BiggerPockets Money Podcast - 336: Finance Friday: Six-Figure Passive Income in Just 4 Years!

Episode Date: September 16, 2022

Becoming a millionaire by 30 is almost every 20-or-something-year-old’s dream. But what if you want to go even further? Instead of seven-figure net worth, what about an eight-figure net worth? Would this be enough to make your wildest dreams come true, or is planning for ultra-wealthy status a wasted pursuit, as most people could easily retire earlywith just a few million? The question we’re trying to ask is, how much is enough? It’s not Scott and Mindy asking this question, it’s today’s guest, Travis. You could call Travis an overachiever, although he doesn’t have the ego to fit that title. Travis has built close to a million dollars in net worth, with $10,000 of monthly passive income in just four years. He’s done this while working a full-time job and spending just $2,000 a month. If we could give a “You Did It, You Won the Money Show!” award, Travis would be first in line. But Travis is struggling to get his goals aligned with his portfolio. He set a lofty eight-figure goal for retirement, but with his rock-bottom spending rate, is this dollar figure even worth the work? Travis also wants to pose the stocks vs. real estate question, as he’s almost entirely invested in rental properties with very little left in retirement accounts or any stock accounts in general. So what is Travis’ next move? Quit the job, load up on stocks, or keep doing what he’s been doing? In This Episode We Cover Using the BRRRR strategy to grow a large rental portfolio in very little time  Hitting millionaire status by your thirties through smart spending and consistent investing When to quit your W2 and pursue entrepreneurial pursuits full-time Stocks vs. real estate and loading up your Roth, 401K, and other retirement accounts Goal setting and when to take a step back from building wealth  CapEx calculations, cash reserves, and prepaying your mortgage  And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Mindy's Twitter Scott's Instagram Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Subscribe to The “On The Market” YouTube Channel Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets Check Out Mindy’s 2022 Live Spending Tracker and Budget BiggerPockets FIRE Planning Worksheet Ready to Retire: The Ultimate Pre-Retirement Checklist Coast FI: The Calculated Way to Retire Early WITHOUT Giving Up What You Love w/Jessica from The Fioneers Episode 200 Special: A Personal Finance Masterclass with Kyle Mast Click here to check the full show notes: https://www.biggerpockets.com/blog/money-336 Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 336, Finance Friday edition, where we interview Travis and talk about conservatively investing in cash flowing real estate. There's nothing wrong with the $10 million network. But those numbers do seem like you just grab them out of thin air. So I would encourage you to look into the reasoning behind those numbers or create some reasoning behind the numbers and maybe those numbers would change. because if you wait 10 years to get your $10 million portfolio and then you're like, oh, I could have retired five years ago with a $5 million portfolio or a $2 million portfolio

and I would have been just as happy. Then you've spent a lot of extra time working when you didn't need to. Hello, hello, hello. My name is Mindy Jensen. And with me as always is my money savvy co-host Scott Trench. And with me as always is my minty, as in minting new introductions about money. Uh, co-hosts, Mindson. Scott and I are here to make financial independence less scary, less just for somebody else.

To introduce you to every money story because we truly believe that financial freedom is attainable for everyone, no matter when or where you're starting. That's right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business, or figure out what to do once you've won with money. We'll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Scott, I think that this is my favorite episode that we have ever done that didn't feature Kyle Mask as a host or as a guest. He is so good. Travis has a fabulous portfolio. He's a little light on his Roth IRA contributions.

I will say that. But he is in such a fabulous financial position. I love him so much. This was a fantastic episode. And I think anybody listening who, anybody who is interested in investing, in real estate the right way needs to listen to this episode. Yeah, I think that this guy is just fantastic. He 30 years old, he's done.

He's financially independent, way overshot financial independence at this point in time. You know, so humble and so kind of hardworking and down to earth about his position, he didn't even realize it, you know, really until we talked about it today. Oh, yeah, I guess, you know, I guess I am financially dependent by a lot. That was the revelation. Three times over. And it's like, and it's just, it's just fun because he's, he's got all the fundamentals so perfectly dialed in with such low expenses, such low cost of living, such a high,

high work ethic, that after this kind of five-year grind that he's executed, he can look up now and be like, whoa, I have incredible options here. And one of the biggest calls I'll have from this episode is the job is irrelevant. And this is going to be a rare outcome. Not many people are going to experience this. But it's just interesting in his position. His real estate portfolio generates so much more income than his job does today that it makes his job very low relevancy to his position. And it's almost like a must to become an entrepreneur, start your own business when you're in a position like Travis's, which we'll find out as we kind of discuss today.

I can't think of one mistake he's making right now other than the Roth contribution that I already commented on, which isn't even a mistake. It's just choosing to allocate his money in different ways. Yeah, his fundamentals are so strong that it would outweigh any mistakes that he's making because his cash flow generation, his expenses are so low. He self-manages and he does a lot of work himself. I mean, it's just, it's just, he is so conservative in his, in his outlook that he, it just dwarfs any day-to-day mistakes he might be making. Which are few and far between. Okay. Should we bring him in?

Let's bring him in. My attorney makes me tell you that the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor Bigger Pockets is engaged in the purpose. 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. All right, let's talk to Travis. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks,

it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your

Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. every decision actually moves in Edle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets.

I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes. But somehow every small business owner ends up doing it. Your dreams of creating, selling, and growing, get replaced by late nights chasing receipts, juggling invoices,

and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy.

Found has over 30,000 five-star reviews from owners who say, Sound makes everything easier, expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account for free at found.com. That's fowundd.com. Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. Don't put this one off.

Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leen or Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being.

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

Our guest today is Travis. Travis is 30 years old and has a large rental portfolio. He has 33 units across 17 properties. His rentals generate a lot of income, which he currently keeps in the business to fund repairs and new acquisitions. He'd like to retire Fat-Fi level with $10 million in net worth and $30,000 in monthly income. He's got his spending under control at about $2,000 a month, but he's single with no kids right now. Something he'd like to change in the future.

Travis reached out to us to get a reality check on his portfolio. He is super heavy into real estate with very little traditional retirement savings. Travis, welcome to the Bigger Pockets Money podcast. Thanks, guys. So excited to be here. I'm so excited to talk to you. I really love your numbers, mainly because you have your spending super tight. Let's look at what's coming in and where it's going.

You've got a salary after tax of approximately $5,000 with additional random income of about $375 a month. There is additional $15,000 in business income. I'm not going to comment on that for the purposes of your personal statement because that stays in the business, which I want to say hooray for you because it is. is very important to keep your business expenses and your personal expenses separate because otherwise you're not going to know what's a business expense. What's a personal expense? As far as your personal expenses, I love this. You're like, I spend $500 a week. As long as I'm under $500 a week, I'm good. And that's

great. You don't have to go super granular if you don't want to. granular if you don't want to. You've got $600 for food, $450 for gas, $350 for restaurants, $200 for entertainment, $80 for subscriptions. you included $2,000 debt pay down in your expenses, which I am pulling back out because that's a business expense. Church donations of $440 for a grand total that you gave me a $41.20. I'm going to go with $21 because that $2,000, I would like Scott's opinion on this. How do we calculate that when he is personally paying down additional mortgage payment from his personal expense when it's a business expense?

So that's something we'll talk about. I think voluntary debt service is a form of savings or investing, wealth-building, debt reduction, whatever you want to call it. So, yeah, I think you exclude it from your personal spending. And you call it an investment. Okay. Investment. Perfect. As far as investments go, outside of the real estate holdings, you are making $3,000 in annual Roth contributions, which is great.

You are making $0 in traditional IRA contributions and $0 in 401K contributions. I'm a fan of the stock market. I'm going to say, hey, I'd like to see those go up a little bit, but we'll get into those numbers a little bit later. Your current 401k balance is approximately $8,750. Your traditional IRA balance is $13,000. Your Roth IRA balance is about $15,000. But here's the good part. Your rental portfolio value is $1.7 million with about $900,000 in mortgages for approximately $800,000 in equity, which is, you know, okay, or really, really, really great. You can see where the focus has been.

Yeah, on that Roth IRA. Hash savings and liquid investments you have about $40,000, personal investments, you have about $50,000. Your investment grand total is $1.83 million. If I am counting the full value of the real estate, if I'm only counting equity, it is $941,000. There are random debts, credit cards and things like that that are $13,000 that I would love to see you get rid of just because I don't like credit card debt. Your mortgages total, this is the part that gives me the hebie-g-bys, $896,000.

So if you look at that mortgage line of almost $900,000, just looking at you. at that, that's a lot of money in mortgages. However, you have $1.7 million in total value assets, real estate assets, and how much is your, what is your mortgage payment every month, like total? Approximately $5,000. Okay, so you're bringing in $20,000 and you're paying out $5,000. I like those numbers a lot. So that makes that $800,000 a little bit less squidgey. And could you, see what was your monthly income again? So your monthly income is right at what your mortgage payments are, but what are the odds that all 33 rentals aren't going to pay their rent at the same time?

Like, it's pretty low. I think this is, when you just look at the numbers, it sounds kind of crazy, but when you look a little bit deeper, I like what I'm seeing. Thank you. Yeah, and it's something a lot of times it does make me nervous looking at just the debt side of things, being raised a little debted versed. That's a big number. It is a big number, but you also have good income to cover it. So, perfect, Travis. Why are you calling us? So what can we do for you today? I'm curious if I am too much about one trick pony, if I am too heavy into real estate while

neglecting the other asset classes. Yes. Thank you for you. I actually disagree. I think you've got to I got to hear more about this, but my first read is you've got a winning formula here. Something's going right. You've got a tremendous amount of cash flow. Surely you have a significant amount of cash flow in this portfolio, although I'd like to dive into that. And you've got a formula that's winning here. And you want to go from $1 million in net worth today to $10 million in net worth in

some future time period. You can't diversify your way to $10 million in wealth with your income right now. you have to concentrate and figure it out. So that's my instinct in response to your are you or one trick pony. I like it. Correct. Because I've been two years now out of my 401k and my traditional Roth. I mean, I invest into the Roth in my traditional IRAA. The last two years has been nothing. I'm just been focusing all all in one thing right now. I like it instinctively. We'll see. Okay. I hear what Scott saying. I agree with his words. But right now you are what did I say you were 30 years old?

You have a lot of income coming your way. I'm assuming that you are going to continue to get raises every year. You are, Scott, does rental income count against your Roth IRA contributions if you keep it in the business? I don't know the answer to that. I think that, well, it depends. If he's a real estate professional, then yes. But I don't know the answer if he's not a real estate professional. Are you a real estate professional?

I am, yeah, recently as of this past year. So, real estate professional means that you're working in your real estate properties more than any other job. Which is true. Or his job is related to real estate. Yes. Okay. Yeah, yeah. Well, I work more in the real estate than I do my W2.

That's good. What is your W2? So I'm in construction, and I do hardscape, landscape, and actually outdoor water features. Awesome. Oh. Yeah. So I like the job, actually. It's very fun.

How can you give us a little bit of a background of your money story, maybe three, three to five minutes so we can understand how your position came to be here? Absolutely. So I was raised, very debt diverse, like I said. I went to college and was one of the most stressful times of my life, actually, because I seen money going out in loans, but not money coming in and income. So that was a stressful time of my life. Got out and went immediately to work and trying to pay off my debts. I had a vehicle loan. I had college debt. And I went to school for civil engineering. I was in that field, and I didn't end up enjoying it as much as I thought it would. I was good with numbers and management, but it was a lot of night shift, a lot of workload and stress and all this other kind of thing. And I've seen the guys that were older in my industry and I'm like, they weren't, you know, I didn't see that that's what I wanted to be when I was that age. So I started looking into investments and then stumbled upon bigger pockets.

pockets, podcasts, started looking around, like, real estate to me made the most sense with my construction background, started investing 2018, and that got us to where we're at today. Still dead adverse, though, and I'm still trying to pay down those. I would love to have a free and clear portfolio someday. Could you give us a little bit of a snapshot as to how someone who is currently making $60,000 a year from your job, how did you accumulate a million in five years, you know, when you started investing? Very slowly, one rental at a time. I was able to basically use the birth strategy.

Not that slowly. Yeah. Basically able to push value as in just buy value at properties, put that value back in there to bring it back up to market level, pull that equity back out, and cross-collateralize one property into two and a three into four and that kind of thing. So you somehow managed to, I want to call this, conservatively burr your way to a million dollars in net worth. But buying heavy value at properties pulling out some of the equity, but only about 50%. Yes. And now have a very balanced debt to equity

ratio across 33 units at a million dollar. And the properties that I have are paid off. I'm able to actually leverage them multiple times. So I mean, when I put the, when I burr the money back out, I don't actually pull that out cash out refinance. I cross collateralize it. So the bank's able to put a mortgage on that property again until the next one reaches the threshold 20% and then I take that mortgage back off and I'm able to recycle it. Awesome. So you're generating a tournamentous amount of cash flow which allows you to on average pay down debt but you're it you're continuing to buy new properties with the equity in your existing portfolio. Is that is that a good summary? Correct. Yeah. So any point in time I'm not really sitting cash heavy because the new cash community

is either going to old debt pay down or it's either going to new acquisitions. So I am I the what's you call the expression asset rich cash poor like that's my life if you chose if you chose not to prepay any debt and you chose to start taking distributions out of the business what do you think your monthly cash flow could be right now if you stopped if you just started harvesting your profit um with kicking some back for maintenance and repairs and vacancies i would say love that healthy 10 10 000 yeah 10 000 you could you could pull out 10 000 a month from your business right now correct as it says, yes. How much do you account for vacancy repairs and maintenance across your 33 units?

Is that the $5,000 a month? 10% each? Yeah, 10% each, usually. Yes, yes, yes, yes. Just because I've sat on empty units for four months just waiting for whatever it is, if you have supply chain issues or this and then. And I'd rather err on the more conservative side instead of 5%. Now, some of them don't sit vacant at all.

But the ones that do sit long enough that I'd say on average 10 is safe. Okay. So you just said some of them don't sit vacant at all, but on average, there is some. If you plan for 10% and you don't get any vacancy, you win. Yes. If you plan for no vacancy and you get a vacancy, you lose. Yes. So don't lose.

Plan for these vacancies. You have to run these numbers with vacancy and CAPX and property management and all these other things, which we didn't even talk. about yet, do you manage these properties yourself? I do, and working full-time. So that gives me my real estate professional status. So let me ask you this. Well, your goal is to get to $10 million in net worth, right?

Yes. And we're certain of that. You don't like that. Why are you working this job? What's the advantage you're getting from your job? That's a good question. It could be a mindset thing at the end of the day. but health care, that kind of thing.

I have the extra time. Managing these wouldn't take up 100% of my time. I mean, I'd say 20 hours a week on this kind of thing. I enjoy the work that I do. What do you do at your day job? Your construction, but what does that actually look like? So we build outdoor features for residential clients. So like retaining walls, we do decorative ponds, coiff fish ponds, waterfalls.

Stuff like that. More of an artistic flair to it. What would be the, hopefully you consider this as going, if you stop that job tomorrow and started working on, and you were able to flip three houses per year in this area, what kind of income would that look like for you? Fairly similar. Three houses a year. Margin on a flip year, maybe be a healthy 20K, sometimes more, sometimes less.

How many would you be able to do? Probably three to four, depending with the guys that I have now. The teams that I have now. Now, if I was doing that full time, though, I could scale that a little bit more. Okay. I want to jump in here and say, how are you going to purchase these properties if you don't have a W-2? One of the things that I see a lot of people posting in the bigger pockets forums is, I just

quit my job. I can't wait to start investing in real estate. And I'm like, go get your job back because you're never going to get a loan. That's another big reason. I'm very loanable right now as it is with the job. And I'd be nervous if there would be kind of a slowdown period where I wouldn't be loanable for a little while until I had a track record back up again. That is, yeah.

So I would, it sounds like you use the same lender. Well, actually, it doesn't sound like that. I should ask you. Yeah, I do. Do you use the same lender? I would talk to them now while you still have a job and say, hey, this is what I'm thinking about. I would like to continue to do this real estate.

You can see my portfolio. I'm super amazing at everything. I don't even need Scott and Mindy's help. But I also am considering leaving my W-2 job, which makes me unloanable, what are my options? And they can say, hey, we would never give you a loan, in which case you know not to quit your job. Or they would say, hey, we've got 47 different products here. Here's all of them. And that could like help guide you because when one of the questions you had was when should I leave my W2, whenever you want because you are there. Like,

you have the income from the business to cover your expenses, which are nothing, plus cover all of the business expenses and still have money left over for more acquisitions. Correct. Correct. My instincts are screaming here. There's four levers. Spend less, earn more, invest or create. Right.

And from everything about your situation is saying, why are you working this job? That's the immediate thing that comes in because you're making way more money. You're making twice as much money in a more tax-advantaged way from your rental property portfolios you do from your day job. So your lender, you're almost certainly beyond conventional loans at this point. Is that right? Oh, yeah. That was, yeah, that was a few years back. Great. So your lender is, if they're, if they're smart, is not going to care about your personal income the same way they're going to care about your business outcome. You have,

what we can see is, for my seat, is a very well-capitalized, conservatively run portfolio with a tremendous amount of prospects here. And you're going to make more in your first year after leaving your job, doing your own thing on. entrepreneurially, by a lot, probably. And your second, third, fourth, fifth year, you're going to earn way more when you figure this thing out. So I think the instant thing that's popping out to me about your situation is stockpile some cash.

So stop paying down debt for like three to six months and build a reserve of 50K plus, because you're going to want that for your first, whenever you, whenever you do decide to do something entrepreneurial full time. Right. You can look for other work. But it sounds like if you're making, I imagine you're not going, you're not working a job that you could be making 20% more if you went down the street for the next thing. I think you're probably max. No, it would have to be something I enjoy. Yeah. So I think you're going to have to do something. I think that from an income perspective, if you want to get to $10 million, it's entrepreneurship. This real estate thing seems like it's working pretty well. So there's an opportunity for value add there. And I would think about how I can set myself up for that situation. How do I get enough cash to feel really conservative? Hey, I can live for a, I can. I can live for a, I can live for a year easily on this. And I've got plenty to play with for that first or second construction project,

even if things go unplanned. Absolutely. Which was always the goal. Yeah, which was always the goal. And then I got there and it's like quitting your job sounds good in paper. Then it's like, oh, I don't know if I went. Right. It's a big jump.

It seems like a big jump, I guess. I don't know. Well, it's a big jump if you have $15,000 in cash, right? Yeah. I think you said you have $45,000 liquid cash, but you don't really have $45,000 liquid in cash. You only have like $15,000 in cash because a lot of that's in stocks and other different types of things and across a bunch of bank accounts. Correct. I'm actually very ill-liquid.

Yeah. But you can remedy that in three to six months, four months. You could have $50K in cash, right? If you don't have too many, if you don't have any KAPX items there, you're going to have plenty stockpiled there. Set aside what you need for your business. Figure out your personal situation. And life and the risk profile of leaving the job is going to look very different. on the other side of $50,000.

For you, that's a year of personal expense. That's two years of personal expenses. Yeah, no, especially. I've been very adverse to lifestyle creep. And one of the things I brought myself on because, I mean, I get made fun of it a lot of times. But, hey, it works. When you leave your job and start your business and make bank in the next couple of years,

people won't be laughing anymore. Exactly. Yeah, they're going to ask you, how'd you do it? You're like, well, remember all that stuff you teased me about? Okay. When we were talking before we hit record, you said that you said that you, are on the East Coast and with East Coast properties comes old properties. East Coast investing is older properties. What is the state of the properties that you own right now? You have 33 properties.

I'm sorry, you have 17 properties, 33 units. Have you done all the big old CAPEX deferred maintenance? So I'm trying, I'm working through that right now. I'm putting roofs on. I'm trying to get these things to where they're a point where they're going to last me the next 30 years and no surprises in 10. So that's one of the reasons I'm co so cash light now is I'd rather do the projects now when my expenses are low and I'm not used to spending that money. So I'm trying to do the, the roofs and the gutters and the walls and just kind of quote unquote bulletproof it while I can and I have the energy. Yeah. So with regards to when should you leave your W2, I would maybe encourage you to because you like it, stay there while you are finishing up these big cash.

KepX projects just in case of, like, you open up a wall and all of a sudden, you're like, oh, that's where that smell was coming from. And now you've got a $50,000 project instead of the $500 project you thought you had. But how long do you think it would take to get all of the properties up to your, I'm done with all of my deferred maintenance in KAPX? Probably one more year of hitting it. Like, I've been hitting it. Yeah.

Just one more year of intense capitalization into just the KAPX stuff, the Rubex. the walls, you know, the drainage systems, all that kind of thing. How much of the $15,000 that we talked about in potential income is going towards towards debt repayment versus investing in CAPEX right now? I'm probably 75% of it. 75% so most of that is going towards. Most of that's going toward, yeah, yeah. What's the blended interest rate on your debt?

Oh, you would average about five because I was getting loans and when it was cheaper now and now and they're a little more. So it's about five, five and a quarter. When you are getting a new loan, what's your rate? Oh, it's like six. The last one I just got was six, six percent, yeah. And how are you paying down the higher interest rate stuff first with this? I'm actually paying down the properties that are higher equity first

because that gives me more of a lever to pull in the future. So I'm prioritizing the ones that have more equity room and have bigger value add. So on an interest standpoint, it doesn't really make sense. Yeah. So I think we're starting to ask the right question to strategic level, which is how soon can we leave the job and begin the full-time entrepreneurial thing. I would definitely recommend or I would highly encourage you to stop repaying the debt early right now. Or if you do pay down the debt early, finish off one property if you want to just check off the box. But stop after that and focus only on the higher interest rate stuff or consider stockpiling cash. Because what you're doing, doing, if you do the other way is you're arbitraging your low interest rate debt for higher interest rate debt on the next property. You don't need to be doing that, right? Correct. So, so there's an end and the cash that, not only that, but the cash in your bank account is actually going to give you more flexibility. It's going to make you feel better about the, the breakup with

your current employer. You're going to be able to finance those projects without taking a line of credit on it. So I think right now is a really good time to stockpile cash. I don't know how much something in me is telling me 50,000 is a really good amount because that sounds like a good number to me, yeah. That would really cover a lot of repairs. But like I would not be, I would not, I would be thinking about, okay, I'm not going to pay off any more debt here because your portfolio already cash flow is so strong if you're not doing that. And you can just buy the next place all in cash. True.

That's your plan anyways. Why would you trade lower interest for higher interest at this point in time? True. Yeah. I guess I never really thought about that way. I, Scott, I really like that comment. And I, Scott and I both are of the don't pay down your mortgage any sooner than you have to camp. But I can understand when you come from growing up debt averse and don't want to have any debt, I can understand why you would want to pay that off.

If you are, like Scott said, if you are going to pay it off, pay off the high stuff first. But I really like his comment. Throw every extra, like pay your minimum mortgage payment and then throw all of your money into a big cash pile. And pull from that for your repairs. That's really great advice, Scott. And then in one year, I would reevaluate. What is the condition of my properties? What is the condition of my bank account?

What is the condition of my cash reserves? What is the condition of my mental state every time I have to go to work? It sounds like you don't hate your job. You like what you do. Yeah, I like it. Then there's no need to, or there's no, how do I say this? There's no reason to quit now. now and put yourself, like, you're not going to be in a squidgy financial position.

You've got, like, the best position of anybody we've talked to in a long time. You're doing it right. But there's no need to make it any tighter than you have to be. I agree with Mindy's sentiment. There's no need to do it. But the big, the thing is, your goal is to get to $10 million in net worth. And I imagine that that $10 million in net worth is a very lightly leveraged or no leverage position, is your end state goal on that.

And you're not going to get there making $60,000 a year doing outdoor things unless you own the business. And I'm comfortable with a portfolio around 50% to 6% leverage. I'm comfortable with that. Higher than that, maybe a little too high. Lower than that, I feel like I'm not utilizing enough. Perfect. So you have to generate several million dollars, probably in the next five to 10 years because I imagine your goal isn't to do that at 60s. It's to get there in the next 10, 15 years.

Is that right? Yes. Absolutely. Great. So your job, that's great that you like your job. Your job is irrelevant already is not a major factor in that and is slowing you down. You could be making multiple times the amount doing more of the real estate business. Or if you really love that, that work, you can go into business for yourself. Right. And within a few years, be earning much more than you are as a laborer for your firm right now. Correct. Correct. That's a good point, too. I would like to point out that Scott is very logical. And I'm

very emotional and the whole should I pay off my debt is more of an emotional concept than a logical concept. If you wanted to move into that position tomorrow or next month, you could just pull out 100K from your property with your lender. And that resolves our situation from a cash perspective. And you're ready to run with plenty of cash in a conservative position. So that may not feel right emotionally. Not really. So if you don't want to do that, then instead you can spend a few months just stopping the debt pay down, building up the cash position, and that will feel more responsible. No, I like that plan. Absolutely. I like that plan a lot. It sounds logical to me. Can you go to your lender and get, you said cross-collateralizing, and that's a term that I'm

barely familiar with? Can you get all of your properties in one loan? I can. What's hard about that is that kind of limits my options. When I do that, I can't collateral one out and do and scale like I've been scaling if I was to do that. If I was done building, that would be a great way to to sail off into the sunset, get all one loan, make that, you know, simplify that, simplify the interest, all that kind of thing. But it kind of ties them down and it makes them hard to use individual properties again. It's really hard to get an investment property helock right now. Yes. So it's probably almost going to be impossible for him to get a the equivalent of a he lock or line of credit on that portfolio entirely, which is like kind of silly. Right. But that's,

that's the reality of real estate investing right now. If someone has a Heelock investment property helic lender, please let us know. We will try to make them famous for everybody else. Yeah, they're not Heelocks. I'm just collateralizing the equity. So they're holding one while I fund the next one. And when I get that one up and going, then they let it go. But yeah, it would be nice to get a helic. Yeah, it would. If you know of a helock, it's Scott at BiggerPock.com or Mindy at BiggerPock.com. And we will... Investment property helock. Yep. Yeah, investment property.

I can get them all day long on primary residences. That doesn't help when you've got investment properties. Right. Okay. So I would give you a bit of research to do in that you should talk to your lender and just give him your whole picture and say, are there any creative solutions? Is there something that I'm missing? Is there, you know, does your bank offer anything? Can you do anything within your own portfolio?

Do you have a portfolio loan that I could, you know, use against? these, like, and I'm just, I'm making stuff up right now. But like, what's it called when you wrap a wrap loan over all of your properties so that you can purchase another one and get it up to snuff and then like transfer out of that, like refi out of that into a regular loan and pay off this other thing. Like a local lender is going to have a lot more options available. Absolutely. And I think they've kind of seen my strategy so far and they're kind of familiar with it now.

I have used the same bank now for going on four years. So I think that it's obviously I mean I have a bit of a track record there. So I think that would be a good conversation to have definitely. I'd be very skeptical that you're going to have a serious issue upon leaving your job of getting continued access to some form of financing at this point with the conservative responsible way you've you've leveraged your portfolio and really you know, and really tend to pay it off over time even while you're acquiring more properties it seems. Or at least improve your debt to equity position. I'll be more precise. Definitely.

while you buy more properties. So surely your lender is not going to say, oh, the loss in 20% of your income over here is going to prevent you from getting access to future financing. Correct. Correct. I'd hope. I brought that up more for other people who are listening, Scott. Oh, absolutely. I'm not, I'm not just saying any of that. I'm just excited because I feel like, you know. No, that's a great. Yeah, I'm definitely going to have that conversation with a lender here soon. Yeah, I would absolutely talk to them about what are the like most creative yet legal things that we can do with this portfolio. I mean, maybe they'll suggest, hey, let's take

three of them and put them together. That's different than all of them putting them together. And I mean, I'm not a lender. I don't know what the options are. But when it's your own portfolio loan, the rules really open up. And this is a small local bank. So usually they're a lot more flexible. I used to be all about like searching for the best rate and that was it. And now I am more into the local banks. What's point one, two, five percent difference on a loan when they're going to lend me more money than somebody else because they know me and they trust me. Oh, 100%.

Okay. So some of your questions were when to leave my W2 recovered. When should I start pulling profits from the real estate portfolio? When do you want to? You can do it now. It's true. I feel like once that bridge is crossed, then you can't go back. No, you could put them back.

You could stop taking them in the future. If you quit your job, you will need to take some sort of profit. from the portfolio because you're going to have to live on something. Absolutely. So what does that look like? That looks like about $2,000. I mean, if you don't need to save anything because everything's being saved within the company. Yeah, it is almost minuscule at this point.

The effects would be low from the cash flow standpoint. Should I diversify out of real estate and move into retirement accounts or the stock market? But I really, really, really love a good Roth IRA just because it grows tax-free. Same. And I feel like I'm missing some of these good years when I'm young, putting it in now. And like I'm getting that FOMO. Like, am I missing out on some of the real estate or the... Instead, you're building a million dollar rental property portfolio that can pay for your life right now.

Oh. That's true. And every time I go to put money in the stock market, I'm like, I can do more over here with that. I don't know. So you're doing $3,000 in annual Roth contributions. Why are you not doing six? I should be. I should be doing six.

You should be. So that sounds like an easy win. That's $500 a month, which is nothing to you. It's just one more week of spending. So if I was in your position, I would do that for the tax-free growth. I'm not going to harp on you on the 401K because your rental portfolio was so amazing. But the Roth IRA, when we talked to Kyle Mass on episode 200, he said, said we've been writing a lot of checks lately as a government, I can see the Roth IRA stopping.

So there's, you know, they're not proposing that yet, but who knows what's going to happen? I would say as long as you can contribute to your Roth IRA because it grows tax-free. And that's a little bit of diversification in your portfolio while you continue. And it's not like, I hate to throw these numbers around like they're nothing because $6,000 is still $6,000. And if anybody has any extra, send it to me, Mindy, a bigger, Pockets.com, 3344 Walnut Street. But it's only $500 a month that you would be putting into this. And that in the grand scheme of your net worth, that is very little. One of the thing I was looking at, too, is transferring my traditional IRA into a SEP IRA when I do leave the job and then funneling some of the business income into that.

One, for a tax shelter and two, to be a little more diversified. Love that. I think that's again, comes down to we got to stop. putting all of that $10,000, $15,000 in excess cash flow each month into the property debt. Because what you're doing is you're arbitraging these opportunities in the Roth IRA or the SEP IRA for paying down 3% interest debt right now, which again, like, I don't think that's a good use of your cash compared these other alternatives. And by the way, you can still do that. And in two or three months, be maxing out these retirement accounts and then spend the rest

the year paying down the debt if you if you if you do want to do that so and then secondarily i would get you in the habit at some point in the next year or two of drawing from the portfolio the reason you invest you built this portfolio is to produce income for yourself and your life with that i start pulling out a thousand dollars a month say no that's my dividend right i've earned it at this point that's coming out of this of this of this property and if you want just put the money from your job back into the property it's kind of a silly but but i think that might be a helpful mental exercise for you to get used to pulling cash out of the business and having it pay for things that you want. No, I agree. And I think I have been averse of that while scaling just so the

business was off the ground. Now it's off the ground. And I have that opportunity. Yeah, well, you're going to have to scale it in the next couple of years while it's distributing income. True, true. At some point, if you want to get to $10 million. Absolutely. Absolutely. One last question you had was a review on your portfolio as it sits today. We've already talked about your real estate. Yeah, you're doing great. Your retirement accounts, personal investment. and cash total $127,000. So I would review that as a little light and encourage you to increase that,

mostly in the Roth. I really do like the Roth for as long as you can have it. And a review of your goals for the future, I had a question about your goal. You want to retire with a $10 million net worth. Okay, that is a lot. but how did you come up with that number? That's a good question.

Nothing specific. I think I just picked out a number out of the air. Okay. So that means you could spend $400,000 a year. Correct. You're spending $24,000 a year. I would encourage you, there's nothing wrong with the $10 million network.

But I would encourage you to understand why that's the number. I mean, it's like, it just sounds great. Great. Then that's, you know, if that's really what you want, that's, that's, I would have a very hard time spending $400,000 a year. Not on real estate on like regular stuff. And I, yeah, I think you're not going to generate $400,000. You're going to generate a million dollars a year on that portfolio. If you continue building this portfolio the way you're building it.

To the way it is, yes, yes. And that, well, and the 400,000 is that I'm doing the 4% rule math, Scott. And that is where my flaw is in my thinking, because I'm thinking of the 4% rule. You're doing a $10 million portfolio. Yeah. And you said you wanted $30,000 in monthly income. That leaves you with $28,000 left over every month. I know.

I know. We'll be looking at up in the spending habits sometime in the future. Which is, I mean, if you're planning on getting married and having kids, that 2000 isn't going to go very far. But those numbers, I'm trying to be diplomatic, but those numbers do seem like you just grabbed them out of thin air. So I would encourage you to look into the reasoning behind those numbers or create some reasoning behind the numbers. And maybe those numbers would change. Definitely. Because if you wait 10 years to get your $10 million portfolio.

and then you're like, oh, I could have retired five years ago with a $5 million portfolio or a $2 million portfolio and I would have been just as happy, then you've spent a lot of extra time working when you didn't need to. That's true. That's true. And then long term, when I get to family and all that kind of stuff, I do want to let way off the gas and have that time that I bought back for myself. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing.

And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and money money, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch, keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in Edle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing

candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That you can stop struggling to get your job notice on other job sites. Indeed's sponsored jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts.

You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash bigger pockets right now

and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets. Terms and conditions apply. Hiring, Indeed is all you need. When you want more, start your business with Northwest Registered Agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest

Today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. With over 1,500 corporate guides who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it,

Like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data. And all services are handled in-house because privacy by default is their pledge to all customers. Visit Northwest Registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com slash money-free. You do all the work yourself right now. but let's compute the dollar per hour value of your time.

What is your, you said your net cash flow from the, from the portfolio would be about $10,000 per month? Yes. $10,000 a month is $120,000 per year. And you're also earning $60,000 a year at your day job, right? Correct. So that puts your time value of your time at $90 an hour. Have you computed it that way before?

No. Okay. So that's good. And that's going to accelerate if you continue doing, you're doing. So when you do work like property management, 50 to $90 an hour is a good ballpark. Like that's probably the bookends of that, of the, the, how much, how expensive that would be to hire out or do yourself. But you're going to have to start making those types of decisions as you get into more entrepreneurial stuff as well pretty shortly here. And stuff that makes

sense to do at $30 an hour, which is the rate you get paid at your job, is not going to make sense day one with your business because of your unusual situation and how much more valuable that business is than your day job at this point. Absolutely. And I do want to start offloading the management that I don't necessarily enjoy. And there are companies out there that do it. I'm sure they do a way better than me. So that is definitely when they go. So you're going to find yourself an interesting position very shortly where if you offload management, you're going to be like, oh, I generate $8,000 a month in cash flow after management expenses. And I could do nothing forever and spend $8,000.

You could go to Bermuda next week. What's a better island? You know, Aruba next month. I'd spend four months chilling in the beach and easily pay for most of your expenses there based on what you currently got. So something to think about there, to Mindy's point, you know, $10 million is great, but like you can do whatever you want right now. if you so chose to do that. And that's a powerful feeling. It is. Yeah.

Sitting down and saying, what do I want my life to look like? What don't want my day to day? To be honest, I don't spend a lot of time thinking about that. I just had a head-down worker mentality. Think about it. I know. I need to. It's the same advice we give for different reasons to many people, but I would go someplace, fun, warm, with a good view. Take your note pad or whatever and just say like three years from today. What does my life look like? It could be anything, right? And you have a really good shot of going from 8. thousand a month or in passive cash flow, passive cash flow that is managed by a property manager discounting for the property management when I say 8,000. Because you're going to 10% of 20,000 is

two. So, okay, so you take that and you say, okay, I can easily make that 10 or 12 or 15, right? I have a few of you have your playbook to doing that. And a 50-50 debt to equity real estate portfolio is pretty conservative compared to what a lot of people invest in. I'd like that a lot better than the exact same amount of wealth in the stock market, for example, because from a conservative point of view. So, right, what I want my life to look like? Go somewhere warm or with a view and think about that. Get out of your house. Get out of your environment. Just sit down, relax for a day and do it on a set day two or three of your little trip. I think that would be really powerful for you. And maybe some things change about those long-term goals because

you got the whole world open to you right now. This was actually the end of my five-year plan as far as goal was. And now I'm at a pivot point, and I'm like, uh, I think I'm taking the deer in the headlights look kind of. I think, I think it's a pretty fun position to be in. You should be really excited and proud of what you built because you got a lot of good stuff.

I think it's a pretty enviable position to be in. Appreciate it. Yeah, you're doing very well. I am giving you a lot of hassle about not having anything in your Roth IRA or your 401K. But, I mean, it's not like you have nothing. You have it just in a different place. Correct. And I'm a stock market fan too.

I do too. I like it. It's just from a dollar to dollar average, I've noticed way better returns in real estate. And you are in an area where you can get good returns on real estate. I'm in an area where it's a lot more difficult to get good returns. And you've got construction knowledge. You've got a team in place. I think you've got some things to think about now.

and just like Scott said, write it down. What does it look like? And how do you want to get there? No, absolutely. Definitely. Definitely going to take that advice. Thank you, guys. Anything else we can help you with today? Thank you.

I can get the nail on the head there, for sure. Definitely giving some stuff to ponder. Awesome. Well, I hope it's fun. I think it's really exciting for you. Congratulations on what you built. And I don't have a problem with your real. I think, I think, yeah, you should just consider whether I'm going to arbitrage.

I think the big takeaways are figure out what that next chapter looks like. If you want 10 million, you're going to get, you're going to, you're going to, going to get $10 million if that's what you want. But maybe you don't want that. Maybe you can have something else in the meantime that's even better than that if you think about it and write it out because you've won the game. And then I would say from a tactical perspective, just understand that you're arbitraging low interest rate debt paydown for other opportunities like stock market investments, like stockpiling cash, starting your own business, those types of things. And I would seriously consider slowing that or stopping it to some degree to build up a more flexible cash

position first and then consider some of these other asset classes or stockpiling cash for that next real estate investment. I like the idea of stockpiling cash, especially because of liquid now. Like, he's an asset rich cash poor. So just having that buffer there, even though I may not necessarily use it or do whatever, it would just, it would be nice to have. Nice to see. You know what? I would say stockpile $25,000, $30,000 in cash and then go on your trip. I think that will help a little bit more. Deal. I think that will help.

Oh, I could literally sit for a year not making any money for my portfolio. I think it will help clarify your thinking a little bit on that front, too. And then, so I think that's a big key is that. And then third, understand the opportunity cost of your time. you can like your job all you want, but it's, you know, you're, you're doing them a huge favor at your employer when you could be, you know, doing something else. The same thing for more money long term and creating your own business because you're, you're in position to do whatever you want with that.

Yeah, and I would love to branch out into some of the other stuff. I mean, maybe, you know, wholesale some of the leads I don't chase or, like you said, flip, different stuff like that. So there's opportunities there that I'm not maximizing for sure. Great. And I think everyone listening should be like, how do we get, how do I implement Travis's five-year plan that he just finished? Some of problems at the end. Some long weeks.

Some long weeks in there. Yeah. Yeah, we glossed over that part. Travis, this was so much fun. Thank you so much for talking to us today. I really appreciate your time. No, thank you, guys. It's really been exciting being on the bigger podcast and the money group and talking to you guys and making me see things in a different light that I haven't quite thought about it that way.

So definitely going to take your advice. Thanks. Awesome. Okay. We'll talk to you soon. Oh, Scott, I love Travis. I love him so much. I love his story.

I love everything about his conservative approach to investing in real estate and to anybody who is saying, oh, well, all that money is sitting there is just wasted. You should buy more real estate. I want to say that Travis is doing it right and you can invest conservatively in real estate and still come out a winner. Clearly he's a winner. The only thing, like I said before, I'd like to see as Roth, IRA contributions more, just because of the tax-free.

growth because he's so young, because there is the possibility that the wrath will go away. Other than that, Travis is perfect and walks on water. I do want to highlight something we mentioned about 20 minutes in. He was considering leaving his job, what he is. He's so good. It's like, what are you talking to us for? Okay, sorry. I want to highlight he was considering leaving his job.

and I brought up the whole W-2 job income will help you qualify for loans more for other people who might be listening, who might be considering leaving their job, who aren't as lendable as Travis is. Your lender wants you to have income, and they will look at your net worth and be like, yeah, that's cute. Do you have any income? You don't have any income. I'm not giving you a loan. So if you don't have a huge, amazing track record like Travis, you need to speak to your

lender about ways to get loans before you quit your job, not after. That's why I brought that up, Scott. A hundred percent. Yeah, he is an unusual situation because he's really overshot financial independence to the point where his business generates a lot more income than his job. And this has only happened, I think, with one other guest, I forget his name, but it was one of the first Finance Fridays we did, if you recall, the guy who had all those properties in New Jersey. Wayne Lou. Wayne Lou, yeah, thank you. You're really good with that. But yeah, that was one of the only other situations where we've kind of run into this phenomenon of like, what are you doing at this job? It's really the biggest drag in your financial position at this point.

So I think it's really cool. You know, I have a friend who, when he's a CEO friend and he has four criteria it looks for when he hires people. It's happy, honest, humble, hungry. The 4-H rule, I think that, you know, to echo Mindy's gushing over Travis, I think Travis is definitely a 4-H guy. What a phenomenal human being? on there. I will call out, though, one quick point that I want to just reemphasize from the discussion,

Travis was buying properties, fixing them up, and then cash out refinancing a property here and there in order to fund his next acquisitions. And that is absolutely a phenomenal approach. And one of the reasons, a tailwind behind the growth that he had for the last five years to build this position, right? Because every time he's refinancing, he's doing so at the same or perhaps even lower interest rates on average from 2017 to the present. However, that's changing in 2022 with rising interest rates. And so that approach no longer, well, it can still work. It can still work, but there are disadvantages to it, which in his situation, and perhaps many of our listeners situation here, I think you're better off potentially stockpiling cash or paying off the most

recent debt first if you are going to do that approach rather than your old debt. Keep that low interest rate debt, in my opinion, and forego getting new high interest rate debt by stockpiling cash and using that to purchase the property instead. So important nuance there that change in interest rate dynamics do require a change in strategy and how we think about that. Much better to not pay off your debt and stockpile cash than to pay off the debt and then issue new debt like he was doing. Yes, I agree with that. I think that's a really important thing to bring up.

I'm glad you brought that up because I can see his point of view, oh, I'm just going to pay off my debt. Well, okay, great. But yeah, if you're paying off the low interest rate debt, don't do that. Pay off the high interest rate debt. Or I love the suggestion even more just to stockpile the cash because then you can, I mean, if you've got a big pile of cash and no place to put it, throw it at the debt later. If you're going to keep acquiring properties, it does not make sense to pay off low interest rate debt and take new, brought new higher interest rate debt out to buy the new property. Do something else.

Either pay off the debt or buy a property cash. Exactly. Okay, Scott, should we get out of here? Let's do it. From episode 336, the best episode ever of the Bigger Pockets Money podcast, he is Scott Trench, and I am Indy Jensen saying every new beginning comes from some other beginnings end. I wrote that myself.

Closing time. Yes. There it is. I watched you. I had fun. Yeah. Every new beginning comes from some other beginnings and goodbye.