BiggerPockets Money Podcast - 264: Finance Friday: Passive Income, Syndications, Real Estate, and Retirement

Episode Date: January 7, 2022

“Can I retire yet?” If you’re today’s guest Jenn, then the short answer is a resounding “yes”. And if you aren’t Jenn, you’ll probably want to be in her position upon retirement. Jenn has a lot of income options: a military pension from her spouse, a great full-time income, real estate syndication cash flow, and a LOT of assets. Jenn’s net worth has reached the height of around $4 million, with more than a million alone in retirement accounts. If Jenn is so set, why is she coming on the Money Podcast to talk with Scott and Mindy? Well, Jenn has a pretty large amount of expenses: somewhere in the ballpark of nine thousand dollars a month. She wants to know if she has enough passive income and investable assets to continue living life the way that she sees fit. Her family will also be moving to Europe for the next year or so, making it even more crucial that she has enough to enjoy traveling.  This show talks about some pretty high-level concepts specifically around real estate equity and syndications. Even if you’re not an accredited investor, this information will be worth its weight in gold to you as you scale your income and net worth. Soon, you could be in a position just like Jenn!  In This Episode We Cover Military pensions and how to value them for retirement  Spending less than you earn and joint vs. separate bank accounts for couples  Building (and then selling off) a high-value real estate portfolio  Investing in real estate syndications and the tax benefits that come with it How to avoid “one more year” syndrome when thinking about retirement  Maximizing your portfolio’s income and calculating your return-on-time  And So Much More! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 264, Finance Friday edition, where we talk to Jen about the end of the financial independence journey and coming to terms with leaving your job. I'm not comfortable with this whole situation. I'm very nervous. I think, you know, Mindy, I hear you talking about your husband who is reluctant to pull the trigger even when you guys knew you could afford to do it. And we've talked to a financial consultant and they're like, you can do this. But we thought they meant you have to sell everything to be. be able to do it. And, you know, we're like, they just don't understand a situation. I won't know if I can do this until I talk to Scott and Mindy.

Hello, hello, hello. My name is Mindy Jensen. And with me, as always, is my high-level finance knowledge co-host, Scott Trench. Oh, there's something here with Alpha and Beta that I'm too slow to come up with. But thank you, Mindy. Great to be here. Alpha Beta is the shopping center. It's a grocery store in California.

Anyway, Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting. That's right. Whether you want to retire early and travel the world, go on to make big time investments and assets like real estate, start your own business, or just kind of tweak your $4 million retirement level portfolio will help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Scott, today's episode is fantastic and kind of the epitome of our attorney's disclaimer, which says 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. Jen is our guest today. She is at the end of her.

her financial independence journey, she, in my opinion, has made it. Of course, I cannot guarantee that she will be set for life. I cannot guarantee that she will never run out of money. However, all of my experience, all of my financial knowledge has looked at her portfolio and all of her expenses and all of her everything and said she is probably got the highest chance of success of anybody that we've talked to on this entire, all of these financial finance Fridays that we've ever done. So I, we talk a lot about some high level things today. It's more of an advanced show. I hope that if you're not an advanced listener, you still listen for some ideas to plant seeds for when you become an advanced financial, financial independence

person. When you get to a point where your money is starting to work for you, There's a lot of things that we might introduce to you if you're newer on the journey. There's some things we might introduce if you're later in your journey. The concept of the margin loan we talk about a little bit. That was something that I learned, what, 20 episodes ago, 60 episodes ago when Tony Robinson was on. He brought it up. So the point of the whole show is just to bring out some ideas and to talk about the fact that she's doing pretty good.

Yeah, I mean, she's doing fantastic. This is one of our higher net worth guests that we've ever had in the show. And I think, you know, again, like Mindy said, we're not going and defining a ton of terms and that kind of stuff. We got a little bit more advanced using terms like cost segregation analysis and real estate professional and, you know, advanced ways to harvest, you know, a cash from portfolios and that kind of stuff. And we will generally go back and work with folks that are at a different level and would want to explain those different types of things. But for this episode, rolling with that made a lot of sense. We hope you learn a lot, and I think you'll, you know, this is the end state to aspire to in your financial journey. If you can build something like this, you're going to have a lot of options in your life like traveling to Europe for maybe an indefinite period to be with your family and have some unique life experiences.

All right. I want to give a quick, you know, the real estate podcast is this the quick tip. We're going to do one of those today because we saw something really fun in the Facebook group. Daniel Mills, who's actually been a guest on our podcast in the past, he posted an article linking to the U.S. Savings Bond earns 7% with inflation protection right now. So there is an opportunity out there to get a 7% yield on a savings bond that there's some caveats to research, like the money might be locked up for the first year, yada, yada. But I thought that was a really good tip that I would share with everyone because, hey, there's a place to get a 7% yield on that.

I think there's a limit of up to like $10,000 per individual or something to that. effect. So do some research on that and learn a little bit more, but might be worthwhile looking into this week thinking about a U.S. savings bond if you're looking for a little bit of diversification or another investment opportunity, something worth researching at least. Yes, and normally I don't like bonds, but I really like a 7% yield bond. Thanks for the tip. And thank you, Daniel, for sharing that with us. 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.

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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. Jen and her husband live in a medium cost of living area and they think that they can retire in the next couple of months, but they want a second opinion. We actually have a lot of things to cover today. So we're going to jump right into it. Jen, welcome to the Bigger Pockets Money podcast. Hi, Mindy and Scott.

Thank you so much for having me on. I'm so excited to be here. We're super excited to talk to you today. Before we jump into your income statement, let's get a little bit of background about your situation because you do have a bit of a specific situation. So describe your current income and living specifics. Sure. So I have a regular W-2 job that I've been in for a very long time. And my husband is in the military. He's been with them for 24 years or so. He bounces back between being an active duty person to reservist.

Yeah. How does his pension work? Because like how much time does he have active duty and how much time does he have reservist? Yeah, so normally with active duty, we would be looking at, you know, you retire at 20 years and you can start collecting your pension. And, you know, some people will take that and you can get a second job and you're okay, you're getting both streams of income. With reservists, they have a certain aid at which they can start to draw down there, start to take the pension. And so every year that he gets assigned an active duty. duty year, it brings down the number of years he has to wait before his pension starts. So at this point, I think we're at 56, where he can start to collect his pension. And then the pension would be an average of the last three service years, I believe.

Okay. And how old is he right now? And how long is that? He is 47. Okay. So about nine years? nine years before he can start collecting his pension. Right, yeah. Okay. That's right.

Okay. So let's look at income and expenses. How much is coming in and where is it going? Okay. Sure. So my side is pretty easy. W2W-WIs after all of the, you know, retirement is taken out and taxes and benefits and stuff, I see about 7,000 of that.

I make about 130 to 140 a year. That's including the annual bonus. And then my husband, when he's active duty like he is right now, he's about the same. But we have an interesting way we divide up our paycheck. So we do the 80% to the joint fund and 20% you get to keep in your own account and spend however you'd like and no questions asked, you know, that sort of thing. So really of his income, I only say $4,000 a month, no matter how much he makes. We just let that go at 4,000 goes into the joint account. So that's the regular W2 stuff.

And then we have about 6,000 that comes in from syndication cash flow. Per month. I love the way you set that up. Obviously, you guys both earn really good incomes with that. But I love the, I get to spend two, three thousand bucks and you don't get to take a look. I'm with that. I think that's a really healthy way to approach joint. finances, especially in your circumstances where you're both earning similar amounts and have

that freedom with that. Well, I actually started because we weren't. And when he's in his normal civilian job, there is a bigger disparity in our incomes. And so he's somewhere in the maybe 90,000, and which is why the 80-20 felt more fair instead of a set amount, because it was 80% of your income no matter what you make, you know, and you get to keep 20% of that. So it really came about when, you know, we had kids and it was the, well, you know, who's paying for what stuff.

And we patterned it after some friends who had this set up. And we felt like this really was a good way to avoid many fights. So this was the conscious decision. You had a discussion about this. You decided together this is how we're going to handle our finances. Yes, right. Yep, and we went to one single joint credit card, and we put everything on that card of card.

So you can see that at the end of the month, you know, who spent what? If there's any question about what it is, we can, you know, pin each other real quick and say, hey, you know, what do you just spend it? And so that's a, that's at store. I just want to make sure it's not fraudulent, you know, and that sort of thing. And then it gets paid from the joint account. So, you know, there's never really any problem there.

Awesome. Could you give me, because, you know, I am, I get a sneak peek about your assets here with that. Could we maybe get like a three to five minute background about how you got into this position in your personal finance journey? Yeah, sure. It's kind of interesting. We actually, the liquid cash side of things and the syndication stuff all really grew in the last year.

We used to own rental property. So we had 13 doors mostly in Washington State. And in this last year of COVID, we actually decide to liquidate everything. So we went from being, you know, really busy, full-time working folks to, with 12, you know, local tenants who we would try to manage on our own. We weren't using property managers. I was also, we would buy them.

They were underutilized. They were older homes that needed a lot of renovating. So we felt like after two years of being back in Washington, and we felt like every weekend was spent demoing, cleaning up yards, and cleaning up after tenants, or, you know, answering the plumbing calls and doing all of this. And so just this last year, actually, we sold off all 12 doors from Washington. We still have one rental in another state, but a single family that's really easy to manage. But we sold all of that, and then we put it all into syndications. So that's where the bulk of it comes from.

So let me just ask a couple of probing questions here because I have a sneak peek here. And it looks like your net worth is north of $3 million. Is that right? That's correct. Awesome. And you guys have really good incomes right now, but it sounds like that was not the case, even just a few years ago, at least for both of you guys with that. Could you give us a really high level overview of your careers on that and how you accumulated

those 13 properties to then redeploy into syndications? Yeah, it goes way back. I mean, we did it kind of the traditional way. I mean, we saved up 20, 25%, and we would just do it slow, low and slow, right? Actually, my first home was a condo in the Bay Area and used family financing. So basically, my parents, they took a heat lock out and were able to give me a head to start because they could put the 20% down. And this is before I knew how to do any of this, that I could do a 3% down or, you know, anything fancy.

We just did 20% that's all we knew. We did 20% down on this condo. And I house hacked it without knowing that I was house hacking. You know, there was, I was by the university and I could rent out the room furnished. And I got, you know, $900 for the room. I had a two-bedroom. And so all I needed it was in one bedroom and I got to rent out the other half. Then I met my husband.

and we had to move because of the military, and, you know, the housing crash happened, and I couldn't sell it. So we became landlords, and we found a fantastic renter who ended up being in the unit for, I think, five years. And, but because those first couple years were so easy, she was, you know, very, it was just hands off. I never had to do anything with her. My husband became open to the idea of rental properties. And he had, being in the military, he had. deployed a couple of times and had a nice little nest egg saved up and didn't know what to do with it. I mean, he had it in CDs and, you know, maybe this is 2008. So maybe you got 5% interest.

I don't even, I don't even know. It was good back then. But, you know, we were in Southern California at the time and he knew he wanted roots in Washington. So we bought, you know, we used his saved money to buy a home there because we weren't living in the area at the time. We were able to get it as a second home. So we did not need 25% down because it was a second home. And there was no requirement to live in there for a year. We could rent it out. So that became our second rental.

We moved back into the area. And it just, coming from California, you move into Washington and you think, wow, the housing prices are, you know, it's so affordable here that I was like, it just felt like they're on discount. And it was. it was 2012, 2013, 2014. So we were able to buy another single family home that was $315,000. And even at 25% down, you know, again, we just kind of had the savings for that because of, I think we both lived pretty frugally. We both come from fairly lower middle class,

really blue-collar families who, you know, we didn't live extravagantly. So it wasn't a big deal for us to not spend our entire paychecks the whole while. And so from there, it was like some 1031s and savings, and we scaled up. And I found bigger pockets. And Brandon Turner's discussion about the multiplying factor. So instead of buying single families, I was like, oh, what am I doing? So it went to small multi-sized and we bought duplex and triplex. And that's how we ended up at 13 units over the course of, I mean, five years, I think five, six, it was a long, I mean, it was a long process to get there. Well, what I'm gathering is a 15 to 20 year, a personal finance journey here with that, between, with you, with you and your husband, I imagine your income is increasing during this period

up to the 130, 140 that you're earning today with that. There's, that's really interesting nuance with the deployments, because I think you get like additional pay for those types of things. So that was a nest egg that he'd accumulated with that. There was a little bit of family help to get started. But this is an awesome, highly repeatable story for a lot of folks with this. That is, there's nothing, nothing fancy about it. It's just a 15-year story of hard work and making some smart investments over that.

And building up a pretty strong position that we've got today. Yeah. And taking and selling those single families or those single units and turning them into multis really helped us to scale up pretty quickly in those last. Then it was we were buying one, maybe two a year and really changing the paradigm, changing some of them from long-term rentals to short-term rentals to really amp up the cash flow, reinvesting it the entire amounts back into the business. We didn't use any of that money for personal spending.

And so by 2021, you know, the housing market in Washington was hot. and we knew we were moving. Landlord laws in Washington was getting to be more questionable for us. And so we just decided it was time. We had already started to dabble in the syndication world. So, yeah, that became our primary focus. One last question here before we get into this kind of stuff, because I think everyone has a lot to learn from what you've done here.

Actually, a two-part question. One, you've alluded to it already that it was just a lot of work and all that kind of stuff. But can you walk us through the decision to liquidate that entire portfolio that you'd built and move over to syndications with that? And then mechanically, how you went about that? How did you learn how to invest in syndications? And did you do things that were to be tax efficient like 1031 exchanges? Yeah. Where do I start? We did do the 1031. So the first one was the condo, the first property that I lived in, you know, California. It was a one outlier at the time.

and, you know, housing prices there had recovered since 2008, 10. And this is probably 2016 now. And it just felt like our tenant, the long-term tenant that we had put in there from the time we moved to Southern California, she was leaving. So it felt like a right time to do it. So we did 1031 that and into a, I can't remember, a duplex or a triplex. So we took advantage of that probably twice. I think we took a single family and we also used 1031 into a triplex.

It wasn't until we heard a bigger pocket money, no, not the Money, the Bigger Pockets Real Estate podcast where I think you had Kathy Fetke from Real Wealth Network on and then you had another one with Joe Fairless, Ashcroft Capital, and that I learned about these other passive routes. So at that point, I think we had just maybe hit over one, one and a half million in net worth. So we qualified as a accredited investor. So we got on calls with the various people at the company. I think I spoke directly to Joe at the time and kind of just felt them out, you know, to understand what they were about, what their company was about, where they're investing, what their strategy was.

And I think it was a lot like what you guys covered in the money podcast you guys did on syndications recently, and I can't remember his name off the top of my head. But, you know, I think Mindy has found that for us.

That is Jay Scott, episode 219 of the Bigger Pockets Money podcast. You mentioned Kathy Fetke. She was on episode 225 of the real estate podcast, and Joe Fairless was on episode 227 of the real estate podcast. So you can see, I live, and I live by your voices in my head. Like, all your guests, I've reached out to you and I've touched, you know, touched face with them because I just, you know, I found the passive side to be so interesting because our work life is already so busy.

We have three kids. We're running around, you know, the scout meetings and like swim practice or this and that, that, you know, adding in the remodeling and things like that just got to be too much for us. So we started off with small amounts. I mean, the minimum required with each of them into one project, just to see how it went. And so I think with Joe Fairless, it's been since 2016. We've been with him and we've grown our investments with him. And now we're at about 1.6 million in syndications. A lot of that, about 600,000 of that came. from the equity of the sold rental properties.

So we were able to 1031 our rental property proceeds into DSTs. They don't earn quite as much as the other syndications, but it gave us a way to avoid taxes and still be in real estate to hedge against inflation and be hands off and get regular cash flow and then hopefully appreciation at the end. I love it. Thank you for sure. sharing that with us. We can go back to this. I think it's super valuable for folks when we have someone, you may have the highest net worth of any guests we've had so far that we've done

on the Finance Friday. So I think it's really valuable to hear the story of how you got there with this. So thank you for sharing it. I mean, I think some of it's luck. I know, I know we don't say it's all luck, but, you know, we invested on the West Coast where equity just is, you know, It just really grew over those five or six years, and that really helped out. It's luck and it's taking action. For the last 10 years, I've seen a lot of people poo-pooing the West Coast as a place where you can't make money. But I see millions of dollars in net worth here generated from West Coast-style investing. So I think that's the old appreciation versus cash flow game, you know.

And they've been saying the West Coast is overpriced for the last 30 years, right? I mean, this is, you know, we talked to one of our longtime forum posters, Jay Heinrichs on the forums was like, oh, yeah, it was overpriced back then. I still bought a bunch of property. And so I think that there's something to think through there. You can't bank on appreciation, but you can't ignore it as a potential factor either because it may cost you millions of dollars and opportunity cost with that. So thank you again for sharing that. And congrats on all the success here.

Let's go through your income statement and net worth statement here and understand the position and then figure out how we can help you with that. So we just talked about income. we've got the about 14,000 in after tax income from both the jobs, and we have about the 6,000 incremental on top of that from the syndication investments that you're saying is about what you can pay the cash flow from those at. I think I have it as 17,000 on average. So we have 4,000 from my husband that I see in the joint account.

I don't know how much extra he takes home. And then I have 7,000 for me and then 6,000 from the. the, oh, is that, are you not counting the cash flow from the syndication? Nope, thank you. That's perfect. 17,000 and after tax income or spendable cash flow is coming in each month is what I've got. Is that right? That's right. Yeah. Okay, great. I think I misspoke on the, on the 7,000 each.

Okay. And then on the expenses side, how much are you spending? And is there anything that we should look at there? This side is going to seem heavy and large. So here we go. Our home, this is, everything is escrow, so this is pity. Right, 3,200. We owe about 545,000 at 2.8 or 2.9%. I do have a Tesla.

I know I might get some hate for that. And that's 1,200 a month. We decided not to buy it outright because the interest on that is 2.5%. And I owe $68,000 on it. Groceries, we probably spend about $12,000. $1,200 a month, daycare for at least one more year. I have a two and a half rural is $1,200. Utilities is a little bit on the high side.

We have $500 pegged for utilities because our electricity bill is so high. We have kids' activities at $400, restaurants, $250, car insurance is $250, home maintenance, $300, Internet and mobile, $100. and then the rest is kind of small. I mean, we've got some subscription things maybe at $100, $150. And so what is that total to? When I look at, that's the hard part. And this is why I'm not sure if I can pull the trigger when I want to,

because I feel like our monthly expenses fluctuates so much. Like we might have like a home project where right now I'm putting in a patio cover and that's going to cost me, you know, so many thousands of dollars. But that's not normal. And that's just like that one month or I painted the house and that was $3,000, you know. And so I can't look at every month and say this is how much. But if I had to average it out, I think $9,000 is fair. Okay.

So you are spending $9,000 on average. But again, let's go back to that income. Are you bringing in $3,000 a month? No. You're bringing in $17,000 a month. What do we say, Scott, spend less than you earn. You're spending $9,000, which seems like a lot if you just make that statement. But then you bring back that I make $17,000.

Well, you're still spending way less than you earn. So could you cut your expenses? Absolutely. You don't need a $1,200 a month car payment. But can you afford a $1,200 a month? car payment? Absolutely. That's my mortgage payment. But that doesn't matter because you're fine. I'm not making $17,000 a month. So that's okay. Your expenses are personal to you. And I saw this. I'm like, without context, I saw your $1,200 a month in car. What is that? So I added it all up. I'm like,

well, if she got rid of the car loan in the daycare, she'd be at $5,500. Well, when you get deployed to overseas, are you going to take your car with you? You probably aren't. Although, I don't know, can you? What side of the road do they drive on there? Daycare might go away. If you can't work over there, maybe you stay home with the kids. Maybe you sell the house and then you don't have the mortgage either. Like your expenses are fluid to look at your expenses and say you have $9,000. Well, what's, okay, what is it 25 times your expenses? So 25 times 9,000. Oh, wait, no, I'm doing this math wrong. 9,000 times 12 is 108 times 25 is 2.7 million. And how much do you have? More than that. So you've made it. It just doesn't feel like it. Like I look at our accounts

and I'm not sure I can feel the growth every month. It feels very risky. We do have some in brokerages. And I don't know if, you know, we should keep them. there, especially if I decide to retire early, because I don't really get the whole pull in a 4% and paying yourself. Like, it's easy for me to understand it through syndication. I get the check in the mail every, you know, the rest of it is still sort of earning. It's still compounding on itself because the, the GPs are doing their work to improve the property.

And so there will be this big capital event, hopefully, at the end. but with stocks, I feel like it's so risky. Well, past performance is not indicative of future gains. But look at where your income is. Let's take your income out of the equation. We've got your seven. We're just going to throw that away. Now we've got Hubs 4 and the additional income of 6 from the syndication, 4 plus 6 is 10.

That's still more than you're spending at 9. You're not going to be able to add a roof on the back porch or whatever you said every month, but conveniently you don't have to do that every month. You can't paint the house every month for $3,000 because you're only going to have $1,000 left over. But with those numbers and this $9,000 a month in spending, you can still save $1,000 a month without you having to work. So based on these numbers, without cutting anything, you can keep all the things. things you have and still retire because your passive income has and your husband's income

has is more than what you're spending. Now, if your husband were to retire too without any source of income, you would have to change your expenses because spending $9,000 a month and having $6,000 a month coming in means that there's $3,000 a month going out. You would have to make that up somehow. You could very very. easily do that through your investment portfolio, which is still, which we haven't discussed yet. I am jumping ahead. But there's a lot in the stock market that you have. So I don't see a way that you are doing bad or that you could not retire today in any one of these options. But I'm getting ahead of ourselves.

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Employees also have the opportunity to grow their skills and their paycheck by enrolling in free skills training programs for in-demand fields, like software development and information technology. Learn more at aboutamazon.ca. Well, let's go through the investment portfolio. Yeah, let's go through the investment portfolio next. So we know we're spending nine and bringing in 17, which is great. That's more than almost a 50% savings rate, which is, you know, fantastic.

And you just think that for a long period of time, it sounds like. So assets-wise, we have about $590,000 in brokerages, $110,000 with the stock purchase plan or work purchase. plan. So I don't get a discount. I've heard you say something about folks getting a 15% discount when they buy. I don't get that. I just don't get charged a fee to buy. Some of this, that stock purchase plan was grants. So they were at half the strike price, but our company has not done as well as I would have liked them. So it's 110 there. My 401k, so I didn't realize we had a Roth 401 until a couple years. We may not have actually even had a Roth until a couple years ago. So I have a total

of 956,000 in my 401. Of that, 40,000 in the Roth 401. So I've kind of changed my assets or my deductions. I still put a little bit towards the 401K, because the traditional, because I felt like I needed the tax break. And then, you know, I didn't have anything in Roth. And so I contribute to with the rest of the percentage. Our company matches dollar for dollar up to 6%. So that's where that one is. So like I said, syndication is about $1.6 million. I do some peer-to-peer lending at $25,000.

We still have about $200,000 in cash to deploy, which some of it would be our reserve, but that's more than we need for reserve. and so I'm very anxious about the fact that we've got so much cash sitting underutilized. So our primary home, we do have equity in it, even though we owe 500-something. We have about 300,000 in equity here. We own a rental home in Alabama, and we have about 50,000 equity there. And I didn't even talk about the cash flow from that.

It's like $500. So like I said, that goes into our business account. we don't see it. It all just kind of compounds on itself if we need to pay for something comes out from the business account. So I don't really even consider it. And then the military pension, I said it'll kick in in about eight or nine years. And he thinks it'll be around $3,000 a month. My work pension is tiny because they quit contributing to it a few years after I started working.

So that's only at $43,000. I have an HSA at 40,000 because I can't contribute to that anymore either since we get the military insurance health care. And so you can't double do it. And then we have a 529, which is at 43,000. And we have a GI Bill that we can hand down to one of the kids as well. What do you pay you that net worth at? I can't calculate it that quickly, which is a good problem.

With this. So what do you peg it at with all those items? Personal capital says we are almost four million. Okay. And then your pension, which is going to be 36,000 annually and governed, guaranteed by the federal government. It's a federal pension, I imagine, military pension with that. You know, let's call that another million dollar asset that will be realized in eight or nine years with that since it's essentially an annuity at that level. with that, although maybe it's worth less than that today because you can't access it, but in 90 years it will be worth an incremental, probably $1 million. I would, that's my back of the napkin.

He does have a railroad pension. $4 to $5 million. He's a railroad pension at 401 there too that I don't count. Again, a lot of his funds, I don't really count. They're a little bit smaller, and I don't know that it makes a huge difference to our bottom line. It doesn't send it to me. So, Scott, I know you're going to make some really amazing point. Before you do, I want to point out that his military pension is $3,000 a month and your syndications

currently are $6,000 a month. That equals $9,000, which is your current expenses. Which is another way that the math adds up to say you can retire. Now, Scott, make your brilliant point. Well, I think this is really. interesting, right? Because, you know, you have, you have soared past the finish line for what I think a lot of folks would set their financial goals at with this. And I know, based on what I'm talking to you with this kind of stuff, that most of these assumptions or many of them are conservative

valuations. Like that 1.6 million you have invested in the syndications, that's what you've invested in the syndications, I bet you. Not what they're actually, they've actually accreted to if they've appreciated in value with that. I bet your home, home, at least. assumption is conservative. I bet your rental property valuation is conservative with that. You know, I bet you that you're not even counting certain assets because you're, I'm just going to use that as padding with that. Is that accurate in terms of the conservatism in your position? Yeah, but that's because I feel like it fluctuates so much. Like all of that is funny money

until unless it's, you know, I don't know, cash flow hitting, like it's that old mentality, right? Of that W2 that hits your account every month, It's reliable. You think it's reliable. It's just, it's consistent and it's there. The, like our brokerage is fluctuate, right? There could be 500,000 on a, on a bad red day when like COVID. Oh, variant hit and oh, my gosh, right?

We lost 100,000 in a day. Or one of the syndications, you know, the hurricane hit the apartment building and they never cashed. Well, I think it's, I think it's a fascinating. like psychological challenge. We talk about the four levers of personal finance, right? We have spend less, earn more, invest, and create. Right. And what I think is, is fun or funny in your situation, like the challenge is that the

earn more lever is very irrelevant at this point relative. It's ceasing to become the relevant option, right? When you start off, it's how little do I spend? Then it's can I maximize that earning potential, you know, for, for, many who start from that median spot. Then as the investments pile up, that investment approach means more and more with that. And then there's always an option to create

or start businesses with that. What I'm seeing in your situation is you're bringing in 130k, 140 annually pre-tax, and post-tax, that's probably what, like $90,000 in cash with that. I mean,

your portfolio at $4 to $5 million at a 5% yield on that is going to bring in $200 to $250,000. So it's more meaningful to manage your portfolio by a lot than it is to bring in active income at this point, which I think is a challenge. And it's, you know, and what is that? You know, there's going to be good years. It's going to be bad years, you know, with those types of things.

It's going to fluctuate, as you pointed out. But I think that's the lever, the lever is changing on you. and maybe you haven't even noticed it or thought about it quite that way with the past. But that's, I think, your reality right now, great problem and create a situation that I'm comfortable with. Right. Yeah. I don't know that I'm comfortable.

I'm not comfortable with this whole situation. I'm very nervous. I think, you know, Mindy, I hear you talking about your husband who is reluctant to pull the trigger even when you guys knew you could afford to do it. And we've talked to a financial consultant. And they're like, you can do this. but we thought they meant you have to sell everything to be able to do it. And, you know, we're like, they just don't understand a situation.

I won't know if I can do this until I talk to Scott and Mindy. I live in a very weird, fie bubble. I live in the same town that Mr. Money Mustache lives in. People come into this town. People move here to live near him. I live by a bunch of fie people. And it's sometimes hard for me to remember that not everybody has this huge reinforcement community, but all of my friends are unemployed.

Like I know so many people who have reached their position of financial independence, have left their jobs, have continued their finances continued to grow, their investments continued to grow. some of them have a spouse with a job. You're in a really great position right now. My husband calls himself wife-fi because his wife still work. You are hubby-fi, we'll call it that, because your husband will continue to be able to generate income. I have friends who they have both quit and they have gone and traveled.

Go back and listen to episode 55 and a half. with Bryce and Christy from Millennial Revolution. They left their jobs. And I think the next day the stock market crashed or something like that, they had a horrible set of circumstances immediately following their retirement. And they were able to weather the storm through their cash cushion and yield shield and something else that rhymes. But they are able to easily explain how they did it.

and they also tested their portfolio over the course of three years before retiring. They're like, okay, we're going to keep making all this money, but we have enough saved up. We believe we're going to start withdrawing from our portfolio. And we truly can live off of it. I have a friend Todd, he lives up the road, and I'm going to have him on the show to talk about life after retirement because we don't really focus enough on that topic. And it is difficult to make the transition from, I have a job and I'm saving for FI to, what am I going to do?

I mean, you make really great money. We didn't applaud you for your fabulous salary. Now you're willingly leaving that. You're just saying, I don't want to make money anymore. I'm going to quit. And that can be tough. It took Carl a whole year to come to terms with that. And then when he quit, two weeks later, his entire job was canceled.

So if that had happened two weeks before, maybe he wouldn't have been as comfortable with it as when it was his choice. But you've got a really great set of circumstances in like several different viewpoints. I don't see your situation as a bad one, although I do have a question about your syndications. currently they're sending you $6,000 a month. Are these long-term hold syndications, or are they value add and then they're going to sell them? It's a variety. So what happens when those syndications sell?

What are your plans to do with that money when it sells? It's becoming harder and harder to find a good deal. So are these syndicators now, like they used to promise 14% returns, and now I'm seeing a lot of eights and sevens. And some of these deals, you're like, why are you even buying this property? This looks like a terrible investment. And, you know, some of these syndications are,

and I haven't looked at anything that you've mentioned. Like, I'm not currently investing with Joe or Kathy, so I'm not like talking smack about them. I don't know anything about what they're offering. But the ones that I'm seeing just aren't, don't seem to be that great. So what are your plans to remember? replaced that $6,000 or whatever part of that isn't currently going to be held long term.

It's kind of interesting, actually. So the $6,000 is what we currently bring in. But like I told you, when we sold our properties this year, we pushed a lot of those proceeds. The ones that we didn't 1031. So we decided to pay cash on some of the properties that we didn't own for as long and didn't make over. If we didn't make over 200 some odd thousand on the sale, we decided to eat the tax on that so that we could put it into syndications, which would give us a better return than the DST type. So we have two big ones that are, you know, they're more stabilized properties. The DSTs earn us four and a half, five percent, nothing great. And their tenure holds.

We just started. So we have a long runway with that one still. And then the other ones are shorter, anywhere between three and five year. And we've been, we started almost five years ago. So actually, we're just starting to reap the benefits of those capital events starting to come in. And with some of the syndicators, they've given us the option to roll it into the next deal, which have been on similar terms. So fortunately, or they've actually created funds. and, you know, we're kind of split between, like, because we know we're retiring early,

we want the cash flow out front, so we get the 10% cash flow as opposed to the lower 7% with the potential of the big earning of the capital event on the end. So we split our funds between those different options. But, yeah, I mean, so I said he's sticking. thousand today, but again, we have been investing throughout all of 2021. And so that means that some of them actually haven't even started to cash flow yet. So in 2022, I anticipate another bump of maybe two to three thousand more in cash flow from the investments that we made this year that will start to show up next year. And then we really, we won't see those capital. We may see one or

two capital events, you know, every year kind of because of the staggered timeframes on all of them. And we're with private syndicators. We're with different platforms on, you know, the different, big platforms that you see, equity multiples and realty moguls and portfolio. So that's the plan so far. Is this where I get to say, I told you so on the, she's being very conservative with the estimate she's putting in, from her syndication portfolio. I'm going to point out, Scott, how... No, perfect. I'm going to point out to you, Scott,

how easy she is able to rattle off these answers. She seems like a researcher or a numbers nerd. I bet she's got spreadsheets for date. I'm not as great as I'd like to be with the spreadsheets for sure, but because I am just a warrior... Oh my God, how good do you want to be? I worry about these things so much. I'm like your husband.

And I look at the charts every day, the stocks every day, even if I'm not going to trade it. I know daily where my stocks are. Good. Good. If you enjoy that, good. It's partly a sickness, I think. Let's deal with the immediate future. Where are you moving to Europe?

That should be August, so this summer. Okay. So you're moving to Europe and you can't continue your W-2 job when you go to Europe. Yeah, there's not the option to work. Yeah, to me, I think this has been a great discussion, and I think we've learned a lot from you. But I think the path forward that I'm seeing here is incredibly straightforward with this. You guys, the best thing that you guys can do right now, in my opinion, is map out what it's going to cost. How long are you going to live in Europe?

He's there for a school. So it's not that long, six, seven months. But I would like to turn that into a year or two to give the kids an opportunity to bounce around Europe and learn history firsthand. Great. So I think the best thing you can do is say, I'm going to construct my, my, you've very detailed understanding of your current expense profile. What's it going to look like when you go to Europe? Are you going to sell the home? Are you going to sell the car? Are you going to do that? What is your expense profile going to look like? And how do you have plenty of padding so you can go, you know, and see all the things you want to see, whether that's the Louvre or, you know, travel around and hit 15 countries while you're, while you're there, or go to sporting events. I would want to see the Rugby World Cup, which will be in 2023. So like in France, you know, so like that those would be things that like I would put in place, you know, and go through. And that exercise will tell you a lot. It probably will be around the same cost as your current lifestyle expenses with that.

And you don't have a choice because your current job is not going to allow you to do that. And it's in terms of keeping your current job. Like, and with what we've kind of discussed today, why not take? the six months and take a sabbatical, right? You've had a what sounds like a very continuous career here for a long period of time. If you decide to restart your career six months after taking a sabbatical, no one's going to bat an eye about that. I went to Europe after working for 15 years of my previous jobs and then tore around with my kids and while my husband was deployed there. That is a wonderful thing to put on a resume, not a detractor from that. And you can

always go back to the job. But I think what you'll find is that managing your portfolio during that period, well, you'll realize just how irrelevant, it's not irrelevant, but how much less relevant the earned income from your job will be compared to the increasing levels of sophistication. I am sure you will continue to apply in your free time to your investment approach with these syndications and other things with that. That's a better allocation of time. building your net worth anyways and probably mostly passive. But I could see your housing expense dropping to a large degree or staying about the same. I can see your car payment decreasing substantially during that six to seven months.

I can see the cost for child care declining unless you choose to do that in that period. And you may not need anywhere near that $9,000 to fund that. that. And then second, I don't mind you having 200,000 in cash at all on that. That's 5% of your portfolio, right? So it seems like a lot of cash, but that's like, that would be the equivalent of someone with $100,000 in net worth having $5,000 in cash, right? So, you know, I don't, I don't actually think that that's a crazy amount to have in cash. You can always drop it to a certain degree, but, you know, with what you're doing here, that could be a responsible choice, especially as a syndication investor, you might want to look at some of those opportunities

as they come up from time to time and have some of that on hand. So how's that for? That's certainly the struggle. As I get to my last couple hundred and a thousand, I get opportunities that come through the inbox and now I'm much more careful with how I allocate it because I feel like these are my last few choices, at least for a while. Or, you know, buying another, sometimes I listen to your bigger pockets real estate podcast and I get the itch to get back into the game. And I think, oh, you know, I should have a bigger nest egg. And then I look at my 401k and I think, well, that's just sitting there. And I don't feel like that's necessarily doing me a huge favor. You know, maybe I should be making better use of that. Here's another, another fun one to consider.

and why, again, evidence that maybe even more application in that you're actually going to build more wealth by leading more, you know, if you were to stop working for this six months and spend half of that time, 20 hours a week, just getting more advanced with your approach here, here's one mental model. I don't know if this will work or not, but something to explore. If you become a real estate professional, you know, by meeting that minimum requirement, syndications often have huge losses in the first year. that's by design, right? So if you're investing in syndication, and you, let's say you get a bunch of money back all at once, and you plow all this into syndications, and they do a cost segregation analysis, sorry, this is a very advanced episode, and I can't go over all of these terms, but cost segregation essentially allows you to declare a lot of depreciation for those listening on this.

So you invest, let's say you invest 400 grand in syndications that do these cost segregation analysis, and you have a loss of 500 grand on your tax return that year. That is a great opportunity, and you're a real estate professional, to move a lot of that 401k money out and into a Roth. That's a great opportunity for a conversion of that type with that. That would theoretically be, potentially be possible. We'd have to talk that as beyond my expertise. I've never done that. So that would be like where an advanced tax counsel could come into play.

But those are the kinds of things that might be really interesting to you over the years if you wanted to move that money from like the 401K to the Roth. You can have a year. Great. my tax return is going to show a negative $500,000 loss. I traveled to Europe, didn't earn any income. A husband still earned income. I got some syndication income, but that was way offset. And now I've rolled 300K into that.

Those are really advanced tactics that I think may apply to your position with this. And then once it's in the Roth, can I invest? Would you recommend to invest any more into real estate? I'm probably almost 50-50 with equities. and real estate, but if I convert the 401k money, then I would be leaning a lot heavier in real estate. I think you can answer that question for you much better than I can with that. I think, you know, there's a point to grow and there's a point to diversify, and you're probably leaning into the diversify point because you're like, I want to just sustain this for an indefinite period of time

with a huge margin of safety with that. I think you can do that to a large extent. So it's whatever you feel is a very comfortable, diversified portfolio would be my guess. But yeah, I think that that makes perfect sense. If you have all the stuff in syndications, keeping all that disproportionate in stocks would be a logical move on the path of diversification. I'm going to lean on my attorney and say, 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 this specific one, because there is the potential for an enormous benefit and tax deduction and depreciation versus income and neither of us are CPAs, this is where spending even

$10,000 on a CPA to get advice to be able to make some $500,000 move that saves you hundreds in taxes, thousands in taxes, this is a really good bit of, that's money well spent, in my opinion. So I would say if this is something you're considering, and I know you're going to do your own research first, if it sounds like this is something that you're going to be able to do, talk to a CPA before you make your big moves and have them give you advice on how you can structure that best so that when it comes time to make that move, you reap all the benefits of that particular tax deduction, depreciation, whatever. I don't even know the right words.

D word. Absolutely. And by the way, I am by no means telling you to do that. I'm simply saying options like that may be available to you, and they will help you build your net worth after tax potentially far at a far, with far greater leverage than your day job based on your overall position at this point with this. And so that's just the framework is that lever of learning about managing your investment portfolio, which you're already good at, but becoming a master is probably a better use of time than working

your day job at this point, based on what I'm seeing here. The options like that may become available to you. I think that's a really great point to bring up, Scott, is that this, if you are invested in these syndications and you're doing all of these like big depreciation moves or have the opportunity to do these, you could have a huge tax. advantage to swap that out. But yeah, definitely talk to a CPA. I have a question for you regarding your car and house while you're in Europe. When you said you were going to Europe, I thought this was going to be a long-term thing, but one year definitely isn't a, oh, you should sell your house

kind of thing. I thought it was like four years. So with one year, what are you going to do with your car and your house? Are you going to rent out your car on Turrow and put your house on Airbnb I considered. I have floated the idea with my husband. Not so much Airbnb, but with the traveling nurses, because we did short-term rentals in the 90 days. So I liked that idea. My husband's not as comfortable with folks being in our house with our things. So I'm still working on him. I'm working on him for those angles to reduce our expenses while we're out. And, you know, Now that we're even talking about it, I mean, I wouldn't be opposed to selling my car for the time being and just kind of picking that buck up when we got back depending on, you know, maybe I downsized. I have the biggest one right now, the biggest and most expensive one. But that was because we're settling things around to the rental properties in addition to the three kids. So I felt like I needed the bigger one. And maybe I can get the more, you know, more cost effective one when we come back.

I can reduce, get rid of that payment altogether while we're gone. I'm going to give you another research opportunity and say that car, there's that chip shortage and cars are becoming a little bit more accessible, but they're still really difficult. Carl talks about Tesla all day every day, and he said the wait list is now 12 months. So perhaps you sell the car when you get ready to go, but put yourself on the wait list now. That's true. and just, you know, keep putting yourself on the waiting list. It's like $100 to get on the waiting list.

But it is a significant wait. So be aware of that. I don't know what Turro's policy is. I know that they are very, very, very careful with the cars and they take care of their owners. At least they have in the past. Craig Curlap was on the show. He rented out his Prius. And somebody, he's like, this is going to be my last rental.

And then I'm just going to take it off Turrow. and then that last person trashed it, got in a huge car accident and totaled it, and they gave him a lot more money than it was worth. I don't know how that works with Tesla because they have their own special insurance. So definitely a research opportunity, but I know that Teslas are desirable. Maybe you know that too. So you could make a lot of money and then keep it when you get back, keep it until your new one comes. Yeah, that's a research opportunity. I think he might be more open to us renting out the car.

as opposed to the home. Do they have to pick it up at your house? No. Oh, yeah. I mean... I just want to point out here that we do need to focus on these because they will be meaningful to your Europe trip and potentially your retirement plan in general because half of your current expenses, half of the $9,000 is between your mortgage and the car payment

and then utilities another $400. So if you don't rent out that house and offset those costs, You've got to generate an incremental 3,500, 32 to 3,500 per month in order to cover those costs with that. So this is where being military also may help because it is a, they're moving us there. So they will pay for housing. So that would help cover housing costs that you leave behind. Okay. So they're going to cover housing costs in Europe.

We've always tried to take advantage of still paranoid. down so that we can pocket as much of that as we can so that we're not furblously spending it. But, yeah, it's been a tough sell to him to. I mean, I was thinking even maybe we have a detached garage, maybe we can rent out just, you know, a storage space or something. But I'm on, I'm on the same page as you. I feel like we should be doing something with this huge expense. I've seen you can rent out your pool. Yeah, you could rent out a lot of spots. Get a storage. I think that's right. And I think it's like I think it's fair to say, hey, you know, I don't want somebody sleeping

in my bed or on those types of things. So you could always hire movers for two, three thousand bucks or whatever that costs both sides of that, you know, and then put it into self storage or into your garage, reset it with with something that's really cheap. It just depends on how long or how far you want to go with that. If you're only going to be gone for six months, then that doesn't make sense. But if you think this is going to set you up for, a long-term retirement, you want to be there for two years, then that's probably a very good move

to do that kind of stuff. And you can probably furnish the place lately, you know, or there's probably some combination of things you really don't want the tenants to deal with, some things that you're fine with them using and some things that are in between with that. But, you know, that is a big, I think that's probably a 30 to $60, $70,000 decision. Yeah, I agree. with that in the car. Yeah, I would, I would lean towards showing him the stark numbers. Hey, this is how much it's going to cost us to leave this house bare. This is what we could generate.

And, you know, let's say you have a five-bedroom house. You could lock one bedroom up with all the good stuff and just put a big lock on there so nobody gets in there. And then you've still got the rest of the house. It's nice. They can take care of it. I haven't heard too many horror stories about traveling nurses being slabs. I've heard a lot of really nice stories.

They're just there to sleep. They go and they work and then they leave and they go to another place. And they're just there to sleep. It's not like you're renting to. And it's a nice area. So it's going to be you're going to generate a different type of tenant than a tenant in a like a a rougher neighborhood. Yeah, it would be interesting that.

I mean, certainly either be rent by the room because there are five bedrooms or four if we used one for storage, or it would be a traveling nurse with her family, you know, his or her family, not to be gender bias there. So, yeah, I don't know. It just seems like an odd unit to rent because of the size. Well, and you don't know exactly how long you're going to be in Europe. You would hate to rent it out for a whole year, get to Europe and be like, ooh, we're leaving as soon as we can.

Right. Okay, this one ran really, really, really, long, but I think we covered a lot of really kind of high level. And everybody considers this level questions. Like there's a lot of people who are like, ooh, how am I going to retire? How am I going to pull the plug when I actually get there? And people are along the journey saying, oh, as soon as I get there, I'm going to pull the plug. Once you get there, it can be very, very scary and it doesn't matter how set you are,

how qualified you are. If your number is one million and you get there and you're like, maybe two million would be better. You get to two million and many three million would be better. It's called one year, one more year syndrome. You can always work one more year. They'll let you. You can always work one more year. But when you quit, I am going to look into my crystal ball, which is also a hindsight ball because my husband said this three years ago when he left. I wish I would have done this sooner. I bet within six months, you say, I should have done this sooner.

And that is fine. You need to get to the position where you are comfortable retiring because I can sit here forever and tell you, I think that you are ready. I think financially you are set. I can say, I mean, if I was in your position, I would say, I know I am financially set. I'm not going to say that to you because the contents of this podcaster is traditional in nature and are not legal or tax advice. I don't see any way, unless the entire world just blows up because the sun explodes. I don't see any way that you are going to fail in your retirement with the systems that you've set up.

but you have to be confident to. So I think we've covered a lot of things. I think a lot of people are sitting here saying, I get it, I get what she's coming from. Other people just starting on their journey, you're like, what is she talking about? She already has $4 million. She's fine.

But they're not you. It doesn't matter what they're saying. All it matters is you. So you and your husband need to have a money date. Have a conversation. Talk about it and put all of your money to the side and only spend it. And see that it'll work. Test it out.

And then three months. And that really helped, you know, just to talk through what the 4% rule was. You know, like for the longest time as you're going through the journey, you get good at the savings part and then you get good at the investing part. And all of that, like I get it and I'm rolling along and I know how to do that. But then you get to the closer to the end state or what some people might think is the end state. And you're like, but I don't know how to do this part. And it may seem like it's like a natural. well, if you have the money, you spend it and you go.

But how do I access it? How do I spend it without overspending it or, you know, doing it to my detriment? And then I've got nothing for my kids or, you know, at 60, I need to go back to work and that kind of thing. Yeah. Yeah. Our net worth has increased since we retired. And yes, I have a job. We haven't been pulling out of the funds.

but our net worth has increased a lot since he retired. Did I say since I retired? I meant since he retired. I still love a job. Yeah, I was going to say, hoping that there was no news today. We can't handle any more news. Hey, Scott, let's talk after the show. No, our net worth has increased rather significantly since he retired.

And it isn't, you know, the stock market has been going crazy. Yeah. And I just, I have a lot of faith in Bill Bangan and his 4% rule. I think we've kind of covered everything. I want to hear back from you after you no longer are employed. Yeah, certainly. And see how it worked out.

See how you came to terms with the, the separate. see how see if you took my suggestion to put your money to the side and see if you could live off of without your funds and see the results of you and your husband's money dates and just all of the things i'm very excited for this right yeah me too so a few more months and i'm nervous but i'm excited too nervous excitement okay well that's awesome so we'll check in with you in with you in three to six months. Okay. Okay, great.

Thank you so much. This has been a fantastic conversation. Thank you. Yeah, this has been a lot of fun. Yeah, I appreciate it. Okay. Okay, that was Jen and her amazing story. I want to, as you were talking in the intro, Scott, I thought to myself, you know,

we should have a discussion in the Facebook group about all of these terms. If you are listening and you have, you're newer to the site, you're newer to the show, you're newer to some of these concepts, ask some questions in our Facebook group. Hey, what does DST mean? That stands for Delaware statutory trust. I don't really know anything more about that except what it stands for, but it's some sort of advanced investment strategy. And I will start off the Facebook group conversation by saying, hey, what's a DST?

and somebody who's smarter than me can come in there and tell me what it is. So if you have a question about today's show, please hop in the Facebook groups, Facebook.com slash groups slash BP money. And let's chat about these high-level investment strategies that Jen is doing. All right. Well, we weren't really long today. So Mindy, should we just go ahead and get out of here? From episode 264 of the Bigger Pockets Money podcast.

I am Mindy Jensen and he is Scott Trench saying, be sweet parakeet. Thank you.