought-provoking co-host, Scott Trench. I don't have a good one. That gives me something to noodle on, Mindy.

Great. You got it today. I'll use it. I'll be playing a part of Scott today. And me. 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 that 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.

I can't even say that without laughing. Go on to make big time investments in assets like real estate or start your own business. We'll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. We are talking to Lisa today. Lisa is in her 50s and she is looking at her finances and wondering if she's doing it right. And she's doing really well. But of course, everybody can always be doing better. So we talk to Lisa.

We look at some of her real estate. state holdings. We look at her investments, her balance sheeted income statement, and give her some suggestions that we would make if we were in her shoes. That's right. I thought it was a really good episode and a new perspective that we haven't had on the show before. Something we didn't really cover in the show, and I want to make a note of is the rent on her rental property is lower than market. And she has a tenant who is taking good care of the property. And she, you know, rents have gone up. She has an interesting thought on why she hasn't raised the rent. But something to think about if you have a rental property is that, you know, if you're not regularly raising the rent to market

value at the end of the lease, you could get to the point where you're significantly lower on the rent every month. And you could be leaving a lot of money on the table. On the other hand, I don't think it's worth it to raise the rent on your really great tenants just to squeeze another dollar out of them. So, you know, I think that was, you know what, Scott? We should have a conversation about raising the rent in the money channel. I think there's a lot of nuance to it and I don't think there's a right answer or not. Yeah, boy, that is a really great way to phrase that. There's a lot of nuance to it and there isn't just one right answer.

So, okay, we have a Facebook group if you would like to discuss. or join in the discussion on raising rent versus keeping it static for your tenants, you can find us at Facebook.com slash groups slash BP money. Scott, before we bring in Lisa, I need to say that 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. 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 Pockes. 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 Edle. 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 F-O-U-N-D-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 Liener 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 B-P.

money. Lisa is in her 50s and makes great money, but is concerned about financial independence and thinks she should be saving more. She has a decent retirement account and a rental property that provides good cash flow with great equity. But a rental property comes with a mortgage, plus her primary mortgage leaves her with two mortgages every month. Tracking spending doesn't come that easy for her. So we'll be looking for ways to automate her savings. Lisa, welcome to the bigger pockets money podcast. Thank you, Mindy. Thanks, Scott. I am super excited to talk to you today because you're not 20. And while I love our 20-year-old listeners, they have a lot of time to get through their, you know, financial journey.

And you are well on your way. In many cases, you are in a better position financially than they are. But you also have retirement coming up a little bit faster. So let's look at where your numbers are coming in. what is your income and debts and expenses and investments? Scott, why do I always forget what this is called? Ballensheet and income statement. Yes, balance sheet and income statement. Okay, so I make $126,000 a year and I have two mortgages. The rental property in Boise, Idaho, mortgage is $969.69. And it has an HOA that's $81 a month. And it has a he lock on it.

I took out some money to upgrade it when I bought it. So I'm paying $500 a month on that. Then my primary residence mortgage is $1487. And the HOA here is $40. a month. I have a car payment that I pay $700 a month on. Is the $700 your monthly payment, or is that what you pay because you're paying extra? That's what I pay because I pay a little bit extra.

Yeah. What else? The rental, so the rental property rents right now at $1,900 a month, and I just increased the rent on it because I did a market analysis and I was well below. the market. So it still has room to grow. The market analysis said it should be getting about $2,300 a month, but I couldn't raise the rent $400 a month on my tenants, so I just raised it $100. So there's potential there when there's turnover in the rent. And let's see, gasoline. I'm last year I spent $2,500 in gas, but so I that's about $210 a month.

Groceries is about 600. Utilities, $180, $200 for restaurants. And I save $600 a month for travel. And I save $600 a month for just other savings. and I have six months income in my emergency fund. And I have, let's see, I have about 683 saved up in my, between my 401K, my Roth and my rollover IRAs. Before we get into all of this on the asset side, we have a salary of $6,000 a month plus $1,900 in rental income. Is that right?

Yes. And how much is your total expenses, all the things we just added up here? About $5,600. Okay. And that salary of $6,000, that's after tax? Yes. That's what's it in your bank account. Okay.

So we have $400 a month left over thereabout. And then your rental property has a income of $1,600, and what's the mortgage and expenses on that? So it's about 1,500. Okay, so you have 1,500 expenses on that. So you're clearing about $400 a month incremental from your rental property as well. All right. Now let's keep going with the investments there.

Sorry. Okay, investments. I think that's it, Scott. I had 30 in the six-month emergency fund. I have 683 in my traditional and my rollover and my 401K. I have just a land in North Idaho that's worth about $85,000. And yeah, I think that's it. Do you want to know what the equity is in my two properties, my two houses?

Yeah, I think that would be helpful. So the Boise House equity is about 340. And the house that I'm living in equity is about 150. So how would you kind of, how would you wrap that all up and kind of articulate your net worth? the highest level. I think my net worth is really about $800,000. 8,000. Okay. And what are your, what are your goals? What would be the best way we could help you today with all this? I always thought I needed a million to retire. And I'm not so sure anymore. It's kind of scary out there. But I think you need more. I think I might need more. But I really, really, really want to retire next year.

And I always thought that I would retire a little bit early. So that's kind of been a goal. And I guess I just maybe, you know, should I move some money around? Should I use the land in North Idaho equity to pay off the heat lock and increase my cash flow on my Boise property? Or should I just make the leap and let the equity. kind of keep doing their thing and just, you know, start my retirement by taking money out of my the 401 case, the IRAs. So I have a couple of questions.

Okay. You have approximately $5,600 in monthly expenses, but some of that sounded like you're putting $600 away for travel that sounds like it's part of that $5,600 and $600 in other savings that sounds like it's part of that 5600. So I'm wondering for your own knowledge, what are your true expenses without the savings, without the contributions to 80 or 401Ks? What is your true bottom line spending? Because at $5,600 a month, that's $67,000 a year, times 25 for the 4% rule, is $1.68 million, which is $5,600,000. $6,000, which is $6,000. not where you are right now. But I don't think that 5600 is your true measurement. If we took away

those 1,200 for travel and other savings, we're already at 4,400. And so then 4,400 times 12 is 5200 times 25 is, or 5280 is 1.3 million. So that's a significantly lower, but it's still, you know, more than what you've got right now. So I think that a good exercise would be to go back and see exactly what your expenses are. And you mentioned travel. $600 is a lot of monthly travel for, I mean, how long have you been doing that? What does your travel kitty look like? Well, I've been saving for big trips and it's a lot of it just disappear because I'm going to France. with my brother and sister-in-law in November. So it looked really nice until last week.

And I use it for little trips. Like I meet my daughter in Las Vegas, and I'll use it for that. And it's just sort of, we just go and have a good time and do what we want to do. So I don't really budget that travel too much. I just say, okay, this is where the money is going to come from and we go. So I'd like to continue to have some money for travel for retirement.

I think that's kind of, I think I still have to put money away for those kinds of things. Okay. What I'm seeing here, when I look at the position overall with a lot of these things, is that if you want to get to a million dollars, that would generate 40,000. in spendable liquidity each year, if you're looking about the 4% rule and you like that as rule of thumb. There's a lot of debate about whether that's too conservative or not, right? And we have an episode with Michael Kitts's where we talk about exactly how conservative that is. So it's possible you could go as high as like a 5% or something like that or even stretch it a little bit more.

And I know some financial advisors talk about 7% withdrawals and there's a 50-50 chance or something with that portfolio. but without bending the rules of the 4% rule, we have two levers that we have to pull on this, right? One is to reduce the monthly expenses that you've got going into retirement, and two, is to pile up more wealth going into retirement, right? And so let's start with the expenses, because I think that's interesting with that. You drive what appears to be a tremendous amount. Is that related to the commute for work? Not so much. I moved to Richon, Washington for this job, and I left my home in Boise, Idaho, which is four hours away. So I drive over there quite a bit. And then I also have my property in North Idaho, which is three hours away. So I drive up there quite a bit, too. Yeah, I don't, it doesn't seem like it's that far away. It doesn't seem like I make that many trips.

over there, but somehow it really adds up. The reason I ask that is because will those miles and the need for that level of transportation expense in that category decline after retirement is kind of where I'm, where I'm going with that? I just don't know, Scott. I thought there's so many unknowns when I don't even know what I'm going to do in retirement. Okay.

Well, that's a good place to start, right? So here's the thing is, is I think, I think that one way to start answering this because now we can wrap our heads around math with this kind of stuff, right, and say, what, what is retirement going to cost on an annual basis with that? And I think that we've found that most people feel start spending less money in retirement than they are when they're working with that. And there's a lot of cost-saving opportunities with that. Like, you're not going to, you know, do some to cut some corners maybe while you're working and very busy with a lot of these things. Maybe there's a way to make that less expensive or there's less driving or there's less dry clean. or less on eating out or fast food on the commute or whatever it is with that.

And so I think that that would be a really good kind of first step here to say, what is my annual spending going to be in retirement? What is it now, which you've got a great handle on, and which numbers are going to move as soon as I leave full-time work? And that will give you kind of more clarity into what that looks like and an ability to project there for the expenses after that. Mindy, do you have anything to add on that one maybe? Yes.

So you said you don't know exactly what you're going to be doing in retirement. And this is the best time to not retire is when you're not sure where you're going to be spending your time and what your retirement looks like when you're done. And first, let's talk about your job. Do you enjoy what you do or is it a stressful job that you can't wait to leave? I think I'm just burn out. And I'm and I just. I just like to move on to something different. Okay.

And I wouldn't mind like leaving my full-time job to do some part-time work. Ah, that was going to be my next question. Yeah. And there are a lot of things I'd like to try to do. And then that other big factor for me is just that most of my family lives in Ohio, my parents and two siblings and my daughter lives in Texas. So when it comes to traveling less, Scott, I think I might be traveling more to spend more time with them. But it might just be that, you know, I take that trip to Ohio and I'm going to spend, you know, a couple of months.

And I wouldn't really have living expenses because I'd probably live at one of my parents or siblings' houses. And certainly in Texas, I would just stay with my daughter. So in that scenario, I thought that I would short-term rental my primary residence so that I negate that expense. Okay. So what I'm hearing is, so this is great. So we say there's going to be some more transportation expense because they're going to be travel to these different places. Maybe you drive there if you want to bring your car, maybe you fly. depending on how long you're going to stay.

And then that will wipe out your housing expense to a large degree in some of these, in some of these cases with that. And so I think that going through that and at least mapping out like the first six months to a year and getting alignment with your family would help you bring a lot of comfort into like, okay, here's my model and here's what it says. And here's how much income I need to make that work on this with that. I think that will be really helpful for you to kind of come, get comfortable with the, the amount of spending that you're going to be doing and the amount of passive income you're

going to need to fund that. Yeah, that's a great idea. Just kind of figure that out. I sort of, you know, I'm just in a, you know, in a nebulous kind of way. I've kind of sort of said to myself, yeah, that I'm going to go stay with my mom. I won't have, you know, the house rental to worry about and both the houses are easily rentable. So, yeah, I go stay with my mom part of that year and my daughter. And where is your primary again? Washington. Eastern Washington. And what do you like, do you have any idea about

what that would look like from an Airbnb perspective and seasonality and all that kind of stuff? There are 250 wineries in a 50 mile radius of where I live. So. Oh, I want to come Yeah, that sounds awesome. And I live on the Columbia River. So that's a big draw as well. Yeah, I think that there's one short-term rental in my neighborhood. And if you can trust the Airbnb statistics, she's charging $185 a night. And she's booked all the time, about 90% of the time.

So that's amazing. And I would look at seasonality. in your location specifically to plan my trips. Oh, people really, really want to be here at Christmas time or people really don't want to be here in August. Great. Then you can be home in August and go traveling when people want to be where you're at. What about your Boise House?

I have that. It's on a long-term rental. Could you short-term that? Because I know Boise is just hopping. It's a screaming hop. market. I think it could. I think it could. And since you're not there, you would have to find somebody who could do the cleaning and the turnover, which is the big, big issue. Another thing is the longer short-term rentals, like to traveling nurses and corporate rentals and things like that.

They're still furnished like a short-term rental, but they have, they're like in between. They're not quite as high as the nightly rates, but they're not, they're more than. a long-term rental would be. So that's another way to generate some income. Yeah, I actually put my house on furnished finders last year to market to the medical traveling community. And I had one tenant and it just didn't quite work out so well. So while I was kind of trying to do the house hacking kind of thing, you know.

But yeah, I think I would, there's definitely, I've had a lot of. request on that, that website for my, for my, my extra bedroom to be rented. So I think that's a great market. Is that your extra bedroom in your primary residence? Oh, yeah. That's another thing to throw out there is, you know, that could offset a lot of your mortgage payment if you could rent that out. What is your, what is your thought about renting out? room. Well, I tried it and it just didn't go very well and I've just decided in the meantime that I think I really like my privacy. So, okay, that's valid. So for now, I just stay here by myself and but it's definitely, you know, medical. What I'd have to do is I'd have to rent either two bedrooms

or three bedrooms to two different traveling nurses or medical professionals to make it work. Even just one would upset the overall mortgage, though, right? The biggest kind of like strategic challenge I see for you in wanting to retire in one year is right now most of your wealth is in your retirement accounts and your rental your equity and your real estate with these types of things. And you're not generating very much in the way of cash flow, which is going to make early retirement difficult. And so that's where I think what we're trying to get to with this discussion here is,

how do we generate more cash flow in the short run here? How do we reduce expenses and generate more cash flow over the next year so that you're in position to make that break cleanly and with more confidence, I would say? And so that's where I think the primary residence becoming an Airbnb, be. I mean, if that's right, $185 a night times 25 nights a month, that's $4,600 a month in potential income on your mortgage of $1,500. So that goes a long way right there. If you can begin setting those systems up over the course of the next year. And if you only do that a few months a year, that's actually still going to go a long way towards providing

cash flow. The rest of the cash flow, I think, is going to have to come more creatively. And you said you have multiple options on the table there. You have ability to do part-time work. We can maybe reduce some expenses, depending on how you do things with your planning out your budget after, before and after retirement. And then I also think we should revisit the rental property like Mindy's saying here. And at the very least, kind of acknowledge, hey, you know, we're losing $400 a month right now because you don't want to raise the rent on on your tenants and so you're giving them $400 every month that is not going towards your stuff there and so I think that's that's one way to think about it as that and I don't want to be too callous on that because you know but this is

a sheriff of real estate and then you know that that's that's a decision that you know over the next year or two we can we can you know think about with that as well and that every little bit helps there. If you can increase $400 in cash flow there and reduce $400 in expenses in the car, for example, um, per month, that's a net difference of 800 bucks. That's the equivalent of what's eight times, what's 800 times, um, 800 times 12 times 25. That's a quarter million dollars you shaved off the number you need for your retirement, right? Um, at the 4% roll between those, those two changes. So, you know what, Scott? Can you please say, that slower because that's not something that I've never thought about it like that. What's $400?

That's not going to change my life. But look at that. Run those numbers very slowly again, Scott. Well, if you're if you're running, if you're projecting retirement using the 4% rule, right? The 4% rule says that if I have a million dollars, I can spend up to 4% of that and likely not run out of money, or never have run out of money in any 30-year period in history with my portfolio. In some cases, my portfolio will decline, but I won't quite run out over 30 years. And in most cases, my portfolio will grow. So it's the 4% rule is what we use to plan retirement. And that means that if you want to spend $40,000, and you agree with the 4% rule,

you need a million dollars in retirement. If you spend instead of that $10,000 less, $30,000. thousand, then you can get away with 750,000 in total wealth. If you can get away with 20,000, you can do that. And we just found 800. We maybe have found $800 in cash flow for Lisa between raising the rent by $400 and in reducing potentially the cost of car truck transportation by $400 a month. $800 a month is $800. $800 a month is, $9,600 per year, $800 times 12. And then if you multiply that by 25 or the reverse of the 4% rule, that equates to a $240,000

difference in wealth needed to retire. And so the aggregation, if those are just two areas, you'd imagine or hope that, Lisa, when you do that budget for pre-imposed retirement, that you may be able to find a number of other things. And they're not just tickey tack. they could build up to every $100 in monthly spending, let's do this real quick, is going to be $30,000 less in wealth that you're going to need in order to retire comfortably at that 4% rule. And so that tight control of the expenses and making sure that that model works can

really make that feel a lot more comfortable. Yeah. Well, and I did raise the rent this year. They're great tenants, and they're taking really good care of the house and the yard. And she's just getting her business started. She's a naturopathic doctor. So I'm trying to balance being a business person, but also understanding that there's value and having someone take really good care of the property.

And just by raising it this year, I feel like I've kind of given them notice. I told them what the market rate was and said, you know, I'm not going to raise it that much because it would be $4 or $500, you know, all. all of a sudden in what, you know, for them. So, but they're sort of unnoticed that next year it's going to go up again. And it'll probably be more than just $100 next year. So I feel good about that. The other way to increase that cash flow on that property would be to take the money out of

sell the property in North Idaho, pay off the home equity line of credit, which would also give me extra money to pay down on the mortgage. for that house too. So, and if I could, that would give me almost $1,500 a month. 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 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. 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 sponsored 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.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 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 Registeredagent.com slash money-free. Where are my gloves? Come on, heat. Winter is hard, but your groceries don't have to be. This winter, stay warm.

Tap the banner to order your groceries online at walla.com. Enjoy in-store prices. without leaving your home. You'll find the same regular prices online as in store. Many promotions are available both in store and online, though some may vary. Let's talk about that property in northern Idaho. Is it just a lot or does it have any sort of improvements on it? No, it has, it's city sewer.

It has a well, and that's about it. And it's almost a half acre. It's in town. and it's in prime recreation country. I would speak to a real estate agent. You had mentioned that it was worth 80 something. Yeah. Is that, have you done research on that or are you estimating that?

Well, kind of estimating. I paid 75 for it at the beginning of this year. And it's really hard to figure out what just bare land is worth right now up there. There's another property, not a half a mile from mine that's half the size and it's listed for 200,000, but it's not moving. And other lots have slowed down in how fast they were selling. They're not being snapped up like they were last year. So it's an estimate. The market in general has slowed down. I think it, I thought, it had something to do with kids going back to school, but an empty lot has nothing to do with that.

Just in general, the market is slower than it was in the spring. I'm really curious to see what next year's spring selling season looks like. And when I say cooling down, I don't mean cold. I mean, instead of only having 12 properties to choose from when normally you would have 65, you now have 20 properties to choose from. Like, it's still really, really hot. I would suggest if, well, okay, first, we didn't talk about why you bought this lot. Did you have plans for it or did you just think it was a good investment?

So one of my mistakes. So, you know, last year was really tough for everybody with COVID and I was feeling very isolated and lonely. and my daughter's in-laws live in North Idaho and her dad lives in North Idaho. And I just thought, you know, the kids are going to be coming to North Idaho for holidays and, you know, bringing when they have kids, they'll bring their kids. And so I thought, I want to be kind of in the middle of those things. And so this land had, it had another house adjacent to it. And I bid on the house.

I thought it was going to, you know, make it a rental at an Airbnb. And then it had this big lot right next to it. And it had a tiny little, I called it a miners shack. It was like a 600 square foot. Nobody's lived in it for a long time. And it needs a ton of repairs kind of house on it. And I thought, well, this would make a really cool Airbnb. But I got talked into tearing the whole thing down.

and that was a mistake because I think I could be getting a good $100 a night off of it if I had spent $80,000 to fix it up. So now it is just a bare lot and I have kind of shifted gears in terms of living up there. And so yeah, it's, I don't, I don't regret buying it because I still think that is an exceptional market and I think that it is going to grow in value. It's just what's, you know, just for right, meet right now and moving into retirement, what is the right thing to do? Do I hang on to it or do I pay off other debt with it?

If I was in your shoes, I have a lot going on and I would personally sell it because my plans have changed. I think that since I do. don't know all of the circumstances surrounding the decision to purchase it and the decision to tear down the shack and do all these other things, I think you should make a list of pros and cons. This is why I would keep it because of these reasons. This is why I would give it away or sell it, not give it away, sell it. And then it sounds like you have ties to that city. I would reach out to the in-laws or to the agent that sold it to you and just ask them,

you know, ask the in-laws, can you recommend an agent? If you like the agent you worked with, ask them, what are lots going for right now? Can you just run a really quick report and tell me what lots of sold for in the last year? And you can start to see, you know, what things are selling for. 200, I would sell it in a heartbeat. You will have to pay. Oh, no kidding. You will have to pay capital gains taxes. You, there's a difference between short-term and long-term capital gains. So definitely talk to a CPA and make sure that you're, like, you don't want to sell it a deal. day short and then now you have to pay long term as opposed to short term, which is less. So, you know, look into it. There's nothing. I can't say that there's nothing wrong with holding

onto it for a year. Maybe we have a catastrophic crash and then it's not worth even what you paid for it. But things to think about it. It doesn't sound like you're totally on board with keeping it. Like, it sounds like it would be easy for you to sell. So I would lean that way. Scott, what do you think about that? I think that's really good advice. I think that I had not thought through the tax angle in short term versus long term, which I think is a really good point to consider in that. Strategically, unless you feel like you're an expert in land speculation in this area, which I do not think I'm reading is the case. To me, it doesn't seem like a strong part of the portfolio with these things. You think that there are better options if you're going to redeploy it into places in Ohio or Texas.

or where you live currently or Boise, you know, those are all areas that you seem to know a little better, maybe than the land strategy in these areas. And then, yeah, I mean, once you have the cash, I think it's how you're going to allocate it to the highest and best use. And so I'm not, you know, from there, I'm not sure. I think you should think through, like, what's the best application of that? you still have, you know, a lot of time to be an active real estate investor, for example, or with that, and you know this. And so does paying down the mortgage really provide the right ROI for you compared to maybe

some other alternatives? There are some things there. And I think that, you know, if you're wondering, hey, can I retire in a year, well, another cash-flowing rental might be, you know, or Airbnb, B might be much more impactful than reducing the mortgage expense to some degree. Although, you know, those are- I'm glad to hear you say that because that's definitely something I've been thinking about. Yeah, I think, you know, if you've got this place in Washington and there's another place

down the road, maybe that would have a similar type of thing, having two, and there might be some economies of scale or whatever. So those would be things I'm thinking about at the strategic level. And then Mindy, I think that was awesome. I completely would have forgotten the tax component of this as well. That's really good. That's really good. That's about the T word?

Yeah. And did you say the short term tax is less than the long term? No, long term. I may have said that, but that's not right. That's entirely possible that I said that. No, short term capital gains taxes are taxed at your current income level. And long term capital gains taxes, I always thought it was just. just 15%, but I guess it varies by your income tax as well. But it's, it's going to be closer to

15% than whatever you're, you're being taxed at right now. So I like the idea then of just kind of maybe waiting till next spring. Yeah. And make sure, was this year a leap year? What is this? 21. So make sure next year's not a leap year and just, you know, wait. If you close on April 15th, then close on April 16th next year. Just to make sure you totally 100% own it for 365. I gotcha. And I don't know how leap years actually affect that. I just always go with the extra day. Let's see.

So, yeah, I like the idea of starting to look in your current location for another property and see what happens. I don't love the HOAs up in that neck of the woods. I have a relative who lives in Idaho and her HOA is something like $800 a month. and they basically like water the plants or something. It doesn't seem like they're getting a lot for their $800. And I don't like HOAs in general. I would just caution you to keep an eye out. Every time I talk to somebody up there, they've got some crazy HOA feet.

It's a fact of life out here if you live in town. And unless you get out into the county areas, you're pretty much stuck with them. but so they haven't been horrible to me i haven't had any run-ins or any issues and and yeah they're not that they're not horrible they actually decreased the HOA fee in this in my primary residence last year i know shock shock yeah five dollars in my entire life i have never heard of an HOA me neither went down me neither oh my goodness i've and we have We have a beautiful little central park in our subdivision. And it's got a nice little pavilion.

They keep it watered. They have a nice playground. And I love this neighborhood because we have little alleys behind the houses. And there's always kids, especially last year with COVID, kids on their scooters, laughing and screaming and going to the park and hanging out. And I just love it. They make me feel so happy when they're out being outside instead of insight. playing their video games.

Yeah. That's awesome. I can't believe it went down. I know. Wow. So you're the unicorn. I'll take that. Yeah.

Okay. I know what I wanted to talk to you about. In our application to, when you apply to be on this show, we ask you if you are on a budget and if you track your spending. And you said that you track your spending often on, but it's not something that you really enjoy doing. I think. And I am a harper of tracking your spending.

I harp on this all the time because I think it's really, really important. So I made a video called the Mindy method of tracking your spending where you're literally writing it out by hand. And it is not the most fun, but it is the easiest way to see every single day how much you're spending. Because when you come into the house, you write down on a document and you add it up right there. oh, I spent, you know, today I spent $13, whatever. The next day, you know, you have a big busy run and you're like, how did I spend $750 in one day? Well, I had to go for kid stuff and groceries and this and this and this. And while you're swiping your card, it's really easy to just swipe that card.

So I would like to challenge you to track your spending for one month. If you go to biggerpockets.com slash Mindy Method, you will get a, link to a YouTube video where I explain it. And also there is a link to a, you can print out a handwritten tracking form. So you can, you print that out. You keep it right where you walk in at the, from the house every day. And you just write down every time you spend any money. And what I discovered is that there was a pattern for me for spending money. I went to the grocery store every single day. And I would pick up one thing. But I wouldn't just pick up one thing. I picked up four things or five things.

They're 12 things. And what is? I just went to the grocery store. And it was literally every single day. And my grocery bill was enormous. And I didn't need all of that stuff. I have a pantry full of stuff that I'm not using because it's not in my plan. I just thought it looked interesting.

So I challenge you to track your spending for one month to see where it's going. See how it's working and see if there's anything. oh, well, I guess I don't really need to do this all the time. Or I can combine errands on Thursdays, and then I don't have to spend so much gasoline going to all these, like, weird little places. And I just think that there's a lot of value in seeing where it's going. And maybe you discover that you're doing a great job and there's nothing to change. But then you know that that's not the level of the people. I'll give that a try.

Are there any other questions that you have for us or any other parts of your, balance sheet and income statement that you want to look at. I think, you know, the really, the biggest thing was that property in North Idaho that was kind of been bugging me about whether I should hang on to it or leverage it in another way. I would look at what could you do to that property? Like, could you just put a tiny house on there? Could you get a nice looking modular home or a mobile home and throw it back on there? so it's generating income for you?

Or is it really just time to sell? Yeah. And I have been thinking about that too. There are some super cute, you know, tiny modular homes that are out there. I'm just not sure any of them are really right for this particular property. The one said I were looking at, but I'm not sure. I'll keep looking. And you said, you said it's like a half acre?

It's almost a half acre. You could put several little tiny houses. I mean, look into the zoning. Yeah. And I have, I have so, yeah. You can have like one 800 square foot additional dwelling unit on it with a regular house, if you had a regular size house. I'd have to subdivide it in order to put two.

Yeah. There's lots of use. options and sometimes you can get a variance if it doesn't if the code doesn't allow for it. But if it's a hot little market and people don't want to allow that, then they just won't. Yeah. I'm in that market right now where they're like, no, you can't have anything weird on your house. Yeah. It's a tiny little town in the Silver Valley.

It's known for its trails for the side by side. There's little razors. So people are just flocking into the area with their. RVs and they're side by sides and they go up into the mountains and and ride those all over. Could they park their RV at your lot? No. No. Okay.

No. I tried that. I tried that angle for myself. I was like, I'm just going to put my RV here and, you know, somebody might stay in it once in a while. They're like, no, we're not going to allow that. I did. So, yeah, just getting creative can be really eye-opening, but also can be like the county just comes

and smacks you down. And it's okay to because, you know, I just like, there are single family homes around it. And I wouldn't want, if I was in the single family home, you know, I wouldn't want somebody to come in and start putting in RVs and having, you know, a different person in there every night. So I respect. It just sounds like the highest and best use of this lot is to put a single family home on it. And so to me, I, you know, I'm skeptical that another strategy is going to emerge other than sell the property to a developer, let him put a house on it and redeploy the cash somewhere else. But I love the optimism.

Maybe another solution comes in. To me, based on a little I know, that seems like a likely probability. And the long-term capital gains, if you can make that work, But wait, no, a couple more months might make sense. But otherwise, you know, I think that's a clean. I think you're right, Scott. I did look at, like you said, the tiny homes and, you know, developing it myself and the RV. Just not quite the right spot for it.

Yeah, it sounds like you've exhausted all your options. Yeah, no, they're great. Hopefully it's a very nice gain. and it allows you to put that money towards something that can produce some cash flow for you, which I think is going to be the biggest thing. How do I rearrange parts of my portfolio and my spending and my primary to create cash flow over the next year? And what are some things I'm willing to do for part-time work if that's interesting? And those will be the biggest levers, I think, that will allow, that will allow,

but that will make you feel more comfortable about the decision to retire in a year from now. Yeah. Yeah. I think you're right. So, cool. Okay. Lisa, I think this was a really, really interesting discussion today. I'm excited for your options and opportunities.

And I don't think we said it enough during the show, but you're doing really great. You have an $800,000 net worth. There's lots of people who don't have that and won't ever have that. So I think you're doing a really great job. And I think a couple of tweaks and really tracking your spending is going to show you where to make those tweaks and you're just going to kill it. Lisa, was this helpful for you? Did this kind of open up some new ideas or thoughts?

Absolutely. Yeah. It's just it's validating to know that I'm kind of on the right track. And I really appreciate that. the advice on the North Idaho property and how to leverage that to my advantages I had towards retirement. Awesome. Well, glad to hear.

And yeah, thanks for bringing your story to the show. I think this was really valuable for us to think through and hopefully for other people to hear from and learn from. Thanks, Scott. Thank you, Lisa. We'll talk to you soon. Okay, Scott, I really enjoyed talking to Lisa. I think she's doing great.

and I think we don't make it a point frequently enough to tell them how great they're doing on the show. But I think she's doing fabulous. Yeah, I think she's doing great. I think she's in pretty good shape here. I think she just needs to make a couple of tweaks and maximize her last year working and figure out what she wants to do in retirement and how she wants to handle that. So it sounds like she's got a lot of good options.

She's willing to do some part-time work. She's got Airbnb options. She's got an investment decision to make with if and when she decides to sell that property, the land, and how to redeploy it. So I think she's got a lot of good options and I'm excited to see what's in her future. Yeah, I am excited to see what's going on. And I'd like to check back in with her in about a year and see what she did with that property and see what sort of work she's doing. Again, I want to hear from you regarding the raise rent question, like I mentioned in the beginning of the show. You can join us in our Facebook group at facebook.com slash groups

slash BP money and chime in and tell us why you advocate for raising the rent on your tenants or why you do not advocate for raising the rent. Why would you keep it the status quo? Assuming that there is a difference between what you're charging and what the market rent is. Okay. Scott, should we get out of here? Let's do it. From episode 230 of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, Ciao, Ciao, Brown Cow.