BiggerPockets Money Podcast - 340: Finance Friday: When Rental Property Investing Doesn’t Make Sense

Episode Date: September 30, 2022

Over the past two years, short-term rental investing has become a financial lifeline for those that are trying to make extra income. A small one or two-bedroom basement, garage apartment, or mother-in-law suite brings in enough cash flow for many to pay off a sizable amount of their mortgage. One such investor is Allen, who turned his low-interest rate primary residence into a lucrative short-term rental in the Portland, Maine area. Allen is a vacation rental house hacker, leasing his garage apartment at a nightly rate for those visiting the area. Thanks to local laws, he’s unable to increase his nightly rates, but the silver lining means Allen has an almost fully-occupied, revenue-producing rental most of the time. He wants to build his short-term rental empire to even greater heights, but after looking at the math, Scott and Mindy aren’t so convinced that this is the right move. With six figures in student debt and a moderate credit score weighing him down, Allen may be in a better position to do something else with his money. Scott and Mindy go through the numbers, calculations, and everything else you’d need to see whether or not another real estate investment is the right move for you. Even if you’re someone with a high income like Allen, you may be surprised by what Scott and Mindy propose. In This Episode We Cover When is the right time to buy real estate and how high-interest rates hurt your chances of getting a good deal Limiting your monthly spending and taking advantage of earning a high income Short-term rental house hacking and using it to cover most of your living expenses Stocks vs. real estate investing and when it’s the right time to choose one over the other Aggressive debt payoff and how to know whether an interest rate is too high Credit score tips and the factors that make yours go up and down 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 Airbnb Finance Friday: Self-Employed Income and Short-Term Rental Investing Are FIRE Naysayers Bad at Math? Yes. with Michael Kitces Click here to check the full show notes: https://www.biggerpockets.com/blog/money-340 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, Finance Friday edition, where we interview Alan and talk about short-term rentals, credit scores, and student loan debt. The other big problem here is your credit score, which is not great right now. The approach I like the best is to either just pay down the debt or go good old-fashioned index fund investing instead of sticking all that cash in your bank account. Sit tight for a year or two. You're going to generate $50, $100,000 in free cash flow over the next year after tax at the current rate that your life is going, and you're going to be right back in the same position,

but with a cleaner balance sheet at that point in time, and a better credit score. And during that year, you can put together some really clear business plans for rental property investing, short-term rentals, rent by the room, whatever makes sense in your local areas that could produce that passive cash flow. Hello, hello, hello. My name is Mindy Jensen, and with me, as always, is my real estate-loving co-host, Scott Trench. You're supposed to say thanks. Oh, thanks, go again.

go again. Sorry. It's not paying attention. Are you new? Yes. Let's start over. Hello, hello, hello. Hello. My name is Mindy Jensen. And with me as always is my real estate loving co-host, Scott Trench. And with me as always is the foundation of our real estate investment family. 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 short-term rentals on a lake, or start your own business will help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams. Scott, I am excited to talk to Alan today because he has a very interesting financial situation. He makes bank. He makes a really great salary, but he has had some past financial mistakes and now has a bit of a debt scenario that he needs to contemplate paying off. And he also is interested in retiring early, which is why we're talking to people here anyway. And he has a great

home situation where he is able to short-term rental a portion of his house. But if he moves out, he will not be able to do that anymore due to the short-term rental laws of his city. So he's got some decisions to make. But the best part of his whole situation is that his income is covered. He is making such a great income. And that is one of the biggest problems that we see on this show is that I want to do all these things, but I don't have any income while he's got that covered. I think Alan has a really strong set of financial fundamentals in his financial position,

but that his goals are not really as well thought through as they could be. And his investment philosophy is not well rounded out. And then compounding that is the fact that he's kind of stuck in a pretty good overall position because of a couple of great decisions he's made in the past, but that make it almost hard to go back on that. For example, his house is so great. His living situation is so great. How can he possibly leave that and go on to another housing situation? That lever of house hacking or scaling your portfolio through owner-occupant strategies is not really available to him

because his current situation is so strong and he won't be able to replicate it. That is a problem that I think we're going to see a lot of people facing in the next few years, just the next year, if you believe, some of the reports that are coming out. But with interest rates rising, it's going to be really hard to find a fantastic deal. And that doesn't mean that there aren't deals out there. That doesn't mean that you can't be buying real estate now, even with the high interest rates. It just means that finding a fantastic deal is going to be even harder than it was before. So I am excited to bring in Alan, but before we do, my attorney makes me say that the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor Bigger Pockets is engaged in the provision of legal tax or any other advice.

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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 fow-u-undd.com. Found is a financial technology company, not a bank. 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 finance. with Fowl. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact

titles. Lately, I've been listening to Bigger Leaner Stronger for Fitness, the anxious generation for parenting perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Audubes, 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. Alan, welcome to the Bigger Pockets Money podcast. I'm so excited to talk to you

today. Thanks. It's great to be here. Excited to talk to you both. I am excited to talk to you because I see some easy wins and some research opportunities for you right off the bat. So let's jump in and review your finances. Easy win, huge, huge win that you're having is your income. Your W-2 income gives you approximately $12,000 to $18,000 a month. Not a year a month. Now, that's a huge swing. that's an entire salary in some cases swing. So I want to review that in a little bit. But let's celebrate the fact that you are killing it in the income front. Not only that, but in addition to that, you bring in $2,000 to $4,000 a month as a short-term

rental primary house hack situation. So that's another bunch of money coming in. Awesome job. You have $120,000 in savings, which is fantastic. Now let's look at your debts. You have $100,000 in student loan debts, which are currently deferred, and I'm assuming you're making no payments on, which is a smart decision, saving the money, and then I'm assuming that you're going to pay those off as soon as the deferment period ends.

But of course, we'll get into that in a little bit. You have a $290,000 mortgage at 3% for 30 years. I'm hoping you're not going to pay a dime more than you need to on that, because 3% is not the current mortgage rate right now. And you have three to $400,000 in equity on this house. So that's another celebration. You bought well. Hooray. For expenses, I have $500 a month in utilities, 105 in home owners insurance, $450 a month in property taxes, $65 a month in car insurance, and the rest of your average monthly expenses is $7,000. The research opportunity that I immediately is to break this down and into really, really small categories to see if there's

any place that you can cut some larger expenses out of. I have wife's retirement accounts as traditional IRA $50,000, Roth IRA $15,000. I see no Allen's retirement accounts. So that's another thing that we're going to discuss today, Alan. Can you give us a very brief overview? view of your money story. Absolutely. So my money story kind of began, I guess we'll put it and we'll start at college. Start in college, just going for a general bachelor's degree, not really sure exactly what I wanted to do. So just kind of changing my majors around and living off of my student loans essentially. And eventually I started just working some odd jobs through my early 20s. I was a line cook at a restaurant where my wife and I met were working at a dog daycare, making like $9 an hour.

So I really never made much more than like $10 an hour for several years. And so to supplement that, I was using student loans to pay for my expenses and taking out credit cards and kind of racking up bills on those just to kind of pay for my everyday life. And then I kind of got my MAC together a little bit. and went back to school and started in my career that I'm in now, where I started actually making decent money. I started off making about $30 an hour and working 36-hour weeks. And since COVID, I had an opportunity in health care just because there's been such a big need for my profession. I've been able to increase my hourly income from $30 an hour or two. The most I was making recent was $125 an hour. So I've definitely really kind of making a lot more money in this field

than I ever thought that I would. So that's kind of where I'm at now. I'm making making a lot more money. And because I've been making so much more money, I've been thinking a lot about where I really want my life to go financially. And I decided that I don't really want to do the traditional work till I'm 65 kind of thing. So I'm hoping to use this period where I'm making a lot of W, good W2 income to try and propel myself into sort of financial independent kind of situation in the near future here. Okay. And what are your goals for post work life? Post work, I would like to, you know, not really have to do too much more than just manage my Airbnb's. I mean, because the plan is to do just get as many short-term rentals as we can. So I really wouldn't like

to do too much more than, you know, whatever I have to do with property management companies. And then use my free time from there to travel. My wife and I both love traveling a lot. We go places several times a year. So just traveling and we'd like at some point to open up kind of a farm sanctuary. So I guess that would become our jobs, our kind of retirement jobs, would be running something like that. So really just kind of the freedom to travel and then turn whatever hobbies and interests we have into somewhat of a career. you know, maybe make a little bit of money from that as well. Awesome. So in a couple of years, we want to be financially independent with a short-term rental empire that allows you to have a farm sanctuary as your full-time gig.

Yeah, exactly. Love it. That's clear. We can work with that. Is that within three to five years, seven years? What's kind of your ideal? Yeah. Ideally, three to five years, that's kind of my ambitious goal. I've kind of given myself a 10-year deadline, like at the most because I'd really like to, you know, spend I'm no older than 40. I'd really like to continue working. So three to five years, ideally, no more than 10.

That's kind of what I'm working with right now. Awesome. Anything else we should know about your financial position? I guess I'll go into my variable income, which I foresee potentially being a barrier in the future. Right now, like the least amount I'm making is like $90 an hour. I'm currently making $90 an hour, but starting in September, I'm going to be going back up to the 125 an hour.

But I'm not entirely certain how long I'm going to be making this rate of pay. I've currently been making this amount of money for almost two years. But I foresee that eventually going away once, you know, hospital systems kind of, I'm sure they're trying to figure something out so they can get us back to our original pay rate. So I'm not counting on always having this kind of income. So that's my biggest barrier. I did before I started this new journey towards financial independence. I got a master's in clinical research.

So that was kind of my backup plan. I can make about the same amount of money that I'm making now in that field. So I could always switch over to that if I needed to. But currently I'm making the same. I would do doing that. And I only have to work three days a week. So I'm going to stick with this as long as I can. Could you walk us through your house hack and how that operates?

What part of it do you live in? How much are you renting other parts? How much would it rent for if you were to move out? and make it a full-time short-term rental. Can you do that with the walls in your region? Sure. Yeah. So we have a house right outside of downtown Portland, Maine, and it comes with a two-bed, one-bath apartment above the garage, and it's detached. So we can, you know, our guests have their own driveway and their own outdoor area that's fenced off. So it's completely separate from our house. We live in the main house, so we don't have, we're not, you know,

doing the complete reversal where we'd be living in the smaller area that I know some people do to make a bit more money. But we're giving ourselves the full house and then just renting out the unit in the back. And the most we're renting it for is 145 a night, which unfortunately we were rent capped. They're treating us like we're a long-term rental. So we can only go up by a certain percent each year. I forget what that is exactly. But the main issue is if we did move out, we would not be able to short-term rental this property full-time because Portland has a law that you can only short-term rental property if it's owner-occupied. So us staying in our house right now with our low-interest mortgage, wrenching this place out as often as we can,

is really doing, that's making us a decent amount of money enough that my wife was able to quit her job. But moving forward, we would have to find some other properties to short-term rental if we were to move out of this one. Is that your plan to move out of this? Or do you plan to retire here? Yeah, we plan on moving out. This is our first home. So it's, we, we more got it because it had this unit in the back. So we're like, well, we want to live in this area and this apartment's going to, you know, help us afford to do that. But we do plan on moving. We're not sure exactly where yet, but definitely not our forever home. So eventually we'll either, you know, sell this place and, you know, collect the equity to buy another home or we might just keep it and

turn into a long-term rental. I'm just get still a decent amount of income from that. When I observe your financial position, the things that jump out at the highest level are your spending, where we kind of, oh, we have $500 a month for utilities, a mortgage, property tax, and then $7,000 of other spending. And so that, that I think, is a really important lever here to understand where that's going in months where you may. $12,000 on the lower end of your income range, you're probably saving almost nothing. And your savings are probably coming from the months where you make the higher end of that range to a large degree on the 12 to 18.

And I think you should get to a place where even in the lower months, you're saving a good percentage of your income, like 20 or 30%. And that will involve getting control over that 7,000. So I think that's one key lever. And I think the second big lever is going to be your house. It sounds like you do not plan to stay in there long term. And that this house is going to have a very different economic profile for your family the day after you move out than while you're living in it.

While you live in it, it's a money-making machine. And that will evaporate essentially the day that you move out. And so you've got to figure out what to do with the equity in that house downstream. And then the third big point is what you're doing with all this cash. You're sitting a lot of cash, but you don't have a good way to kind of deploy it right now. Yep. Yeah. I do want to add that the $7,000 a month includes all of those other monthly expenses.

So the mortgage and the utilities and all that is lumped in with that $7,000. So it's not a $7,000 on top of that. Okay. So you do have a good clear understanding of the household spending. And it really, in a thing, my mistake there, I probably. No, that's good. Yeah. Do you know how the $7,000 breaks down? Or is it just, well, I know I spent less than $7,000, so I'm doing okay? It was more like we were just looking at, you know, the general breakdown that our bank account homepage showed us for how much we spend every month. Or we're kind of surprised by it. We're like, oh, wow, we're spending 7,000 a month. I had no idea we're spending anywhere near that much.

Ah. So we've got our, you know, our general monthly expenses with the mortgage and the utilities and everything. which we can't control, but it's not that bad. But then, yeah, there's, you know, another $4,000 that we're spending a month. You know, we don't really tighten the belt too much. We definitely enjoy ourselves and we travel a lot. So a lot of that money is from travel, booking flights and hotels and whatnot. We also like to go out to eat a lot. And we go to events.

And so there's just a lot of, we just have a very active on-the-go kind of lifestyle. So that's generally where, The meat of that $7,000 is going is just our travel and excessive date nights, I guess. Okay, so research opportunity number one is travel points and travel rewards. Do you have a favorite airline? Do you have a favorite hotel? They have a credit card. I can almost guarantee that they have a credit card.

I have a Hyatt credit card. I have a Southwest Airlines credit card. and I swipe on my Hyatt credit card for every purchase because I can pay it off at the end of every month. If you're not going to pay it off at the end of every month, don't listen to anything I'm about to say. But assuming that you can put all of your purchases on one card, this helps you track your spending. It helps you earn a lot of points.

I have like 60-something free hotel stays coming up. But all of the travel that I'm doing right now is for work. So I'm not using them for work. I'm going to let work buy me hotel stays at Hyatt's. So I get more free hotel stays. So there's a way to still travel, but not pay so much for your travel. There's a way to still go out to eat without paying so much for going out to eat by maybe not going out to eat as much. Your local airline, your local airport may not have a ton of airline options.

So find an airline that you can get a credit card for and start earning points on those to reduce your travel expenses. When you just said something very telling, you said, we had no idea we were spending $7,000 a month. We know we spend $3,000 for these fixed expenses, but we have no idea what that $4,000 is all about. I think that you need to track your spending really carefully for a couple of months. And you may start to see things that shock. you or you may start to see things that you're like, yeah, I'm okay with that. And either way, you'll at least know where the money's going. Like Scott said, on an $18,000 month spending $7,000, you still have $11,000 left over. That's a lot. On a $12,000 month, if you're spending $7,000,

that's technically $5,000, but is that $12,000 in your pocket or $12,000 pre-tax? That is pre-tax, yeah. pretext. So that's probably closer to the $7,000 that you're spending. So like he said, it's going to be a lot more difficult to save any money when that's all that's coming in and you're spending it. So I definitely want to see some tracking of spending just to see where it's going and to make sure that what you're spending on is what you value. If you have a bucket of $7,000 in other spending, then I think spending is a big problem. If you're spending $7,000 in total to fund your life, inclusive, of your mortgage payment utilities, all that kind of good stuff. Then I think that there is some belt tightening you could do, and I think it would be good to get control over it. But I don't think, I think that you're going to accumulate large amounts of cash in a general sense here.

So I think that, you know, then I would pivot to how badly and how fast do you want this goal. If you want it in three years, for example, then you've got to buckle the belt and move into this unit above your garage and Airbnb out your main house to get the much higher rents, that would come with that. And then start getting aggressive about the next things. If you want it in seven years, you can probably do exactly what you're doing from a lifestyle perspective and then just make some bigger moves there.

And if you want it in 10 years, you could probably even increase a little bit and you'll still get there if you're able to do a couple of, again, those bigger money moves. Walk me through your short-term rental income here. You said you're locked in at a cap of $150 a night, right? Yes. 149. 145. 145.

And how many nights a year are you going to rent that thing out? So, let's see. So pretty much from, let's say, April through October, we're pretty much booked every single night. Portland's becoming more and more popular. So we're booked pretty much every night as long as we keep it open. Granted, my wife does do all the flipping herself. So when we go on vacations and stuff like that, we just close it down.

We're hoping to eventually find a good property manager that can, you know, take care of that for us while we're out of town. But we're very concerned about our reviews right now. We have, we're super host. We've got like a 4.98% on Airbnb. So we don't want to lose that. We're kind of concerned that a property manager might lose us some of those points. So I'd say probably a good five, six months out of the year we're booked every single, every single night. And then during the offseason in the winter,

still booked pretty much every weekend. So it's better than we thought it would be where we live just because there's not too much to do where we are, but we get a lot of local tourists coming to stay with us as well. So that's been good as well. What would the raids be if you could charge whatever you wanted? If we could charge whatever we wanted, I don't think we'd charge too much more than we're charging right now.

And we might go up to 200 bucks a night at some points during peak season over the summer. But part of trying to make sure that we have, have good reviews and people are happy is making sure that we're, you know, charging a rate that people are happy paying. So we don't want to overcharge them and make them feel like they're getting ripped off. So we probably wouldn't go up too, too much more than we're, we're charging right now at maximum. What I'm trying to get at is, is your, your city is conducting bad policy. They're, they're, they're taking money out of your pocket and putting it into the guest's pocket who are from out of state by capping that, by capping that price.

You cannot control that. But there's always a blessing with every curse with this. The blessing should be that you are able to get a large amount of occupancy out of this would be the logical leap I would make, right, and say, okay, my average is going to be $1409 a night, but my minimum is going to be seven nights, during these periods of the year. What kind of games and research can you play throughout the year so that you're able to just fill it up to close to 100% occupancy

given the fact that you are artificially capped on your pricing? There should be an opportunity, I would think, with that, with some wiggle room. And that would be the only lever that I think you can play right now or a poll right now given that you can't increase price. Just try to fill it up every day. Yeah, by considering minimum stay requirements. You must, you cannot stay for the weekend in the off season. You must stay for the week.

So, you know, during the peak season, you have to fill up the entire block of days that I have available in these times. You cannot stay for these things. And I think that will help you with your scheduling as well. You'll have viewer unit turn issues for your life there. Yeah, that's true. I mean, we do have a, we did end up opening it to one-night bookings, which ends up being a lot more work, as he said. but we had noticed when we, because we were originally doing, I think, like, three or four night minimum stays. And then we had all of these little holes throughout the month.

Then when we opened it up to one-night bookings, we went from, you know, having, you know, 25 nights booked to having all 30 booked. So just getting, just kind of filling in those holes by doing the one-night bookings. Over the winter, I'm not sure if we would be able to fill it up for a full seven days. It's because most people are just looking for a quick weekend getaway. So I don't know if we restricted it to you have to stay for a week if we would get more or less bookings. I'm not sure about that. Okay.

So what I'm hearing you say is you feel reasonably optimized on the pricing strategy here and that this isn't really a major level in your financial position to get more income out of the current short-term rental. There may be tweaks, but it's not the big, it's not the meat of the journey here. Yeah. I don't I think we've kind of optimized the space that we have to work with just because I mean maybe if it was like a more of a niche property people might be more inclined to book it for longer periods of time but since it is just a unit above a garage it's mostly just people who are looking for a quick getaway here and there and not booking for long periods of time. Grants that we haven't tried putting the restriction on it to see you know like what we did if we did restricted to You know, you have to book it for the full week to see what would happen there. So that's definitely something that we could try out this winter. Something to think about as you contemplate your decisions going forward is it isn't just, should I rent out both units long-term when we leave. You could find somebody to rent out the smaller unit as their long-term primary residence.

And then they rent out the main unit as their short-term rental, which isn't getting around the short-term rental laws. It is operating within the short-term rental laws. You're not renting it out because it's not your primary residence. They're renting it out because it's their primary residence. And then you work out some sort of split with them or some sort of like higher rent for the whole person. property. That is an opportunity, an option to look into. I'm not sure exactly the laws. Yeah. But it's their primary residence when they're renting there. Yeah, that's interesting. I didn't thought of that. I think a big challenge for you is going to be your goal is to get you,

you want to get a couple of more short-term rentals. Where do you want the short-term rental to be? Right now we've just been looking around our area just because we know what the market's like, canary as close to us and we do want to just try and you know at least for the first couple properties we want to try and manage it ourselves just to you know get as much of that income for ourselves as possible so for instance right now we're looking at getting a lakehouse which that's a big market here in Maine a lot of people come right lake houses over the summer and even over the winter to do ice fishing and snowmobiling and all that and it's also a type of property that I we feel a little bit more comfortable just like with the way the laws are going because it seems like everyone's

trying to restrict short-term rentals so much every like just all the neighboring towns as well are putting so many restrictions on short-term rentals that we're trying to look at just properties like lake houses that have always kind of been in that market and we think might be less likely that they'll end up putting restrictions on them in the future so we're looking for things like that and also like beach houses as well as another another popular spot up here but we would eventually like to branch out to other states as well but like I said for now it's just easier to manage it in this area because we kind of know how the market works in each area. Okay.

One of the things that you said about your goals for post-fi life is that you want to manage yourself your short-term rentals and you want to get as many as possible. And my first thought when I heard you say that is you should lump your short-term rentals together because then you can pull upon your current pool of contractors and cleaners. and you know the laws and everything here, as opposed to I've got one here and then one over here and one down here, and then you have to find people in every single area. So I don't know where this lake house is in relation to your current house.

Could your current clean, well, I guess your wife is your current cleaner, would she be able to go and clean this and turn it over? Or would you have to hire somebody to do that? Because that is like the number one problem that I hear short-term rental proprietors, is that the right word for this? Short-term rental proprietors have is that hosts, thank you, Scott, that's a better word, is that they have a hard time finding cleaners, finding good cleaners, finding reliable cleaners, or finding anybody at all to clean the property.

And that's one of the biggest issues that short-term rental tenants or guests, like, one of their biggest complaints is, oh, the house wasn't clean. The house wasn't as clean as I wanted it to be. There was a hair here. There was schmutz there or like whatever. They get really upset when it's not perfect. Yeah, exactly. That's why we're so afraid to have anyone other than my wife do it because we're,

where someone else's version of clean won't be our same version of clean. And even between me and my wife, like whenever I flip the Airbnb for whatever reason, she'll go double check my work and I've left a bunch of hair in the tub still that I, like, I swear I've gone over it three times, but she's got a different. for an eye than I do. But so yeah, we are trying to find a lakehouse that's, you know, within an hour of us so she can just do that herself as well. So we're definitely looking for places within an hour so she can, you know, run over there in a reasonable amount of time and fix any issues and flip herself without too much trouble.

These properties, how much should they bring in? We've been looking for quite a while and we kind of were initially starting, you know, looking for a place, hoping to find something that we liked around 350. But after about six months of looking for lakehouses and kind of striking out, it looks like we're probably going to have to spend around 450 to 500 minimum for what we're looking for, which would be probably like a three-bed, two-bath, lakehouse that should be able, over the summer, should be able to bring in probably $3.350 a night. And how much annual income is that?

You have a very seasonal business here. So what is it going to be on that annual basis? So we're hoping that it should be able to bring in, you know, at least, you know, if we're looking at over the summer, we're hoping it should be able to bring in at least $7,000 to $10,000 a month over the summer. So we should be able to get a minimum of $50,000 a year on that. Then hopefully if we are able to rent it over the winter, which we're not positive on how well that's going to go. But we do see that they do pretty much get booked out a year in advance over the summer. And then in the winter, there's definitely still more holes.

So we're going to have to play around with that a little bit more to see how frequently people are coming out in the winter to book those. But I think if we made at least 7 to 10,000 a month over the summer, that would at least cover us enough to get us through the full year of mortgage payments and everything. So I do not think that this is a winning formula for you to retire early and do this based on those numbers. So if you get, let's say you get $50,000 in annual short-term rental income from this property and you're buying a $500,000 property with, $100,000 down, you're not getting that loan for less than 6%, not in an investment property. That's not your primary. Yeah. So that's going to look at at a 6% interest rate.

You're looking at about $2,400 a month before taxes and utilities. So that's $30,000 in principle and interest right there. Plus, you have taxes and utilities. What are taxes and utilities going to be in this location? This location will be, the taxes will be less than where we are now in Portland. It looks like they're usually averaging about 3,000 a year in property tax. Utilities probably would be pretty similar. Probably would be about 500.

So now we're at 30,000 plus 3,000 in taxes, plus 6,000 to 7200 in utilities. That puts it at 40 grand. And then how about insurance? Insurance. I'm not sure what we'd have to pay for home insurance on a lakehouse. I just know that we're paying around 100, 105 for our home, probably about the same. That's $42,000. And that's before you have to replace the roof for CAPEX.

That's before you have to do any maintenance to the property outside of cleaning. The cleaning bill I would not include in the calculation because I'd pass that to the guests as a cleaning bill. But you'd still have to find somebody to do that. I would not think your wife would want to drive out an hour multiple times a week to clean the property for an $8,000. profit before maintenance and cap-ex expenses. But these back of the napkin numbers don't work for me at the highest level on this property in a compelling way right now with this. And you contrast that to your current property where you're making four grand,

two to four grand a month on a $1,500 mortgage payment. I mean, it's just your current property. And you probably could do way better if you rented out the main house instead of the unit above the garage. You've got a much bigger winner there, probably because you bought many years ago and have a primary home mortgage on that, at 3%. I think this is going to be the real crux of it is, is do you have a viable short-term rental strategy here in this location? And when you actually analyze those numbers all the way down the line, do you get to something compelling? Is, for example, the $50,000 annual income estimate way low? Like, does that feel way low? Does that feel way

lower and you feel like you can get way more than that. That's probably that's on the lower end. Again, this is just kind of a very rough estimate on how much we'd be making. But that's kind of my estimate if like subtracting the offseason months. So I think that's about how much we would make during the spring, summer and fall, we'd be able to pull in that much money. And then however much we'd be able to pull it on top of that over the winter, which I'm not really sure what the markets like for that, we definitely would have to reduce our nightly rate and probably want to get rented out as much. So it might be a similar situation where we're only, we're still getting rented pretty regularly, but only on the weekends and only for like 200 bucks a night. But yeah,

I get to what you're saying. It is, it is more of, I guess it would be more of a luxury investment because, I mean, we definitely like the idea because it's, you know, something fun for us to utilize as well. But in terms of cash flow, we would definitely be restricted there, like you were saying. I mean, it's tough because, like I said, we are restricted so much on our ability to get short-term rentals in Portland. Like, I'd love to get another, get like a multifamily here in Portland and Airbnb that out, and that'd be perfect. But unfortunately, we're definitely restricted on that. So we have been looking at neighboring towns that have a little leaner laws on that, but we're not sure if they would get as much tourism. What's your credit score?

It's about 646 right now. I think it's like the higher one. Okay, so the interest rate in any loan that we're talking about would be even higher than what I just articulated. It's not terrible, but it would definitely increase it by maybe 100 basis points there. Yeah, I was approved for a loan at 6.57%. Was that an owner-occupied loan or a investment loan? That's just a standard owner-occupied loan. When you applied to be on the show, you shared some barriers that you have the poor credit scores, student loan debt, which we mentioned at the beginning of the show, and the variable income.

come. Let's explore the student loan debt. You currently have approximately $100,000, which is at 0% deferred by the government due to COVID, no payments due right now. But once it comes back into undefurment or whatever that's called, you'll have 80,000 at approximately 5%, and 20,000 at 6.5%. Scott's magic theory of interest rates is that, If it's five and under, you don't pay it off early. If it's seven and over, you do pay it off as fast as possible. And both of yours fall in the middle with do what makes you feel comfortable. Yeah.

So we are of no help there whatsoever. You also have $120,000 in cash that it sounds like you're thinking about using for the down payment on a house. What is your plan for your student loans once they become payable again? The plan, well, I've kind of got my fingers crossed for some sort of forgiveness that may or may not come through. So I'm planning on, you know, paying them back when I have to. But there is currently a bill in Congress to forgive student loan debt for frontline health care workers. So that would be great for me if that does end up going through. So I've kind of got my fingers crossed for that.

sounds like Biden may have finally made a decision that would forgive 20,000 of what I currently have. But other than that, my plan would just be to, I would just have to start making payments on those. And yeah, I don't know if I would pay too much more towards it at the, you know, 4.99% interest rate. And I might try and save the rest to still, you know, accumulate money for down payments. One of the things I was kind of looking for guidance on was, you know, do you think? it's it's smarter to pay the absolute minimum on that and just keep moving towards saving up for those down payments or would be best to just kind of get those off my plate entirely? I think we've got to start with the end in mind here and zoom back out and say, your goal, as you

stated, was to in three to five years, retire early and have a farm essentially here. And you wanted to do that with through short-term rentals. And I think that what I've kind of uncovered in this is that is that is really a wish right now. You don't have like a clear plan to buy those short-term rentals and what would actually be profitable and how that would make money for you at this point in time. And that needs to be refined. You know you can do it. You know you you know that short-term rentals can be a powerful wealth generator. But you do not have a ref—you don't have like, oh, these are the properties I've identified.

This is the cash flow I can generate throughout the year. This is what my expense profile looks like, and this is the return. And this is how I'm going to operate it. I kind of have this lake area. Maybe my wife can drive out there and clean it a few times in between tenants. It's not a business plan right now. And so I think you should reset. The goal is I'm going to reframe it for the rest of the conversation today,

with your permission, of course, if you like this. But to, I want the most flexible financial position possible in three years from now that affords me the best, the most amount of life options, among which might be this far. Does that, does that work for a repositioning standpoint? Yeah, sounds perfect. Okay. So I think if we start with that premise, then we can acknowledge and say, okay, here's what you got going for you. You make a ton of money. You spend a lot less than you make.

And you've got a great house hack. Your problem is you're kind of stuck in that house hack because there's no conceivable living situation. that you can replicate in the near future, that is as good as what you've currently got going from probably a lifestyle and cash flow perspective. You've got a really low interest rate mortgage, a tremendous amount of equity, which is also another problem. Most of your net worth is in this is in this home equity, and then in your wife's retirement accounts, although you do have $120k in cash. So you've got a flexible position, but yet you're also kind of stuck, which is a paradox. All of your debt that you have is in this quasi realm of should I pay, it's not really bad, it's not really good.

It's in this quasi realm of I probably can invest a little bit more. And so you have all these shades of gray in your financial position that makes it really hard, I think, to commit in any one direction. How is that sound? Is this kind of how you're feeling about it? Yeah, that's total nail in the head. Like we've, for quite, for the past couple of years, we've definitely just felt exactly, as you said, stuck.

We're like, where do we go? How can we, yeah, get a good cash flowing? property where we've got the best setup right now. We don't want to stay in this setup, but there's not really any place for us to go that's going to give us more net income than we're getting at the moment. So yeah, definitely what you're saying about getting a clear picture on, you know, actually getting a business plan for our short-term rentals as opposed to, yeah, we know short-term rentals are a good idea, but we definitely haven't refined exactly how we're going to execute the short-term rental.

plan and get the highest ROI on that. So let's also acknowledge that in spite of having all of this gray zone, which can be frustrating because you don't have any clear options, you also have many good options because of the strong fundamentals of your current position. You pay nothing to live. In fact, you get paid a lot of money to live in your home, in your area. You make a tremendous amount of money. Your wife is able to operate this really second job that is putting $2,000 to $4,000 a month

in your pocket over the course of the year. And so life is good there. I don't think, I don't think without a clear plan that's super aggressive, you're retiring in three years, right, or five years or seven years. You might, but like, you'd have to get something aggressive there. But you can have many hundreds of thousands, maybe even close to a million dollars in personal net worth and a position where things are more clear and stabilized, but you're going to have to go down one of, I think, a couple of routes. So the first route, option A, that I would recommend, is just pay off the debt. You got $120,000 burning a hole in your pocket

and your bank account making 1.5%. And right now, you're paying, you know, a higher percentage rate on various debt that will come out of deferment soon. Maybe you don't pay all of it. Maybe you pay some of it, but, you know, the debt is a guaranteed return. It's pretty high interest.

It's not, that's an easy button. The second would be to, you know, and I would say you spend, what, like $7,000 a month and that includes all your housing expenses, and you get two to four of that back, so that's three a month from your Airbnb. Really, you're spending $4,000 a month. If you knock that down to $50,000, your savings, you've got a year of financial runway sitting in the bank account,

net of your Airbnb income. That's pretty good. That's a year is a lot. And you can take that $70,000 and invest it either in a rental property or start putting it into some stocks there. The other big problem here is your credit score, which is not great right now. So I wonder, now that I'm talking through all of this, if the best approach I like the best is to either just pay down the debt or go a good old-fashioned index fund investing,

instead of sticking all that cash in your bank account, sit tight for a year or two. You're going to generate $50, $100,000 in free cash flow over the next year after tax at the current rate that your life is going. and you're going to be right back in the same position, but with a cleaner balance sheet at that point in time, and a better credit score. And during that year, you can put together some really clear business plans for rental property investing, short-term rentals, rent by the room, whatever makes sense in your local areas that could produce that passive cash flow. That was a long rant. How does any of that sound? No, I like a lot of what you said there because that was another question that I had was I've been kind of, you know, holding back from investing in an index fund.

or stocks at all. I played around with crypto a little bit, but I never really pulled the trigger on making those stock investments. And that's kind of been where I've been at and was looking for some clarity from you guys if it is a better idea to put that money into short-term rentals or like you were saying, it sounds like it might be a better idea to kind of, like you said, kind of clear the slate and put that money into some index funds and clean up my debt a little bit. I do definitely feel stuck in this gray area right now, so it would be nice to be able to just pull out of that instead of struggling to maybe get, you know, into a stronger financial position, but without a real clear plan for that. So I guess I'd like a, I don't know, I don't really know

too much about stock investing, so I don't know what the best way to go around that would be. I opened up a Vanguard account. That's about as far as I've gotten. But my wife, she has some retirement account set up back when she was working in W-2 job. And I've kind of been holding off on that and just taking as much money in my paycheck as I can to just save for a down payment instead of putting anything towards stocks and getting a company match or anything like that. So that's definitely something I'd like to look into. I want to say that index fund investing is fantastic. I do it myself. I know that Scott does it. However, we are entering possibly, probably a period of volatility. So just because we say, just because we suggest index fund investing,

please be aware that there will most likely be some volatility coming up. But you're not investing for tomorrow. You're not going to take the money out in a week. You're taking the money out down the road. And past performance is not indicative of future gains, but the stock market goes up and to the right with a whole lot of little bumps and squiggles, but it goes, goes up and to the right, I firmly believe, which is why we sit here and talk about how investing in the stock market is such a great idea. You said you don't know how to invest in the stock market, and that's valid. There's a lot of people who don't know how to invest. This is something we should be teaching people in schools, and we're not. And there's this little book called

The Simple Path to Wealth, where J.L. Collins comes in and tells you, this is how you do it. And you've started with your Vanguard account. Now you need to put some more. money in there, but that's not all. Once you put the money in there, you have to tell the money where to go. So make sure you do that as well. I have heard some heartbreaking stories about people who put money in the account and then don't do anything with it. It will just sit there as cash, generating zero dollars. They thought it was invested. Make sure that it is invested. Vanguard should be able to walk you through this. It should be pretty easy to do anyway. This book is called The Simple Path to Wealth.

It's by J.L. Collins. It's available. Everywhere books are sold, including Amazon. It's a wonderful book. And I highly recommend getting that. We keep not talking directly about your credit score. And I want to, not in a accusatory fashion, but in a helpful manner. When we were talking before we hit record, we asked you what your credit score is and how it is this 646.

number and you said that in your early 20s you made some credit mistakes and you, you know, we're late on payments and that is 35%. This is actually kind of shocking. I have a article that I'm going to link to in our show notes, but 35% of your entire credit score is made up of on-time payments. So if you have a late payment that dings you. If you have several late payments, it really dings you. 30% of your credit score is how much you owe. If you have And that's more like credit utilization. If you have $1,900 on a credit card that has $2,000 limit, you're basically using almost all of your limit.

For some reason, this looks like a bigger issue than if you had that same $1,900 out on a card that had a $20,000 limit. Then you're doing great. The same $1,900. But when the credit limit is smaller, when you're utilizing a higher percentage of your available credit, it, the FICO doesn't like it. And that dings your score. Fifteen percent is how long you've had your credit. So if you have a credit card that you've opened for, you've had open for a long time,

keep it open. Every once in a while, charge something on it to make sure that it stays open because that is your length of credit history. My husband has a credit card for like 25 years. We never use this card. But every once in a while, he'll go and like charge gas on it and then go it so he doesn't forget to pay it, just because that's the card that he's had opened the longest. 10% is your credit mix and 10% is new credit. But that 35% of your payment history is the same as your credit mix, your length of credit history and your new credit all at once. So something that you can do to make sure that you're making your payments on time is to just

schedule automatic pay. If you don't want to do automatic pay, you can put it in your calendar as a calendar reminder. It's so important to pay your bills on time. And I had late payments too. Like, don't get me wrong. I was the first time I got a mortgage. She's like, what about this bill that you paid late one time? I'm like, I don't remember that.

I don't know. But it was three or four years before that that she was still asking me about this. I'm like, why are you asking me about a bill that I paid 30 days late one time three years ago? another thing that's really easy because you have the income I wouldn't recommend this to anybody who was a little more paycheck to paycheck but as soon as the bill arrives, write the check and send it off if you're a write a check kind of person. If you're an online payment as soon as you see it, go online and pay it. Because you have the income, because you have the balance in your account, just pay it

and get it done with. And then like what does it matter? You're missing that little float for three weeks or whatever. It's better to pay the bill than to have that little float. Does that make sense? Yeah, absolutely. So that's, you know, that's for everybody. Yeah, I have actually been doing that.

I've been, you know, using credit cards the way you're supposed to be finally. But I have like, you know, paid everything down except for we've got the one card now that we earn miles on and we will max it out. So if they do, if the credit card goes through credit karma at the wrong moment, it might drop the score a bit, but we do pay it off every month. We never carry a balance on it. So going forward, we should be good to go. But like I said, I still have those remarks on my account that are just going to stay there forever, I guess. I was hoping that once they paid them off that they were going to go away, but I guess they stay on regardless. They stick around forever. Tax season is one of the only

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You could just, when you're added to their card, their good credit score kind of like morphs onto your card as well, or your score as well. Well, I am on my mom's card, which is good because that gives me a much longer credit history. I've thought about asking my in-laws maybe because I know they have good credit scores. So, but just been too nervous to pop the question. Have your wife ask. See if she can get on theirs. Well, yeah, I know she is on her father's credit card, but I feel like maybe I should ask

if I can get on there too. But yeah, got to work up the courage to ask, I guess. It sounds like there are some tactics here, but the real key is just time needs to pass for this credit score to rebound and to get back up in the 700s and then eventually 800s here. And lesson learned, we have some things there. But I don't think it really changes the strategy at a high level. It just changes the interest rate you might get on an investment property loan.

And I don't know if rental property investing is a move for you right now, because I think there's a deeper education and kind of business planning issue that you need to resolve first to be very clear on what you would do if you were to pull the trigger and have that become really clear. So again, when I zoom out and look at your position at the highest level, you're in such a strong fundamental position because if your income, fairly low relative spending, and then your house hack, that is a monster of investment for you. And I think you're stuck in a good way in your home for that because you have such a, I just can't, I can't fathom how you would possibly

reproduce that result right now in a similar set of circumstances because you made some good decisions a few years ago. So I think you ride that and you do one of three things. One, I really like the Dave Ramsey style approach for you and just crushing your debt. And I know you have some question marks around student loan forgiveness and all that kind of stuff. But I think your income is super high and you're not going to qualify for a lot of those programs. And you're also taking a lot of power out of your life and giving it to somebody else, the government over that decision. So I really like the Dave Ramsey approach as kind of option A. And I think that's the easy button.

You can feel really good. Just being like, you know, I'm going to pay down on the debt. And I'm going to rebuild my emergency cushion. And a year from now, I'll have read 10 more books on Investors, in personal finance and I'll be working with a clean state slate, a high income, and a house hack, and no debt. That's pretty good. No personal debt besides a home mortgage, which I think is a pretty good option. Item B would be to come up with an investing philosophy, which will likely center around what many suggested in the simple path to wealth. That's a book

about index fund investing and why it's just such a powerful long-term way to generate wealth. I think that in 30 years, you'd be slightly richer if you went with a simple path to wealth on average versus paying off debt in your range, but that it's so close that it's almost a material. It's like a 1% spread on this 1 to 3% spread with a lot more volatility of ups and downs to invest in stocks rather than pay off debt at 6.5% interest at this point in time. That's option 2. And then option 3 is to continue getting creative with real estate, which I think could be a

really good option for you in about a year or two from now. And I think as your credit score improves, as you get more sophisticated in your business plans and your ambitions for what you want to invest in and why you think it will make a lot of money downstream, and you can articulate that more. I would not buy a vacation home, which I think is really one way to frame the strategy you came in with today as an Airbnb rental. I think that a lot of people have this, concept, oh, I'm going to buy a short-term rental and a place that I like to stay and that'll be my, like, second home. That's great if you're already rich and you want to do that as a lifestyle maneuver. But I think that if you want to go and visit this beach house, the best way to do it is to

invest your money in the highest income producing best risk-adjusted returns you can and then spend it renting from somebody else at that at the location with that. I think it's usually going to be a much more, a much better economic decision than and trying to turn in really your favorite, your hobby, your place you want to visit a little bit into an income generator. I think it's going to be a lot more challenging for a lot of folks. Lakehouse rentals is a lake housing is a rental sport, like boating. Not something to own, unless you're going to use it all the time.

Right. Like, you know, every weekend, you're going out there. maybe you have more cost-effective option to buy at that point. So, again, first choice, I think debt repayment's the easy button and kind of where I'd do you. I think Dave Ramsey would be the phenomenal option here, maybe index fund investing and third real estate investing, but I'd really think about tackling real estate investing from a position of a better educational framework and we have a better credit score maybe a year or two

from now to help you with the rates. What do you think about that? Those digways. Yeah, I mean, I'm very comfortable with the idea of educating myself more on the short-term rental front. It sounds like I might need to rethink where I'm going to invest. It sounds like I might not be in a good area for it necessarily, just because there are so many restrictions on short-term rentals. So I might need to do some research as to where I could be investing in that.

I'd have to look outside of Portland, and then it's really just those really high up front, $500,000, like how... kind of rentals are the only places that people are going to be short-term rentling at all in this area. Well, let me just chime in here with one comment here. You know, and it gets a lot. We have the same rules that you've got in your area here in Denver, Colorado. People are like, oh, it's just, it's a pain.

You can't rent, you can't make money on short-term rentals unless you're the owner-occupant. That is a tremendous advantage. Right now, you have a $1,500 per month mortgage, and you bring in $2,000 to $4,000 per month. And you have no competition except for other. homeowners in your area who have very similar properties. So you you are benefiting from an incredible amount of pricing power and a squeeze on supply in your area. And that is that is a you are you are like the poster child for someone who is benefiting from this type of policy. And it's just this elite house hack. You're stuck because other other options to live are so

terrible compared to the incredible setup that you that you've described to us right now. It sounds like you live in a wonderful house in a prime location that people pay very good money to vacation in your garage. I mean, this is, this is wonderful. So I think that's where that's the benefit. The problem is you can't scale it very easily. But that's a tradeoff. And so with one house hat, you're almost set. You only need that plus another three or four grand.

Then you're done. You could just live this lifestyle without having to work either of you indefinitely with just a, you know, well under a million dollars in net worth. I just want to chime in with that thought and say, That's a powerful advantage. You know, if you just, just think about it as a, about how wonderfully your city is helping you, not hurting you. And because of that short-term mental laws. Yeah, that's true. I definitely wasn't thinking about that because we're in a neighborhood where most people don't have little mother-in-law unit in this area.

So if you want to stay in this area, we're pretty much the only option. So that's definitely, definitely a good point. Like you said, it's hard to move on because we pretty much knocked it out of the park with our first spot. So we can't really envision our next move because it's not going to be as good. So all you can do next is accumulate cash and go with one of the three good investing alternatives. And your challenge is not that you have, it's not that you're doing anything wrong. It's just that you have multiple options that are all about as good as one another, and you've got to pick one.

And there's no right answer here. You're a funky gray zone. And so I'm excited to see what you pick. I think the worst thing you can do is just sit on a pile of cash indefinitely. You've got better uses for that cash right now. I think than let it pile up in your bank account. You're going to accumulate another 50 to 100 over the next 12 months because of your strong fundamentals. Yeah, absolutely, because I've already been sitting there longer than I wanted it to.

I was hoping to have invested it a while ago, but we've just been having a hard time pulling the trigger, which may have been a good thing because you might have, yeah. If you have a hard time pulling the trigger, I'd suggest that by year's end, you go Dave Ramsey and pay off that debt. Yeah. That's an easy button. It's not a bad choice. You're not going to get crushed by doing that. You may be opportunity cost items, but at the very least, you're not getting hosed on the opportunity cost of not doing the other items and arbitraging the end of high interest rate debt with your 1.5% API and your savings account.

Yeah. Anything else we can help you with today? Has this been useful? It has. It has. It's actually, yeah, it's been very useful, especially. I guess I hadn't really wrapped my head around the numbers for our current short-term rental plan, which, which you've definitely given me a ton to think about in terms of not pulling the trigger on a

lakehouse, which definitely sounds less appealing to me now. So I'm definitely feeling more comfortable with the idea of sort of repurposing my position financially in the next year and focusing on that to still continue my short-term rental goals, but with better credit score, better understanding of the markets. like you said earlier, just kind of resetting what we're, what our goals are here and looking for that flexibility, but also breaking down the numbers more and getting an actual business plan instead of just lofty daydream of having the perfect lakehouse that's making us tons of money when that's not actually going to be the case. So lots of good info. I'm definitely going to dive into

this. I love it. And you know, one way to think about is you get a dumpy old warehouse in the, that's not very pretty to look like, look at, and that pays you the income. And you just spend that on the lakehouse. So it's just, it's just, where's the dollar coming from and what's the net return? And just think of, like, this is a dollar printing machine. It doesn't have to be a beautiful lakehouse on the thing. It could be the most efficient way to harvest cash and generate appreciation long term. And then I'll spend that on the way I want to for my lifestyle long term. And that's where the investing philosophy will come in. I don't know if it's real estate. I don't know if it's stocks. I don't know if it's debt pay down long term, but I know it's likely

one of those three. It could be something else, but it's likely. And you've got a side, I do think that real estate can be a great one, but I think that's a right one for you to explore next year when your credit scores eclipsing 750, 725. Yeah. Gotcha, definitely. And it is pretty, it's still all pretty new to me. Like, you know, I've been doing a lot, you know, listening to you guys and trying to learn more about investing in real estate.

But it is still pretty new idea because just a little under two years ago, I was on the set path, you know, making 50, 60 grand a year and plenty on retiring when I'm 65. So I only just kind of changed my way of thinking in terms of investing for financial independence. So still definitely have to do a bit more research and get a more thorough understanding of all that. Love it. It's the 500 hours of self-education. That on the other side of that, you feel very confident about what you're going to do and how you're going to invest and all that kind of stuff.

But until then, it's all overwhelming. at all, they're all million ideas, but I don't know what I don't know about all that. And yeah, the confidence will come. Just keep, keep learning passively, listening to podcasts, reading books, whatever, absorbing frameworks. And it'll get clearer for you within the next year, I promise. Thank you so much for your time today, Alan. This was very interesting. And we will talk to you soon.

All right. Wonderful. Thank you so much. Scott, that was Alan. I thought you had some very sound advice for him. I know that that's probably not what he wanted to hear. but I do like that you were able to show him mathematically rather quickly that the lakehouse might not be the best place for him to put his money right now.

Yeah, I think that Allen's central problem, we talked about this a little bit after the recording is really just he's beginning his financial education to a large extent. He's made some really good choice. He's got some really good financial fundamentals in place. But he's not yet sophisticated with his, for example, real estate investing. philosophy and strategy and how he wants to go and do that and how to analyze the deals with all of those things. And that the price of entry into real estate, as we've often said, is 500 hours of self-education. And I think that lies ahead of Allen before investing in real estate. And I think

that that as part of that deal, spending the next year, amassing that self-ed, that those hours or that self-education, he will also improve his credit score and be in position to do that if he so chooses a year or two from now. And then I do want to point out that we, you know, Dave Meyer calls the problem with Allen's housing situation the lock-in effect. And for Alan, it's more pronounced than most because he is, he's got bad credit. But this problem is this, Alan can't recreate. Let's pretend he didn't have the Airbnb in his house. He has a 3% interest mortgage. He can't sell that place and go move somewhere else. He's going to forfeit his three-per- mortgage and then get a 6% mortgage, 6.5% interest mortgage. That's what he was quoted for his

personal residence. That is a 350 basis point increase. That was over 100% increase in the interest rate for his primary residence for Allen there. So he's stuck. He's got to stay in this house hack because to move is just going to totally change his financial position or totally change the quality of his lifestyle in a general sense. I think a lot of people are going to experience that with their primary residences right now. And so that's an interesting dynamic of 2022. And the Federal Reserve's intent was to do that. They don't want people buying more real estate because that creates inflation.

So I think there's going to be a lot of folks that are in for that. And that's going to be a challenge in terms of scaling portfolios now, is it's going to be really hard to recreate success with a couple of the, with those serial house hacks, especially if you're in a place where Airbnb is only allowed. for owner occupiers. So an interesting set of conundrums there. And then lastly, one other point I wanted to make was around the choice between paying off debt, investing in stocks, and real estate investing. I think that for Allen, the choice between investing in stocks and investing in paying down his debt, which is typically at a five, six, six and a half percent interest rate,

I think it's a coin flip. I think in 30 years it's going to be really hard to tell which would have been the better decision for him. And so when you have a decision like that, that can lead to analysis paralysis. And literally, the coin flip decision-making protocol might be a better way to make a decision like that, because at least you're making a decision, either one of those decisions paying down debt or investing in stocks for the next 30 years and began moving that in there is probably a better bet than continuing to dump onto the pile of cash that he has setting in the bank account. Yeah, absolutely agree. And that is, I like that, a coin flip.

So, Alan, grab your quarter, flip a coin. Heads, it is pay off the student loans once the deferment period comes up. And Tails is continue making the minimum payments once the deferment period comes up and invest your cash into the stock market. And just a bit of advice there. If you are going to invest, invest it. The amount that you're going to invest, put it all in at once. try to dollar cost average your way in. Just put it all in at one time. Michael Kitsas from

episode 120 gave us that advice. He said time in the market is better than trying to time the market. So Scott, a few things that a listener in a similar situation could do after listening to this episode is number one. If you find yourself in a position where you are spending money but you don't know where it's going, track your expenses. Track your spending and see where your money is going, track it super granularly, track it vaguely, but track it in real time to see where your money is going and make sure that that's where you want it to go. It's super easy to spend, oh, it's only $1, oh, it's only $20. And then all of a sudden, only $20 has added up to an extra $1,000 a month that you didn't really need to spend. If you find yourself spending a lot of money

on travel, look into credit card rewards programs. Go to the points guy or nerd wallet and look for what is the best credit card for my specific situation. If you're flying a lot, look for an airline card that gives you the most rewards for your buck. If you're staying in hotels a lot, look for a hotel card that works for you. Self-educate, like you said, Scott. Educate yourself before you start investing in something. If you're going to invest in the stock market, if you're going to invest in index funds, the simple path to wealth by J.L. Collins, I think he sold 80 but trillion copies of that book. For a reason, it's a really great book. And if you are going to invest in real estate, make sure that you have a good credit score. You will get the best rates. You will get the best rates on your loans when you have good credit. You'll get better rates on everything when you have good credit.

I would say, whenever you're thinking about buying a vacation home in a market that you like to visit, run away. I do not think that or do that after you are a multimillionaire and want to enjoy the property outside of investing for financial reasons. I believe that that is one of the lower probability ways to build wealth is to invest in a vacation home in a market that you would like to stay in. invest in a vacation home. If you want to do short-term rentals, invest in a short-term rental market that you think is the best long-term prospects that will make you the most money and use the profits

to stay in a vacation home in the market you want to go in. It'll be a remarkable coincidence if those two are the same thing. Absolutely. I have run the numbers in my desired vacation rental market and it does not make any sense for me to buy a house there. You're not competing with investors in your market. You're competing. with people who are uber rich and want a place to stay whenever they're going out there. It's not a investment market. And those towns are experts at extracting money from the people who buy from out of state and who invest from out of state.

That is a really good point, Scott. Not saying don't invest in short-term rentals. I'm saying don't do it in that market that you like to go with your family on every vacation because it's almost 95% of the time going to be. a less lucrative option for you than alternatives. Okay, Scott, that was a good point. And we have gone very long this episode. Should we get out of here?

Let's do it. We've come to the end of this episode of the Bigger Pockets Money podcast. He is Scott Trench and I am Eddie Jensen saying shine bright starlight.