BiggerPockets Money Podcast - 498: Paying Off $118K of Debt in 2 Years and Buying Real Estate (16 Units!)

Episode Date: January 30, 2024

Real estate investing is a popular path to financial freedom, but if you’re not careful, bad debt can get in the way. Before today’s guest could buy rental properties, she had to deal with the mountain of debt that stood between her and wealth. But thanks to aggressive saving and new money habits, she became debt-free in just TWO years! Sarah King has been thrown several curveballs on her journey to financial independence. Just when she had managed to pay off $118,000 of debt and buy five properties, her marriage ended in a nasty divorce. Forced to liquidate her and her husband’s assets, Sarah was back at square one. Rather than giving up on her dream of reaching FIRE, she overcame her shaky financial situation and found creative ways to buy real estate. Within a few months, she was back on her feet, and today, she owns sixteen units across ten properties! In this episode, Sarah offers some crucial advice for aspiring investors—including why you should get your financial house in order before buying properties, how to leverage your retirement accounts to buy more properties, and how to use private money (responsibly). You’ll even learn about house hacking—the real estate investing strategy Sarah uses to cover her mortgage payment each month! In This Episode We Cover How to reach financial freedom by investing in real estate The three areas of your finances that will help you build wealth faster How to pay off BAD debt as quickly as possible Why you MUST get your financial house in order before buying properties How to use private money to buy MORE real estate Covering your mortgage payment with the house hacking strategy 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 Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Money Moment From Toxic-Marriage to Financially Independent Mom with 13 Units How to Achieve Financial Freedom Through Real Estate in 4 Steps Click here to check the full show notes: https://www.biggerpockets.com/blog/money-498   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

Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and I am solo today. Scott is taking a much needed and well-deserved day off. So I am here to make financial independence less scary, less just for somebody else, to introduce you to every money story because I truly believe financial freedom is attainable for everyone, no matter when or where you're starting. Today, I'm talking to Sarah King, a real estate investor and the founder of the Nerds Guide to FI. Sarah talks to us about her journey out of debt and how she was able to find success in real estate investing after a complicated divorce.

You'll learn how to quickly get yourself out of debt, what the most important piece of education newbies should get before they get into real estate, and how to responsibly use private lending to get ahead. If you're interested in real estate investing, but you have debt or your financial situation is unstable, Sarah's story is a great blueprint of how to get your financial house in order before you dip your toes into real estate. Sarah King from The Nerds Guide to FI, welcome to the Bigger Pockets Money Podcast. I am so excited to talk to you today. I am pumped to be here. I've always dreamed of being on the money podcast. This is fantastic. I'm a money nerd by nature. So this is

fantastic. And with the one and only Mindy, of course. So what I'm hearing you say is, I am making your dreams come true. You are. Well, my dream coming true, let me. last year was to meet you. And now we've come so far. Well, I love it. Thank you so much. So Sarah, let's jump right into it because we have a ton of things to talk about. Your introduction to the financial independence space happened at a time where you were kind of drowning in debt. What year was this? And how much debt were you in? It was back in 2016 and we had, I think, $118,000 in debt. And a lot of it is what I call really stupid debt. Like most of it was cars. And I feel like a lot of people think, that number has to be student loans, but it wasn't. It was just really dumb behavior.

Cars. Okay. Well, thank you for sharing that. Here's a confession. I have not heard somebody say they had $118,000 in debt on this show contributed to cars, but off the show, I know lots of people who have close to that in car debt. And it was mostly credit cards from just overspending and then vehicles, which is, it was like all the really embarrassing. debt. Well, so you say embarrassing debt, but you are not even close to a loan when you say that you had this stupid debt that you call it, credit cards and cars and like mindless spending kind of debt. How did you get yourself out of that kind of debt? Yeah. So I think you almost ended up in debt because I always tell people like I was a really good box checker. I went to school for a very long time. And you get really good about like

you go to school, then you go to college, then you go to grad school, then you get married, then you, and you like, look at this beautiful checklist. I've done it all in order. And then just trying to look, trying to fake look successful with the nice cars because you got the new job and all of the things and you want to look the part. And you just kind of keep up with the Joneses until you realize that everyone in the middle class has a lot of debt and is broke. And I had a friend actually tell me about Dave Ramsey. And so I came from that camp originally before finding bigger pockets and real estate and the fire movement and all of that. And so for the next year, I was just a Dave Ramsey junkie and paid it off the hard way where you wrote all your

debts out, smallest to largest. And, you know, started with a little shovel. And then the shovel got bigger. And we just kind of dug our way out of debt. And I did a lot of waitressing on the side. So my Instagram account actually started because I was, there was another girl in line posting how she was paying off her debt waitressing. And so I did the same thing and would do these great. Like I made X amount in tips tonight and it's going straight to my car. And so every waitressing tip in check I got all went to my car loan. Did you say you paid it off in one year? It took us two years to get the whole thing paid off in about a 50 to 60 percent savings rate to do that.

and a lot of, like, I was waitressing sometimes more than I was working my WSU job at the time. I love that you were waiting tables. I have weighted tables and that's a really hard job. That's hard on your feet because you are walking like 100,000 steps every shift and there's demands from customers and there's demands from your manager and there's, like, that's a really hard, physically demanding way to pay off this debt. I will forever be overly kind to waitresses. And even if they're doing a bad job, like, I still tip them well because I'm like,

she needs that more than me today because she's having a hard time. Like, I just, I feel that to my core. And you can't shake that once you've done it. It is, I'm definitely tipping more than when I wasn't a waitress than when before I was a waitress. A thousand percent. I've heard you say that you are not frugal. Being frugal isn't your thing. Let's talk about that for a little bit.

I'm naturally not a saver, which is interesting because I feel like most of the people attracted the fire movement who really get into it. Like I tried one summer to bicycle from my apartment to my job. And like day two of just sweating in my like business outfit, I'm like, I can't do this anymore. I'm not cut out for this, which like you can. But I'm like this, no part of this is sparking joy for me. and it was just a very unnatural fit. And so I guess I always should preface it.

Like it's always mindset where you're like, could I be and could I force myself? Yes, but my natural state is pretty painfully spendy. And I really have to watch myself. Like I still budget every month. And yeah, sometimes run over and then get to save a little extra the following month and be better. I used to ride my bike to work as well. And that's something you have to plan out. You have to have baby wipes at the office if there's no shower.

You have to drive in on Monday and take all your outfits for the week. You can't ride your bike in your outfit because, yeah, you're going to sweat right through that and have like a miserable day at work. But there are ways to save. Don't involve riding your bike to work. What sort of changes did you make to your spending or your savings to help you get out of $118,000 of debt in two years? And first off, let's celebrate, or $118,000 in two years is like, where's Scott when I need is fast math?

What is that? $59,000 in a year? That's like a whole salary. Yay for you for doing that. That's fantastic. And that was definitely more than I was making at the time by far. Wait, what? So I was making $58,000.

And my husband at the time was making, I think, 60. And back in 2016, I track, I write down every year what our gross income was, and it was 109 for the year in 2016. That's awesome. So you essentially just lived off one salary and used the other salary to pay down the debt, plus the waitressing. And so interestingly, so 2016, we made 109 and then 2017 when we were doing a bulk of the payoff, we only made 92.

And so I think when we knew there would be like more of a money crunch. that we were going to make less money that year. I did a lot of persuasion and we ended up selling cars at that point to get down in loans, but cars we were also underwater on. So that cleaned up a big chunk of it was selling things, but my car was completely hustle and all the credit cards were grinding it. I love that. 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,

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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. What changes did you make in your life at that time that have carried over to become permanent changes? Definitely budgeting still every month. I just feel very uncomfortable if I don't know where I stood by the end of the month. I think that's almost like a security blanket because I'm like, even if I

made stupid purchases, at least I know or like overspent more than I'd like to that month, I know I can take control and fix it the following month and kind of give myself the freedom, but I always want to know where I'm at every month because I don't want to go several months because I feel like that's how credit card debt gets racked up is you just, it's death by a million cuts. It's not giant spending. It's like $3 on Amazon and then $5 on Amazon and then $3 a Taco Bell. And then every single day it racks up. And so that was a big thing. And then also just realizing I was a big car person also. So I am super not frugal like my nature, I feel like. And I was huge into cars. I love cars. And getting used to the idea that cars were actually probably my enemy. And I needed to think very differently about vehicles and things. That started to move the needle a lot where I decided having a lot. a life where I'm not stressed. And I also learned that finance for me and like money for me is really security. And if I didn't want to feel insecure and anxious all the time, I needed to do something

different. I also have very few subscriptions. Like, I think it's ridiculous that people subscribe to like Pandora or Spotify and pay for not having commercials. Like, you will not die listening to a commercial. I also don't love when people buy. These are my really random things. Like I give my husband crap all the time because he buys like flavored water. And I think it is the most ridiculous thing to buy beverages in general. Like we have this amazing source of water that is free-ish. I mean, we have a water bill where we live now. But back in the day, I lived in the country and we had a well and like literally your liquid needs are free. Why are we paying for soda? Why are we paying for anything? Like there's absolutely. So that is like a diehard thing.

buying stuff at gas stations, like when you stop and get gas, that makes me crazy because I'm like, all of this is so marked up, I can't even. So there's some few like little mindset things where I feel very strongly about what to buy and not buy at the grocery store. So you said that you sold cars to help yourself get out of debt. And I hear people talking about, oh, I've got this truck. I bought a brand new truck. And then I discovered, financial independence, but I have this $1,800 a month truck payment that I, you know, I only have six more years left or whatever. And I'm like, oh, sell the truck. Oh, but I'm going to lose so much money on that. How did you reconcile the fact that you had to sell car? Did you have to lose money on

those cars? Yes. So we ended up working really hard to pay. So after my car was paid off, we worked really hard to pay down the gap. So we talked a long time about like whether we get a personal loan for that or whether we take a personal loan out or what do we do? And we ended up paying it down until we were no longer underwater on it and just aggressively paid it. And then once we were no longer underwater, we sold it and bought a crappy vehicle cash. Do you have any advice for somebody listening to this in a similar situation where they owe more money on their vehicle than it's worth, but they have decided that owning this vehicle is no longer something that they want to do? How do they reconcile getting over the fact that they are just going to have to lose money on this?

I think it was one of the few things holding us back from like living the life we wanted. And I knew that like having a family and having kids was more important. I also read a lot of books. So lesser known, I feel like out there was. So Rachel Cruz, which is David Ramsey's daughter for anyone that doesn't know, wrote a book called Love Your Life, Not Theirs. I think it's a little bit of a girly perspective, but she was like 20 something or maybe early 30s when she wrote her book. And she talked a long time about cars in a way that just resonated

to me. And so after reading that, I'm like, oh, my gosh, we have to get serious. But again, it's like if I want to retire before 70, you have to start doing something different. When did you start getting into real estate investing? So 2016, you discovered five, you discovered that you were in $118,000 of debt. It took two years to pay off. Did you start investing before you finished paying off? No. I think probably two months after getting everything paid off to really go into real estate. And so, yeah, from Dave Ramsey kind of into some fire people, and then I had to find my niche of who really to listen to in this space, because I knew super saving and watching my money stack up in a retirement account wasn't really a joyous thing for me. Like, I had been actively

grinding and working really hard for two years and to change my whole strategy to something very passive, where you just focus on retirement accounts. I just like I needed something tangible to do with money. And that's kind of how real estate became my what's next answer. Because for two months, I just started saving everything I could and trying to get my 401K growing and max out all my accounts. And like, this isn't tangible. It wasn't fun for me.

I mean, it's nice. Like, I still do all those things, which we can chat about. But it was, it's kind of a set and forget. Once you figure out how to invest, I'm like, it's another box you check off and then you move forward because you're like, just. saving is the big thing and making sure you're contributing to those tax-advantaged accounts. And once you check your box and you learn about index funds and you learn about automation and how it all works, you're like, okay, well, I did it. What's next?

Okay, well, let's talk about the very first property that you ever bought. Where was it and how much? Give me all the numbers. I actually convinced my husband at the time to, we bought this house on five acres that we loved. It was super outdated. It was kind of a live-in flip. So I did a live-and-flip. kind of intentionally, where we remodeled it. And then I convinced him to sell this house on five acres with a pond and to buy two smaller properties. And so that was our new primary residence was this postage stamp in town, which he hated because it was a very tiny lot.

I thought it was perfect and beautiful. It was a little cute ranch. I'm a big fan of white rectangles. So just a very simple one-story three-one ranch. And then we also bought this two-bedroom, one-bath rental property. And so between saving and the proceeds from the sale of our live-in flip, we bought our first rental property. And I think it was, I live in Indiana, so I live in the Midwest. And so everyone's going to hate my numbers, but, you know, bear with me through this.

Because housing prices are really cheap. This house was $86,000 when we bought it. The five-acre house? No. This was the tiny first rental. So the five acre house, I think, was 210. And then we sold it and bought one house for 115, which we thought was overpriced at the time. And now it's selling for like two something.

And then this little postage stamp house for 86,000. And we were jacked about it. And so that was our first foray into rental properties was that. And I remember at the time, like, we closed the deal. I'm a huge paperwork nerd. So that was kind of the fun part is like learning how you get appraisals and get inspections and do all these things and you do your due diligence on a house. And then I remember like hyperventilating in the Aldi parking lot thinking, oh my gosh, I have to like find tenants now

and lease to them. And I just had no idea what I was doing. And so I actually like got on bigger pockets and was like, I need lease forms. I need pet addendums. I need all the things. How do you do this? And I kind of got hooked into bigger pockets from there because you just needed a direction. and you had these beautiful forums. I could read other people's questions that I was having and get all the forms I needed to kind of get going. So 86,000 was your purchase price on this rental property. What were you renting it for?

I think it was 900. I'm wondering, it was either 86 or 76. And I think we rented for a little bit above the 1% rule. So I think we were getting, let's say, 86 for easy numbers. And I think we were probably like at $88, like $8, $880 a month. Okay. The 1% rule really quickly is just rule of thumb. Yes.

Not set in stone rule. The 1% rule says that if you buy a property for $86,000, you should be able to rent it out for 1% of the purchase price or $860 a month. So you were doing better than the 1% rule, which makes me so jealous because that is not something that I get in my market and haven't been able to get in my market for. for decades. But that's okay. I live in a different market and that's just how it works. I can still buy houses in Indiana if I chose to. I highly recommend it. They're still out there. You just have to know where you're shopping. So let's talk about your, the investing process. Were you and your husband at the time together investing in these properties or was this the All-Sara show? So it was not. It was a partnership. So actually, he was more interested in real estate than I was. So I always tell

people like by far he convinced me this was a great idea and I needed something to do besides saving and watching my money pile grow and so but I didn't realize that my really nerdy skill set would be as helpful as it was in real estate I figured the swinging the hammer skill set would be the most important part and maybe I'm biased in that but he was the handyman and I was the bookkeeper and I suddenly realized that 99% of the things you do for real estate involve like bookkeeping and forms and documents and there's so much due diligence on who you place in your homes and how you background check them that so much of the work was things that I was good at. And then, oh, by the way, we have like a toilet repair or something when we bought houses that

were more turnkey. It was, I was like, this division of labor is ridiculous. You did like a week worth of work. And I'm like, I'm spending an entire month trying to find perfect tenants and figuring out how the heck to do this. And so, but it was. really good. To this day, he's hands down the best tile guy I've ever had. I've yet to find a tile guy that quite matches his skill set. So for two years, we bought five properties together. We did two live-in flips, and he was like the handyman on all of that and just figured it out, which was awesome. But definitely his wild idea, he said it first, for sure. And at first I was like, oh my gosh, I'm not handy at all. What the heck am I going to do? And yeah, I always tell this story.

Like, I grew up in a, he grew up in a family of six boys and they DIYed everything. And I grew up in a family where my dad hired out a light bulb changed once because he didn't feel like getting the ladder out. So my dad was always older and just not handy. And my mom is so mortified that I bring this up because she was so pissed. She's like, get out the ladder. It's going to be okay. This is ridiculous.

But he's like, well, and so very different worlds. And I've since learned how to drywall and do all sorts of stuff. But that was kind of our backgrounds where. You really couldn't have much different backgrounds when it comes to investing. 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's

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 a 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.

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is we decided it was, or I decided, I guess. I'm like, I am, I cannot go to mediation one more time and talk about what house. I don't even care at this, what point, what house, who gets, I just want it done. Yeah, so we ended up selling everything and just starting over with the clean slate. And so we had five properties together when we got divorced and we sold off all the properties. Yeah, we talked a long time about dividing up the assets and decided to kind of burn everything down and start over. And at the time, I was super upset about it because by the time we got divorced, I was pretty much managing all the property. Like, he didn't know half the names of the tenants we had by then. And he wasn't really involved in the day-to-day operations. Like, I remember the first

time I had to go meet an H-FAT guy or a plumber. And I'm like, I don't know why I'm going, this is the blind leading the blind. Like, he could be swindling me into a new furnace. And I have no idea. I didn't know anything. And so you just had to find tradesmen that. would educate you because I'm like, I'm very eager to learn. I love real estate, but we really need to, I need to find someone with the heart of an educator to walk me through this because I knew nothing. And the first plumbing leak and the first, you know, maintenance calls we were getting and I was very clear he wasn't going to go to those. I ended up taking on everything. So by the time the divorce was done, I was feeling a little more confident that real estate is something I could actually do on my

own versus like needing to have a handy spouse to do it with you. And I think that was kind of my like great aha moment through the divorce process because first of all it made me chilled me out a little bit because I'm very type A person and it really calmed me down. And then it really taught me that I could do this. And I think without that experience, I would have never been like, oh yeah, I should take a real estate on my own. And now it's really my passion, which is cool. So how did you pick up and start over after you have liquidated everything. I'm assuming that you split the proceeds in some way. So you had some funds to be able to start investing again.

Yeah. So, yeah. So we ended up going through this process. And he, so it was, so essentially ended up being a bad situation. So we had our daughter. So she is running around behind me if anyone can see the video on this. So we had our daughter. And about when she was three months old,

he became addicted and developed this really bad addiction problem. And so I was kind of left with a three-month-old and figuring out what the heck to do with my life. And so by the time we got divorced, he was not really with the program on what was going on. And so that he would really fight it in mediation. So when we decided to sell everything, it actually took over a year to get any settlement from that divorce process. So the judge ruled like, yes, we're to sell everything. and then we sold all of it. And then it was held in an escrow account for over a year until it got dispersed.

So I thought it was going to be kind of quick. We sold the houses in 2020, the summer of 2020, and then the following summer, I finally got that money. And I just, you know, always thought it was coming and it didn't. And it made me very scrappy to try to figure out how do you, you know, I was, I think we both ended up getting over $100,000 for the proceeds, the sale of the real estate. I think he got like $1.30. and I got like 140 because I was also supporting all of the mortgages at the time because he just

stopped paying all of them. And so I was able to save my credit by paying all of those. And then I had to hold all these mortgages, the five houses and the five properties for a year. And so it was really just a year of being like, well, I literally have like negative amounts of money. You felt like because you were so strapped with all these loans all on your own. And so I actually ventured out into the world of private money and private lending just kind of out of necessity. I was like, if I'm going to keep this going, I have to figure that out in a different way to fund deals. And so I learned two really valuable lessons out of just never getting that money. It was the best thing that's ever happened to me, but it was really painful.

So when you say you ventured into private money, were you borrowing private money or were you lending to other people? I was borrowing it because I think I was back at a negative net worth with $100,000, like $130,000 pending in some imaginary account somewhere. And so I, the first money I ever borrowed was friends and family. So I actually approached my parents with this like business plan. And now I've talked private money many times where I'm essentially asking other people to invest in deals for in specific interest rate. And I brought like spreadsheets. Like it was a terrible pitch. Like it was not user friendly. My dad's like, I'm not reading these Excel spreadsheets with you. And so I did the worst business pitch ever, but it worked and convinced them to invest in my

house hack with me. There's two different types of house hacking. There's the buy a really big house that has more space than you need and rent out rooms. And there's buy more units than you need and rent out the other units. So you and your daughter were living in one of these units and you were renting out the other unit. Yes. So we were doing kind of the quintessential. house hacks. So essentially house hacking a duplex. But when I found this house, because there's very few duplexes where we live, we lived in the country. And so I started looking for houses with walkout basements, which not everyone knows what that is, because depending where you live is a plus or minus on the walkout basement, but where we live, essentially it's a house built up on a hill. It looked like a

one-story ranch, but it had a full kitchen, like a mother-in-law suite in the bottom. But it was mostly unfinished. It was kind of a giant room with the kitchen in it. And so we walked it. I immediately fell in love. And I'm like, this is going to be the house that I put a second rental unit in the bottom. And I had no idea what I was doing. I had to learn about like fire code and electrical code and putting together a bathroom and adding walls and all sorts of stuff. So I just decided to jump in with both feet. I think my parents were very concerned about me, but thought somehow it was a good investment. But I was really solid in my comps. I knew what the rental data was. and I did my homework on that.

And I think they were impressed and just kind of excited to get us going on the right foot. How much of the expenses did the tenant pay when you were there? Did their rent cover the entire mortgage? Yes. It didn't pay 100% of the whole upkeep of the house because I was kind of dumb. And the house was ideally perfect, but it was on an acre. And an acre is just a lot to maintain because I had like the lawn mowed because I'm like, I'm trying to do real estate and be a full-time mom and all of the things.

and something had to give. And so I got really good at outsourcing, like, everything I do. And so lawn maintenance and utility bills and things, it ended up not being 100% living free, but the mortgage was completely covered and then a little bit. Hey, that's winning in my book because I'm paying 100% of my mortgage. So for two years, I paid no mortgage, which is really, I think, how I got my feet back under me, to be honest. That's awesome. So did it, did you wait for two years before you bought your next investment property? No, I waited one year. So I actually refinanced the house I did.

So I converted the basement. The goal is to move pretty quickly to show my parents like proof of concept on this whole money lending thing. And so I got it remodeled. I got it rented out. I was able to show rent income, go back to the bank, refinance the house and pay them back in full. And then I left with the biggest check of $1,000 from closing. And I'm like, holy cow, people really do leave closing and make money. Granted, I had just taken out a giant loan.

but at least I had done it where I had paid off 100% of my private money that I borrowed and then was able to own that house myself finally. And it felt really good to be able to do that. And then it gave me a really nice pitch to kind of go into the next deal and then say, hey, I found a duplex. Do you guys want to invest again? I just paid you back and you saw that it worked. And so they were my first and second lender, I think my fourth one more time after they got paid back the other time. and so but then since I've kind of branched out and gone a little faster. So how many rentals do you have now? I have 16 units and 10 properties.

And they're all local to you, local-ish to you? Yeah, local-ish. I bought a lot in kind of rural areas when I lived up north. And since then I've moved to Fort Wayne, which is my primary market and where I live now. And so this area, I bought a lot more because it's actually more affordable than small-town Indiana, which is fascinating. I got priced out of my little small towns I was buying in. And so now I mostly invest in Fort Wayne. So let's talk about private lending for a moment. I know that a lot of people are super excited to use private loans because they might not be able to qualify for a traditional mortgage.

Do you have any tips or things to look out for for people who are considering using private loans? So using private loans as a person taking out the debt, like me taking out the debt or the person actually doing the lending. Yes, because there's unfortunately no shortage of scammers in real estate. The biggest thing for me looking for the person is they need to obviously show proof of funds and we just have to align on our business goals together. I like someone that's really hands off. I just want someone that is truly the money provider that really just wants something very easy, a set and forget they want their 8 to 10% in interest and they want to get their check every

single month on auto pay and get that all set up. And it's kind of a no like trust relationship. What I usually do is I don't secure it with any formal deed of trust at all. So it's usually just a promissory note between me and the person. So there's an extra layer of trust. I feel like with how I've used debt in the past. But I hear that's pretty common lately. But I think the rate of people scamming people on social media has gone up. And then I also, you know, it's hard. hard to say kind of what I've lent to myself in the beginning, probably not, because I was so unexperienced and only used the bank of mom and dad. And as someone using private money, you have to be such a good steward because to me, it increases the risk when you use private money. And I think

a lot of people look at private money is this way to like just get a bunch of money super easy and avoid the banks. And, you know, it's been a goal of mine to eventually get away from bank lending and to use exclusively private money because it is easier. And there is a power to being able to buy a house all cash. But again, you just feel like you have this immense level of ownership to the person that you're taking that money from because this is their savings. This is their retirement. This is their, you know, maybe self-directed IRA you're using.

And you really have to, it almost increases the anxiety level for me using private loans. I don't like to have a lot of them out. At one time, like I paid off three this year and it was the best day ever because I just don't like having private money for very long. And I've been trying to think about how to restructure kind of what I do just because you want to make sure you're a good steward of that person's money. Nowadays, too, I always tell the people that are actually doing the lending to make sure that the person they're lending to has shown that they can pay money back in multiple ways. Because I think that was my huge eye-opening lesson where I saw a lot of people get kind of kicked in

teeth this year is when interest rates shot up a lot of people that were like, oh, we'll just do a cash out refinance, could no longer do a cash out refi on anything. And so it, or their cash out refi was so skinny. Deals became so thin that you really had a hard time pulling out all your money. I think a lot of people struggled to pay off debt. And you saw the people that were credible and the people who would figure it out. Like I became a house flipper this summer because I wanted to pay off these three loans and not do an extension. And I was held out and determined to make that happen in a time where I didn't want to refy my 5% loans. I could have because I have this lovely W2 and I'm bankable. But I didn't want to lose my 5% loans that I got back when interest

rates were good. And so I'm like, I'll do what it takes to get there. And that's kind of what I look at, what I'm analyzing other people's deals. I've gotten to the point where like I've had people send me deals now. And I'm like, I don't know if a deal will ever be good enough for me to break up with one of my IRAs and make it a self-directed IRA, but it's fun to look at them and kind of see if they have plans to actually do a payback on a loan. If they have multiple ways to pay you back, I think that's really vital. And definitely something you to include in your pitch if you're asking for money is how the myriad of ways you can pay back private money besides a cash out refinance. That's a great tip. Yeah. When you are asking for

someone for money, you don't want to give them any reasons to say no. You want your pitch to be so awesome that they can't wait to say yes. Oh, wait, you've got 17 different ways to pay me back. What do you even need my money for? Of course, have it, have it, have it. I love lending to people who don't need my money. I don't lend to people who are desperate to borrow my money because I worked for that money. I worked really hard for that money. I want it back. I want to lend it to you, but I want it back. So, yeah, I end up only lending the people that I really know well. Okay, so Sarah, we're all nerds here, and your brand is the nerds guide to FI. What do you think are the most important pieces of education like numbers or calculations

or concepts that newbies need to understand and become experts in before they get into real estate and must. I think definitely learning. Getting into debt is very easy. Getting out of debt is very hard. And it's ridiculous. Like you can frivolously not pay attention to all and end up in a ton of debt. And so I think learning to be a good steward of your resources, like the more money I earn, the better, I feel like I'm doing with it because I taught myself very early how to save and invest and kind of learn the foundational principles.

But yeah, just learning that muscle of saving and actually building your budget and tracking your spending and kind of knowing where things go. And I think your budget can evolve over time where your categories get really broad. Like for a while, it was just like save, spend and invest or something. Like I did like three budget categories for a period of time because I was sick of the details. And I'd gotten pretty good at spending pretty consistently. And then if I get more spendy, my budget gets much more detailed. And so I kind of evolve it over time. So but I think just keeping aware and I like keeping my personal finances very clean so I can do cool stuff on the side like real estate because real estate is a huge money suck.

And I always thought this is like the quick. way to fire and real estate is very similar to index funds in a way where it's a very slow and steady burn. You're a crock pot versus an instant pot, I guess, where it's just extremely slow and the fact that people think they're going to retire in two years, I used to be one of those people, where you can if you want a super save, but real estate is a very slow grind because you have so many cap-ax items you have to pay attention to and so many things that can go wrong with tenants and evictions and all of that. Okay, Sarah, where can we find you and the nerds guide defy? So I'm on Instagram. About a year ago, I actually changed my handle from Nerds Guide Defy, but I had a

very neglected podcast for a bit and still have a website under Nerds Guide Defy, but I changed it to Sarah King invest on Instagram, mostly because I was trying to network locally, and every elderly gentleman was very confused by what Nerd's Guide Defy was, and I got really sick of spelling it for people while I was in my, you know, networking with the older generation of real estate investors, it became easier to just be Sarah King invests. And so that's where I spend a bulk of my time is on Instagram. And then I think I also have it on Facebook and a TikTok that's also neglected, too, trying to keep up with the youth, but doing a terrible job of it. Awesome. Okay. Well, Sarah, this was so much fun talking to you today. I really appreciate your time. Thank you so much.

Yes, thank you. This was great. I appreciate it. And I will talk to you again soon. Sounds good. Okay, that was Sarah King, and I had such a good time talking to her today. My biggest takeaway from Sarah's story is that you need to get your financial house in order as soon as possible. $118,000 in debt prevented Sarah from investing for two years, but only because she was able to laser focus on paying off her debt. It could have taken her even longer to pay off her debt further pushing back her investing journey. As Scott always says, you want to invest from a position of financial strength. That wraps up this episode of the Bigger Pockets Money podcast.

Scott will be back next week, but until then, I am Mindy Jensen saying, take care, brown bear. 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 Bigger Pockets Money. Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kaylin Bennett. Editing by Exodus Media. Copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.