BiggerPockets Money Podcast - 427: Finance Friday: Building a $200K/Year Portfolio on an “Average” Income

Episode Date: July 7, 2023

A rental property portfolio can replace your job, give you ultimate financial freedom, and allow you to do what you want when you want. But building this massive passive income stream takes time, and if you stick with it, you’ll be rewarded plentifully like today’s guests, Jennifer and John. After starting with an “average” income, this couple was able to consistently buy cash-flowing rentals with the leftovers from their salaries. They compounded their cash flow to buy even more properties and now sit on around $8,000,000 in real estate. With so much wealth, you’d expect Jennifer and John to be the jet-skiing, vacation-home-buying, luxury car-racing types; but they’re FAR from it. John is still working at his W2 job as Jennifer continues to run her business. They both keep their spending low and live a moderate lifestyle. But, the lack of time freedom and heavy hours of a full-time job is eating away at John. This couple needs to know how they can use their real estate portfolio to retire early. To go through all the rates, rentals, construction costs, and cash-flow-number-crunching is investing expert James Dainard, who joins Scott on a resourceful episode for any real estate investor. James and Scott will review Jennifer and John’s entire portfolio, giving them suggestions on what to sell, keep, and buy instead. By the end of this episode, John and Jennifer have multiple options that could make them MILLIONS in just a few years’ time! In This Episode We Cover The “rate trap” that stops so many rental property investors from upgrading their portfolios Investing in real estate on an “average” income and why it’s possible for everyone Tapping into equity and the one metric that’ll tell you whether you should keep or sell your property  Small multifamily vs. large multifamily and why bigger is usually better ADUs (accessory dwelling units) and how to make instant equity by building one And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Find Investor-Friendly Lenders Join BiggerPockets for FREE Scott's Instagram Connect with James BiggerPockets Watch James on the “On The Market” YouTube Channel Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets 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! Money Moment How To Build A Real Estate Portfolio ROE over ROI and Why Your “Cash Flow” Number is Deceiving Click here to check the full show notes: https://www.biggerpockets.com/blog/money-427   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 John and Jennifer and talk about how to optimize your portfolio with a high net worth and when you should leave your W2. Hello, hello, hello. My name is Scott Trench, and with me today is James Dainerd from our sister podcast on the market. James 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. Whether you want to retire early and travel the world, go and make big-time investments in assets like real estate or start your own business, we'll help you reach your financial goals and get the money out of the way so you can launch

yourself towards your dreams. The contents of this podcast are informational in nature and are not legal or tax advice, and neither James 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 decisions you contemplate. James, this was an awesome episode today. I want to give everybody a fair shake that this is a little bit more advanced.

This is a significantly high net worth couple. They didn't get there by being particularly fancy. They never earned particularly high incomes until maybe the last year or two. But they've accumulated millions of dollars. And we're going to talk about the allocation of a portfolio that is well underway and, you know, some high level choices about how we're going to, you know, potentially think about shifting those assets, perhaps to commercial real estate. and that involves discussion around we're going to throw out terms like 1031 exchanges.

We're going to throw out terms like cap rates. We're going to talk about net operating income and that jargon. I think anybody and everybody can learn from this, but there may be a couple of terms that we throw out there. And those are sprinkled in and available for you to self-educate on throughout the bigger pockets platform to go look at those up. I hope you like it and we'll look forward to feedback. Oh, and by the way, listen to the very end because we present, I think, three very different choices to John and Jennifer for them, and they'll have to kind of figure out what the right approach is for them based on a wide array of really good options that they have.

All right, we have a new segment of the show called The Money Moment, where we share a money hack tip or trick to help you on your financial journey. Today's Money Moment is, if your clothing size doesn't change much from year to year, purchasing clothing at the end of the season when it is on sale is a way to save money, and to have a good supply of new clothing available for next year. So maybe now is a great time to buy that ski gear and that winter clothing. if you're thinking about that in the winter here in June. Tax season is one of the only times all year when most people actually look at their full financial

picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier.

It brings your entire financial life, including budgeting, accounts and 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 Liener Stronger for Fitness, the Anxious Generation for Parents, the Anxious Generation for parenting perspective and several Arthur Brooks' audiobooks that have been excellent for mental

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

John and Jennifer have a rental portfolio in the Pacific Northwest. John has a W-2 while Jennifer works for herself as a chiropractor, and they have four children, all under the age of 10. They're wondering if their portfolio is optimized to its fullest potential and when John should leave his W-2. John and Jennifer, we're so excited to have you on the show today. Thank you for joining us. Thanks for having us.

Awesome. To give a quick highlight about your financial position, you guys, are very high net worth individuals. You've got an asset balance of over 10, close to $11 million. Most of that's in real estate, about 8.5, 8.7 million is in real estate. And you're levered pretty reasonably at close to about 50% on that portfolio, a little over 50%. That's across six different investment assets plus your primary residence. And then we've got, I see there's a nice 401k and retirement balance, a very healthy. cash position and a business that you guys own that's successful and profitable.

And your household spending, I believe, is close to, what is it, $8,000 a month here. So, you know, we've got a very, very healthy financial position. And, you know, I think that that begs the question. A listener might be asking, how can we help you today? What are the things that you'd like us to cover? So we've been looking at how to optimize the portfolio. We've done well. And we feel like we've managed the spending.

Good, it was probably do better on spending, but we feel like we're doing well on the spending and investing. We've been doing that for coming up on 10 years. And the question is, how do you take a strong position and move forward in a smart and sensible way, not destroying the stuff you've built, but taking, you know, reasonable risks as the market changes and trying to be smart. Again, we have a family and young kids and trying not to screw it up when you do well in a game. Don't mess up. Awesome. Well, we look forward to chatting about that.

We're going to dive all into that. But before we go down that rabbit hole and start talking about some ways to begin tweaking or changing parts of your portfolio, let's hear a quick overview of your money story. How did you guys get to this position where you've accumulated $10 million in assets on incomes that are not crazy? They're not way out outside the norm here. No, our income's been pretty normal for the Northwest. We're not ironically high income earners in the Pacific Northwest,

comparative to the tech community. But just starting out of college, getting a first house, which is a duplex, you know, two years out of college. Jen's been honestly an entrepreneur, her whole life. But she really, after graduating college, went back. to school and started down the path of becoming a chiropractor. We actually met. He didn't say this.

We met on a blind date in 2007. Yeah. And I kid you not, we talked about a funny movie we had seen and investing in high yield online savings count. And I had my own business as massage therapists at the time before a chiropractic school. And so we were chatting about that. And he's like, well, you need to pull this money over and get this five point whatever percent. And he was surprised at by date, too.

I had done that already. So I essentially would pull over a third of my income and then I just had it in savings. And so I started making money on my future tax payment for that year. So, and I always said I didn't care if I married somebody with money or not. I wanted somebody who was good with whatever they had. $5, $5, $5 million. It doesn't matter if you can't do well with it. Awesome.

So the first date was a money date. This is a wonderful. It was very worthwhile. It was very good. Then let's see here. I guess I started working for, manufacturing company here in the Northwest. That was what, 2006. I went back to grad school and been working a higher paying job. During that time, we had the great financial crisis that happened. And

honestly, I couldn't buy any real estate during the time. We had lots of cash, but we didn't have the education to know how to deploy it correctly into real estate at the time. So we invested in stocks while I was in grad school. Ironically, 2012, 13, we had the cash from the growth in stocks to get down payments

on properties. We bought a personal house. We bought a duplex. We actually ironically bought foreclosure, not intentionally, but we couldn't close on it and they took it to the courthouse.

So we bought that as really our first property together. We found out what, two days before it was going to hit courthouse steps that we were no longer going to be in track with it. So you had to roll down to the courthouse and pick it up. And then from there, we were actually pretty aggressive over the next few years with adding properties.

Ironically, real estate is very forgiving. So even with all the mistakes and just really not smart things we did, the market was accelerating upwards. You manage a property well, even if you didn't do the smartest due diligence on the front end or necessarily really understand the expenses as well. We were able to manage that, a lot of sweat equity, and build that into a real estate portfolio that's where it is today over the last, you know, those intervening 10 years, essentially.

What would you say your kind of max combined income was over the last, you know, last 20 years that you just talked about, the story? And what was the kind of minimum or average during that time period? Now, granted, it's fluctuated quite a bit. when I came out of chiropractic school, we had gotten married halfway through. So when I came out, then came, you know, babies. And we used to joke with our tax guy. Every year it was either a baby or a building or both.

So, you know, in some of the lean years, we basically, I was very part-time and we're mainly on John's income. So I would say combined was probably. Well, maybe 100. About 100. About 100. When we're, for combined income, my first job out of college was at 30 grand. Like in 2002. So very, very low.

And then 2006 jumped up to 2005, six jumped up to close to 50. And then when Jen and I got married, it got to the 80 to, you know, 100 range. And then it's really accelerated in the last few years. I see Max. Max is probably going to be this year. And that's going to be close between the two of us, 340, maybe 350. And that does not count your real estate incomes. That's just active income.

That does not account the real estate. That's just the two of us working. At this time, we keep our real estate stuff very separate. That just goes back into the business. We live off of our income. And so that's kind of one of the questions is like, how do we make their transition? Do we just keep that rolling? All the renovations and purchases come from the, you know, the real estate portfolio.

So again, just congratulations on on this. And this is an incredible, incredible wealth building journey that you guys have been on. and an incredible financial position that you guys have built, again, without being, you know, a doctor, a CEO or any of these high, you know, baseball, professional baseball player, whatever it is. So congratulations on that. And one more point that I want to call out here and just highlight, how would you classify yourselves in terms of spending? How frugal have you been and how important has that been? I would say on the big things we are, we're pretty darn frugal as far as, you know, we don't buy the big shiny new things.

We don't, you know, the furniture in our house, we, we buy a couple new pieces, the rest of it. You know, it's offer up and it's marketplace because we're realistic and we have kids and we don't take the huge vacations. We go to visit his family in Ireland. We just got back a little bit ago. The spending on the personal life has been pretty darn tight. It's the where we probably go overboard and when you look at our finances is our spending on the properties because in those over the last 10.

years, we've, we've probably averaged at least investing probably about 100,000 every year into the properties, whether it's, you know, usually they're all improvements, but, you know, Capax, those types of things on the front end when we buy a property. So that's what kind of skews it. It's funny. Our spending looks really high. And then you go, oh, that's actually the portfolio spending all that. Awesome. And so again, the story here is one of frugality, middle, upper middle class incomes, a steady accumulation, and some really smart real estate bets that you guys have made, predominantly self-managing, I believe, this portfolio over the past two decades and building up a really cool position here. So one of the things that I noticed here,

just to round out the financial profile, is that the business on about $4 million in equity, it generated last year close to $32,000 in profit or in cash flow. And this year, it generated $1,223. Your projection is for $170,000. So can you explain that jump? And I think that's going to be a critical piece of the puzzle to understand and going through how we can optimize your portfolio. So for those, we added two properties that were pretty heavily distressed, ironically, both from the same seller. And they needed a lot of rehab. And for that reason, And one of them, well, one was vacant for, call it, seven months out of 2022. And the other one, the fourplex was vacant.

It'll be vacant all the way up until this coming month where the rents start coming in for that. And between the two of them, the rentals for those units are quite valuable. So it equates to, what is it? It's like 50, almost like 5,000 call up for the duplex. and for the fourplex, you're looking at it and nine, yeah, between eight and nine for the, for the fourplex. So it adds significantly to the cash flow every single month. Question on that, those properties that you just purchased, those value add, you know, because a lot of times when we're looking at your analysis, we're going to be looking at like

cash on cash return, what kind of liquidity do you have? How do you, how do you increase that? How do you structure those deals when you guys are doing those up front? Do you structure those as a construction loan where you're guys rolling in the financing on the purchase or is it where you guys are just putting down a down payment and then funding all those rehab out of pocket, because I know you said a lot of your income goes back into your portfolio, but how do you structure the initial deal for capital? So for those, we were essentially straight conventional financing, just purchased the property and then use the cash flow from the existing rentals to fund any improvements that are needed. So that way we're not paying interest on the,

you're not paying the higher interest rate. And you've got, because the rates were so attrificing, active the last few years, it just seemed like we wanted to, you know, capture those low interest rates and not lose the ability to lock them in for the next 30 years. Were you able to still get cheap financing on those two before they jumped or was that purchased after? Okay. So you were going to lock that dead at like four and a half to five rather than the eight it's at right now?

So you crossed the portfolio because in 2020 or 2020 we refinanced basically. everything and locked in anywhere from, you know, 3.1 to, I think 3.65 is our highest. Are those locked at 30 year? Are those on balloons or 30 years? Okay. Yeah. So this is like, this is the problem and why this is going to be such a fun exercise is because like the portfolio is so optimized, right? You've got what, like four four complexes, one duplex and a 10plex plus your house all at below three, three and, you know, 3.75, 3.6.25 is the highest rate you have. All. All all that are cash flowing or projected to cash flow at a considerable rate. Yet, if we believe your projection model, you've got $4.5 million, something in that

ballpark, $4 million in real estate that's generating $160,000. And you're probably like, well, it doesn't quite feel free to me. Is that the crux of the issue if I were to put it in a nutshell? Yeah. And when we look at next year, when you look at next year, the income will jump again from a hundred and call it a hundred and seventy you know 180 this year to closer to like maybe depending on if we keep our occupancy full we could hit 250 to 260 next year just in the cash flow coming off the rentals and then you know you still get all the principal paydown which

is right now across the portfolio right around eight grand a month as well and so it's like that's the hard part it's like how you know like you're saying it's like you do this you optimize it. Now what? Now what? Yeah. I think you guys have done an amazing job on your portfolio. You're very well balanced as investors. Because that's, you have cash reserves. You got good cash flow coming in. They can weather any kind of maintenance issues. What you've done is you've perfected your portfolio the way it is right now, right? You're running at full tilt. But one question I have because what you guys like to do is you like to, a lot of investors like to use leverage, right?

is how you grow faster. And obviously you guys were able to attain the cheapest financing we've seen ever in the history of the U.S., which is a great thing to have. But is there a reason why you guys never set up with, you know, because like setting up with the extra leverage gives you more cash, more cash you have, you can grow more units. And, you know, especially when you guys are averaging roughly like a 7% return on your true cash flow, because that $260,000 you're talking about, that's, that's, that's, that's, That's net. That's not gross, right? That's, okay. You know, so like on a $4 million equity,

you're making about a six and a half percent return, which I'm sure on your cash, you're making 12 to 13 percent roughly. Yeah. That's usually what we're trying to get. Okay. Like 12 to 13 percent. Is it just because you started purchasing that way in the very beginning, just putting 20 percent down funding all the rehab out? Because, I mean, to have your portfolio at 50 percent sometimes is under utilizing leverage where you can, you know, that leverage can, you can two X that sometimes by pulling out more money. Have you guys looked into tapping into that four million through other different revenue or is it more like your personal goals are to keep your debt cost down? Those are the areas that we don't know enough to know enough. And so we don't

want to, we don't want to miss stuff on that. I mean, when the rates went down, we had done a couple purchases and I was poking him like, hey, if we're going to pull money, we should do a cash out refine out. I'm glad we did because then things quickly, you know, that wasn't an option. But as far as how to how to capitalize on that leverage, that's why we're here. Yeah. And to be totally frank with you, I mean, like the whole thing was like, you know, you always hear the horror stories of leverage kills. And we try to be smart and stay away from that, you know, not to, because again, it's that whole thing of like, don't go bust. So, but We've realized now you've sacrificed, you're sacrificing opportunity and ability to grow by potentially

being overly conservative with the leverage position. John, what is your goals? And Jennifer, what are your goals? You know, I want to continue to grow our portfolio. And I realize now, especially as we're starting to have really high income coming in from the rentals, The where I'm spending my time is no longer, it made a lot of sense early on, have a great W2, really strong earnings. You know, it's how you take care of your family.

And now it's like, okay, I'm spending, you know, way more hours on a on a W2 that is making far less money for my family. Way, way, way, way more hours. While I'm hugely supportive, it's, you know, it gets to be like, okay, what are we getting out of this versus how much stress. what would you rather be doing with your time? I work two and a half days a week in my clinic. And, you know, it's a huge blessing to be able to do that and make what I do.

And can I amp it up? Yes. Do I want to? Not really. Like, that's not why we're doing all of this. So, and luckily, both of our goals are pretty similar on that. I, you know, if anyone wants to stay at the W2 job more, he's, I'm trying to pull him away and saying, you know, it's never going to feel comfortable. It's never going to feel like the perfect time.

And the first one, you know, the first, even if you do an interim job, he's, I'm going to job. It may not be the final, but there's going to come a point where we're being there doesn't make sense. So we're thankfully aligned on that. We know some couples where one wants to invest and one doesn't and they don't agree on how much work should be spent where and we work really hard to make sure that even with our kids, we're first and foremost as far as our health and relationship before the kids, before the business. Otherwise, what's it all for, right? John, do you like your job? I do. There's a lot of aspects that are bogg to me at the moment, but in general, I do. I mean, I've been there nearly almost 20 years,

but it's, it's, it's, you realize you're kind of, you're kind of getting to the point where I know have a lot less road ahead of me than I, with that career than I did when I started. So here's the good news. You can do whatever the heck you want to do. And you've won the game, right? You have, again, six million dollar net worth. You're going to generate $300,000, uh, easily per year in cash flow from these investments on a go forward basis, it sounds like. Um, um, Your job is irrelevant to the financial position here. Not irrelevant, but it's less, it's almost, it's almost like a non-factor. It's like the, it's not the 80-20 of your position.

The 80-20 is managing and growing this business. It's way more impactful to the overall finances for this. So you have complete freedom. You can keep working that job as long as you'd like. You can cut back your hours whenever, whenever you want. If you ask me what a strong position to leave your job is, $500,000 in cash and $6 million in net worth with hundreds of thousand dollars in passive tax advantage cash flow is one where I would say, you're probably good and you spend $8,000 a month on your household. So things are good there. It's a matter of like what makes sense

on a go forward basis. When do you want to do that? And what do you want? And then from there, we can figure out, like, is your portfolio giving you all that you want from it? Surely it's eclipsing your spending goals, but we can modify it to either have more aggressive growth targets by adding leverage, for example, and going bigger. Or we can have it yield more cash flow in the near term by reallocating some of that portfolio to higher cash flowing investments. If that's something that's interesting, although that will come at the expense of having to get very creative on the tax front and maybe pay some income taxes in a tax inefficient way. That would be the high-level diagnosis that I'm bringing to the table here. And then I know that there's also ways to

optimize your existing business in some areas to look at. which of that sounds most interesting to you? Where would you like us to dive in first across that? I guess option A is probably. When you said option A, do you think that the idea of figuring out how to optimize the portfolio for long-term value creation and access to where it's at is the most interesting? I kind of think so. And don't get me wrong, I realize the bias towards when you hold the stuff you own, like you overvalue the things you hold. I wonder if I'm falling victim to that, you know. We all do, John.

We all do. Yeah, and that's why we're having the conversation is you get stuck in what works for you because this has worked really well. And I do the same thing. And all of a sudden I got to be like, okay, I need to do it a little bit different here if I want to grow. Many, many people have that same thing. These houses have done well for me over the last six years. They want to keep them because it's a proven track record.

But then we can talk about how to make it even better because at the end of the day, financial freedom is just about the best financial position you can put yourself in. And so, and those are important things to think about with your goals. Well, then the wild card, too, is, you know, with the interest rates going up, and we would have thought, well, we would finish this fourplex and keep growing and accruing more, more buildings, but that's gotten a bit harder with the interest rates and trying to get those the cash flow. And from the beginning, you know, you can buy and hold and hope that you can refinance in the future.

And that's sort of that weird space we're in right now where you, you know, it's like, I know if I don't, I know that if, if Jen and I just, sit here and do nothing in four years we'll have another million dollars to essentially invest, right? You know, again, it's really like you're saying, it's really hard to let go of that, you know, to like security. Security, right? Well, I think, again, it all depends on where you want to go. And I think, I don't think you guys have quite figured that out yet. Like, like, what, what's next year? So I'm going to, I'm going to start spitting out some, here's some things that I'd be thinking about in your position based on my, my sentiments. They're going to be completely different

than that. I personally, if I was sitting in your portfolio, I don't, I don't know if I'd change a thing. I think James will disagree, and I want to hear his take on this. I'd optimize maybe a little bit on the expense side. But like, there's this phenomenon going on in the United States where interest rates have risen a lot. People have locked in their 30-year mortgages and they're locked in to their housing, right? Americans are not going to move, right? Why would you?

You're going to trade your 3.5% mortgage for a 6% or 7% mortgage, right? So you guys have made a decision in the past that has led to a really good outcome. And I agree with the diagnosis. I think you're going to have to sit on this portfolio and watch the millions trickle in over the next four or five years. I don't know, who knows about appreciation in those types of things, but it's either, you're either going to do that or you're going to refinance these properties and take on way more crazy debt and take higher risks with the next project.

I think that, you know, from a high level diagnosis, I think you're kind of stuck. Yes, you can get creative. You can sell these properties. You can 1031 exchange them. But by the way, a 1031 exchange means that you have to get a new property with the same amount of debt on it unless you want to pay taxes on the reduction in what's called boot. and then you're going to have capital gains tax to pay. If you sell the property and just harvest the equity that's in them,

you're going to pay an agent to sell the property for you and you're going to pay a commission there and all the closing costs. Then you're going to pay the capital gains on there. And the pile of money that you're left with after that and your debt is going to be very nice. You still have some spending money, but it's not going to be, you know, quite as much. It won't feel like very much to you at the end of the day when you run that calculation. I don't know if you have done that math or talked to a CPS.

about those topics. No. It's not really an option we've ever considered. It took so much to build the portfolio over the last few years. So you're stuck with a pile of wealth and plenty of cash flow to cover your deeds. And, you know, what am I think plan A for me is sit on the portfolio and do nothing and manage it effectively. Right.

And then when you have the next, you know, the pile of cash flow that's coming in, what do you do with that? Well, you either continue adding on to this portfolio in thoughtful and creative ways. I love the idea of assumable or subject to mortgages or those types of things. So you can keep buying properties like this with last year's debt if you find those opportunities. Or I like the idea of going into lending. I know that's where James puts a lot of his extra cashes in hard money loans in those types of things. And you guys are very well positioned to do that kind of stuff. And that would help you get, you know, a 10 plus percent potential yield on that additional million that you're

going to generate over the next three or four years. And if, you know, worst case scenarios, you're now foreclose on a property that you know how to operate and manage pretty well. So that would be my bias coming in. I know James is going to have a very strong differing opinion on that. I'm naturally a trader. So I, you know, one thing I do believe people get stuck on right now is the low rates. And yes, cost of money. I mean, and there's a good example right now. I just sold a duplex in Queen Anne Washington, great area. I had no cash in the deal.

I was cash flowing $1,500 a month, and I had a 4.5% rate or 4.25% rate. But I just traded it for a property that actually, I go from $1,500 a month to break even, and my rate now is going to be 7.5%. And I would do that trade 10 times over right now, and let me tell you why. It's because at certain point, these assets,

they get into steady growth. right when we when you guys purchase these properties you got them at the right time right 2012 was when the market was flat your guys just income were up you could obtain cheap financing and you bought them right and buying them right gives you gumpowder to explode your portfolio out and because the equity is really what can grow you rapidly and you know right now you guys have an amazing portfolio you're making a great cash on cash return on it but your overall return on equity is around 6%, which is 6% is still a good growth, but it also is below inflation at that point. You know, and so for me, I'm always looking at what kind of equity and what can I trade into.

And even if I'm getting a higher rate down the road, it's 6.5%. If I'm getting a higher surplus, it doesn't matter. If my cash on cash return is going from 7 to 8 with a higher rate, then I'm still advancing my position at that point. You know, things that I would look at, there's kind of two ways. You can either look at your portfolio like it's a gold mine, which it is, right? It's steady, it's safe. You're not going to be the Seahawks on the one-yard line throwing the interception in the end zone. You know, you're not going to be doing that, right?

Run the ball. If you just run the ball in with your portfolio, everything is going to be fine. But, you know, with this quest of financial freedom, you know, like you were saying, you want to get down to two days a week. John might want to stop working to give you that extra padding in your expenses because right now yours is expenses rates run great. You're at 30 to 35 percent. That's amazing. But once John leaves that job, that's going to go right back up to 50%. And that's going to be trailing with the average, right?

And then you have to figure out how to increase that. What I would do is, you know, you have properties scattered everywhere. Well, they're all in one central city, but there's still different properties that come with different expenses. And right now your portfolio is running an average of about 50% expenses. And that's with you guys self-managing too, correct? That's correct. And so if you add in property management, you're going to be running like 60% expenses on your portfolio, which is a little bit higher. And that's what happens when we start accumulating units and they're spread

out everywhere because we did the same thing. I'm a Pacific Northwest investor. I started with single families. We rolled the small multi into large multi. If you took these buildings and you went and sold them right now and the combined value is 8.7, right? If you took that and you bought a unit, if you bought that in Everett, you're going to get that for about 150 grand a door. You're going to be able to obtain like 70, 80, units in Everett with that pricing at that point with today's market. In addition to when you're buying a big portfolio like that, even if you're trading into a six and a half percent rate, our average expenses or your expenses on bigger properties actually go down because you're more efficient. And so you can naturally add in 10 to 15 percent in cash flow just by reducing

your expenses on that one trade. And that will offset all your debt costs at that point. And so just by making that one move of selling off the properties and putting them into one, your cash flow would go from annually, if you're projecting to get to 360 by the end of the year, you're going to be picking up an additional $54,000. You're going to be at $415 just by making that trade. 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. 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're the largest registered agent and LLC service in the U.S. With over 1,500 corporate guides who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it,

like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data. And all services are handled in-house because privacy by default is their pledge to all customers. Visit Northwest Registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com slash money-free. Where are my gloves?

Come on, heat. Any day now? Winter is hard, but your groceries don't have to be. This winter, stay warm. Tap the banner to order your groceries online at voila.ca. Enjoy in-store prices without leaving your home. You'll find the same regular prices online as in-store. Many promotions are available both in-store and online, though some may vary.

What would be the cap rate on this 70-unit apartment complex, and what would be the interest, on the debt for that apartment complex. So with commercial debt right now, so we just, and this is a perfect time because we just closed on a 58 unit in Everett, so I can rattle the cap rates. Stabilized, we're a 7.9 cap stabilized when we're all said and done. So that's already going to increase your cash on your equity, return on equity right there. We were able to get financing locked at a five years, or it's a 10-year note, fixed for five, and that's at a 6.1 rate right now.

So yes, you'd be giving up your 3% rates, but then your overall return and your spread is going to go up at that point and your costs are going to go down. So naturally, you're going to pick up that extra 15 to 20%, even with paying that higher rate at that time, and your life, if you guys like financial freedom, you have one site to manage. It is a lot simpler, a lot easier,

and it's about that work-life balance too. Like, okay, well, to run around and manage all these properties with all different areas that's different demographics of tenants, it's, you know, it's just harder. And whereas if you have a bigger building too, or if your properties are spread out everywhere, typically your property management costs is going to be 8 to 10 percent because it's more work for a property manager. If it's in one, you're getting 5 to 6 percent. So all of your costs had go down, just like you guys have ran your living expenses.

You've, like, built it based on keeping your expenses low. By doing the one trade, it will match what you do personally as well. Your expenses will match what your life expenses are. And the 15% will almost, that will pay for a third of John's salary just to stop working. Just by making this one trade would pay for 35 to 40% of John's salary right when he leaves the door without putting any more money in the deal. James, this is awesome. I have a quick question as well on this. What is the purchase cap on a TTM basis?

So you said, stabilizes it'll be 8%. That's your cash flow for those listening. So essentially your net operating income will be 8%. So if you have a million dollar property, you make $80,000 a year and rough cash flow before allocations for CAPEX and those types of things and principal payments. But what is it, what are you purchasing it for? Because you said that's the after stabilization cap rate. Yeah, so we were buying it at a 5.8 cap on existing right there.

So logically, that doesn't make sense when you're buying with a 6-1 rate. you know typically your cap rate needs to be above your interest rate that's a general thumb to keep but it was a very cosmetic turn to which they definitely have done by looking at their portfolio because they've bought some pretty old buildings so those are harder renovation plants and actually what we have found is going from the small harder renovation like what you described on your last purchase was a great buy you got it well on their market but it needs a lot of work that that's it's just you know that's a six to 12 month deal to get that thing fully stabilized and optimize. The great thing about buying bigger buildings is you're buying them a lot newer. Like the

building we bought was built in the 70s. So all we have to do is swap out flooring, cabinets, doors, trim, but the overall bones and structures and the mechanicals are good. Because so it makes it it very efficient at that time. So you don't have to take on, when you're buying bigger, you don't have to take on the same amount of work either. So it's just basically you're getting more efficient at that point. But you have to get comfortable with trading that rate out. And going back to my example of why I did that deal, because people are like, Have you lost your mind? You had a lower rate in your cash flow in $1,500,

and now you're not cash flow in anything. I did that trade because the building I sold was maxed out. If you guys sell these and these are at the top dollar, you're going into steady equity growth at that point. You're going to be getting your 3% to 4% a year. Whereas if you can buy something where a bigger building where your cap rates 5, 9, and you can increase it to 7, you're increasing the value of that building,

which is going to create that equity pop. And so I made this trade to a duplex in Bellevue because, yes, my cash flow position is worse, but that will get better when rates fall. But my equity position, once I'm stabilized, is increasing by $350,000. And so over a 12-month period where my $1,500 a month in cash flow is not going to get me there for the wealth. And then I can trade that $350 then later for more cash flow because I'm in building, you guys have done a great job building equity. And then it's about maximizing your equity to get you to that. that final space where you're like, I don't even need to manage my properties anymore. They all pay for each other because the equity just keeps buying it down, buying it down,

and getting you more doors. I think that's awesome. What James just said is that's a business, right? You're going to go in and you're going to buy a property and you're going to turn 50, 60 units. You're going to take on a different type of debt to purchase that portfolio. To exercise this, you'd need to sell essentially all six of those buildings and 1031 exchange, the equity into this new property and enclose that debt. This will be a project. And yeah, you'll absolutely get better returns on that if you can drive rents up in a pretty meaningful way in the

period following acquisition and property. Probably take you like a year. I don't know. Is that right, James, you think, to move the property to its post-stabilized rental rates? Yeah, it takes about a year depending on the size of building because what you're doing is you're doing a structure that when you're buying these a little bit more cosmetic, you're moving out like five people at a time, you're turning the units. So you still get to keep your debt service going. But yeah, it's about a year process when you're moving people. I think in that one, the 58, we'll be done with that in about seven months all the way through. But we also had a third of them moved out when we bought so we could just tackle those immediately. So I think that's a potential option for you. That's a

business activity, right? So that's going to be, that would take your existing portfolio, which, you know, probably feels to you fairly diversified, even though it's all in one place, and concentrating it into a single asset, I think there's a spectrum of optionality along there. You could, for example, purchase a property. You'd have to keep probably about, again, four and a half million dollars in debt on the portfolio, which will dramatically change your debt service. So you want to run those through. I would run the numbers on the two things and say, hey, if the, if the, if the opportunity size is dramatically, for me, it would have to be dramatically better. to go to go with James's option there, then to just kind of go with the status quo because,

you know, what you've got is working there. And it may well be. But, you know, several things, I think, I completely love James's strategy. If you can find a deal, if you can add the value, and you're willing to assume the project there, you will be able to drive a much better return than holding the existing portfolio. But the existing portfolio is freedom in today's sense as well without without any modifications to it. So it's all about what that, what that end goal is and the comfort with with that. I think that's, you know, I think that's probably our biggest hurdle is the comfort with the security of it. And that that's with our portfolio, our current life, his W2. He gets real stuck. I'm going to throw you under the bus here. Real stuck on the security of like,

well, this is my salary. And we have medical and we have kids. And we've got a, you know, but getting past that comfort level and kind of pushing it. I think we're both. interested in. It's just kind of jumping over that hurdle. And so, you know, the comfort in the security is a good thing, but it's also one of the things that's detrimental to us and our future growth. And we do want future growth. So it's, yeah, I mean, the good news is that we can stay with what we're doing now and still be okay or we can push to what James is saying and accelerate, which, you know me. That's my vote. So she's generally the, I'm usually the conservative one. I'm the handbrake.

And she's the one of us like, let me balance each other out. Another route I might take in your situation is I might say, what is that number that I'm super comfortable with? Like if I was just like, if I had a pretty safe $200,000 in passive cash flow every year, would you then, John,

be willing to take the remaining, you know, four million bucks of your portfolio and go big on a, on a James bet here? Would that change things for you? I think in some regards, yeah, it probably would.

And, you know, and I, I, I, I, uh, the other thing I realized, too, is I, I wonder if I'm getting caught in a little bit of, uh, market timing thinking as well with the portfolio. Because there's, we still look at deals all the time for, for properties. And admittedly, nothing has been ever as big as like a 50 unit or any, anything deal that size. So we haven't really considered those to James's point. But, um, you know, there's, there's so much assumption that our belief, I guess, that, that, you know, there will be these opportunities later, whether it's later this year or into 24, you know, are we are we jumping too early? You know, if I decide to get super aggressive, am I, you know, am I being overly aggressive and not like, you know, reading the, reading the signs? But there's one thing about that. And I get trapped in the same thing because I'm a 2008 investor, so I have bad whiplash and I lock up sometimes. But if the opportunity, opportunities are better in one year and pricing is less. Your portfolios worth less, too, and it's an

equal trade. It's about what can you do today and can you increase that return? And that's when you want to make those big, and that's what you guys can do to make that big growth jump. But it is also not for everybody. I'm also kind of a high risk person that, you know, I'm chasing this equity growth. I actually don't care about cash flow at all right now. I'm just trying to get the biggest equity position and then when I'm ready to kind of settle down, I'm going to sell it all, roll it into one thing, and then I'm going to take all this equity, buy a bigger building, and I'm going to have one building that's going to pay for everything. But you guys do have a great portfolio, and there's room to improve, too, right? Because you've maximized it, but your

expenses are high in just implementing other strategies. Like right now, do you guys do utility billbacks? We don't. In the duplexes, they do their own garbage, but water sewer garbage is included in the four fluxes and the 10. Okay. I would implement those in me, if you guys want to start growing a little bit too on your existing, because, you know, maybe you get to the point where you're like,

I don't want to make the trade right now. We don't want to fumble on the one yard line. But you really start breaking down your portfolio on how to perfect it, right? And if by putting in utility billbacks, which are now standard up in Everett in Snohomish King and Pierce County, that's going to automatically put about three to five percent back in your, your return right there. And then you can take that savings.

and then what we were talking about was adding more units to your building and, you know, you know, just really going, okay, once we save up a certain amount of cash on this extra cash flow, then take that and invest in our profits into adding that building or adding that unit. And as long as you can generate the same cash on cash return that you expect, you know, so what we were talking about before that we hopped on was you were going to add a unit for $250,000. It only makes sense if you're minimum, you have to make sure that you can generate 20, $500 a month in rent if your minimum return is 10%. And so you just want your buildout cost to track with what your rent is. And then that will make the decision. If it doesn't, then you want to

make your portfolio more efficient and get your portfolio to pay that overage at that point. Okay. Now, what's your strategy with the billback? Do you do per person or do you do per unit or is it a mixture? We do per unit. And then units that we do have multiple tenants in one house, we actually do that we make them sort that out that it's in their lease that they're all obligated to pay the one bill but they got to sort out their own separate billing okay yeah and i just charge a utility fee okay so that's another i don't know if that's an option in your state um but you know we here we just i estimate the utilities on an average basis of it just charge that on top of the rent and so the payment includes rent and plus utility fee excellent okay just make sure you're

not cash flow in your utilities that is not allowed that's right got it yeah it is you got We should the fees slightly below, actually. Yeah. So James is probably more like long-term appropriate. Mine, yes, I still cover a small amount of the utilities. But yeah, it's very simple, you know. Well, and I think there's also kind of a little more responsibility and utility usage if you're on the hook for it.

Exactly. Versus like, hey, we don't pay water. Everybody come over and do laundry. So we now have that in our lease that that's not allowed. Trying to get smarter over time. That's like the no archery sign at the beach. You know, somebody, somebody sometime put that into the, made that sign of requirement here.

Somebody can't feel like that's necessary, but apparently it is. Let me try another one here because, again, I think, I don't think you guys have a math problem here, right? I think there's more of like an allocation and psychological issue to resolve in your situation because you're way past the point in terms of net worth of what you'd need to actually leave your job. John or feel, I'm going to with that. So I want to go through a couple more exercises here. and try a few more portfolio allocation things on. You know, I think if I handed you a pile of $2.5 million in cash right now,

how would you allocate that, John, to feel super comfortable with leaving your job? I think you have a different allocation than I do. So. Luckily, you'll both be able to go through this exercise because you have more than two and a half million each to allocate if you wanted. I would keep a substantial amount in cash reserves. Honestly, I probably put at least, you know, 300 to 500 in cash reserves. And then truly I would go figure out investments for the others.

Again, I default to buying the duplexes and fourplexes because that's what I know. But that's how I would allocate it and, you know, try and find opportunities there to buy undervalued assets. that would be my cash cushion would help ensure that we don't get tipped over and, um, yeah, pick up one or two properties, start working on them. And how would you allocate it?

Honestly, pretty, pretty similarly. I honestly thought he would keep more in cash reserves. Um, being aggressive. Yeah. Yeah.

Uh, because again, security, security. So, but no, pretty, pretty on,

on par with that. We've been together too long. That's what I. Can I jump in real quick? So I started stocking all your properties on the internet as we were talking. you know and you guys have some hidden value on these and so if you know for there's nothing wrong with the plan that I proposed is this the way I do it I know a lot of people do it that way it's aggressive for you know there's nothing wrong with also being more conservative and keeping your

financing locked in and what I'm looking at like even on one year properties like the one of four unit that's on walnut um you have a big parking lot there and Washington has just eliminated single family zoning and they're allowing for mass up zoning and you have a very good potential to add one to two 80s or dados to your parking lots your rents would go down a little bit and then the nice thing about doing that is you have to come up with the cash to build those they're going to cost you about 300 grand to build one each each one of those but then once you condo those off you can leave your financing in place on your four unit your cheap three and a half percent rate and you can refinance just those two units at about six percent and once you're right to

rates fall, then you can bring it in. But it allows you to add more units in, get more rent income, and keep your financing in place. And then eventually, if you want down the road, you can sell those off later if you wanted to, but I'd probably just keep them as one big package. But it allows you to expand out your portfolio without having to reset your loan basis. Interesting. That's a good plan. That'll keep you busy, John. That sounds like a better value add than the Yeah, the W-2 for a year or two. And that's just an Everett proper that they've been allowing that more. That's in all three major cities.

So Seattle, Everett, Tacoma are really pushing these ADU law in Dadu expansion. In Seattle, you can condom off and sell them. In Seattle and Tacoma, you have to keep them as rentals. But that works for what you guys are trying to accomplish. And you have a great lot here. We could cut this thing up all day long. So that's a good thing to hold on to. But the thing that you have to think about is you've got to come up with that money to build it

without resetting your loans. So if I was you, I would network with some private investors, borrow the money and then refy it. It's going to cost you a little bit more up front, but it allows you to keep that really good rate. Because that is a great 3.5% on a 30-year fix is a good thing to have. There's some of the similar properties like the 4plex on chestnut. It also has a big open area just in front of the building as well. And then 4510 in Marysville has a large lob that's currently a car park. Yeah, I mean, we used it as parking and storage.

So we hadn't actually really thought at all about the change in regulation, the DADU law. We never really considered that. We always thought that was for single family, to be totally frank with you. I think that's a bingo, right? I mean, we just asked you guys, what would you do if we handed you $5 million in cash? And you said, I'd do exactly what I'm doing currently. But I want to grow my portfolio more on this. Like, there you go.

Like, there's the answer. Now you have the, now you have, you have, you have this opportunity to add value to your existing structures that you, you know, you know, you can pull off these projects, you know, either in tandem or one at a time. You have the cash right now to finance that project completely, if you wanted to. And, and, and you'll replace that entire reserve in one year, um, without even, you know, you probably would not even notice your reserves dwindling while you tackled one of these projects would be my guess. Because the cash. flows to finance each phase of the construction would likely be replaced by the rental income from your portfolio. Like if you were just looking at your balance over time, you probably wouldn't need to notice it with your current situation. So I think that's a fantastic discovery by James. Great job, man. That's all.

I had no idea. I would never have gotten there because I don't know that regulation in Washington. And you could also take a loan out against your 401k that you've done such a good job, just temporarily to build it and then put it back in once you refinance back out. because you guys have done a great job saving, and that's usually a lot of investors' biggest problems. But tap into those investments. It's just, you know, I would break out of the, hey, this bucket, this bucket, this bucket. How do you maximize the buckets?

And maybe you've got to mix them for a short amount of time. But it still gets you to kind of your end goal. I think you've got some fun options here. Your portfolio is so close to optimized in it's today's shape that, yes, I think that if you wanted to go big and build a business, James approach is going to get you richer faster than the one that I held out there. The current portfolio, though, if you do nothing, is going to cash flow and cover all your needs. So game is won. Victory is complete.

We're pretty close to it with your current situation. But I think that if you want to blend of both, then I think James's approach of just adding value by basically taking to the account that your properties have been rezoned recently without you really being aware of that. That seems like a pretty good place to go hunting. opportunity there and I'm sure you can continue with your preferred choice of of paint and floor in those new constructions that you're going with. James, what do you think the back of the napkin, since you know the area so well, the, you said cost 300 and ARV of one of those projects would be. So like if that was, so you can't sell them off right now, but the value on that building, so you're going to build it for 300. It's going to be worth about 399 to 420. Being next

a multi-family, you're probably going to be worth $3.99. So you're going to pick up an equity position there. And then that unit should rent for about $2,100, I would think, for a brand new two-bedroom, two-and-a-half bath. That should be about a $2,000 to $2,200 rental. And you guys can probably verify that a little bit better than I can because you have more units there. So the issue you'll have is it's not going to quite hit your cash-on-cash return expectations. because you're going to spend, you know, roughly 300. And you can probably build that for 250 there too. If you do more rental grade, the 300 is more for resale.

So you update it. So you'll be about 250 in and get about 2,200 out of it. But it does allow you to start building that. If you don't want to trade out the buildings, you can start building the infrastructure behind that. And that's very similar to what we were looking at when we looked at the property, the 10 unit up in Marysville. We're estimating, you know, the initial rent on it would be right around 20, 200, maybe a little bit higher for the town home on a build cost of right around 250 for that.

And whether this is good or bad, it's served us well. Our strategy has been very patient with regards to the, you know, not trying to get the, not having to get the maximum capital today to, you know, kind of essentially just lower risk and make sure that we're slow and steady rather than, you know, sprinting and realizing we've gone the wrong way. But I think we both are wanting to, I tell him all the time, we'd have to get comfortable with being uncomfortable, comfort and the discomfort. And so pushing it past what we're, what we're comfortable with as far as the security aspect. I'm usually the one that's like, you know, we should go 12 steps that way. And he's like,

I'll compromise with eight. And so we land somewhere in the middle. But I, you know, we are in the scheme of things relatively, you know, in the beginning. And we do want to do this long haul. So it seems riskier to him to do it now that the kids are small. And I say, well, now it's kind of the time to, you know, to push, I think, to push and and grow at a faster rate. Well, John and Jennifer, thank you so much for coming on the show today. We hope this was helpful. And we're so grateful for you coming on and sharing a unique and awesome challenge for us.

And yeah, we wish you the best of luck. Please let us know what you end up deciding to do. Absolutely. It was hugely, hugely insightful. Thank you both. Thank you. Yeah. I'll have to attend your meeting.

up to go ask you some questions in person. Oh yeah, come hang you out. Yeah, absolutely. All right, guys, thank you so much. Thank you very much. Take care. All right, James, that was John and Jennifer. What did you think today? Oh, those are my kind of people. It's cool to see investors grow their portfolio and not get too far out there because that's a huge mistake. A lot of people do. And I could relate with them a lot about getting kind of locked up, getting comfortable because we all do that. And it's about how do you push to that next thing or figure out whether you even want to do it in the first place. Yeah, absolutely. I thought that was. was really an interesting dynamic because, you know, I, I biased towards, and the reason I bias,

by the way, towards the approach that I took is because I'm the CEO of this company at bigger pockets, right? So most of my time and energy is spent on building this company. And I sometimes kind of get locked into that and forget, like, oh, if I wasn't CEO here, absolutely, I'd be trying to take a more aggressive approach, like what you just put together, or like what you suggested with a 58 or 70 unit apartment complex and trying to grow to the next level there. So I loved, I loved the balance of opinions there, and I really think you hit a home run, but when you uncovered the, when you stalked the properties and uncovered that they have room for, you know, dados to be added to them. So that was an awesome find. Yeah, might as well. I mean, if you don't

want to sell, figure out how to maximize it. So the one thing I've always learned is you can always improve a deal. Do you have any parting thoughts or other things that, you know, you'd have for investors given what we discussed on today's show? No, I just think it's important that investors don't fall into that rate trap. At the end of the day, it comes down to what are you making, what's your return, and the debt is just a byproduct of that. And so don't get locked up because it can prevent growth. And for us, we're all trying to get to financial freedom.

The more growth you have, the quicker you're going to get there. Awesome. So, yeah, you generally recommend, for me, not doing what I'm currently doing. And I think that's something to think about. I have to go and review that with my business partner on my own portfolio and say, what should we be doing here? Because right now, I told John and Jennifer after the show, like, that's what we decided last year. If we looked at it, we're like, we don't think prices are going to move much in Denver for the next year or two, maybe three.

We've cash flowing just fine. We've got this low interest rate debt on here. If we sold the properties, we'd have to pay, you know, transaction costs, and then we have to pay capital gains. We've refinanced a few. So the amount of cash we'd actually extract if we didn't 1031 exchange wouldn't be that high. And we thought, hey, we'll just hold on and enjoy the cash flow and slowly de leverage these things. But maybe we should be thinking bigger on that portfolio and moving it to the next level. Let's break down your portfolio next. All right. Let's do it. Awesome. Well, thanks so much, James.

And maybe we should do that. We'll talk with Caitlin and see if that's a good episode. I'm 100% in. Let's get you on the On the Market podcast. And me and David, we can go through your portfolio together. Awesome. Well, James, let us know if you think that would be a good idea, guys. And maybe we can make that episode happen. So James, great catching up with you again today. Thanks for all the great wisdom and the great thought starters. And we hope to have you back on a few more of these Finance Fridays in the weeks to come. Anytime. All right.

He is James Dainert and I am Scott Trench from the Bigger Pockets Money podcast. And we are saying Be Sweet. Parakeet. Thank you, Mindy for that one as well. 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. on.