BiggerPockets Money Podcast - 413: Finance Friday: How to Use Your Home to Retire YEARS Earlier

Episode Date: May 19, 2023

Early retirement is possible for almost anyone, no matter where you start or how much you make. If you can sacrifice and save more than you spend, there’s a good chance you could retire years or even decades earlier than the rest. In fact,you can retire early on a median income salary without any retirement savings to start with…but you’ll need to do one crucial thing. As you’ll see from today’s guests, David and Danielle, one smart purchase may have set them up for life! We’re back with another Finance Friday, where we talk to David and Danielle, two median-income earners trying to figure out the right path to early retirement. After Danielle’s sales-based burnout, the couple has been surviving with just one income, cutting it close every month. But, with a return to work on the calendar for Danielle, the chances of financial freedom are looking bright. But where do they go from here? With David and Danielle’s real estate dreams, Scott and Mindy come up with a handful of ways that this couple could use their primary residence to bolster their chances of early retirement and allow them to save a significant amount of money every month. So if you feel like you’re starting over on the path to FIRE and don’t know which move is right, this is an episode for you! In This Episode We Cover How to use your home to retire early and start investing Grocery shopping, food bills, and how to stop eating your money every month Legal fees and accounting for lawyer bills during an ongoing dispute  House hacking and living for free while renting out spare space Assumable loans and upgrading your property when you have LOTS of equity And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Join BiggerPockets for FREE Mindy on BiggerPockets Scott's Instagram Grab Scott’s Book, “Set for Life” Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets Money Moment House Hacking: A Beginners Guide to Living for Free Grocery Shopping Got a Hold on Your Wallet? Check Out These Episodes: Cutting Your Grocery Bill in Half The Most Efficient Path to Financial Freedom Food Spending Eating Away at Your FI Plans? Here’s How to Eat for Cheap Slash Your Food Budget by $150+ Per Week with EASY, Healthy, and Tasty Meals Click here to check the full show notes: https://www.biggerpockets.com/blog/money-413 Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Email us: [e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast, Finance Friday edition, where we interview David and Danielle and talk about aggressively pursuing financial freedom and setting yourself up for financial success through big life changes. Hello, hello, hello. My name is Mindy Jensen. And with me as always is my back to house hacking co-host Scott Trench. That's right, Mindy. And I'm here as always with my cereal live in flipping awesome co-host, Mindy Jensen. I love that. 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 in assets like real estate, start your own business, or deploy the equity in what is likely your biggest asset,

your housing, to the pursuit of financial freedom. We'll help you reach your financial goals and get money out of the way so you can launch. yourself towards your dreams. Speaking of getting things out of the way, Scott, I am going to blast through this disclaimer that says the contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I nor Bigger Pockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants

regarding the legal tax and financial implications of any financial decision you contemplate so that I can get to this big announcement. Your house hacking again? I thought you were a renter, Scott. That's right. on April 30th, I moved back into a house hack over the property I own. What's going on? Yeah, we enjoyed our time living in a rental in the wash park, a nice kind of posh area here

in Denver where there's a beautiful park. And we decided we want a little bit more space. And I think in 2019 or 2020, I with a partner, bought a duplex out in Lakewood, about 20 minutes west of Denver, just nestled right close to the mountains here. And anyways, this is a big duplex. Each side is five beds, three baths. So that's 10 beds, six baths total. It's got a nice yard on each side, a garage, all that kind of stuff. And the mortgage in the property is $3,200, and the other side pays $2,700. So I will pay rent. This is a slightly smaller side of just slightly less than that to my own business that I own with a partner, right, uh, in there. And, and that,

that, um, will recycle pretty nicely and make, and allow it to be a pretty, pretty cost effective way to live with a little bit more space and, uh, really good financial decision. And, you know, I was a little apprehensive what I really like it. And I'm like, I love living there. So, you know, yes, I would absolutely live in the rental properties that I own. I have lived in multiple of them, uh, at to this point. So, um, yeah, we're loving it so far. We're a couple days in and, and, uh, still still, still unpacking and unboxing or whatever. But yeah, I'm excited. Well, that's great. And then the baby has a little running around room when she starts to run around. She's just tons of space. Yeah, we've got, it's so great. I've got, we've got, we've got our master, we've got the baby's room. We've got a

nice living room area with a with a fireplace. And then downstairs, we have a main area with our very non-bigger pockets money friendly 77 inch flat screen. And then, and then my wife office in a guest bedroom, which will double as my office. So it's perfect. We're thrilled with it. And it's luxury living for sure. Luxury house hacking, I guess if you want to still call it house hacking. But we're back. I'm coming to your house for the Super Bowl next year, Scott. Yeah, go birds. My Eagles will be back. They just had a fantastic NFL draft. I was going to say, congratulations to the Philadelphia Eagles on their amazing draft success. As always, the Bears disappointed. The only one unhappy with this move is our cat, Fred. He's, he's, he's

He's not really enjoying the new place quite so much. It'll probably take him another week or two. He has more space. Come on, Fred. Get with the program. He'll eventually come around. All right. Well, today, Scott, we are speaking with David and Danielle, who are considering a big move just

like yours. They are looking into ways to use their primary residence to further their financial position. In the beginning of this show, I run through their numbers. And it looks like they have a definitely. of spending. We find out a little bit later that that might not totally be the case. So stay tuned to this episode. And before we bring in David and Danielle, let's get to our money moment. This is the new segment of the show where we share a money hack, tip, or trick to help you on your financial journey. And today's money moment is, are you paying for a gym

membership? Check your health insurance policy. Some health insurance plans will reimburse you for gym memberships and other fitness-related expenses. Do you have a money tip for us? Email, money moment at biggerpockets.com. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch.

It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward. It's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop.

Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool. that makes money management simple. Use the code Pockets at monarch.com for half off your first year.

That's 50% off at monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes. But somehow, every small business owner ends up doing it. Your dreams of creating, selling, and growing get replaced by late nights chasing receipts, juggling invoices,

and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Sound makes everything easier, expenses, income, profits, taxes, invoices even. So reclaim your

time and your sanity. Open a found account for free at found.com. That's F-O-U-N-D-com. Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audio book 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. 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,

David and Danielle have three kids and are interested in figuring out their path to fire. Last October, Danielle left her job, which has put a bit of a strain on their finances. They are currently overspending by almost $1,000 a month. Danielle and David, welcome to the Bigger Pockets Money podcast. I'm super excited to talk to you guys today. Thank you so much for having us. We're excited to be here. Yeah.

Let's dive into your money snapshot. I'm showing a salary of $5,000 a month with bonus potential up to $30,000 a year, depending on performance, on average about $5,000 net every three months. Monthly expenses, I'm showing $5,800. So overspending by about $800 a month. And overspending, I mean more than what you're bringing in. So we're going to look at these expenses a little more closely than we might in a different episode. Mortgage, $1,400 a month.

That's property tax and insurance. There's no HOA. I think that's a great mortgage payment. Utilities 371, gasoline 200. Oh, groceries, 1,200, restaurants, 500. Guess what I'm going to talk to you guys about. Subscriptions 25, gym 60, car 70. The daycare, 800, but Danielle doesn't have a job.

I see another topic of conversation. Gifts, $50, entertainment, $85, travel, $220. Miscellaneous, I've got medical 200, home maintenance, 200, and pets, 80. So I did call out a few things that we will talk about later. Quick question on that. Those are allocations, not you are estimating for those types of expenses, not, those not actuals, right? So those are based on the past four months. We just averaged out the cost, and that's what it kind of is. Okay. Let's look at where that money is going. We've got investments

of $62,000 in cash, $15,000 in a brokerage account, $25,000 in a traditional IRA, and $9,000 in a Roth IRA. And the only debt is $130 on a mortgage? Yep, that's right. Okay. Well, that's awesome. Let's celebrate that. There's no outstanding debt except the mortgage, which, in my opinion, doesn't count because you've got to live somewhere. So that's good. And what's the home equity, house value? Yeah, the house value is about 310,000. Awesome. So we got 180 grand in the house in equity. Okay. So Danielle, why don't you give us a bit of an overview of your money story? I started working at a young age when I was 16 in the restaurant industry, you know, busing tables. At 18, I went into banking, so I've always wanted to earn my own money. However, I spent it, spent it

quite easily. My parents didn't really teach us about savings more than I always heard save 10% of every paycheck, but I guess occasionally, not too often. And it wasn't shown to me. Like, they would say that, but I didn't, maybe I didn't trust it. And so I just never really thought about financial independence. It wasn't really something that I was aware of. I grew up here in Texas and my family, my granddad worked until, you know, his last day on earth. So I literally have been shown that you work until either retirement at a very late age or until you die. And that's just kind of the mindset I had with. You can just, you can spend, enjoy your life and spend, you know, or save sleep. over time. So I began saving up through the bank that I worked at. I had a little retirement

account going in a 401k. And over time, that grew to about 15 grand. And then in my previous marriage, I wound up with someone who had made very unhealthy financial decisions, like is used to taking out loans and things like that. And I was kind of had this. decision that we went through to for me to stay home with our kids for a year that I needed to cash in my 401k of 15 grand to live off of. So that was a very unwise decision. I later learned. I didn't really think about it at the time, like how detrimental that would be to my future financial life. But yeah, so cashed that in. And then from there, it was really a life of like financial strife, like living off payday loans. And it was just,

really hard. I eventually became a single mom, stay at home. I had to stay at home for a little while and then start out on my own and literally build back and get back, get into a career. So I went down the road of getting into sales and working really hard. And I finally saw that I could have a really good income. I could make a really good living with sales until met David. And we were doing really great until last year when I reached a point of burnout in my career. And, I ended up not planning it, but giving up and kind of just for my mental health, just saying, I can't do this anymore, unfortunately, and without thinking about, you know, the repercussions of that. And so that put us in a really difficult place. And ever since we've been struggling, we've been having,

you know, the issues come up. So, yeah, it's been really tough. And I met David, and he really changed my way of thinking and taught me about financial independence and how we could have that could be a life for us one day that we could reach five at a young age and really enjoy our life and travel. And I became fully on board. And that's kind of where we are today. David, can we hear a quick little bit about your money story? Yeah. So I think mine starts back in Hungary. That's where I grew up in Europe. I started working in 2015. And I discovered like the concept of financial independence. And I was reading the blogs of Mr. Money Mustache and Rocks are finance and all these different things. And so I knew about index funds and I knew about real estate investing. But in Hungary,

there was no platform to do that. So I just kind of, you know, I had it in my mind, but I wasn't able to do it. So I put it aside. But even back then, I was lucky enough to live in an apartment that my parents bought, so I didn't have rent payment. And I thought to myself, oh, if I just moved to Nepal, I could dress. rent out my apartment and basically live off the income. So I always wanted that. I just didn't really have like a, it didn't seem realistic to move to Nepal. It's not something I wanted to do. But then I moved to the U.S. and after we got married with Danielle, it, it really became a whole different ballgame. Because previously I had like a backup plan. I thought if everything, you know, everything goes sideways, I'll just move to Nepal and live off my rental income. But when we got married and we had kids, that wasn't an option anymore because we had to be here. So like the struggle got real where we realized if we're going to live here, we have to start making more money and saving more money and just be able to cover our expenses. Awesome. And walk us through what you're doing currently for work?

Yeah. So I work in recruiting. I'm a talent sourcer. You know, that's a level below a recruiter. Or people call it a head hunter. And I go and identify talent. I message them and try to get them a job. So yeah, you, you're, so that comes with a large amount of upside potential whenever you place a candidate, right?

Do you get, do you get a large bonus? Is that correct? Or as you place more candidates? Typically, that's how it works. For me, I get a base salary, though, of $80,000. And then there's like a on-target earnings component, a quarterly commission. If I hit my targets, I get paid out the quarterly commission. What I'm observing about your situation when I combine this is whatever the past decisions, here. You have, again, zero debt. You've got tens of thousands of dollars in liquidity and tens of thousands more in investments, 180 grand in your home, in home equity. And this situation of being cash flow negative clearly hasn't been going on for a long time. Right. So this is a new situation, at least in the sense of the combined finances. Is that right? Is that driving with with reality? Yeah. Right. That makes me very nervous, especially given the fact that with the ex-husband, we've been going to court every year spending about $20,000 a year in legal fees. And so it's uncertain whether that's going to keep happening and when a big expense might come up, you know, like even if we're just running out of $500 a month, if all of a sudden we get a $10,000 check from the attorney, then that scares me a lot.

Okay, so you have reason to believe, or at least reason to worry, that a liability that is not exist in the debts that you, you know, anywhere in your financial statements exists and you will have to shell out cash. And this coupled with a declining, slow, very slowly declining, I imagine savings account is, are the two primary concerns in the near term. Yes. And I'd say so. Yeah. And we've had some issues with the home that's come up that we, you know, dip into. a few thousand here, a few thousand there. We live in an older home. You know, it was built in the 80s and these issues are unforeseeable as to when they'll occur next. It kind of feels like it's

one thing every month, you know, that pops up. So along with the attorney who charges us, you know, not every single month, but about every other month or so. And, you know, it's thousands of dollars at a time. So our court should be ending at the end of this month, our whole case, but like we would be happy to walk away, but we don't know if, you know, they file something again, if they don't get their way. And so the next and a year from now will be in this situation again. That's what we don't want. Okay.

Well, we've done a lot of BP money episodes here. And whatever irresponsible is, your current situation is not that. You're doing great here. But we're going to attack the root of the problem here and figure out how, and brainstorm some ideas to solve it, to solve it nonetheless. I have an idea. Let's start with food. I'm showing $1,700 a month in food.

What does a typical grocery shopping excursion look like? Yeah, well, part of it is a bunch of baby diapers and wipes, to be honest, and baby necessities. So I almost feel like we should budget that in a separate area, like maybe miscellaneous or something. Start putting that there because the baby requires that. every week. Typically, it's David's gluten-free. So, you know, his needs from the grocery store, everything is hiked up for gluten-free products. So we buy gluten-free in addition to regular products as well. We're both pretty good eaters ourselves. I like to cook. I like to cook a lot. A bunch of family meals at home, you know, but typically at the grocery store, I would say

the cheapest, like we could get out of there for is, is about 120 bucks. that's that's like I did good I feel like I did well for a week no what did you say or three days four days well I think I think that the problem is is that whenever we go shopping we always miss something yes that we might need or you know we forgot to buy snacks for the kids to go to school so then we go back to the store and end up coming home with another hundred dollars worth of items yes yes I live that same exact life because I I always just get one thing. And then it's, you don't just get one thing.

You get like 15 things. And if that was once a month, it's not a big deal. But when it's every week or several times a week, it gets to be a very big deal very quickly. I would challenge you to take time and sit down and make an inventory of what you've got and make a shopping list. And I read this book by Steve and Annette Economitas, America's, frugal family go shopping or something where they go shopping once a month and that's it. And if they forget it, they just don't go back for it. And that was huge in changing my mindset about going to the grocery store.

So I would challenge you to give yourself a couple of weeks to really get used to this, but shop when you are not hungry, when you don't have the children with you, and when you have time to make sure you have everything on your list, make a list before you go, only get what you need, and then leave. Another way to do this if time is an issue is do ordering online and curbside pickup so that you're not going in. You're not tempted to get this one thing. You can make the list on your, or you can shop on your computer and then, you know, hold it for a little bit. Come back. Oh, I forgot the bananas.

I forgot the fruit snacks. I forgot the strawberries and shop the sales. We have had several episodes over the course of our existence where we talked about ways to save money on groceries. Episode three with Aaron Chase from $5 dinners. She recommends shopping the sales. Oh, chicken legs are on sale this week. That's what you're going to eat this week.

You're not going to go for the steak, even though you have a hunger for it because it's, You know, $10 a pound and chicken legs are $69 a pound. Now let's talk about restaurants. How frequently are you going out to restaurants? I would say on average about once a week, maybe. When we go out with the whole family, it easily goes to $130 or so. We all five of us go. So around once a week, sometimes twice a week, but we get a lot of coffee to go.

I would just look into making coffee at home. I know this is like not a huge deal. every once in a while, but when we're trying to reduce our spending, you know, you can get really, really great beans and figure out how to do it at home. And then your entire expenses for one month is on the espresso machine. I've got a great, I can't remember the name of the espresso machine, it's like $99. And it makes, I'm not an espresso connoisseur, but it makes really good espresso. I pour it on top of my regular coffee and it's fantastic. And that was, you know, now. I don't go out and get coffee at home or at out. I can make it at home and it's the exact way I want it.

That could be a way to cut down some expenses. You have an additional cost at the beginning, but then you, now you can make it at home all the time without feeling so guilty. I would encourage you to cut back on that restaurant spending just because right now you do have the deficit. but look for ways to cut out the spending so that you can continue to have the things in your life without spending full price or retail price for it. Something we haven't talked about, Danielle, is do you plan to go back to work? Yes, yes, definitely. And I never thought, you know, quitting my job wasn't something that I planned. Definitely.

It was like a heat of the moment thing, which was terrible that it got to that point of it. I've been interviewing tirelessly and I do actually have, finally, I have two offers on the table. So I'm actually reviewing an offer today later this evening with one company. And so, yeah, so I've always planned to go back to work and I just never thought, you know, I thought that I would snag something right away, just kind of transition into another role immediately. I didn't even plan on taking a break. But it was as soon as I think a lot of the, I work in tech and the layoffs started happening and the job market became, you know, flooded. And the competition is fierce. For a lot of the roles, there were over 50 applicants that they were had through the whole interview process.

It was just really tough. I've been doing interviews weekly for months now. So finally, I do. I have multiple offers to consider. So I'm really excited about that. looks like I'll be starting at the end of May on the 30th. Oh, that's fantastic. Okay.

And what sort of income are we looking at here? It looks like it would be no less than a base salary of 55,000 a year. Trying to get that up a little bit. And then there's some salary, some commission potential in addition to that, roughly averaging about 2,000 a month. Possibly. And your plans for that will be to replenish the emergency fund and then what? That's really what brings us here. Another thing that brings us to this conversation is we don't want to make the same mistake again because where I was at previously, I felt like we were kind of living life large. Like we, our kids wanted want for nothing, you know, but we were not taking advantage of that additional. We could have.

been saving $5,000 a month when I had my previous job, and we weren't really saving anything. It was just all kind of going out the window. So we want to be very careful now and to decide where can we put our savings, where can we invest to help us along in our journey to financial independence. Okay, I have a bunch of questions here. This is the whole game. So we're going to have $55,000 in annual income above what we thought. Um, this, a couple of completely eradicates the over the overspending by $800 issue that we came in with. What is going to happen for child care? What's happening currently and what will happen after you return to work?

Yeah, right now we still pay daycare, $800 a month. And we're planning to keep that because we both work from home. And it's very difficult working with a screaming baby in the background. And that is, you're paying that, that's excellent from a price point perspective. You've got to hook me up because we're going to pay much more than that. Yes. What, what, uh, uh, uh, do you keep that in place, uh, Danielle, um, while you're not working because it's hard to get into that same program or what was the rationale for, for that?

Yeah. Well, here's what actually happened when I, when I, when we moved, uh, from the Austin area up north a little bit to temple. The, the cost of living is slightly less than where we were. And so we were really excited about the cost of. daycare and signed him up immediately planning for myself to return to work and to be able to have that ability to interview without the interruption. However, in January, we did realize that, well, nothing's coming along. I've been interviewing for a few months. Maybe we should remove him from the

program so that we can take that $800 off David's plate and I can contribute in some way, though not financially. I can contribute with child care. Well, the daycare was amazing and very gracious, and they offered us half off of the tuition, which was amazing. They offered us $400 a month moving forward, only temporarily until I return to work. I know. And so we were really excited about that and decided, like, we should, okay, now I should really, like, ramp up the interviewing process and take advantage of this lesser price we'll be paying.

So that cost has gone back up now to the 800 as of last month. And luckily, I have a job that I'm about to start. So that was the rationale there with keeping him and daycare and keeping our sanity at home during the day. Well, this is wonderful. So now let's say that we didn't just have this whole conversation on groceries and restaurants, right as soon as you return to work starting june first so month of june we're going to bring in another at least two to three thousand dollars a month let's call it three thousand dollars a month

after tax um that you can deploy towards whatever you want at 36000 dollars annualized is that is that right yeah yeah okay so this this so i i agree that we should there's things to look at in the expenses and this month would be a really good month uh before you return to to work full time to really kind of put in some systems for keeping those types of expenses low. But now we've got a whole different problem of we're not. So what are we going to do with all this money? You're going to, by the end of the year, if you don't have a settlement problem that comes out of the ongoing legal situation that you described earlier, you're going to have $100,000 in cash in the bank. So what do you want to do with that $100,000 by this time next year? That's one way to put

the question. Yeah, I think that's the big question. Something we wanted to get some advice or maybe, you know, brainstorming session on. Because when Danielle left her job, that they really forced us to think about our money situation. And now we're kind of turning it around when she gets a job. We're going to have all this extra money that we don't want to spend like we previously did. But where do we put it? So let's go, let's go through. What are the top options you've been considering? Well, we've considered real estate. We're both really interested in it. Danielle's been wanting to run her own Airbnb.

And out here where we live in Temple, it's a big medical community, big veteran community. And we think that our house that we live in now could be a great medium-term rental, possibly. So that's something we've considered putting some of it into low-cost index funds. But we haven't really figured out what our best... What direction?

I have another idea as well, too, with the layout of our home. We're in like a classic, maybe you would call it ranch-style home from the 80s. And the way it's built out is that you could split our home by building a door between our kitchen and our laundry room hall. way and garage area. We built a door there. We could literally like rent out that as a side of the house, as a living space for a family. They would have access to one master bedroom, a laundry room that doesn't come without some renovations as we would have to fully close in the garage and put in a kitchen and insulation and make that space livable. But my idea is to house hack in that way

by putting in some renovations and being able to actually rent out part of our house now and put that towards our mortgage payment here. But that does require some renovations and we don't know what we're looking at cost-wise with that. Okay. I would look at getting a quote, talk to a contractor and see what that would cost. Are we looking at $20,000? Are we looking at $200,000? I'm thinking off the top of my head it's going to be $30,000, but I don't live in Temple.

I don't have any contacts there and I don't know, you know, what your situation is. But for $35,000, what could it rent out for? If you could rent that out for $1,000 a month, you've got three years of payback before you start generating income. Could you do any of the work yourself? If you moved out of this property and rented it as it is today, how much would it rent for? Hopefully around 2000 a month, conservatively, maybe 2,200. And tenants would pay utilities in this place, so you would be clear in 2000 minus your 1450 mortgage payment? Yeah.

Yeah. So I think you've got at least a break-even, if not a slightly positive rental here, especially if that number is conservative, on a standalone basis. Is your property zoned to have multiple units? Would you be illegally allowed to separate it into two units, or would you be operating a kind of illegal duplex if you did that reservation? renovation. Well, we looked into zoning for like adding a tiny house in the backyard or something like that. And it seems like it's zoned for that. But I don't know if it's the same rules for converting a garage into a living unit. Okay, I would, I would evaluate that because you don't want to spend because if you can rationalize the investment as a standalone rental property, that makes this much easier, right? You imagine you're not living in it and you're like, hey, I own this place. Would

I put in $35,000 to separate into two units? Would that add value to the property? and then what would the cash flow and returns be, that will give you a very clear answer about whether to do this. And I think it'll be much more murky if you do it without understanding if it's legal, if it will be a legal duplex when you exit or whether you can rent it out this way. And if you only run it on the income while you're living in the property, right, that it will produce. I think that'll make the ROI of this a lot harder. Also, the official advice, of course, is to abide by our laws and do everything above the books. Yes, that goes without saying. However, something to

consider is if you do turn this into a rental where are you going to live, your housing costs are almost assuredly going to go up because I'm assuming that you have a lower interest rate on this property. We have a fairly high interest rate. We just put a lot of money down. Our interest rate is 5.625%. Oh, okay. And all the equity we have in the house is just money we put into it when we bought it. Okay. When did you buy this house? we bought it one October. We sold their previous house, and we were lucky enough where we got a big chunk of money out of that, and we just rolled it all into this new house.

So, you know, one of the things that a 5.6%, you said 5.6%, 5.6%. 5.625. Okay. At that interest rate, you know, that brings up another option here, which is just pay the thing off, right? You could, you would be, you'd be completely done in two years. if you took your current cash position and the savings that you'll generate over the next two years to pay it off. Is that like the math that's super, super awesome and crazy here? No.

You know, the spreadsheet might model out some other things. But that then chunks you down to, you know, that completely solves the spending issue here and allows you to have a very stable position that you can grow from the other side. So I won't necessarily push you down that route. It's just one to consider. And it's a very simple and freeing choice if you choose to go. Yeah. Okay. And the other option, but I think the fact that you're willing to use this house as an asset is why you're going to be successful, one, whichever direction you go in.

You can hold this property as a rental and put down another down payment on a new property. You can sell this thing and take your proceeds out and move into a true house hack, like a legal duplex, for example, that would have those items or one that's zoned for that type of project. you can go down the Mindy route of a live-in flip, which is perhaps the most powerful option available, right? Because over two years, you don't have to do it. You can do it as fast as you'd like. But if you stay there for two years, you'll get the tax benefits of being able to sell the property for a tax-free capital gain. And I don't know, but, you know, I think doing that with kids might show a lot of value creation to them. That might be a very valuable life lesson to see the property.

actually getting fixed up over time and improving if that's work that you can do yourselves or do some of the work yourselves and hire it out. So, I mean, that's your biggest asset and allocation decision here is this house. And I think you're thinking about it the right way in racing towards financial freedom. So any reaction to any of those ideas or thoughts? Yeah, I agree with that. It's something we've talked about a lot. It is a valuable asset. And it's really close, like he said, to the hospitals. And I think it would rent very well. I think we have to definitely give it a lot more consideration.

But I'll be researching, you know, the legality of blocking it off, like just putting that dividing line between, you know, even if we do that, we still have so much house left, which is really awesome. So we could definitely get away with that, I think. But yeah, it's also, I think we would both be willing to sacrifice if we see the returns, the results a couple years down the line. Yeah, it sounds like we have a lot of good options. We just really have to pick one and go with it, which is a good problem to have. I guess my question would be is which one would make us get to financial independence faster? Tax season is one of the only times all year when most people actually look at their. full financial picture, including income, spending, savings, investments, the whole thing. And if you're like

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

You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves an needle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsored jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works.

Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, In the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash bigger pockets right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets.

Terms and conditions apply. Hiring, Indeed is all you need. When you want more, start your business with Northwest registered agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are 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 Registered Agent at Northwest Registered. agent.com slash money-free. At Desjardin, our business is helping yours. We are here to support your business through every stage of growth, from your first pitch to your first acquisition. Whether it's improving cash flow or exploring investment banking solutions, with Desjardin business, it's all under one roof.

So join the more than 400,000 Canadian entrepreneurs who already count on us. And contact Desjardin today. We'd love to talk. Business. Winning the lottery, but we haven't discussed that one yet. So that one aside, I like the furnished rental idea. And just because you decide to furnish the rental and rent it out medium term doesn't mean you can't do some short term, of course, making sure that the local laws allow for it.

So I think your first bet is to, you're your first, uh, homeowner. assignment is to go to the planning department or the permit department and just talk to them. This is where I live. This is what I would like to do. What are my options? What is the house zoned for? And what does that mean? And keep asking them questions until you understand what they're saying. The permit people aren't trying to be obtuse and opaque. They're trying to be helpful, but they use a lot of language that they use in their everyday day-to-day that may not make sense. So keep asking questions, oh, you can do this with it. Well, what does that mean? Well, you can do this or this. Well, what does that mean? It's zoned A4. I don't know what

zoned A4 means or whatever their zoning is. I'm not from Texas, so I don't know what any of their zoning is. But just ask them what they're talking about and keep asking until you understand. If they say that it's not currently zoned for this, ask if you can get a variance. What is the process for getting a variance? What is the probability of getting a variance? I went to my own local permit office and they said, there is no way we would ever grant a variance for this. So the seller was telling me, oh, you could build this huge apartment complex on this property. And I went to the zoning department and they're like, there's no chance. you will ever be able to build on this property what you think you can build on here.

It doesn't matter what the seller is telling you. It doesn't matter what you want to do. It's your property, but only to a certain point. So talk to the permit office first. But medium term is, I like medium term a lot because it is, it's still the furnished rental. So you're bringing in more income than a traditional long term rental that's vacant. You can swap it out with the short term.

if you don't have anybody right now for the medium term. Oh, July's coming up and nobody wants to rent it for July. Maybe I'll throw it up on Airbnb. Again, according to the short-term rental laws in your city, which I hope are very lenient. And you can hopefully flip, flop back and forth. I have a medium-term rental right now that is not allowed to be short-term rental because of my HOA rules. So that's another thing. If you have it, I don't think you have an HOA.

Just make sure that you are reading all of the laws. So if you're asking, what should we do to get to financial freedom as fast as possible, and I'm willing to use my housing, have both of us work full time and spend additional time after that arranging projects in real estate? Okay, great. I love this. I think you're thinking about the correct way. The first thing is, can you turn this house into more of an asset, right?

I think we've already exhausted that discussion. You need to figure out if that's feasible. If it is, check, that's your first option, right? That's a great thing. You spend a few tens of thousands of dollars and you're able to generate 1,500, whatever it is in rent per month. I mean, that's going to be a killer return that will subsidize your housing dramatically and make a big difference in your financial position. Absolutely. It'll probably also add value to your property in a material way in a short term.

If you can't do that, if you do your analysis and that becomes not feasible, then I think that's where we have to say, okay, how do we tap the equity? most of your wealth is now in this in this property, right? And so you have to either release that equity and put it to something that's going to be more useful or more powerful for you by selling the property and moving into another property, perhaps a house hack. I think that one of the biggest opportunities is, you know, in your situation, if you don't want to have roommates, of course, is a live and flip, right? Because that's a way to add hundreds of thousands of dollars in value to your property if you're able to find the right opportunities and really think about it like a business while you're living in there. It'll also allow you to live a luxurious life. If you can finish

the flip in six months, you live in it for a year and a half, and you enjoy all the benefits of your nice new home that you've created while sitting in a pile of equity that you can potentially redeploy or refinance or whatever with that. So I think that's a great option to go looking for. If you're going to house hack again, you are in, you set an area with a lot of military presence. Is that correct? Yes. VA loans are assumable. So you may be able to find, you could be in the weird position in a 2023 setting where if you find that your current house hack isn't going to be, isn't feasible because of zoning or whatever with that, you could sell this current house, pull out $180,000, have your $60,000 for $2.40, and probably take down

any property in your local area, assuming a VA loan, perhaps one at a two or three percent interest rate. That changes the game for you from a cash flow perspective if you're looking for rentals in the area. Right. And military people move all the time. They get new orders and they're gone, right? So you're going to have opportunities from a VA perspective if you have a large military

presence. So those would be the areas that I would go fishing or sniffing around. to find great housing or real estate investing opportunities if you're willing to go all out with your with your housing as as the key tool, which I think is correct, but most people aren't willing to consider it. So kudos to you guys for for being so clear about your intent to use housing as the big leverage point. Yeah, I think David always was. And I just more recently came around once I read your book, That for Life. And then I came around and I was like, okay. And I'm just dove right into like, we have to do this. That's the pathway I see to financial independence.

Well, thank you for reading it. And I agree. I think most people are not willing to go there. But if you are, then it becomes clearly the biggest lever in that. And then, you know, I bet you that after you do one of those moves, either dealing with your current house hack, which by the way, if you're able to add value to the place and turn it into a legal duplex, for example, you're probably going to jump the value from, what, 340 you said? 310 to something higher than that. And you can probably refinance at that point. Your interest rate's not going to be that much higher than the one that you currently have. So adding value and then cash out refinancing, if you want to use the equity again, is not the same deal breaker for you guys

as it is for most people in America today. So you actually still have that advantage. That's the silver lining for your very high mortgage rate that you got in September of this year, is that the cost to refinance it for you guys are not nearly as bad as for other folks. So that's all. And then again, you'll have, if you do that, whichever one of those paths you choose, you'll probably still have six figures in cash, $150,000 to do another project. I wouldn't do them twice at once, but, you know, you could conceivably have two projects done by this time next year or in 18 to 24 months, which would be a pretty sizable leap forward

on your journey to financial freedom. in addition to the 35,000 in cash you'll accumulate over the next 12 months from your jobs, minus your regular spending. How's that sound as the beginnings of a potential plan? It sounds life-changing. It sounds amazing, very exciting, and hard to imagine. It just seems a little difficult. It seems very difficult getting started, but I feel like it might be like a snowball effect.

Like once you do the first one, then you learn from that, and then you can definitely have some war ammo to go for the next one. But this is all positive news, things that we're learning that we did not know about, like, the VA loans being assumable, had no idea. And yeah, I think it's really helpful just to have it broken down so clearly because we kind of had an idea of these possible scenarios, but they were just floating around in our head and we couldn't really put a finger on. like, okay, these are three best options or something. Let's just pick. It was like, should we do this? Should we do that?

Like, it was a lot of talk without much clarity, really, on what's a tangible option for us to pick. Well, great. And just to kind of go one half step deeper on a couple of those, right? The house hack, you should be able to rule that out within a rule, either say, yay or nay on that within the next month, right? That would be very achievable, right? You need to make, do some research with your city to understand the zoning. and do that. Ask questions if you need to set appointments. And you need to get a quote or maybe several

quotes from contractors if it is, in fact, allow illegal for you to separate the units there and do something permanent that would add value. If it's not, then you have some other decisions to make around whether you want to proceed with some variation of that, a tiny home or whatever. But that should be something you could, you could be clear on whether to do that or not by the end of May. We're recording this May 2nd. On the flipping side, it doesn't matter what the financing is for a flip, right? Like it doesn't matter if the loan's assumable or not because you're going to have to add a ton of value most likely. I mean, it could matter if it's habitable, but you're not really looking for a VA loan on a property like that. Where you're looking for a VA or FHA loan and a consumable mortgage

is if you're willing to move into the property, you have to live in the property in order to send a mortgage, and if you are, and if it would work as a long-term rental, because you lose the advantage of that assumable mortgage if you refinance out of it, right? You don't want to, you don't want to take a 3% mortgage over and then a few years later refinance it to 6%. That defeats half the value of that particular purchase. So that would be one where you'd want to not have to do a ton of work on the property most likely if you do not, not put yourself, understand that you probably won't be refinancing and extracting the cash for a long time. This would be a long-term hold. That would probably be a cash flow deal after you move out of that future hypothetical house hack. Great. Awesome.

I agree with all of that. And I'm thinking, oh, I do this live and flip all the time. Why didn't I go on that rant my own self? Well, David and Danielle, thank you for reaching out to us. And thank you for coming on this show today. I really enjoyed talking to you. Thank you both so much. Thanks for having us on. Thank you guys. Okay, we'll talk to you soon. Bye. All right, Scott, that was David and Danielle.

That was a fun little twist. I think I should have asked them if Danielle was planning on going back to work before we jumped into their finances. But I think that that brings up a bit of an interesting point. When you are planning on quitting your job, I would say if you're planning on going back to work, if you want to leave a job and go to another job, start looking for the next job. If I had spoken with Danielle before she left, I would have given her that advice. Take your time, find a new job before you quit. I have worked some terrible jobs.

I know that it can be so soul-crushing to walk into work every day and be like, I don't want to be here. But it's a lot easier to find a job when you have a job. Yeah. And I also think if you're working a job that is soul-quished, crushing, then just take a small pay cut. I feel like people don't move jobs unless they get a raise. But like if you just go from like 60 to 56 or something like that in annual income and the job is less terrible, that's a huge win. And I think that that's the way to that you can escape

something that's sucking your soul out if you're if you're working all those hours. It'll be hard to stomach the loss of four grand, but it's nothing compared to taking, you know, several months off the job. I do want to point out, though, that what's awesome about David in Danielle is that once she returns to work, they're going to earn, these are two people who are making median incomes, right? The median income in this country is $64,000 a year. So both of them make less than that with their base. David may make a little bit more than that if he has a good year. He has potential to make much more than that, but on average, I'll make a little bit more than that. So this is nothing, this is nothing unrepeatable about this. A long history of good financial

decisions, got them to a place where they had cash to put down on a property here. So they had a stable base. And the path to financial freedom for them, though, what I think is fascinating is it has to be done through housing if they want to get aggressive about it, right? Because we looked at it and we can zoom out and say, you're going to accumulate $36,000 a year. That's 360 grand over 10 years. It's not enough.

It'll get you halfway to a million, $500,000, but it's not enough. The best way to get to a large amount. of personal net worth in a fast, in a short period of time, is start a business. That's not really an option that presented itself as immediately actionable for David and Daniel. They could always get on that path. This next best one is housing. And most middle class Americans who are earning these median incomes are not willing to chunk out their home equity and reimagine how they're going to do it. House hack, cut their house in half literally and rent it out to somebody. And if you're willing to do that. That's the cheat code. If you're if you're not an entrepreneur and you don't earn a

six-figure income or have two six-figure income earners in your household, I think you have to go to housing and use it as as a key strategy in your journey to financial independence if you're a middle class American. Especially now with interest rates so high and housing prices so expensive, changing the way that you look at housing is going to be the key lever that you can pull to change your financial situation. I don't want to be like Debbie Downer and be like, oh, it's going to be impossible, but it's going to be really, really hard to buy a brand new, beautiful, perfect house and still reach financial independence without having extraordinary financial circumstances already. Yeah, you have to earn high income. You have to have some other

very fortunate situation come about. You have to have a like a, you invested in Tesla 10 years ago, uh, like Carl here, uh, you know, or you, you, you, you, or you, you, you, you, you, I don't know how you do it. I think, and I think that's, it's sad that a lot of people are not like David and Danielle and willing to say, you know what? I do need to evaluate my housing. This is not going to be the place where my kids go to high school or college. It's going to be the place that pays for my kids college, um, and, and, and our, in our retirements after that. So I think that that's a harsh reality. And like, I don't have advice for somebody. I don't have advice for David and Danielle to get to financial independence in less than 10 years or very

close to it without using this. And I'm so glad that they brought it up and wanted to use it. I could not agree more, Scott. All right. Should we get out of here? Let's do it. That wraps up this episode at the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, bye-bye, Apple Pie. Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kailen Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.