BiggerPockets Money Podcast - 483: Lean FI in 6 Years, Fat FI in 10, and Quitting Your Job The FIRE Way

Episode Date: December 22, 2023

At twenty-nine years old, Andy Johnson had achieved lean FIRE. He had enough to survive but not enough to make his future family comfortably financially free. All he needed to do was work a little longer, make a bit more money, and intensely invest. That plan went out the window when Andy woke up one day, unable to return to work. The high levels of stress and constant demand from clients got to him. He quit his high-paying job with no plan. Over the next year, Andy did something incredible. Even without a steady paycheck, he built a massive real estate portfolio in just ten months, bolstered his family’s investments, and now, a few years later, in his mid-thirties, hasachieved true financial independence. How did he do it in such a short amount of time WITHOUT a job? His method is one only the savviest of investors would have thought of. In this episode, you’ll hear how Andy bought twenty-one rental properties in under a year, paid just $1,500 in taxes on a $200,000 gain, and was able to move to a more expensive area, retire part-time (by choice), and reach ultimate financial freedom. If you’re stressed at your job and looking for a way out while keeping your investments and bank account intact, this episode is for you! In This Episode We Cover Quitting your job with NO plan and how to ensure you always have the ability to walk away How Andy bought over twenty rental units in just ten months  Avoiding capital gains tax and how to legally lower your taxes DRAMATICALLY Using real estate leverage to get rich and the right way to analyze a rental property Long-distance real estate investing and how to get connected to the best agents, property managers, and contractors in the area The “part-time jobs” Andy is taking up in retirement (even though he doesn’t have to) And So Much More! Links from the Show BiggerPockets Money Facebook Group Network with Other Investors on The Path to FIRE Through the BiggerPockets Forums Finance Review Guest Onboarding Join BiggerPockets for FREE Mindy on BiggerPockets Scott on BiggerPockets Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Money Moment Turning 9-to-5 Burnout into 24 Doors (in a Year and a Half!) What to Do Before You Quit the High-Pay & Benefits of Corporate World Physician on FIRE’s Tax Loss Harvesting Blogs: Top 5 Tax Loss Harvesting Tips Tax Loss Harvesting with Vanguard Click here to check the full show notes: https://www.biggerpockets.com/blog/money-483   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, my dear listeners, to the Bigger Pockets Money podcast. On today's show, we talk to Andy Johnson, who tells us all about his journey quitting a high-powered job where he was making great money, but to the detriment of his mental and physical well-being. Some of you listening right now could also be itching to quit your job because you don't love it or it's not fulfilling or whatever reason you have. Andy is a great example of how you can plan ahead and leave gracefully with as little risk as possible. Andy's intentionality, his strong financial position, his exit planning and strategy are things that are important in any market, especially in today's uncertain environment. Be sure to listen carefully to Andy and glean from his experience

on how you might apply some of what he did to your own situation. Hello, hello, hello. My name is Mindy Jensen, and joining me today is the peerless Kyle Mast. Thanks, Mindy. It's good to be here with you. As always, this is a good one. This is a great one. Kyle 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, travel the world, go on to make big time investments in assets like real estate, or start your own business or buy a whole bunch of rental properties after you quit your job, we'll help you reach your financial goals, get money

out of the way so that you can launch yourself towards your dreams. Kyle, I am so excited to bring Andy's story to our listeners because he has an absolutely repeatable, really awesome story of buying cash flowing rental properties from a position of having an educated plan and then taking action, which is really what it's all about. Yeah, it's so good. Let's get into it. I had a ton of fun talking to this guy today. This is amazing. Yeah, he's awesome. All right, let's bring in Andy. Andy Johnson is a real estate investor who managed to quit his full-time job in the finance industry and buy over 30 rental properties in one year. Tax season is one of the only times all year when most people actually look at their full financial picture, including income,

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30 day trial at audible.com slash BP money. Andy, welcome to the bigger pockets money podcast. I am so excited to talk to you today and I want to know how you bought 30 rental properties. But before that, welcome to the Bigger Pockets Money podcast. Thanks so much. Happy to be here. Let's jump right into it because I have like a billion questions. What year was this mythical year that you quit your job and what was your actual profession in the finance industry? Sure. So our little company that I worked for, arranged financing for physician-owned real estate. So the simplest analogy I could give you is that we were sort of like a mortgage broker that you might have for traditional residential properties, but it was on the commercial side. And then more specifically, it was niched down to physician-owned real estate.

So that could include medical office building, surgery centers, hospitals. They hired us as a consultant to arrange financing. And I worked at that job from 20, 2013 when I left school with my MBA and quit almost exactly six years later in May of 2019. And how did you discover the concept of fire? Fire, yes. So I found it pretty quickly. So like I said, I started my first full-time job in 2013. By 2014, I stumbled across it.

And this was a result of some sort of Googling during work, I believe, of sort of personal finance tips, how to sort of strengthen your personal financial position. And I stumbled across Mr. Money Mustache. And so that was my initial introduction to the world of fire. And sort of it went from there, found all of the typical sources that everyone said on here, but started with Mr. Money Mustache like so many others. Okay. So it sounds like employers, if you want to keep your employees, don't give them access to Google. That's right. I remember they did. What was it? We had like Facebook banned or something, but I guess they didn't ban Google and quick to spend my spare time researching things like that. Yeah, if you can block the Mr. Money

Mustache website, that would take care of half the guess we've had on here probably. You don't even have to do Google. Okay, let's move on to the next stage of your life. You know, you had this job, which sounds, you know, it's super exciting. You know, I'm a broker for finance, for doctors. It's actually really excited to me. That sounds, I would love to dive into that a little bit more. that kind of niche is pretty rare. But what happened next? You found this fire concept and you're doing it at work. So my guess is usually when someone's looking up that stuff at work, they're thinking,

hmm, what's my exit strategy? You know, in case I need to exit at some point, what am I going to do? So what were you thinking? And then what happened next? Yeah. So the company I worked for was a very, very small company. I was the fifth employee there. and it was unstable, to say the least.

It was being in the sort of financing industry, you know, supply and demand can be influenced by outside forces and things can slow down very quickly. I knew from hearing from the other individuals that worked there that they had a very hard time during the financial crisis of 2008, 2010, and that they essentially everything stopped and they didn't receive income for several months. So with that, even though I was a sort of entry level new employee, my income was still very much tied to the performance of the company. That's sort of how the primary owner had set everything up. So I had incredible fluctuations in income. I started around 48,000, the next year 147,000, the next year, 58,000. So it was very, very volatile. And my personality type was always one that wants stability and security.

And, you know, this in a vacuum, this probably wouldn't have been the job or type of salary structure that I would have looked for. I probably would have been someone that would have been more attracted to a job with a more consistent income. But I didn't have many options. I'm originally from England. Came to play college tennis. did my MBA to stay in the country essentially after doing my undergrad, found this job where I interned during the summer. And I basically needed to find a company that would sponsor me. And sponsor, it's a term where you basically get a work visa, specifically an H-1B visa to work for a company.

And you're tied to them. So your immigration status is as an. employee of this company. And that was what it was for me for the first three years that I worked there. But with the volatile income, with knowing that I was sort of stuck there to an extent, I wanted to create my own stability. And that was really where fire came in, I think, because I aggressively wanted to start saving, even with the extent of where I knew I'd have low income some years, higher other years. I wanted to set up my lifestyle at the low end, knowing that then naturally I'm going to save a ton during the high income years. This was in central Florida. So it's sort of like a,

I would say a mid cost of living area, but with no state income tax. So some benefits there as well. So yeah, I mean, I continued to work my way up in that company fairly quickly. Started as an intern in 2012, started full-time in 2013. By 2016, I'd become, I sort of positioned myself in a way that I was offered to join the company as sort of a partner as an equity owner. And with that came some nice salary bumps, and we had some good years there. But the sort of the transition, the fact that it was so quick, it's my responsibility. were ramping up just as quickly. And that was very stressful.

And it was tough. I could sort of feel the burnout for a good couple of years there from after I became a partner. And it sort of built upon itself. I had no plan to leave when I did. It was more of a sort of mental health and lifestyle decision in May of 2019. My body basically said, nope. And at this point, I should say that I had married a U.S. citizen, so had a green card.

So finally was released from those shackles, so to speak, and could explore other options. So, yeah, I quit in May of 19 with, you know, no specific financial plan, no transition plan. I just quit and took a break for a while. So that was sort of the transition. What was your financial situation in May of 2019? 19 when you quit. Yeah. So I would categorize it as sort of lean phi or more specifically, I would say that we were

financially independent on our current expenses. But I knew that our expenses at that time weren't sustainable. So I knew we weren't truly financially independent for a couple of reasons. One, we wanted to, well, I suppose I'd describe it as do negative geo-arbitrage and move to Denver. which is a more expensive cost of living. So the opposite of what they preach. And then also we plan to start a family, have kids eventually. So I knew our expenses would go up, but we were secure.

We had a strong financial position. Even with my wife who worked as a zookeeper and still does, we could sort of almost scrape by just with her income, even though it's very much on the lower end in that profession. So it certainly wasn't a financial catastrophe, me leaving. Additionally, I sort of negotiated my buyout from the company since I was an equity partner. So I had a reasonably sized buyout coming in early 2020. So I knew that was going to provide a little cushion as well.

But yeah, so we were sort of, we were okay. But I was certainly looking at options to sort of bolster our situation. and become more financially secure. Wow, I have like 17 questions. So the first, I just will make a comment maybe, and we don't need to dive into it, but I just find it really interesting, this visa situation and being tied to an employer.

Like, that's a variable that a lot of people don't have to deal with. People feel like they're tied to their employer, but you actually were. You know, like this is like, this is a real thing. So, I mean, we can, And maybe just flesh that out real quick. You know, like what was, you know, and along with that, were you thinking and planning, you know, as soon as you realize you're tied to this employer and you, you, and somewhere in

those years you realize, maybe I don't want to be here forever, you know, what's your planning mindset? Because I'm picking up from you, you're making some smart decisions, you're thinking ahead, you're reading online, you're an intentional guy. So you're, I know you're thinking about something like, who are you, you know, maybe there's role models or anybody you're looking at out there that is kind of an example that you're looking at like this is kind of where I want to transition my life to so that when I have a family like what what was your mindset when you're kind of in that I wouldn't say golden

handcuffs maybe just like immigration handcuffs or something I don't know what you would call it but you know what were you thinking and how are you planning for that yeah great question so I think it really transitioned from sort of immigration handcuffs to golden handcuffs so But actually, it did make that transition. Because initially, I mean, so when I was interning there, like I said, I mean, I was dating my now wife. I really wanted to stay in the country. And it's not easy. It's not easy because 95% of your typical companies, your S&P 500 companies are not going to sponsor an immigrant on an H-1B visa, especially if they can source those recruits from U.S. citizens.

It's just more costly. it's more complicated, et cetera. So I sort of, as soon as I started interning and realized that, you know, this is a good opportunity, I sort of targeted the H-1B visa. And I did that by trying to make myself hard to replace. So I brought a sort of Bloomberg terminal onto our team that we used with our financing deals. And I took the lead on how to use that. And I was the only one who could use it.

So when the time came for me to present this option, because they'd never heard of it, they'd never sponsored anyone before, I could present it in such a way that I would take care of all the complicating immigration aspects. And, you know, I really made it somewhat of a no-brainer for them. So that was the first part, was getting there. And then once I had it, like you said, I was very much tied to the company. I would say my mindset at the time, especially I after finding financial independence retire early, was like race to fire. For better or worse, I didn't really, even after I got married in 2017, early 2017, I didn't really contemplate switching employers so much because I really did think I had a very

good thing going with this company as it related to opportunities for advancement. I mean, I saw a path to earning a very high income in the sense that my sort of primary boss there was really targeting me as a sort of to take over the company one day. He was in his 70s, so he was already older, and I felt that I had that opportunity, and it was something that, you know, I couldn't pass up. And so I really, but at the same time, I felt the stress of the responsibilities that had escalated quickly. And, you know, I struggled with that. And so when it transitioned to more of financial handcuffs, there was also, in addition of the golden handcuffs, I would say there was a sort of fear of letting down the other employees. We'd grown a bit at this point.

We had like eight or nine employees. And I perhaps foolishly thought that, you know, if I were to leave, I'm going to screw all all these other individuals. And, of course, everyone's replaceable. So it's not nearly as dramatic as your mind leads you to believe. But that was the thought process that I had at the time. And I knew I didn't want to take over the company, but I knew I had the option for, I didn't see another path to earning what I was earning at that time.

And so I was planning to carry on for a good few, you know, a few more years. I felt like I just had to dig it out for a few more years. And I would be very comfortably financially independent. So that was the plan. But like I said, in May of 19, my body said, no. It was, I was so stressed that I just one day, I had to call up my boss and say, I can't come in today and I'm not coming in again. I wasn't able to really give any sort of notice, but he totally understood.

And he gave me sort of three months to consider if that was truly the path I had to take. And, you know, so we communicated during that time. But ultimately it was. I did have to leave. And I was thankful that I was no longer tied on the immigration side so I could take that step. So that was the plan. And, you know, the plan didn't work out quite.

Let's dive into that a little bit. What was your body telling you? How did you like, and what was going on at work that made your body feel like this? The funny thing is I did not work long hours. The hours were very reasonable. It was, you know, I did not work too much more than 40 hours a week. which I know is great. Some people worked much, much more than that. But when I was home, I could not switch off. I had ownership of a lot of these large financing transactions where I was

the individual that knew what was happening, had to solve the problems, had to get to the closing table. We only got paid when we closed. We weren't paid during the term of these deals. So it was a lot of pressure, I suppose. My body was basically, I was stressed all the day and night. It was affecting my sleep. And, you know, it got to the point there where shortly before, I even think I'm pretty sure I had a panic attack about it. And I think it was when one of the other partners was going on vacation or something. And I had to take on some additional load, mental load of these deals. And yeah, I was, I was just, I was just, I was trying so hard to push through. And I think that had been going on for a couple of years, honestly. Like, I don't think

this happened all of a sudden. I think I was pushing myself for quite a while there. And yeah, I mean, when I was when I was just sitting there on my couch thinking about the problems in the deals and not being able to switch off from work, even though I wasn't physically there, it just became overwhelming. I've been in that same position. I've been in real estate transactions that don't allow me to sleep because I can't shut off my brain because there's so many problems happening and I take them personally. Like, even though I'm not the one causing them, I'm still freaking out that my client's going to lose their earnest money or my seller isn't going to sell their house or, you know,

whatever. And I can't even imagine on an even larger scale, such as, you know, buying a medical office or something. So I totally hear what you're saying. I also heard you say that you were supposed to get a payout in early 2020. And I don't know if you paid attention to other news and early 2020. 2020, but there was a little thing called COVID happening. Maybe you've forgotten because it was just a blip on the screen and then it went away. Did you actually get your payout in 2020? I did. It worked out well.

So our operating agreement had some sort of prescribed buyout over a three-year period based on the performance of the company. But I honestly, that stressed me out knowing that, especially when I had no control over the performance of the company. And this was well before COVID was on the horizon, because it was back in May of 19. And so I negotiated that buyout. I took by projections would be a lower buyout over those three years, but I would get it in one lump sum. It was $200,000. So it was a fairly meaningful chunk of change.

And basically I, you know, my tax optimization, which is always a fun hobby of mine that I pursued throughout my professional career, said, hey, I want to get that on January 1, 2020 when I have no other income. So that was why I asked for that because even though I only worked five months in 2019, we actually had a very, very good five months. So 2019 income wasn't dissimilar from 2018 income. So yes, I received that on January 1st, 2020. So good. That is, listen, everybody, this is huge. I mean, the amount of taxes that he saved just by doing that is incredible. Were you married at that point? I was married. So he got it on January 2020. And because it's, it was a capital buyout. That's a long-term capital gain. And now, my basis in it was zero

because I didn't have to actually put up change to buy-in. So it was a very large capital gain of that full amount, essentially. But we really tax-hacked that buy-out in the sense that we, I maxed out a solo 401k that I'd been using for some time. I took advantage of the COVID drawdown and did some tax loss harvest. which directly offsets the gain from by taking the capital loss on my brokerage account. We even set up a donor advice fund and made a big charitable contribution. So I think I paid about $1,500 in tax on that. So it was a very good effective tax rate.

What? Speaking my language, this is what I'm talking about. Okay, there's a big one in there that he threw out there. And this is one people miss. I stalled my firm in 2020, the bottom of COVID. was a huge opportunity to convert to Roth IRAs or do a tax loss harvest thing. So basically you can tax loss harvest. There's some waiting that you got to do with your investments to buy back into it.

But because he had such a huge gain, $200,000, and he said zero in basis, that means that whole $200,000 is taxable. He took some of these losses that we saw in COVID to offset that. And then I'm guessing probably reinvested it very, very, in a, very similar investment, but different enough that you don't run into the wash sale rules where you can't buy back the exact same thing. And then you get all the run up with COVID afterwards on the market. You're essentially invested in the same thing, but you get the tax loss to offset your income. And then you got the solo 401K. You crushed it. I mean,

that's good stuff. I love it. And some of it was some of it was a natural rebalancing as well. So I sat down to rebalance after the really, because I did have some bonds in my portfolio as well. So I rebalanced in March of 2020, which was just luck that I chose then. I basically rebalance when I see that there's sort of a five plus percent difference in my asset allocation. And at that time, I saw there was. And so in addition to sort of intentional tax loss harvesting, some of it was just natural rebalancing that I did with more my portfolio as well. Yeah.

This is, you know, we talk on this show and a lot of good personal finance advice is not about timing the market. This is not timing the market. This is financial planning. He knew he had income in the year, $200,000 and he's looking for opportunities to offset that. Tax savings, it's one of the few guaranteed income things you can do out there. There's tangible things that you can do. It's you're not playing the market. You're not playing chance with things. He saw an opportunity when the market went down. It could have gone down further from March, you know, when he's, you know, when he's, you know, when he's, you know, he happened to sell it. But his goal is still the same. He still would have harvested some that still would have helped him. So when we, you know, when we're saying this, you know, people may, oh, he's lucky. Well, yeah, the timing is lucky, but that was not the goal. The goal was financial planning and you just happen to get a cherry on top, a very big cherry. But that's awesome. That's, that's good stuff. I love it. I want to know if you did this yourself or did you get advice from a tax professional. You said that your tax planning is your big thing. Yeah, more or less myself. Yeah. So I had a fairly robust taxable brokerage and fairly minimal comparatively sort of retirement

savings because for the first four, it was almost, I think it was five years, it was between four and five years that I worked at this company. They had no 401K. This was a tiny company. They didn't offer one. So the only opportunity I had beyond, sort of IRAs, Roth IRAs, to contribute to retirement savings was once I set up my solo 401k when I was a partner, when I was receiving K1 income. So it was actually self-employment income that I could then create that vehicle to protect, you know, to protect myself from taxes. But before that, everything was taxable brokerage. So that meant that I knew I had a larger opportunity the most in to sort of optimize my taxes through things like tax loss harvesting. So I did it myself.

It was through research in all the normal fire blogs. I think physician on fire had one of the very good ones about tax loss harvesting. And yeah, I just done a lot of research through blog articles and did it myself in Vanguard at the time. Yeah. 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 in Edle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets.

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Business. In the beginning of this episode, I alluded to the fact that you bought 30 rental properties in one year. Did you use some of this $200,000 payout to invest in real estate? Yes. So first of all, that's slightly overstated. It's not 30. So I acquired 21 units in 10 months. And that was at this time. Yeah. So, and I did use the buyout towards that, towards those purchases. So I had owned, I'd bought a rental property in 2015

locally to me in central Florida. And that was it. I'd owned that and my primary residence. I went about six months after I quit my job in May of 19. without doing anything that could possibly be classified as work. I just decompressed, went for a lot of bike rides, and it was great. I mean, it really cleared my head and got my gears turning about possible opportunities that I could take advantage of going forward. And it was right towards the end of 2019 that I decided there was a good opportunity here to, basically, I was very much aware of how ridiculous.

ridiculously cheap debt was at the time. And this was before it got down to its low, low lows in COVID. And I had some little experience with rental real estate. I knew I had the time. And I knew I had the sort of experience from my professional job, which is basically managing transactions through a bunch of teams. So I knew I had the ability to buy these rental properties. And the reason I'm I did it very quickly was very intentional because I knew I had a ticking clock of how long I could qualify for mortgages. I had income in early 2019. And it's sort of, you know, it's K1 income. So it doesn't, it's not like I'm getting a monthly paycheck or anything like that. And I knew I had this big buyout in 2020. So I could show income in 2020 as well. But I then wasn't getting another cent. after January 1st. So I knew, you know, once a lender realized there wasn't monthly income coming in after that, it was going to dry up for me as the borrower. So I wanted to sort of take advantage of that. And yeah, I basically did a ton of research on possible markets. I knew I wanted to go out of my market

in central Florida. And essentially through bigger pockets, did a lot of research on what the best option was. for me. And I basically did a toned-down version of the Burr method that I'm sure many listeners are familiar with and bought distressed properties in cash, which was a mixture of using that buyout that we discussed. I had a hel-lark on my primary residence, and I used margin on my fairly robust brokerage account. So I was essentially my own hard money lender, is how I thought of it. And would take these short-term loans from my helock or use cash or use margin to buy distressed properties.

Started with a lot of HUD foreclosures. I started in Birmingham, Alabama. That was the first market. And, you know, try to build teams of property managers, contractors, the agent to acquire these. And simultaneously, I was then researching other markets because I had a desire for geographic diversification, which there's a trade-off there because you lose scale that you have in a particular market. But that was the choice I made. So I then ventured into Tallahassee, Florida, Columbus, Ohio. I've got one sort of on the outskirts of Cleveland, Ohio as well,

just looking for landlord-friendly states where I could get a good cash flowing return. And yeah, I sort of bought them. I had. I've come across the concept of, I believe it's called delayed financing where you can buy a property in cash and then you can cash out refi it the next day, essentially, or in my case, once I'd finished my renovation, because otherwise, I believe you had to wait six months. So I didn't have that sort of time to continue to qualify for loans. So I, yeah, I did that, multiple properties at the same time, renovating, renting, refinance. and then doing it with other properties. When my lending capacity dried up in sort of maybe May or June of 2020 was when I got cut off, we switched to my wife being the lender on a few as well. And yeah, we sort of acquired them rapidly that way with cheap debt. So knowing that you have this super tight timeline, why real estate and not just the stock

market? It was because of leverage. because I was confident that if I could find properties with a certain, and the way I analyzed it was with cap rates. I was from the commercial real estate world where you look at a sort of unleathered return on a building, and that's its cap rate. And I compared that to the cost of my debt. My analysis showed that if I could get debt, which now it averages around 4% for all my debt,

If I could get debt, let's just call it 4% for everything. But find properties that had a cap rate of 6 or 7%, well, you're going to get a good return on that if they truly are cap rates of 6 or 7%. And so I realized that my analysis told me when I was buying these properties that even if the properties cash flowed zero and appreciated zero over 30 years, I was still going to get about an 8% return. just from repayment of principle. So I considered that somewhat of a worst case scenario, and it was still comparable to the returns of the stock market. And my goal with this venture was to, going back to early on, was to bolster our financial position beyond being a sort of lean financial independent, you know, financially independent

on our then expenses to be sort of truly financially independent. So I wanted to accelerate it. And that's how I view real estate. I honestly do not like real estate. I do not like owning things that slowly fall apart. It's sort of stressful. But I knew that this was an opportunity that I had that I might not have again if I never get traditional employment again.

And I knew that debt was so absurdly cheap that I just thought it was something I couldn't pass up. And I had the time to, although this was quick, this is all I did, right? This was all I did for work. So it wasn't overwhelming to do it at this pace. And yeah, I mean, I was pretty confident that I could get some some pretty attractive returns over the long term just based on the cost of capital that I had. Let's do a little bit of a no investor left behind here. We'll back up just on some of these awesome terms that Andy's thrown out here. You know, he's saying cap rates. It's kind of a commercial real estate phrase for yield or dividend.

I mean, these are similar things, interest that you would get on something. but it's essentially what a property will earn after all expenses are paid. And he talked about, you know, pre-leverage, which means no mortgage, you know, no debt on the property. Just some of these things, you know, leverage is debt that he's putting on this property. And I just want to call something out too. A lot of times people will talk, look, you know, like when Andy's talking about putting all this debt on all these properties and then refinancing and pull the money back out, it sounds, it can sound risky having debt when people have this very risk view of debt. And that's a real thing to be aware of, for sure. Debt can be very

risky if you deploy it really not in a good way. But what Andy's saying, too, is, you know, there were these historic low mortgages that we all wish we had put on everything like Andy just did back then that were historically below the rate of inflation sometimes. And that's just huge. So if we were talking about a risk versus reward tradeoff, Andy's thinking in his mind, we're going to lock in these amazing 30-year mortgages. And the example that you gave Andy of, you know, worst-case scenario, I got no cash flow. I get no appreciation, which over 30 years, I don't see any scenario where you don't get appreciation with the way global governments print money.

I just, just like impossible. But even in that scenario, you know, you've got it paid down. You've got this very cheap mortgage that just sits there for 30 years, which is a very very very unique thing to the U.S. compared to a lot of other countries too. But good stuff. I mean, this is like all. And I just want to make another comment about the planning that Andy did through all this. You know, he just deployed things so fast. And it can kind of maybe seem like, oh, Andy had experience. You know, he had this job where he was doing this all the time, which is, which is very true. But he also, this was not, we get, you know, you get questions from people.

Should I invest in the market now? Should I wait till next year? Should I have done it? Well, I should have done it last year. That's what everyone says. But you need to look at your situation and just make a plan for what is best for you. And that's what Andy did here. I mean, he, he knew that he couldn't get these mortgages anymore on normal conventional financing. There's other products out there that you pay higher, you can pay higher interest on that investors do. But I mean, he just executed a plan. And it happened to, it was going to work out in a worst case scenario. And it happened to be a lot better because these properties, I'm sure with the timing have appreciated really nicely, and you've locked in this amazing debt on it. Tell where are you at right now? What, like, what's life look like today? What's, what are your

plans for the next five years? Oh, one more thing. One more thing I was going to say, I'm going to ask you for your age. How old are you, Andy? 34. 34. He's a spring chicken. Yeah, I was 29 when I quit. 29 when you quit. So that's another thing, a contingency plan. Like, this is a, the worst case scenario, you know, Andy has built himself a skill set, too. He's at, he can, he can, always go back to work if you really had to. There's this possibility of going back into an industry where he has a specialty. And so as you're on this financial journey, having these contingency plans of the real estate, building it up, building up your savings, build up your brokerage account, building up your skill set. So if you get burnt out and you need to go out for a few years and say

you spend through to just recover, but you can go back into the job at that point, I just wanted to pick up on that a little bit because that's an asset that you have that's not financial, that people need to think about, especially if you do this at, you know, in the 20s or 30s age bracket, it really makes a difference. So sorry, back to the question. What are you up to today? What's coming in the next few years? From a financial perspective, I'll start with that. My goal actually is probably to downsize my real estate portfolio. So, you know, I haven't bought a property since October 2020. And I don't, I don't plan to buy another rental property going forward. I actually really like how Scott talks about Scott Trench, obviously, talks about sort of portfolio composition and what you

want your future portfolio to look like. And I thought a lot about that. And my ideal future portfolio has a lot less real estate because although, you know, I have property managers for all of them, except for one legacy, my 2015 property that still has the same tenant and is no work at all. despite that, you know, some of them are annoying and have hassle that you have to deal with. And so I actually, especially with them having more equity now, so the return on that equity not being as attractive as it was when I bought them, I'd rather deploy that equity elsewhere. So I'm planning to transition my portfolio into more. I've started the last couple of years doing more sort of private lending and other ways to produce

fixed income because that's really what the real estate was for. It was to produce fixed income and benefit from cheap debt. So I plan to downsize some of that portfolio, deploy more into private lending, because I would just love to never have to sell index funds and create sort of a fixed income portfolio that covers expenses. That would be really nice psychologically, even though it's not necessary. You can sell stuff to create, you know, to create the income you need. In terms of just general, so we're now in Denver, Colorado. I consider myself sort of having maybe three, maybe four part-time jobs at the moment. So one, I've been doing Rover, which is dog walking fairly prolifically the last couple of years. So I do a lot of that. It gets me out of the

house even in the cold winter months. So we've been we've been dog sitting, some dogs at our house as well. That's been a great sort of side hustle. Additionally, I mentioned sort of how I left my prior employer on good terms. Like we had a very good conversation throughout the whole process of me leaving. And in early 2022, he had reached out to see if I wanted to help him basically form a little private equity fund that provides equity for those same sort of physician-owned properties. So instead of arranging debt, injecting equity. And so I've been doing that. It's only a few hours a week because, you know, we've yet to sort of deploy money. So it's been fairly hands off from my perspective, but it's been a very interesting educational experience on

real estate private equity for me and sort of scratches my intellectual itch, I suppose. So I've been doing that a few hours a week. We had our, we had our first daughter in May of this year. So that's been another, another big part of this. We've been privileged enough to both be able to sort of stay home for a lot of these first few months and just, just intermittently working part-time. So, yeah, we've been doing a lot of that as well. And then I guess the other part-time job is still managing the managers of my rental portfolio. So, yeah.

Downsizing your real estate portfolio will come with tax obligations. And you can mitigate some of those tax obligations with the 1031 exchange, which is the selling of a rental property and then taking all the money and putting it into another rental property. Do you have plans to do that? Or do you have plans to just, like you could just pay the tax? You're such a tax master, Mr. $1,500 on $200,000. What are your plans to mitigate your tax burdens when you sell your rental properties this time?

Good question. I actually was talking about this a little bit last night. I'm a member of this sort of thin talks group. I know you've had Ambly on the show. And I was talking about this with them because I have to get over the fact that I can't let the tax tail sort of wag the dog or whatever as it relates to this. So yeah, I have no intention of 1031 exchanging into anything. So it will just be about strategically selling the price. properties over a period of time. I'm not going to sell them all in one tax year, for instance. I actually, because we did a lot of accelerated depreciation early on, we have a fairly big loss that I can use against one property. So one, you know, it's not going to cover, it's not going

to cover a lot of sales. But yeah, I, you know, that will, along with some carryover loss from harvesting losses in my brokerage account, that will offset some of it. But, But yeah, there's going to be a gain that I'll have to pay. And that's tough for me to take because I still arrange our finances in such a way that, you know, we get, we have to, neither of us gets benefits through either of these. My wife still works part time at Denver Zoo, but doesn't get any health care benefits. So we buy healthcare on the exchange. And I've arranged it in such a way that we get strong subsidies for that.

So, you know, we'll lose that the year I sell a property, really any property, because we'll blow through the loss that I captured. But so, you know, it'll just, we'll have to pay some, pay some capital gains, which will be tough to do. But it'll be okay, because I think it, I think it will make sense for, you know, how we want to design that ideal portfolio. So I'm not considering the 1031 exchange because my ideal portfolio contains less real estate. And so, yeah, I wouldn't consider that as an option. Andy, it has been really cool having you on here. I'm going to let Mindy wrap this up because she does it way better than me. But I've just, it's been a pleasure talking to you and hearing your story.

Thank you so much for coming. Yes, this was fantastic. I learned a lot. I'm super excited for your next steps. I want to hear what you decide and how you handle the tax burdens of your, the tax burden of your sale. I wonder if seller financing could be an option to help, like, spread it out over several years. And I'm just, I'm excited for what the future holds for you because you do your research, you dive deep into it, and then you take that educated plan and execute it. And that's exactly what I want all of our listeners to do.

So thank you so much for sharing your story with our listeners today. It was fantastic having you on the show. Thanks so much. It was really, really enjoyable. talking through it all. So I appreciate you having me. And Andy, where can people find you if they're looking for you online? Gosh, not long after when I quit, I remember I deleted my LinkedIn profile. That was actually a cathartic moment. So I don't have much of an online presence, but maybe we can put my email address in the show notes. And yeah, anyone he wants to reach out to discuss anything,

I'd be happy to chat about this. I can talk about this stuff all day. And you can always email Mindy at BiggerPockets.com and I can connect you with Andy as well. All right. Andy, thank you so much. We will talk to you soon. All right. Thank you. That was Andy. That was so much fun. Kyle, what was your favorite part of that episode?

You can't get away from the financial planning. I mean, for me, I just, this guy was speaking my language the whole time. He had contingency plans. He had tax planning. He, you know, we talked after the call. We found out he actually kind of wants to buy a hobby farm at some point. Like, this guy is just pushing all my buttons. I really had a good time talking to him.

And people can learn so much from. how he did so much in a small amount of time, but it was not by the seat of his pants. He really did his research. He really made educated planning decisions, as Mindy pointed out, when we talked to him. It was great. And he didn't have analysis paralysis. It is one thing to do all of the research and then just let it sit. And it's quite another to do all of the research and then take action. And, you know, it may not work for you to take the massive action that he took buying 15, 19, 21 rental properties in one year. But he had a reason for it. He did it on purpose, educated.

He knew what he wanted to do. And he took action after doing the research. And that is my favorite part of his story is that he didn't let himself get paralyzed with fear. He's like, I'm going to do this. I feel confident that I have done my research and now I'm going to jump in. And he did. And not every property is a home run. Grand Slam home runs don't happen very frequently in real estate.

All those people telling you about all their Grand Slam home runs, those were purchased in 2010 at the very bottom of the market. So don't look for those. Look for great properties that are cash flowing well. That's what he did. Now he's got some awesome properties and he is, I'm so excited to see what he does with the properties that he wants to now sell because he's held them for a while. And I'm excited for his future. So you can bet we're going to check back in with him in a few months. All right, Kyle,

should we get out of here? Yeah, let's get out of here. That wraps up this episode of the Bigger Pockets Money podcast. He is the peerless Kyle Nast. And I am Mindy Jensen saying TTFN, little hen. If you enjoyed today's episode, please give us a five-star review on Spotify or Apple. And if you're looking for even more money content, feel free to visit our YouTube channel at YouTube.com slash BiggerPockets Money. BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kalyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.