BiggerPockets Money Podcast - 248: Finance Friday: I Just Got a Big Raise, What Should I Do With the Money?

Episode Date: November 12, 2021

Your late 20s through early 30s can be a financially troubling part of life. You aren’t making the most money you ever will, but you’re tackling big expenses. A wedding, a down payment, and trying to max out retirement accounts can put you in a financial tizzy. But, it doesn’t have to be so complicated, especially if you stick to a scalable investment strategy. Today’s guest Louise is in this position. She recently changed employers and found herself with a big uptick in monthly income. She has plans on the horizon to marry her girlfriend but knows this will come at the cost of many thousands of dollars (rings, dresses, etc.) She’s also looking at buying a primary residence, but is already familiar with the home buying experience (she has two rentals!) Louise has a plan to hit FI (or at least coast FI) by age 40 and wants to know the best way to optimize her finances to do so.  Scott and Mindy have a healthy debate over 401ks, Roth IRAs, refinancing rental properties, and combining finances as partners, in order to get Louise in the best position possible to tackle her financial goals.  In This Episode We Cover Why switching jobs may be the ultimate hack to getting a better salary  Whether you should max out your Roth, 401k, Roth 401k, or HSA Getting a cash-out-refinance instead of stockpiling cash  Whether or not paying off a rental property mortgage is a good idea Renting vs. buying when living in an expensive market  Combining finances as a couple and having the ever-important “money date” And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, show number 248, Finance Friday edition, where we interview Louise and talk about saving up for that next big expense. I would like to be work optional by 40. So I've got a little over a decade to accomplish that. And I'm trying to figure out how to prioritize this new income coming in so that I can accomplish all of those things and sort of in what order I should prioritize. them. Hello, hello, hello. My name is Mindy Jensen, and with me as always is my smart cookie co-host, Scott Trench. We're always baking up some new interests, Mindy, thank you. You're full of nuts.

Come on. What a sweet introduction. 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, going to make big-time investments, and that's like real estate, start your own business, do all of the above, and have a pretty high-end wedding will help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Scott, I'm so excited to talk to Louise today because she is kind of indicative of several

recent guests that we've had where she thinks she's here, but she's actually kind of up here. And she thinks it's going to take longer to save for what she needs, or it's going to she's going to need to save more money than what she actually needs. And I think that we are very helpful today giving her a different way to look at where she's at financially and where she's going. Yeah, absolutely. I think it's a pattern that maybe a couple of guests and maybe many listeners are having where they're too conservative in their forecast. And you don't, you don't, you want to be conservative. You never want to run out of money. It's unacceptable to go broke, especially if you listen to Bigger Pockets money for a long period of time.

But to not acknowledge the likelihood of the middle outcome being at a certain level, I think is also a huge mistake in your planning. It can cost you hundreds, thousands, or millions of dollars with that. So having a strong financial foundation, a big cushion, thinking about your real estate investments in terms of cash flow and having appropriate reserves or that kind of stuff, having retirement accounts, all that stuff is great, but you don't also then need to stockpile $50,000, $100,000 in cash to pay for certain other items with that.

You can reach into that and use that investment portfolio to draw on that from time of time, if absolutely necessary downstream with that. So we don't want to push people to an unreasonably aggressive place, but I think there's also that level of conservatism that can hurt you. I think that's where we went today and learned a lot. She's doing fantastic, and it's just hard to pop out and think, oh, I'm actually doing fantastic. I can afford to play a little bit more to win than maybe what I've been doing. Yeah, it can be a little bit difficult to switch your mindset when your mindset is like so focused

here and you're like, well, you're not doing a 180, but you might be doing, you know, a 120, a 130. You might need to shift it a little bit more. So yeah, and it can be hard. So before we bring in Louise to share her story, let's hear a note from today's show sponsor. Okay, huge thanks to the sponsor of today's show. Now 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.

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Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leen or Stronger for Fitness, the anxious generation for parenting perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful 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. Louise lives in a high cost of living city with her partner and is saving for her upcoming big expenses. engagement rings, wedding celebration, and a primary residence. She's on the path to financial independence, but looking for a little bit of guidance. Louise, welcome to the Bigger Pockets Money podcast. Thank you very much. I'm excited. I am excited too because I think you are sitting in a fairly good position, but let's look at exactly how good that position is. Where is your money

coming in and where's it going? So I recently switched jobs. I took advantage of this labor market and sold my skills to get a big pay increase. So I'm kind of looking at a lot more cash each month than I had been, which I think will be helpful to get your input on how I should prioritize using that cash. So annually, my primary income comes from my nine to five job. I bring in $120,000 annually, which breaks down. to about after everything's taken out 4,500 take-home for me to play with, and that's including maxing out my Roth and everything. And then I have a bonus that's up to 20%. I haven't gotten a clear sense on, you know, how sure thing that is. So I'm just kind of banking on that being a nice

surprise and can utilize that for anything at the end of the year when that comes in. So yeah, looking at $120,000 annually to play around with, which is a lot more than I had been. So your help will be greatly appreciated. Well, send the extra to me. That's awesome. What was it before? There's no such thing as extra money. Before it was around 75.

That's a huge increase. Okay. So you got a $50,000 raise by switching jobs. Okay. Let's just pause for a moment and say, congratulations, Louise. That was an awesome move. Is it in the same field? Yep, same field, just sort of working in a...

So I went from public to private, so doing the same thing, but just for a different company. And it's been working out really well so far. There was no, you know, change to the skills I needed and I was able to start right away. So I've been enjoying it so far. Good for you. Congratulations. That's an awesome. Congrats.

That's awesome. And I like the way that you're thinking about the bonus. I'm not quite sure what the bonus is going to be, so I'm just going to consider it as extra. Great. First of all, it's not extra. It will always have a job. But don't count on it and don't make your budget based on a bonus that may or may not happen. I love that.

Okay. Is there any additional income besides the salary and this ethereal bonus? So I do have two rental properties. They are, I don't necessarily consider that income because anything that I'm getting. It just kind of stays within the rental property at the moment. I bought both of them within the last year or two, which is also why I have no cash at the moment and need to save up more. But so they're kind of busy working to stabilize themselves at the moment. So I don't necessarily consider that income personally.

What are the, what are these? Can you describe these assets? So they're both single family homes. I'm from the Midwest. and so it was kind of an nice way to get in. I knew I wanted to get into rentals, but my family is all in a semi-up-and-coming Midwest City. And so I was able to get into that kind of market right before and slightly during the pandemic,

before things got a little crazy. But they're both cash flowing really well. The ones bringing in $250 a month over the, you know, CapEx and mortgage and everything. The other one's bringing in $450. over. So I would love your help on that as well. I have a few rental property questions for you later or now, if that makes sense. Great. Well, let's circle back to those. That's interesting. With that, and what are your expenses for your personal life? So I've been listening to Bigger Pockets

for quite some time, and I know that Mindy is big on tracking expenses. So partly in preparation for this conversation, I started tracking my expenses about eight months ago. So I actually have some concrete metrics for you guys. So my girlfriend and I split most things down the middle. So a lot of these expenses are sort of 50% of, you know, the total household. But my rent is 1500. Remember, high cost of living city, very high cost. Groceries end up being. about 200 a month. Utilities, about 150. Eating out is closer to 350. Um, travel averages to 250 a month. We have a dog. So he's about 150 a month. Um, and then sort of everything else. Oh, my car, which recently has been giving me a lot of trouble this past year has

average to $400 a month. And I don't have a car payment. So that's been a trip, but I'm not about to buy a car in this market either. So yeah, and then everything else is like about $150 miscellaneous stuff each month. Okay. So what is that total up to for those who are not as easy? Can't do that in their head? Yes. So total expenses a month I'm tracking to be about $3,000 to $3,500.

Okay, great. And then walk me through your take home pay again. At 120,000, 4,500 a month seems really, really light on that. So the paycheck starts out around 4,600. It's biweekly. So I guess I'll switch to monthly. The paycheck monthly ends up being around 9,000, 9250. then after insurance that drops down by about 100,

and I'm new to the HSA, but I'm maxing that out, which I think is 280 a month is maxing it out. And then I'm currently maxing out my Roth 401K, which I have some questions on, and that's 1,500 a month to max it out. So what's hitting your bank account at the end of the day? It doesn't have to be exact. that can be just close, like a rounding.

So what hits my bank account is the $4,500. In total. So we have 92. In total for the month. Okay. And how long have you been receiving these new paychecks? Is this job relatively new? Yeah.

Just a couple months. Okay. Interesting. I'd still expect there to be more income hitting your bank account than that based on those numbers, but we can dive into that going forward there. Okay. And then what are your assets and liabilities here? So assets, I've got a 401k, which has about 70,000 in it, a Roth IRA, which has about 20,000 in it, a regular IRA, which is kind of floating around from a previous pension that I didn't stick around for that has about 5K in it.

The HSA, which I just started, has like 600. I have a small couple thousand in crypto, and then my emergency fund is 10K at the moment, which I'm trying to build up. Awesome. And then what debts and other, it sounds like you have the two rental properties on top of that. And what debts do you have? So I have about 4,500 left in student loans. And then on the rental property side, my one rental is worth about 55,000, and I owe 40 on it. And the other rental is worth about 95,000, and I owe 55 on it.

And kind of rolling together in my head, I have a personal loan out that paid for a lot of the renovations on that second rental property for 15,000. So my calculations are, my net worth right now is about 140. Awesome. Well, great. You're doing a lot of really cool stuff here and things are going your way. It seems like this year in particular, for the most part, except the car with the what's the best way we can help you? So as Mindy mentioned, I'm kind of, I'm looking at a larger paycheck than I have had before.

and that I was really expecting to have. But I'm also staring down within three to five years needing about probably $75,000 to $100,000 in cash because my girlfriend and I are talking about getting married. And also we would like to eventually buy a house. So rolled into that large sum is both, you know, two engagement rings, you know, two dresses kind of wet, and then a house likely in a high cost of living city. Looking a little bit further out from that, I would like to be work optional by 40. So I've got a little over a decade to accomplish that,

and I'm trying to figure out how to prioritize this new income coming in so that I can accomplish all of those things things and sort of in what order I should prioritize them. Okay, great. And it looks to me like real estate is where you're lean based in your current financial position, but what are you, what are your instincts or thoughts on how you want to approach it? Yes. So my thought is I would like to be coast five in my retirement accounts by 40 and then actual thigh on top of that via a rental income by 40s so that regardless if one or the other crashes, the real estate market

or the stock market, I'll be okay eventually. All right. So we got a great challenge here. It's how we come up with $100,000 in cash inside of three years? How do we put ourselves way along the trajectory on the real estate portfolio and have our cake and put in the money into the stock market with that? Yes, I want all the things. You want all the things.

All right. Perfect. So 5 by 40 with the caveat that we're going to carve out 100K and then ideally with both of those things. And that's 12 years from now. Yep. Okay. Awesome. Well, it's an ambitious goal, but it's a very clear goal.

So I like it. You know what you want. Let's dive into, so here's your, here's the, let's just think about the real estate side in isolation and, you know, as one goal. and pretend that we're going just after that. My biggest problem with, first of all, you need $3,300 a month to live. Right? Yes. So that means you need $3,300 a month in cash flow from your rental properties in order to achieve that.

If right now you're saving $1,000 per month after tax that can be used to invest in those properties, right? Right. So the only way that, you know, so that means, and these properties are going to cost, I don't know, like 100 grand. Is that, is that, what do you think like the properties are going to cost going forward? Yeah, that's probably what the market is in the area I'm looking at now. Okay. And what's a property's cash flow going to produce on that? Do you think 450 or 400 is, like you've been getting as likely? Yes. I think I could keep getting that. Okay. So you need 10 such properties, and each property you have to put down 15 to 25 percent. So that means you have to put down a 15 to 25 grand. grand per property, and you need 10 of those. Right.

Okay, that actually doesn't seem as big of a challenge as I initially thought. It says like, okay, like that you're on your current savings rate, it would be great if you could pull another thousand into that savings profile, and then you're buying essentially one per year without dipping into your existing $10,000 emergency reserve. But that puts you on track if you think you can actually get the $400 per month with this. Maybe I'm overthinking this. But yeah, that actually seemed, okay, that one seems relatively achievable inside of 12 years. The timeline is so long that that's what makes that achievable.

A decade is a long time to produce the $3,300 in cash flow on your income, which is why I think it's going to be relatively easy for you just by following a pretty formulaic approach with that if you can operationalize and systemize the systems. Mindy, do you have any observations or thoughts on that? Well, my first thought is, are you combining finances with your girlfriend? once you get married. Because we didn't talk about that. You mentioned that this is your income, but we didn't talk about her income. So I'm assuming that there is some opportunity for additional cash generation if you're planning on combining finances. So we, that's actually something I would

like your opinions on as well. But so we haven't, we've talked about it a little bit. She's not super into the finance as I am, which is funny because she's very good with her money. You know, I feel like I've been like so focused on my tracking my expenses and money and everything. And like every month we come out with the same amount of money. Like I put all this work into this and she just sort of lays back and it happens for her anyways. She is following along on your coat tails. You're pulling her along because you're not going out to fancy dinners and $1,000 a night bar tabs. she also isn't.

So she is just, what's that called drifting when you, like somebody pulls you along or the car pulls you along? You're pulling her along with you. So it's sinking in little by little. Yeah, she's definitely a good, a good partner to have in the journey, whether she realizes she's a partner or not. But so she's not, the idea of rental properties makes her a little nervous. So I haven't necessarily convinced her yet to get in on that with me.

So I wouldn't necessarily bank on her income padding, at least that element of our journey. Okay. That's valid. I would encourage you before you get married, probably before you get engaged, to talk about finances. Scott and I did an episode, episode 157. We talked about sitting down with your partner and discussing all your finances. What are your goals? where do you see your money going? What sort of investments do you want to make? And since you are the one who is more

focused on finances, you are going to have to lead the conversation. But the conversation works best when it isn't. How are you going to stop spending money? It's more how can we work together to solidify our financial future? I would like us to be more aligned in our finances. So let's talk about, you know, what are your goals? What do you want? It's all about her in the beginning of the conversation. And then as she sees the possibilities, because, I mean, if she's not coming at this from a place of financial independence or even knowing about financial independence, you retire at 65. Maybe if you're going to retire early at 62. So for you to say, hey, we can do it at 40, oh, that's not possible, is going to be the first response almost across the board. So for you to say, hey, we can do it at 40.

here's how if we start investing in real estate properties, if we start investing in the stock market, if we're doing all of these things, you can see time and again, past performance is not indicative of future gains. But past performance kind of is indicative of future gains because you watch the stock market just go up into the right and it just keeps going up into the right over the long haul. So I'm preaching to the choir. I'm just saying it's a great episode, if I usually say so myself, it's a great episode to kind of get you in the mindset of having a financial conversation, but I definitely suggest that. And then, yeah, I would connect with, do you have a real estate agent in your hometown? Yes.

Okay. Yeah, he's great. Something I am wondering at what point I should look into is like the rest of the team, lawyer, accountant kind of thing. I've been kind of getting by so far. I don't know if there's like a economies of scale. tipping point where it makes sense to look into that kind of service. Here's a framework to help you with that, right?

So when, and I'll use property management because you definitely have to outsource that since you are not there. But I'll use it as an example. If I'm living in a town, let's say, I'm making $50,000 a year and I have my first rental property, right? This is my position when I started house hacking. Hiring out the property management, let's say I get $2,000 in rent from that property, two units, making this up.

Right. And, you know, hiring that out would cost me $200 at 10% for the property manager. If that takes me four hours, if it takes the property manager four hours to complete that work or me four hours to complete that work, I'm arbitraging my time. I'm saying my time is worth $50,000 an hour. But I only make $50,000 a year. So my time is worth $25 an hour. So there's a sliding scale, I think, that you have to kind of think about over the course of this journey where if you're making $120,000 a year and you're working 40 hours a week, your time is worth $60 an hour, right? It's probably worth a little less than that because I imagine you work a little bit

more than 40 hours a week, you know, on average or whatever that is. So let's call it $50 an hour with that. Okay, great. My time's worth $50 an hour is this, is outsourcing this task? I'm going to able to pay somebody else less than that, right? if you value your leisure time at the same rate that you, at anything close to what you get paid at work. So that's a good framework to think about.

And so with that, there's, you know, the right's the right answer. It depends, right now the answer might be I should do my taxes or, you know, probably not self-help too much on the legal side. But, you know, but I should do my taxes to a certain extent. Or I should be proactive and take on what I can on the legal side with that kind of stuff safely with this kind of stuff and think about those things. But as my net worth and my income progress, I know that there will come inflection points where I need to transition that off of my plate and onto professionals with that or someone else with that. How's that?

Yeah, that's interesting because I hadn't really, I thought about it more so in terms of do I have enough properties for this to make sense rather than could I be doing something better with my time perspective. So that's good to, good way to think about it. Oh, and I was just typing in a question to ask, is there any opportunity to generate more income? Can you work extra hours? Can you get a second job? And I'm not talking about like driving for DoorDash for $5. I'm talking about your main job. Is there an opportunity to work overtime and get paid for it or, you know, do any sort of side business that does generate some hefty income? The field that I'm in, they're a little bit strict about what you can be doing outside of work. And since I'm salaried, I don't get overtime necessarily. Something I was thinking about, which I don't know if you guys know much about, it would be those like small crypto miners where you, you know, like the smaller ones,

I'm thinking the helium miner, you know, you plug it in. And since I'm in a city, there's, it's an internet of things connector. So there are many things that use internet near me. That's the only thing I sort of have on the horizon besides, you know, just buying more rental properties. Well, you live on the East Coast. It's going to get cold at some point. Yuri from episode 236 uses his Bitcoin mining to heat his house. I remember.

I listened to that one. I don't know anything about Bitcoin or about mining at all. I'm not the right person to ask. Scott, you can chime in here. My just instinctive reaction is that I'm skeptical that that will generate a meaningful amount of incremental income relative to what you make. You make 10 grand a month plus bonus. I would think, you know, how can I increase that by 10% in order for it to be worthwhile as an endeavor to spend serious time on with that? you know so so unless you have like a very short-term thing that you're trying to push over the

edge there so i i would just be skeptical that there's an opportunity to make that much more but if you can spend a few hours to generate 50 bucks more a month that's 600 bucks that could be a good use of time to something something like that up okay is that helpful yes again sort of thinking about it relative to how i make my most money now yeah you know if i'm if i'm thinking about your trajectory based on what you presented so far over the next 12 years I anticipate that your income is going to continue to increase from 120 to, to what's call it, 180, 200, maybe more with that. Does that seem in the ballpark?

It's, yeah, it's doable. Okay, great. And you're going to be able to buy a property every two years on your current savings rate, which will steadily increase in terms of that. And how, and it looks like you're maxing out multiple retirement accounts with this. I'm thinking 25,000 or so was going into these retirement accounts on an annualized basis. NHSA? Yes.

Okay, great. Yeah. Well, and that's something I wanted to ask you about two, actually, because so I'm maxing all of those out now. Is that something I should continue to do, given that I'm looking to, you know, go the non-traditional retirement route sooner rather than later? and also need a lot of cash now. And my company match is pretty pathetic. I think it's like 1.25% of 6%. And it takes three years to vest.

It's nothing. I consider necessarily worth sticking around for it, at least. I wouldn't necessarily stay the full three years if I had something better just because of that 1.25%. Is it worth looking into either decreasing the contributions or switching some from Roth to traditional to capture some of those. I think that would increase my take home to switch some to traditional because I wouldn't

be paying taxes on it now. Or should I stay away from that, just keep maxing out and figure something else out outside of the retirement accounts? This is the squidgy question because Scott and I both Well, Scott's very firmly on the Roth IRA, a Roth 401k option. And I am coming over to the dark side, the light side of Roth IRA contributions, a Roth 401K contributions. I keep going back to episode 200 with Kyle Maston saying he had a really great argument for why he feels the Roth option may go away in the future. The government has been sending all of these stimulus checks to American citizens,

and we're going to need to pay for that in some way. And it's a lot easier to remove the Roth option than it is to raise taxes on tax-paying citizens. So that is, if you're going to continue to contribute to retirement accounts, I like the Roth option for you better than the traditional. But you also have a Roth IRA. See, this is where it's hard, Scott, because there's no like one right. answer. Yeah. Your timeline is so long, too, that it creates a lot of, a lot of optionality and a lot

of nuance with some of these things, like 12 years being long in the context of like this, but we're hearing from a lot of folks with this. Here's one way to think about it. I'm trying to back into something 12 years from now. I save it $1,000 a month and I can max out those accounts. in 12 years, it's conceivable that if I put in $300,000, which is $25,000, that that will grow on average and be in the ballpark of $500 to $650,000 inside of my retirement accounts with that. So that's what's going to happen. That's the range that I would say, you would be, you want to plan and be more conservative and have a backup plan if you don't get there.

but that's not an unreasonable place to expect to kind of think that they're going to end up over the next 12 years inside of those accounts. So that's pretty good. That's an incremental 600, you know, let's call it 500,000 to 650 to what you currently have in the compounding rate of that. So let's call it three quarters of a million because your stuff that you have currently is going to grow and we're guessing at a whole bunch of assumptions to get there. So that's great, right? at 40, that should carry you. You might be what a lot of people call coastfi. You've heard that term?

Yes. Great. So if those listening, that's when you don't have to contribute any more to your retirement accounts. And they should be plenty at retirement age, but you still need to fund your current lifestyle in the meantime until you hit traditional retirement age. So it's kind of like that where you can coast. You can just make enough to do that.

So that's the jargon there. So that's what will happen most likely. And if it doesn't happen, you can only just work a few more years, or you might expand past that with all of this if you don't change anything about what you're doing. Now, if you retire at that point and you stop working, that's when if that money is in a traditional, like a 401k, sorry, I'm going to take one more step back here because there's a lot of convoluted thinking that's leading me to where I'm at here with this. In isolation, if you want to build the most long-term wealth, right?

I'm still on the Roth trade. Again, this is a art, not a science, but the assumption that I'm working with is that you are, what, 28? Is that right? 29. 29. Okay, you're 29. You are earning a good income, but inflation is likely to happen over the next 30 years, right? And taxes are likely to go up, not down, for a variety of reasons.

and the most likely outcome is that there's both a higher tax bracket and a lot of gains inside of this portfolio to realize with that. And so for me, the Roth is generally going to be a better option for long-term wealth. But if you are at 40 and all of that and you're retired and you stop earning income, it's possible you can do one of those backdoor Roth or the Roth, I'm sorry, not back door off, the Roth conversion ladder and move that from the 401K and move that from the 401k and into a Roth IRA. So I don't know what that means.

But again, we're, you know, from a strategic lens. I'm just talking this through on the spot here and trying to think about this. But maybe one reasonable takeaway from that monologue that I'm having with myself right now is balance it a little bit more, right? Because you may have that option. Like if you stop at 40 and you have a year with very low income, or your rental properties all need a bunch of new things that you can fully depreciate, you know, a bunch of rehabs that you can fully depreciate or you buy a couple of new ones and have a big loss, that would be a great year to roll things over because if you have a loss,

then everything up to that loss is not taxed, right, from the rollover perspective with that. So it may be wise to put a little bit into the 401K, if that truly is your plan to retire and you think your income is going to drop at least for a couple of years in that meantime. So how's that for a thought process on that? Is it anything helpful there? Well, I like it because it means I could switch them to traditional and get more cash in my bank account now without feeling bad about it necessarily. Because I would have a plan for it, you know. So you're saying doing sort of a combination, not just solely to get more cash in my bank account now, but with a plan, you know, if 5 by 40 is really the goal and sudden,

my income drops, that could be a feasible and responsible way to go about it. Yeah. If we're aligned on the concept that the ultimate goal is to get all that money into a Roth, then if that's the end goal, right, at some point, then this would be a way to do that. That would, you know, I'm not even thinking about the lens of getting you more cash now. That would be an incidental output of this plan. But it would be a result. of the tax savings that we're thinking through here with this. So you have to be really sure, not really sure, but just know that the tradeoff is that if you never have that down year in income with this, that you're going to end up probably

pay, if you agree that taxes like to go up, inflation is likely to loom and all that kind of stuff, that you're probably going to pay more tax on the money you're putting into the 401k if you don't end up having a year or two of low income or even a loss to make that transfer. Right. So I know that I heard that backdoor Roths were maybe on the chopping block, but conversions are different? Conversions are different. Backdoor is on the chopping block for people who make more than $400,000 a year or something like that, which is a really great problem to have. And this is just proposed.

And just like this is being proposed, they could down the road propose. no more Roth conversion. So this is something to just keep in mind. But the fact that you're aware of this starting off is already putting you head and shoulders above the rest of the crowd. I want to pose this in our Facebook group, which is found at Facebook.com slash groups slash BP money and see if anybody else can kind of crowdsource some suggestions for you as well.

Do you continue to contribute to your Roth 401K? while maxing out your Roth IRA and your HSA, do you take some of those Roth 401K contributions and put them into a traditional 401K, which will reduce your taxable income and therefore hopefully generate some income, some more cash now? Scott was saying that he was not quite sure why your 9250 check is only 4,500. I did a little bit of math, 9250 minus the 280, which is pre-tax, for your HSA contribution leaves you with 8790. You take out the 1500 after tax to contribute to your Roth 401K and you're left with $7,470 to pay taxes and all that stuff.

So it, well, I'm sorry, you're paying taxes on the $8970. It just seems like in this scenario, the $4,500 might actually be where it's at. Isn't there something, Scott, after like 74,000 in income, then you start, they don't take FICA out anymore or something? This is, I'm like. No, no, this makes sense. I would, it's the, it's the Roth. And I was thinking by month, I get, I get paid personally, twice monthly rather than every other

week. And so there's another, there's, there's 26 instead of 24 paycheck. So that's what's probably going on with that where that was hurting my mental math. Yes. Okay. I love those three paycheck months. Those are also like mini bonuses throughout the year. Yeah, yeah, the three paycheck month, you just go ahead and put all of that in your,

in your retirement account. Or I'm sorry, not in your retirement account, in your house fund account. Yeah, right. I would continue to connect with the local hometown real estate agent and say, this is what I'm looking for. I am able to jump on this whenever you have this, whenever you have this option, You know, whenever these parameters pop up, I'm ready to jump on it and then be ready to jump on it. I would talk to a local East Coast agent and start getting an idea of what houses cost and what sort of down payment you're going to need for that as well.

Just as an idea, but I don't think you're ready to save up for that just yet. Would you house hack the local property or would you? So that is something that my partner and I are interested in conceptually. And I've tried using the same, you know, spreadsheet that I used to buy the first three rental properties to find a deal that would make sense around here. And it, the amount of mortgage I would need would just not, the rent would not offset. Even if, you know, after we move out and rent out both sides, it, it. I haven't found a property that makes sense, but I've got, you know, a Zillow filter that sends me multifamily every now and then. So we'll see if something comes up. Even a house act that just offsets your costs lately is much better than or has a huge financial upside over a place that has no offset to your mortgage payment with that. Very true.

So just the fact that you're looking is awesome with that. Go ahead, Mindy. on the other hand, in some cases, renting just makes more sense. So I wouldn't jump into, you said your rent is $1,500. I'm assuming since that split, that's $3,000 a month. If you're grabbing a mortgage that is $2,900 a month, that might be good. That might be not good. If you can find something that's significantly less, that'd be great. If you can find a rental that's less, there are always going to be lower-priced rentals, but it's not going to be something. nice. Yeah, we, so we just moved into this place last weekend, actually. It's been a roller coaster. But we're, we finally, we moved from an apartment building to, you know, sort of like a

place where we at least have a front yard that we can go out and the dog has a yard too. So we're definitely here until and if we buy, which I think is a good place to be because at least we sort of know what the comparison should be for a mortgage. You know, we'd probably buy something similar to this. So if it costs more to move to buy something similar to this every month, then we'll just stick around and that's fine too. 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.

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leverage piece here with that. And to buy a property, you're going to need $25K as a down payment, give or take, is that right? Yeah, probably. What do you think a good emergency reserve is for you to feel comfortable with your life and your current properties before you buy the next one? So I have five, actually, this was one of my questions. I have $5,000 reserved for each build each property right now, and then 10 for my personal reserve. Given our increase in rent, I need to up my personal reserve, my personal emergency fund. I'm sort of wondering by how much, because with inflation and everything, at some point, I imagine it is less efficient to truly have that six months to a year when I do have,

you know, the Roth IRA sitting around if something truly catastrophic were to happen. You know, we have two incomes. I have the Roth emergency fund. Personally, I'm thinking maybe 15K for my personal emergency. So I would love your feedback on that. And then for each of the houses, I have 5K now, and I'm wondering at what point do I, if at any point, do I stop adding to each of those savings accounts and start rolling that extra, I'm saving 20% of the rent right now for capex and vacancy and all of that. At what point do I stop adding to those reserves and start rolling that money into buying the next one?

This is awesome. Here's how I would think about it with a couple of rentals, right? is the first one, I think you want 15K or something like that because, you know, that's your whole nest egg with that. I don't think you need to add another 15 for, and I'm making this up, but this is how I did it for mine, right? Your profile, depending on your deferred maintenance, could be different with that. The second one, you don't need another 15K in that. You might need another 7 to 10 to feel really comfortable.

Then maybe it's five per property with it, because what's a chance that they're all going to go wrong at the same time with that? The second is you need something for your personal life, right? And that should be three to six months, depending on your comfort level, maybe longer, if you like to have a little bit more optionality. But in your case, you know, do you have these properties in LLCs? No. So they're all in your name.

I think it might just make sense to say, what is that boiled up number? You know, 5K feels too light for a property, right? Because you might need more than that, right? But 30,000 probably feels like plenty for your two properties in personal life with that, right? Like way more than enough with that. And so I think you can in this case maybe just bundle it all together to a certain extent. And then as your business grows, separate it back out and say, okay, the business across 10 properties, I want 60,000 in there. That's X amount of months mortgage and plenty to cover a roof replacement or whatever with that.

And I have, you know, I also can access helox or whatever else to make sure I don't have a cash flow issue with that. But how's that for a framing of the problem? Does that give you help and thinking about where to put the cash? Yeah, that is helpful and less burdensome, too, on terms of the total amount of cash I need to be aiming for those pieces. Yeah, I want to highlight. Yeah, go ahead, Mindy.

Yeah, I want to highlight what Scott just said. He said, depending on your, he said deferred maintenance. but what he meant was just the condition of the homes in general. So I want you to note how old the big ticket items are in each of these properties, the roof, the HVAC, the appliances, the water heater. Your roof is going to be about $15,000. And if it costs you $12,000, great, but that's something that you should be aiming for is saving $15,000.

Are they both going to go at the same time? Most likely not. But if the houses are next door to each other and you have a hailstorm, maybe so. So make sure that you are covered on your insurance, but also make sure that you have yourself covered. A water heater is $1,000. Can you come up with $1,000? Probably pretty easily to have a new one installed. Even if they both go out, you can cover that one pretty easily.

HVAC is going to be between $8,000 and $15,000. So having these big ticket items in your mind is going to be a lot more helpful coming up with like what sort of reserve I need to have. Is the HVAC system in both houses going to go at the same time? Well, if they're both 20 years old right now, you could be looking at a really hefty bill really soon. But if they're both brand new yesterday, that's less of a concern. So I really like that he highlighted that your emergency fund should be contingent on

not only your financial level of risk, but also the condition of the home itself. Okay. And was the point about the LLC, just like the, if it were in an LLC, I would want to keep it, you know, very separate, but since they're not, it's sort of okay to have a little fluidity between the two personal and rental accounts? Well, if it's not an LLC, no one's going to be checking on that. So it's probably a best practice to make sure that you're able to account for every dollar that's going through each of those properties. And one day you may. wish to transfer them into an LLC at some point. So it would be good to kind of, you know, set up, set things up as a business. But in terms of just aggregating the cash, I don't think you need to leave cash in separate accounts for each one of those properties right now. I think it just complicates your position. And you can just say, I've got one pile and it's plenty big. Okay, great. Now I can now I can go out and save up for the next property with this, right?

Right. So that's more of what I'm kind of thinking. It's just a simple. There's no wrong. There's no very wrong answer. A lot of lots of people probably do it in different ways than I just articulated. That's just one way that may work for you and simplify your thinking on this. Yeah, that makes sense.

Because I also thinking about the amount of, and I'm sure plenty of people have this problem, and especially right now with inflation, but thinking about all this cash that I want to stockpile away, any way that I can to make that more efficient would be great. Yeah, I mean, so you have one big pile, which, you know, you can certainly, you just keep expanding the size of the pile that you need for that, right? I'm using the pile. I don't know if this is a good analogy or not, but you're like, okay, great. If it was 20, $25,000, in two years, it needs to be $50,000 for, you know, whatever it is.

And then a year following that, it needs to be $60,000 to cover the wedding. and all that kind of stuff. So that would be one way to think about it from a cash perspective with that. So you just say, okay, I'm going to stick it. I'm never going to go below 25 with that. But whenever I'm above 25, I'm going to sweep that into my down payment fund. I'm just going to keep piling it up in that account until I get to 50. And then I'm going to use 25 of that for my down payment.

I'm going to dip below temporarily to 20. And then I'm going to rebuild until I get back to a couple. That's just an easy way to think about your cash position with this in one centralized place with that. Okay. And you're going to come in to so many things have changed or may change in the future with this. If you change your allocation, you're going to get some of that back. If you begin putting the money in your rentals into your business and they truly are cash flowing at that, you're going to get another $7 or $8,000 per year from the rentals that's going to flow into that account.

you might get a $20,000 bonus. You have two months of the year where you're going to get a three paycheck month that's going to flow in there. So all of that is going to, I think, all of that I think is cushion in the way that you're forecasting your cash position right now. That is probably not articulated in a, in your planning with that. And so I think you'll come up with that. You'll surprise yourself with how quickly you come up with the incremental 25 for that next real estate

purchased based on that. And is there a different way that I mechanically should be saving for something like a wedding versus next down payment in terms of account or where to put it or even how much of the, you know, excess that I have each month should go towards each? So I am going to be raining on your parade and I don't mean to, but you're not engaged yet. So, So there isn't a wedding to save four right now, which might goose the conversation, which is great. You don't have to have a big $75,000 wedding if you don't want to. You could. I'm always on the – I was the last of my friends to get married.

Literally, everybody got married before me. It was this very tight timeline. It was wedding, wedding, wedding, wedding, wedding, wedding, wedding, wedding, wedding. And then me. And every bride said, I spent all this time planning and I got up in the morning and all of a sudden it was over. And I don't remember anything. And I didn't get to talk to everybody.

And it was just this huge chaotic thing. So I did not do that. I said, I am going with my best friend, my husband's best friend, our immediate families. We're going to go get married and we're going to go have a party. And there were 17 of us. And it was very intimate and nice. And then we had a great big blowout party, but it didn't matter if anything went wrong during the great big blowout party because it wasn't my wedding day. And there were some issues with some of my friends and it was like a very stressful time.

And I've been married for a thousand years. So I know this is a very different time. Scott just got married. It was lovely in the pandemic. But it was still lovely. It was online and my girls love to watch it. But like what kind of wedding do you really want to have? Right.

Does it have to be a $75,000 wedding? Could you take that money and put it towards something else? And then you're not working for an extra day. for 10 years to pay that off. But instead, you bought a rental house and now you can retire at 35. So I'm just throwing these out there. Well, and I think with the pandemic, too, the expectations for weddings have gone down, which is helpful, you know, what guests expect to get and to experience.

Oh, no, no, no, no, no. This is your wedding. It's what you want. It isn't what the guests expect. If they're expecting something that you're not going to give them, they don't have to come. Fair enough. I agree with that with that one. It's kind of, it's what you want, right?

If that's what you want and you want to spend the money with that, then we'll, we'll account for that in the approach that we take with all those kind of stuff. I didn't hear $75,000 wedding. I heard $75,000 inclusive of engagement rings, wedding, and house down payment. Was that? Okay. Yeah, so kind of sliding scale for, you know, how much each of those would cost. But that's a guesstimate for, yeah, all of those things.

Okay. Okay. You're right, Scott. I don't think that changes too much about what we're what we're describing here, frankly, with this, because right now you have some student loans and a mortgage on your rental property and other investment opportunities, right? So, you know, you're asking where should I store the money that I'm saving for the wedding? Well, you have four and a half, six, four to half, five percent interest rate debt currently with that. Why not just continue paying that? Or continuing with your current investment approach, instead of stocking away the cash specifically for an event that, to Mindy's point, isn't even scheduled yet with that. So I wouldn't worry about locking it up in some sort of savings account with that because you're just going to be arbitraging risk. You're going to be getting 1% in a CD instead of 4.6% on your student loans or your rental mortgage. So in terms of the debt, is there, I don't know that it makes sense to pay off these mortgages more quickly. Given the relatively low interest rate.

So, yeah, is there, I mean, also the student loan has an even lower interest rate right now at zero, so I'm not paying it. But the only one that kind of stands out is the personal loan. I think it's like 5.8%. So I guess just go, does it ever make sense to pay off those mortgages early or at that point do I start saving for the next one? Well, the question, so I'm answering a different question with that. You're asking a great question with that. I was talking about the question of, what do you do with the 75 to 100K that in cash that you want to save? I don't think you save it. I don't think you separate it out and place it somewhere else. I think you continue with your investing.

approach and then pull out the cash when needed to go with this. Because if you, for example, just set that into a bank account, you know, there's no reason why you'd put it in a bank account rather than paying off the personal loan. That's a bunch better example, right? You're just paying off. You could, you almost certainly could get another personal loan at that interest rate right now. So if you pay it off, you're just now not accruing interest on that instead of having cash sitting in a bank account while you pay interest on that. So what I'm trying to just articulate is probably your best use of additional cash is on another rental property.

I don't know. I'd have to do the math, but there's probably a good risk-adjusted return on continuing your current approach and moving towards that 10 rentals goal that will more or less get you past the five point with that. The second best use of cash is probably in the retirement accounts and investing that you're doing with that. The third best use of cash would be then paying down this debt. And the fourth best use of cash would be dumping it on top of the pile or creating a new pile to save up for these future expenses. That would be how I think about it in the context.

And there's an infinite number of other uses of cash that you could come up with if you got creative enough. But from what we've talked about, those seem like the four, the order I would kind of approach them in. Okay. What do you think, Mindy? Yeah, no, I agree. And I can hear people saying, oh, but Scott, you said if it's between zero and four percent, don't pay it off early.

And if it's between seven and nine, if it's seven and above, pay it off early. And if it's in that middle, don't pay it off or maybe pay it off. I want to point out, though, that you're saying rather than taking this money and saving it in an account that's going to pay you 0.01% interest, you're getting a better return by paying off the 5.8% loan and getting a better return by paying off the student loans. I wouldn't pay off the mortgage early. You do have a 4.625% interest rate on your lower mortgage. I would look into maybe refinancing that. See if you can get a rate and term refinance. See if there's any sort of cash out option that you can do with that at a lower interest rate to throw at the personal loan or the

student loans, although that's going to be a 30 year that you're borrowing against. So maybe that's not, maybe a cash out isn't the best option. But like 4.625 in the whole scheme of historical interest rates, that's a really low rate. But currently, that's kind of a high rate. So I would look into maybe refinancing that. But yeah, I like what Scott saying about don't sit there and grow the money at this tiny little rate when you're paying out at a higher rate for this particular thing. Mortgages don't count.

I wouldn't pay the mortgage off early necessarily. There's a very few circumstances where that's the right move, except for folks who want to get debt-free with that. And that's their specific goal. And they want to have 10 paid-off rentals or five paid-off rentals. That's a great goal with that. It's not mathematically going to get them as far necessarily or as quickly, but it is a perfectly reasonable approach. I'm simply saying rather than stockpiling a hoard of cash to pay for these

items, that would be a theoretical better use than doing that. So it's an illustrative example of like, oh, no, there's 10 other better things to do with that money than to stockpile it for the future wedding, I think. So when do I start saving for those things? Because it would take me a while to get, you know, that much cash, which is why I'm thinking, you know, this far in advance. I think, I think like if you wanted to finance that wedding right now, right, you would have multiple sources of cash, including a he lock or mortgage or whatever with those types of things with it. Plus your $25,000 in current cash. So I don't think you'd have trouble financing anything less than a very lavish wedding with your current financial position.

What do you think? Is that reasonable? Yeah. Yeah. I guess if I had to, I could go basically to zero to do it, but that's a good point. Yeah. I mean, you're saying, how do I get access to $75,000 in cash in three years? Well, there's no comfortable way to do that, right? One way I'm going to have to stock create a huge pile and sit on it for three years and then spend it. The least, the least, a bad way to do that would be, I think, to invest and then borrow against those investments or liquidate some of those investments to finance the event at the time that you needed with that by increasing your access to credit and having a reasonable, you know, in that,

and again, let's say over the next year, right, we just said you're going to save 12 grand from your regular run rate. You're also going to have two additional paychecks. That's another nine grand. So that's 21. Then you get probably most years. because companies like to retain their employees, get a 20% bonus. So that's another 24 grand, it's called 18 after taxes with that.

Then you've also got six grand coming in from the rentals, give or take, across that, right? So that's 35K that you're going to get access to after tax, maybe more if you begin putting a little bit into the 401K, plus a raise or two that might happen in between there. So that should be plenty of cash to finance most of these events on a ongoing basis with that. And I think that what had something to articulate is that you're new to the $50,000 raise situation that just occurred for you with that. So how's that? Do you feel better with that particular answer than what I've said before? I was just thinking that, like, you know, I think maybe it hasn't hit me that I make more money now.

Well, good, it shouldn't hit you. You should take all that and save it. But also, let's look at next year. You've been at the job for a couple of years. Do you have a praise folder in your inbox? When somebody sends you a note, hey, thank you so much, Louise, for this. This was really great. It was so helpful for you to do XYZ for me.

You really saved my team, time, money, whatever. Great. That gets into the praise folder. And other things go into the praise folder. Talk to your boss. I'm assuming there's some sort of 90. review, talk to them and say, hey, I want to have the opportunity to get the most raised possible at my 12-month review. What do I need to do? And he's going to be like, oh,

increase productivity by 78 percent and generate more revenue. And he's going to give you specific items to do. Put those into, first of all, get it in writing and put those into your praise folder as well. And keep that in your mind while you are going through this praise. Oh, this relates to this goal here. This relates to this goal here. And just keep track of stuff. Because it's really great to go in at your 12 month review. Your boss calls you in and they're like, hey, what have you done? And you're like, ooh, stuff. Like, it's hard when you're put on the spot. But if you're constantly thinking about this, you go in and you're like, oh, at my 12 month review, look at all of these things.

Wait, there's another page and another page and another page. And they're going to be like, wow, we really need to keep her. Or maybe they're jerks and you're like, you know what? I'm going to go someplace else. Look at all these great things I did at my last job. So what are you laughing at, Scott? I'm just going back to this. I think there's a great advice for Mindy.

I'm just like, I'm still hung up on the wedding thing with this. And I was like one more key piece of advice for someone who just got married, not key piece of advice, but just knowledge about how it works with that. suppose that you desire to spend $50,000 on a wedding, right? The wedding venue and the people who are going to be taking that money from you are not going to just on faith let you kind of go through the course of the year, not paying them anything, and then collect it all at once at the end of the process with that. So that was not an option for me.

I don't think it will be an option for you. It could be an option to pay all of it up front, but most people are not going to do that either because I would tolerate that. So you can be paying in installments over the course of the six months to a year leading up to the wedding anyways from a cash flow management perspective. So sorry, just going off on a tangent back to that. And isn't your girlfriend going to chip in? Yeah, yeah. There you go.

So now you only need what's 75. Now you only need 3750. That's for the down payment too. I'm not that crazy. 75 is not just for the wedding. But the down payment, you can put down three and a half for five percent. Yeah. So it's not a 20%.

Even as you're putting down on a million dollar property, five percent is 50 grand, right? So that's 25 each for that down payment. So, you know, three and a half percent would be still less. Is there a – so thinking about that, the loan amount, if we do buy here, we're probably looking at, you know, between seven, 50 to a million. It's not out of the question that that's how much a property would cost. So the loan amount, and even the small interest rate is going to increase that monthly payment. Is there sort of a wisdom in terms of percent of down payment? Should we be ideally looking at that 20 percent or is that not necessary? 20 percent isn't necessary just to

buy a house, you get 20% is a threshold for not paying private mortgage insurance. So if you get a conventional loan with PMI, then when you hit 20% of the purchase price in equity, you can request that they remove the PMI. And when you hit 22%, they have to remove it. And if you get an FHA loan, it comes with, it's more for people with maybe a lesser credit school. or less of a down payment, it's 3.5% for an FHA loan. So I think it goes down to 580 credit scores. The PMI stays for the life of the loan.

You would have to refinance out of it. So if you have the option to get the conventional loan, that's a better option. Conventional can go as low as 3%. You're, the city that you're in, I don't think there's any USDA opportunities there, but that's, I mean, I'm just, I don't even think we'd need to bring that up.

That has a zero percent down payment option, but I don't think there's any USDA availability where you are. Let's say that I'm, you know, it's two years from now, three years from now. I'm just getting married and I'm thinking about a house at the $750,000 range and have the context of financial independence or building wealth in mind while buying that house. First, I'm thinking about a house hack, but you already did it. So great, we check that box. Second, if I have $250,000, which is more,

cash than you anticipate having at that point, right? So I could put down a 25% down payment on that property. I still wouldn't. I would put down 5% most likely. And then, you know, which would be 50 grand, and I'd take the other 200 grand and I'd invest it in an asset that I think was likely to perform well with that. Now, you can say that's a huge risk, but I think putting all of that money into the primary residence is an even bigger risk than that, right? So it's inherently risky to purchase a million dollar property with, you know, in essentially any circumstance, you know, until your income is above certain huge levels with that. But if I'm going to do it, I think that putting all of the eggs in that basket makes less

sense than continuing to diversify the position with that. That's my take on that. What do you think, Mindy? I think you're right. That's exactly what I did with my property as soon as I could pull out as much cash as I could. I needed to borrow to buy this property. But then I wanted to cash out to, I had to borrow for my 401K and random other things. I agree with what Scott's saying that, I mean, and PMI doesn't have to be a huge amount.

At that level, it might be, you know, one or $200 a month. But what would you have to do? what would you have to sell to come up with the 20% down? How long would you have to wait to come up with the 20% down? So some people just automatically dismiss, oh, PMI, I'm never going to pay that. I'm just going to save 20%. Talk to a lender and see what PMI would be for you in your specific situation. But it doesn't always have to be a better thing.

Does the PMI move? Like, you have to pay a higher amount of PMI in absolute terms. If I put down 3% versus 10% versus 15% versus 20%, I know that when I bought a property, I paid MIP. I had a FHA loan on that with my first house act. That was a, that it all fell off at once, once I got to a certain equity level or refinanced the property. But there was no middle ground. It just never like diminished as I moved towards that equity threshold.

So if, sorry, go ahead, Mindy. I think it's when you buy, if you put down 3% your piece, PMI is going to be more than if you put down 10%. But once you get to 10%, it doesn't drop. It's PMI, I believe, is the same until you refinance. We should get a lender on here to talk about all the ins and outs of mortgages. Yeah. But that tells me that it's likely.

It depends on the movement between 3% and 5% and 10%. But it's likely that there's no point in aggressively prepaying or attempting to, you know, which is put down the lowest amount on that. The difference probably is not going to be that huge between those different down payment amounts. And it doesn't change at all until it drops off entirely when you hit the equity threshold or refinance. So great. What that says is the reward for paying off that MIP early or getting out of it is not very large until you're very close. Like it makes sense to spend the last five grand in cash to pay off, to get out of MIP, you know, if you think you're going to sit there for a while at least.

least, but doesn't make sense to bring 150 to pay out, to get out of the MIP. Okay. With that. So that would be the framework I would use by bias towards it. I have to think about it and, and probably get a mortgage lender. But does that help answer your thoughts about what you need for down payment in this discussion? Yes. It helps my thoughts and it helps the amount that I need.

So thank you. I feel like the theme is I might need a little less cash than I think I thought originally. So rental properties are closer on the horizon than I thought. Yeah. And I think there'll be a source of cash, right? You can borrow against some of them if you really do need it. But I think you'll find you're able to, in your current position, if you don't change in that expense front in general, you're going to be able to cash flow these events pretty

handily if things go even close to well over the next two, three years. Speaking of the refinance, Mindy, you mentioned refinancing. the one property. Two questions. First, what would be the best way to go about searching? I read the, I've read many of the bigger podcast books,

but I don't think I've done a very good job of searching around for interest rates, and I was wondering what you think would be the best way to go about that. And second, which kind of goes with that, It's a lower value home. So it's a pretty small loan, which might have been my barrier when I first looked. I'm not remembering, but that's something to think about. Yeah, I was going to bring that up. Because it's such a low value loan, most lenders don't want to loan under $50,000.

So look in, if this house is worth $55,000, it's not the only house in town worth $55,000. dollars. There's a lot of other more properties around that same value. So lenders locally are going to most likely have a loan option for the lower amount as opposed to a big national lender who's like, no, we don't do anything less than 75. They're not the right person for you. So I would first look at all the banks in town, the local banks, not your Chase Bank or City Bank or any of those big ones, but like the local credit unions, the local banks. See if there's a mortgage broker locally who you can talk to and see what they've got, what options they've got. Because there are people making loans less than $50,000 when the cost of the house is less than $50,000.

But I think the best bet is locally. And I want to chime in on this as a, you know, you've already got two properties in this town. And it sounds like you're intentional about buying more. But you really need to buy more for this strategy to work. Because if you just had that one property, it's an annoyance. It's, it's so irrelevant to your overall financial position

inside of the next 10 years that it's not, it's not a powerful mover. Ten of them, a portfolio of 10, is a valuable, um, uh,

endeavor with that and, and can, can add, well, add net worth to use in, in a meaningful way. But, um,

just keep that in mind. If you ever want to transition out of this, I would, I would consider selling these properties. If you're not intentional about building a portfolio. in that town for some time. I'm nowhere near this and I likely won't reach it. But is there anything to think about in terms of diversifying location or when might that kick in?

Okay. About to buy a million dollar house. Yeah, that's true. Once my portfolio is a million dollars, maybe think. If you had ties in another city. Let's say that you're in one city and then your girlfriend has ties to another city that's inexpensive. That could be an option. But just randomly choosing a bunch of different cities and I've got one here and two over here and one over there and three over there.

You have a property manager here and here and here and here and when I am a property manager and I am managing your one property in this town versus Scott's 17. and Scott's property has a problem, I'm going to be like, oh, Scott is 17 times more valuable to me than Louise is times all these random places around here. Plus, finding a good property manager is so hard. I would say, unless you have a real reason to be someplace else, focusing on the same city over and over again, as long as it's providing good cash flow and the numbers are working, it would be your best option. Okay. If you believe in the prospects of the town and do your homework on the cash flow potential of these properties and feel like it is as reasonable a place to invest as anywhere else in the country and you have that advantage of it being your hometown with it, that all stacks up really powerfully in that. If some of those items are not true, that completely changes things and would make the diversification much more appealing with that or moving to a different town entirely where you do feel like you have those advantage. But if you believe in the prospects to a reasonable degree and you think the numbers are good and you've got the hometown advantage, I agree with Mindy.

I think you just keep doubling down there. Okay. Yeah. And one last thing. I didn't think of this when we were talking about refinancing the current mortgage. Call up the lender that holds the mortgage right now and ask them if they can do a rate and term refi because they would rather make a little bit of money than no money when you take their mortgage away. So if you can go from 4.6 to, like, I don't know what mortgages are right now, 3.8, that's better. And then they're still making some money. And does that kind of refi not require, like, am I not closing again? Am I saving on those or do I have to pay all that again? Sometimes it's a real easy streamlined process and sometimes it's not. I miss. Why are we refinancing in the first place? What's the, what's the? Because it's 4.625 and I think lending right now is much less.

I think, okay, fair enough. I think she's asking a good question, though, about whether the economics of refinancing that loan will pay off because it's so small. Yes, for sure. You don't want to pay $10,000 to refinance this loan. That is definitely, and this goes for any refinance. And this is, I'm glad you brought that up, Scott, because this is one of those things that's in the back of your mind.

But if you don't say it, maybe somebody else doesn't quite have that same frame of reference. But yeah, if you can spend, let's say, $1,000 to refinance this loan and it's going to pay itself off in a year and you plan on having this loan for a very long time, that's a great deal. If it's going to cost you $10,000 to refinance this loan and it's going to take you 15 years to pay it off, don't refinance. That's not a good choice. So definitely run the numbers and make sure that it's a good idea to finance, refinance. But if you can, I would do it. I'm wondering something else here with this, which is if these properties are going to be 50 to $100,000, you might find that a lender is going to be more comfortable just giving

you one portfolio loan that you can up or downsize based on the size of the portfolio. So I would get into some more, because of the value of these properties and the fact that they're all separate, you might be a good candidate for someone to use a portfolio loan earlier than a lot of other folks who probably are better off using conventional loans to finance these properties for the first 10. So that would be something worth investigating. And that would change your cash needs dramatically as well because they might say your properties are valued at 150 grand, and we're willing to loan at 75% of that.

And right now you've got two loans that are, you know, at 60%. So that's 15 grand you could get from these guys in cash out. and then you add that to your 10, you buy another property. And you just keep rolling that. That might be a good structure for you. And I bet you that you have good odds of finding a bank willing to do that. You know, especially if you take Mindy's advice and go to the local lenders with that. I would do a lot of homework before that.

Make sure there's no gotchas or funkiness in that. You want a 30-year, a 30-year AM if you can get it or a long amortization. You don't want these balloons. and all that kind of stuff. But you may find, like, there's other advantages. At 4.6, which is already a high interest rate, but your current interest rate, you might be able to get a 30-year emmerization, and they might let you put the properties into an LLC on that. So that would be a big advantage early on with this kind of stuff, just that much less risk.

So something to think about when you're looking for financing on that. Do you know, is that something that could be available at as low as two properties? or I guess maybe it's big to bank. So a portfolio loan is kind of like that banks write their own rules because they're keeping it in-house as part of their investment portfolio so they don't have to conform to Fannie Mae and Freddie Mac underwriting laws. They can kind of make it up as they go. So if they want to do two properties, they can because it's their own thing.

Okay. I bet you that the worst case scenarios are going to say, not yet. When you get to this level of volume, we're going to start doing that. they might say because you intend to buy another one, we'd love to get your business in locked in early. But that would be, yeah, I think that's a good risk. And if they say no, then you just keep going with plan A. So I think that's a really potentially good option for you to investigate.

Yeah. Ooh, I'm excited about all these options you have. I'm going to send you away with the note that I want to talk to you in six months and see where you are in six months. Sounds good. I love to. Okay. Well, this is awesome. Louise, thank you so much for sharing your story and your finances and your, the intricacies of all the different options that you have. You are doing a great job. Scott, we stink at saying what a great job our guests are doing. You're doing a great job. You just want to have more and that's great. I think that 40 is going to, I think 35 is going to come in here. It's going to be like, wow, I don't have to work anymore. Fingers crossed. Not fingers crossed.

Actionable plan and make it tough. I love that. I completely agree. You're doing so many things right. This is going great. And, you know, like a couple of other stories we've had recently, I think you're just like, oh, wow, I'm doing really well right now. Oh, my gosh, my position is transformed dramatically in the months preceding this talk.

That's a good problem. So take advantage of it. Keep those expenses. low and and I think I hope we gave you some things to think about that will be helpful with with the three goals you mentioned absolutely I think um I got some really good guidance and also perspective on you know my current status I I don't know that I had been you know fully realizing the potential that I have over the next year so I appreciate you giving me the lens to look at that and then also some things I can sort of tweak and pivot.

So definitely look forward to that six-month talk. Awesome. Awesome. Well, I will send you a note in five and a half months to invite you back on. Wonderful. Okay, thanks, Louise. We'll talk to you soon. Thank you.

All right. That was Louise, and I love her future and her horizons. Scott, what did you think of her show? I think she has some interesting financial decisions to contemplate. I think so too. I think she has a lot of great options and now it's just which fantastic option do I choose. I am super looking forward to checking back in with her in about five or six months. I love how that joke now makes you laugh multiple times with that.

Wow. That's a joke that's cold. I think that that's like, look, what I thought was awesome about this show is she has clear command over her expense. She is obviously intentionally building her wealth. I can't imagine that was a total non-factor in her decision to change jobs. She's increased her income. She's got the two rental properties. She's got the retirement accounts.

She is rolling on all cylinders in terms of getting the wealth snowball going. And she just hasn't quite figured, like, realized that yet. What that means in terms of the cash that is going to come into our life for the options that she has. And now we're moving into a world that's much more art. than science, right? That's much more, I'm going to guess at long-term tax rates for the government with this. I'm going to guess at whether this market's going to do better than that market. I'm going to guess at what the future expense of a wedding might be and the sources of cash that I can use to get that.

And I think it was a really powerful discussion to kind of go through those options, but also frame it against the backdrop of, no, you're not saving $1,000 a month. You're saving $3,000 a month, most likely. It's going to come in increments and buckets like it always, does or like it often does for people with multiple streams of income and who are finding their positions advancing quite rapidly. But that's the reality with that. And how do you play the game with the rules that she outlined want to have this much cash available for these events about future life, a real estate portfolio and a retirement portfolio? How do you play

the games, the best to the best of your ability? Well, at that point, you have to be willing to play to win, but not to ruin. And I think it was a great discussion. And we kind of got there today. Yeah, no, I completely agree, Scott. I, like I said in the beginning, I'm so excited for her horizon. I think that, you know, going through this, oh, I have to save this much money. I'm only saving this much money. I'm only doing this or I need to do more. And having somebody look at it from a 50-foot lens is the whole point of this episode, the whole point of this show is to look at it from a different pair of glasses and see what we can see that you can't. And I think we saw a lot of things.

And, you know, at the end, she's like, ooh, maybe I, maybe I am doing okay. I have one request from our listeners. We did talk about her current retirement contribution. She has a 401K, a Roth 401k option, Roth IRA, HSA. We would love it if you would go into our Facebook group, which is Facebook.com slash groups slash BP money and answer what you would do. Give her advice on how you think. she should allocate those contributions.

Maybe it's just continuing what she's doing, but, you know, all the different options and the reasons behind it can be very helpful for her to look at and say, oh, I really like this one best. I'm going to take this advice. Okay, Scott, should we get out of here? Let's do it. From episode 248 of the Bigger Pockets Money podcast, he is Scott Trench and I am Indy Jensen, saying we've got to disappear, dear.