BiggerPockets Real Estate Podcast - 657: Seeing Greene: Can You Start Investing with Just $5,000?

Episode Date: September 4, 2022

The best way to build wealth isn’t always the most obvious. More people will take the passive road to wealth building, which is usually far slower, and much less efficient than the active path to wealth. The active investor takes time making calculated decisions that would scare almost every average investor. Flipping a house, renovating a rental, or buying a thirteen-unit apartment building may be a little too much for most people, but probably not too much for you. If you’re looking to fast-track your way to millionaire status, have the passive cash flow to float you in retirement, and live life on your schedule, then real estate investing is probably your chosen asset. The guests of today’s Seeing Greene episode prove this even with their quick questions. In this episode, David will answer questions on which investing strategy is best over the next ten years, whether to invest in stocks vs. real estate, how to start investing with as little as $5K and up to $100K, and how increasing your leverage can slingshot your net worth. Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot!  In This Episode We Cover: The 1031 exchange explained and how to turn one property into many  Single-family vs. multifamily real estate and which will make more in the next decade Real estate coaching and why it might not be as good of a career as most people think Stocks vs. real estate and which is better for the investor trying to build wealth now Paying off debt vs. investing in real estate and how to know which move is right for your specific circumstance How to start investing with as little as five-thousand dollars (even with no experience!) And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast Get Your Ticket for BPCon 2022 Listen to All Your Favorite BiggerPockets Podcasts in One Place Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts Get More Deals Done with The BiggerPockets Investing Tools Find a BiggerPockets Real Estate Meetup in Your Area David's BiggerPockets Profile David's Instagram Ask David Your Real Estate Investing Question BiggerPockets Real Estate Podcast 639 with Matt Argersinger from “The Motley Fool” Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-657 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockus Podcast show, 657. This is why we rarely see a ton of appreciation in areas like Indiana or Kansas. There is so much land, they can build so many houses that supply continues to grow along with demand that keeps prices from going up. It's when supply is constrained and demand continues to grow that you see a rise in prices. So I don't know where you're living, but I would definitely look for the best. school districts, the areas that the city limits are pretty much all built out that can't buy more homes, go find the best neighborhood, go find the ugliest house or the biggest house that

you can, and then slowly add value to that property by fixing it up over time. Over a 10-year period, that will be the fastest way to grow appreciation. And it's super simple. What's going on, everyone? Welcome to the best dang real estate podcast in the entire world. Hey, if you don't know what Bigger Pockets is, you are in for a treat. Pockets as a company where we teach you how to build wealth through real estate. It's pretty much entirely for free and it's some of the most talented people and best information you can possibly get. On today's episode of our podcast, it is a Seeing Green edition, meaning you get me, David

Green, answering questions specifically from our fan base who are stumped in a position they don't know how to solve or have come across some really good opportunity. You're trying to figure out how to make the most of it. I answer all those questions and more on today's show. in today's show we get into several pretty amazing questions. One of them is from someone who feels that they're pretty good at real estate investing and wants to start coaching. And he asked me what advice I have for starting a coaching business, how he can incorporate

this into other businesses, how he could basically change his life through real estate. And I give a pretty detailed answer on a path for that person to take. I also get into one of my favorite things to talk about today, which is portfolio portfolio architecture. Not sure what portfolio architecture is. We'll make sure you listen to the show and you will find out about it. and hopefully come to love it just as much as me. And then finally, we have several people on today's show who have done very well based on

appreciation they've gotten over the last couple years. I mean, one of them is a 20-year-old. The other person, I think, is 25. They've got over six figures in properties, and they're trying to figure out, should I keep this house or should I sell it and reinvest that money? I give detailed and specific plans of action to both people that should definitely increase both their equity and their cash flow by increasing the efficiency of the efficiency of how hard their money works and you will learn how to do the same by listening.

This is my first quick tip. There's going to be another one. Today's quick tip. Think about how hard your money's working. So many of us are letting our money be lazy. We work really hard, but then we take all the capital that we've saved and we don't hold it to the same standard we hold ourselves to. Stop doing that.

Your money should be working just as hard or harder than you are. And for the second quick tip, we're about a month away from BPCon. You're here because you want to learn, right? So why not come to BPCon and learn from 2,000 other people that are taking the same journey as you? I'm just saying that you should be there. It'll be in San Diego in the early fall. Who doesn't want to go to San Diego? And I will be there.

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All right, let's bring in our first question. Hi, David. This is Ben from Denver, Colorado. Thank you so much for taking my question. Love the Seeing Green episode podcast, very useful information. So thank you for that. Here's my question. So I own currently four properties,

my primary residence, and then I have three rentals. One of my rentals is not performing too well, so I'm going to sell it via a 1031 exchange. My question is, it's a two-part question. First part, do I need to utilize all the proceeds towards one property, or can I split the proceeds in 1031 into two single-family homes? And the second part of the question is, in the long term, let's say 10 years from now, which asset will have retained the most value? and prone to appreciating a small multi-family or single-family homes.

Thank you so much for taking my question. Looking forward to your answer. Hey, first off, Ben, this is a great question. I just want to commend you for asking a very good question. Also, I know our audience is loving how concise and direct your question was. So if you're considering submitting your own video question, go to biggerpogs.com slash David and do exactly what Ben did because that was perfect. All right, Ben, I like that you're asking about a 1031.

I'm in the middle of one myself right now. And this might come as a surprise to some of you, but this is the first 1031 I've ever done in my entire career, mostly because I rarely ever sell properties. Now, I won't get into the reasons why I had to sell. There were some complicated issues that were going on. It wasn't anything to do with the portfolio itself. It was more business stuff that I had. But I was sort of forced to sell a lot of properties in Florida and reinvest that capital. Now the road that I took was I went into high appreciating markets, just like what you're saying,

that your goal is. And I took on more debt than what I had before. And I went for bigger, nicer stuff. So it was really an upgrade all across the board. I did learn several things during 1031. So if anyone here has questions, I would highly encourage you to submit them at biggerpockets.com slash David, especially if they're about at 1031. I'd like to talk about this more.

A few things that I need to say. First off, I'm not a legal expert. I'm happy to connect you with the 1031 company that I use. Not a problem at all. Just send me an email or a message about that. But I am not a lawyer. So I could be giving advice based on my understanding that isn't exactly accurate. And especially with these situations, there's often nuance that goes into them where you want a qualified intermediary giving this advice.

However, I feel comfortable answering this at a general level. My understanding is yes, you can change one house for several properties. It does not have to be one for one. That's not one of the rules. So if you sell a property for a million dollars and you owed $500,000 on that house, you can go buy two new houses and put $250,000 down on each one. In my case, I think I'm actually buying less properties than the amount of them that I sold. So it usually would go the opposite.

I just had quite a bit of equity and I'm buying more expensive properties than the ones that I sold. That's why it worked out that way. something you do need to be aware of, though, Ben. You have to have at least as much or more debt on the new properties than the ones you sold. So in that hypothetical example, if you had $5,000 of debt on the properties you sold, when you buy the new property or properties, you have to have $500,000 or more of debt. So you can't actually access your equity through the 1031.

There's several other rules that I don't want to take up the entire show talking about, but this is some really cool stuff. So if you guys would like to know more about 1031s, please let me know. The second half of your question, what do I do with the money? How do I invest it? Is it going to work out better at a small multifamily or is it going to work out better in a single family residential home? Love this question. First off, we have to make this apples to apples because a small multifamily in Malibu, California,

is going to appreciate a lot more than a single family home in Tupelo, Mississippi. So just consider this as we're getting into it. But let's say you're investing in the same market. In general, single family homes will appreciate faster than multifamily homes. But in general, multifamily homes will cash flow more than single family homes. This is not an across-the-board rule. So please don't go comment on YouTube and give me the exception that you know about to this rule. It's a general understanding.

So my advice, if you're looking for the most appreciation, the most money you can make over 10 years, is buying a terrific neighborhood, by the ugly, or biggest or both house in that neighborhood at the best price that you can get it at and then fix it up over time. If you're choosing an area because you're looking for appreciation, you want to see a place where demand is going to grow while supply will not keep up. This is why we rarely see a ton of appreciation in areas like Indiana or Kansas. There is so much land. They can build so many houses that supply continues to grow along with demand, that keeps prices from going up. It's when supply is constrained and demand continues to grow that you see a rise in prices.

So look for areas that are either built out or have a political environment that limits how many permits are given or the home prices themselves stop home builders from moving in there to build. Sometimes if the prices are really high, it's hard for builders to build a ton of homes and they tend to just be spec houses that are built in those areas. So I don't know where you're living, but I would definitely look for the best school districts. The areas that the city limits are pretty much all built out. They can't buy more homes. Go find the best neighborhood. Go find the ugliest house or the biggest house that you can in that neighborhood, particularly if it's both. And then slowly add value to that property by fixing it up over time. Over a 10-year period,

that will be the fastest way to grow appreciation. And it's super simple. All right, our next question comes from Travis in Newberry, South Carolina. Travis has seven long-term rentals within one-hour driving. I absolutely love real estate investing and managing properties. He has a W-2 job, but he dreams about the day of leaving that to do real estate full-time. He's considering becoming an investing coach. The goal isn't just to make money, but basically to do what you guys do every day, help others get started in real estate, but do it at a local level.

The question is, what's the best way to go about this? of charging a flat fee of $1,000 to get people into their first investment property and basically walk with them step by step the entire way. Maybe a percentage of monthly rent to manage their property on top of that. I know technically I'm not allowed to manage a property for them without a property manager license, but I still could do this under the title of Lease Up Specialist. I'm in the process of getting seven LLCs for each property and a holding company for the whole lot. Should I operate this coaching under the holding company?

I imagine that becoming a real estate agent who helps them find suitable investment properties would kind of be a natural next step. I'm considering this as well. What recommendations would you have for me? Okay. Thank you very much for this, Travis. First thing, I can't give you legal advice on if you should do the coaching company underneath the entity that the homes are.

I don't see off the top of my head why that would benefit you. I just, if one of your client sues you and you're having that business run out of the same LLC as the properties. I'm not a lawyer, so I might not be getting this perfectly right, but it seems like they'd have access to equity in your houses, and that doesn't benefit you.

So if you're going to start a coaching business, I would start a separate legal entity that's not connected to the homes. Another thing to consider is that if you're charging someone a thousand bucks to get them into their first house and you're working with people that don't take action, you're never going to get paid because they're not going to actually get into a property.

Another thing to consider is that this is a very difficult business to get into. You end up feeling pressured to make claims that you can't really support or you have people that are taking up all your time and blaming you for why it doesn't go. I don't know anyone who's running coaching businesses the way that you're describing. And because we're here at Bigger Pock's, we give away information for free, you're going to be competing with people like me that are giving out the information. I definitely like the idea of you getting your real estate license instead.

Let me tell you why. If you get your real estate license and you help get people into their first property or their second property or their third property. You're going to be getting a lot more commission than a thousand dollars. You're not getting into this guru territory where you're now trying to charge people for something that they could get for free somewhere else. And this is part of the job of a real estate agent, at least a good one, and we could use more good agents in our field. I think that rather than people being coaches that teach people how to invest in real estate, it would be better if they became real estate agents that helped their clients invest in real estate. This is what real estate agents

are supposed to be and they're not very good. So rather than having agents and coaches, I wish coaches and agents were the same thing. I would love you to consider tweaking your business model to go that direction. And then if somebody wants your advice, but they don't want to use you as an agent, just say, hey, I'd love to help you. Unfortunately, I can only help my own client.

So you're going to have to ditch the realtor that isn't doing their job, which is why you're talking to me and use me. As far as collecting a percentage of monthly rent to manage a property, not every state has that rule that you have to be a licensed agent or have a specific property manager license. In California, you don't have to be a real estate agent to manage property. So verify the rules in the state that you live in to make sure that you do have to have a property manager license. But if you're going to be getting a real estate license, you might as well get a property manager license. It's probably going to be a very similar

testing process. And then you can legally be compensated for both. And you don't have to worry about coaching. Okay. Even if somehow you do take the coaching road, you'd be better off to have coaching, which is the front of a funnel, and then you could take your clients and you could serve them as a property manager or a real estate agent, which is another way to create revenue, but it's still bringing value. And then your clients that are the best at this are going to buy more properties. You're going to have more properties to manage. You could literally build a real estate agent business and a property management business off of the work you did. So giving coaching. And you might not even have to charge for that coaching.

It could be something that you do for free and you still get compensated by helping represent clients. So I think we need more people in the real estate agent space and the loan officer space and the construction business and the property management side and the CPA side and the bookkeeping side, all of it that are actually real estate investors themselves. So I hope that I see you in my world doing just that. Hey, everyone. This is Dave Meyer, host of the On the Market podcast. Tom, I have a question for you from Matt Wilson. Matt Rotisson wrote, I just got under contract on a flip I completed in Wilmington, North Carolina. The house has an in-ground pool, so the liability of that combined with the very hot market swayed me to sell instead of hold on as a burr.

I funded the purchase and rehab with a line of credit on my stock portfolio, which is great funding option because of the super low rate, low fees, and even the option to make no payments until you pay it off. I have a few long-term rentals in town already, and my goal is to continue buying short, single-family homes and small multis and eventually 1031 into something big and, completely passive like an Amazon warehouse. My question is how best to use the profits from the flip to buy more real estate? After fees and taxes, I should keep about 150,000. The type of rental homes I like to buy are about 300k, so the 150 profit could cover 20% down and the closing costs on two more homes. Should I go this route or would it make more sense to put the profit in the stock portfolio to increase my credit line so I can go after more and bigger Burr, projects. Well, let me address the, Dave, let me address the tax side of that because that's my

expertise as a tax professional. So from a tax standpoint, clearly better. You don't get tax benefits putting money into the stock market, period. Except for 401k IRA, you don't get tax benefits. So the big tax benefits are going to be bonus depreciation from a cost segregation. You might be able to get 25 to 30% of the purchase price of that new project. The reality is, is that, you know, your flip is going to cause you to have ordinary income. That's tax at the highest rates. So there are some things you want to do to reduce that tax liability. And one of the big things is to reinvest the money into long-term real estate as opposed to just building flips because you're just going to pay a lot of tax when you're doing flips. Man, Matt, I love these kind of questions.

when you're starting off investing in real estate, it's all about the individual house. And I remember those days where you would just analyze every single angle of this entire house. You knew every floorboard in it. And then once you've invested in real estate for long enough, you start to recognize patterns in investing. And you start to see that the details don't ever actually make you money. It's much more of the big picture stuff. And then your priorities start to switch. And instead of analyzing a specific deal to death, you start just understanding the parts of the deal that are going to make you money

and trying to capitalize on as many of those. So for instance, when I'm looking at real estate now, I'm looking much more at how can I add value to it? How is it going to cost? Where am I going to find the contractor to do that? If it's a short-term rental, what can I do to increase revenue? And then what can I do to decrease the amount of time I'm working on this house? Which areas are likely to grow the most?

What kind of backup options do I have? I'm typically looking at angles like that rather than just analyzing 100 deals a day. So questions like this that involve several different, like asset classes, I've got stocks, I've got homes, I've got options, I love it. Please send me as many these questions as you guys can. I love talking about what I call portfolio architecture. How do I structure a portfolio for maximum efficiencies? We're kind of getting into that with your question here. First off, I like the way you're thinking. You've got 150,000. Is it better to buy one property or a down payment on two properties or put the money into stocks? I think Tom did a great job of

explaining the tax benefits of investing in real estate. I'm going to take the next step and say that you're also getting leverage. If you put the money in stocks, you're not going to be borrowing more money to buy more stocks. You're just going to be dumping 150 grand into those stocks. I'm also going to add that that's going to be a little bit riskier. Now, you did make a great point that putting the money into your stocks will increase your line of credit. And I wouldn't mind if you wouldn't submit another video and just tell us how that works. I think our listeners would get a kick out of hearing how they can take a line against their stock, especially if it's a low rate. I personally haven't ever done that myself, so I wouldn't mind hearing more about it as well. However, here's what I'd like to see.

Let's stretch that $150,000 into even more than two new properties. What if you put a very low down payment, say 5% on a house hack? That could become a rental property when you move into it, and it's not going to take very much. So if you can get a $300,000 house hack and you put down 5%, that's 15 grand. you get your closing cost paid by the seller, you're keeping almost all of that $150,000. So now you've got a house right off the bat that will become a rental property when you move out. Then you take your remaining $135,000.

You have down payments for two new properties at $300,000. That's $120, you've got $15,000 left over and you don't even need that for closing costs because in today's market, you can make the seller pay for those closing costs. So you take that $15,000, you either put it in reserves

or maybe put that into your stocks. Then take the cash flow, that you're making from these three houses that you bought, not two. You've increased your portfolio size by 33%, and you've increased how much money that you've borrowed and how much leverage you've taken as well, which your tenants are going to be paying off for you, which goes right to your net worth overtime.

Take the cash flow and put that into the stocks. So you're not going to put this really big, huge lump sum in there like you're talking about, where it's stocks or real estate. You're going to get both. You're going to get real estate plus three of them, not two. You're going to take that profit. you're going to put that into stocks and you're going to let it grow that way. I like the idea of increasing your stock holdings, especially if you're good at doing that

and if you can take a line of credit. I don't like the idea of putting all your eggs in that basket, especially because like Tom said, you're not going to get as many tax advantages from it. And this is why I love talking about portfolio architecture. I don't know if I coined that phrase. Maybe I did. If anyone else has heard somebody else saying it, let me know. Otherwise, I'm probably going to start taking credit for it.

But it's fun. I like getting into this kind of. stuff. I hope that advice helped. I love to see you exponentially grow your wealth in many ways. Thank you for your question. And please let us know more about this line of credit you've got on your stock holding. All right, thank you, Tom, for joining me and giving some backup on this Seeing Green Edition. Thank you everyone else for submitting questions at this step in the show. I like to read comments that we have on YouTube from previous episodes. And at this point, I want to encourage you. If you're listening to this on YouTube, on your phone, on your computer,

as long as you're not driving, go and write a comment. Tell me what you think about. my question, what questions that you may have, what you liked about the show, do you like seeing green, do you like different stuff? Do you want to see more coaching calls? Tell me what you want, and we will make content the way that you like it. All right, our first comment comes from DJ Parton. Here's a show format idea. An episode entirely consisting of deal deep dives. It could include deal deep dives into all kinds of deals from wholesaling to single family rentals to commercial. It could also include deals that went well and deals that bombed. It is a hard market to get started in right now.

So hearing the specifics of deals, real people are doing on a daily basis in this market could be very helpful to folks like me. Thanks for all the content y'all put out. DJ, fantastic idea. I love that. And seeing grain is a perfect place to do this. So how about this? If any of you like this, go to the YouTube comments and say, yes, I'd like to see a deal deep dive episode.

We will either find a guest to bring in or several guests to do that. or I could do my own deals that I'm buying and I could do deep dives on some that went well, some that did not go well, and I could break down for you all of that. Maybe I do three, four, five of my own deal deep dives right here on a seeing green episode and you guys can see what I did. I could even bring in a partner. My lending partner, Christian, is intimately familiar with all my deals because he's financing them and he also helps sort of, we tag team this when I want him to go smooth something

out with someone that maybe my realtor ruffled feathers. I use Christian like a ninja often. So we could maybe bring him in and we could tag team these together. So let us know if that's something that you'd like and I will have our awesome producer Eric put that together. Next comment comes from Cynthia Ibarra. Hi David, I loved your show.

Loved, you don't love it anymore? Just kidding. You guys are the best. I would like to see more about second home mortgages. Thank you. All right, Cynthia, I will keep that in mind. We will keep an eye out for questions. If you've got a question about a second home mortgage, please go to biggerpockts.com slash

David and submit it there. And our last comment comes from King Elaine C1. Recently found this channel and it is growing on me. I've only been investing for seven years and I learned something new with each episode. Well, that's pretty cool. Glad to hear that we have you in our world now and I hope you stay here. All right, we love it and I appreciate the engagement. Please continue to submit your questions or your comments on YouTube.

as well as video submissions or you can even submit a question written out at biggerpogs.com slash David. Also, don't forget to like, comment and subscribe on our YouTube channel and share this with anyone else you know who's interested in real estate. Oftentimes you can create friends for yourself by sharing content like this that they end up liking to. All right. Question number four comes from Wade Collessa.

Hey, David. Wade Collessa here. Coming at you from Sioux Falls, South Dakota. up currently sitting in our second duplex that my wife and I own, doing a full gut rehab on this one, which is exciting. But my question is actually in regards to my parents who are both nearing retirement age. Neither have a lot saved for retirement and do not have a lot of disposable income. But she reached out to me and was curious what she could do with a small amount of money,

maybe around $5,000 if there is a way that they could jump in and kind of get their feet wet in the real estate game. Any thoughts you have would be appreciative, and I appreciate all you do. Thanks. Thank you for this, Wade. All right. How do you get started in real estate with $5,000? Well, there's a couple options that they have that don't involve actually buying property. I can't think of any situations where $5,000 would be enough to get you started in real estate. One would be they could give it to you. You could combine it with some of the money you have, and they could invest in a property as a partial owner. So let's say you find something that you can get into for,

$25,000 down. If you borrow $5,000 from them, you could give them 20% of the equity. I believe that that's around. My math might be wrong, but you could give them a portion of what that would be and they could get paid that way, especially if the property grows in equity. And that would make sense if you could use some extra cash for the next deal you're in. Another one, check out our episode with Matt from the Motley Fool, episode 639. Matt gives some ways that people can invest in real estate passively without having to qualify for a mortgage. So in that episode, we talk a lot about real estate investment trusts, also known as REITs. Reits are very similar to investing in stock that's based in real estate. You're basically buying a portion of a portfolio that professional

real estate investors and managers have handpicked and are managing. And as that portfolio grows in value, so does your investment. So Matt talked about a couple of REITs that he's into as well as how to research REITs. I would definitely steer them towards that. If they're looking to buy specific property, they're going to have to partner with someone else or they're going to need some more money. Can they pull some money out of their 401k and use that to invest in real estate? That could work. However, they're probably not going to be good at it. I don't know if you want, if they only have $5,000, I don't know that investing in real estate is the best move for them right now.

I would definitely turn them onto the podcast. If you guys are listening to this episode, hi. Welcome, especially from Bigger Pockets. We're really glad to have you here. and start focusing on education, right? Get exposed to this. The last piece of advice that I'll give you is house hacking. If they can buy a new primary residence and get a little bit more than the $5,000,

they can start to live in a property and rent out part of it. And then after a year, they could always move back into the house that they had before. Maybe the house they're in could become a rental property if they live somewhere else. Overall, I would need to know what their goals are. If they're just looking to make a little bit of extra cash, investing it in a reet could be a good idea. If they're actually trying to become a full-fledged real estate investor, they'd be better off to put their time into learning about real estate than trying to get in with $5,000. All right, question number five comes from Paul Williams in Florida.

Hey there, David, I have a two-two unit that I house hack in downtown Sarasota. It has two separate entrances. I live in the front and I Airbnb the back in this hot market of Florida that we're about a mile from the beach. I have a super good location. I have never had any issues renting this out as a short-term rental. I recently started travel nursing and raised quite a bit of capital to do something with. Yeah, travel nurses get paid really well. I just found this out not too long ago, like $15,000, $25,000 a month, depending on where they're

going to work into certain locations. So if you're a nurse, maybe consider travel nursing. And if you're trying to figure out what job you might want, I don't know what the demand is right now, but travel nursing does seem pretty lucrative. Okay, back to our regularly scheduled verbal question. I also saw that a similar house up the street for me sold for 500,000. My original plan was to drop 30K to fix the house up and make it a premium vacation rental. But my question is, what's the better play?

If my goal is to buy my second investment property at the end of the year, should I put the 30K in and get it to a premium level rental that basically runs itself? It looks like after all said and done, I'd make between 10 to 12K a year after expenses renting it as a vacation rental. Or should I put a bit less in and list it and if I get an offer for $450K or more, take that and use it to buy other rental properties. My thinking is that would give me about $225K in cash in the bank as I owe about $190K on it. So I'm wondering, is the passive income over a long term is better or since I'm new and trying to expand my portfolio as a chunk of cash as a potential jumpstart, a better play.

Thanks, and I love listening to y'all. Well, this is a great question, and I get to talk a little bit about portfolio architecture again. So I am a happy camper. The question isn't, should I keep cash flow or should I get a chunk? of money. It just starts there. The question is, should I keep this property to cash flow or can I get more cash flow somewhere else? That's what we're really getting down to because that chunk of money is going to be converted into cash flow anyways, right? So the question is, is the property that I'm in the most efficient way to use my equity? This comes down to the return on investment versus

return on equity calculus that I've used before where we look at how much equity are you making on your property. In fact, we might be able to do that because you gave me quite a bit of detail in your question. So let's dive into that. You said that you're going to make $10,000 to $12,000 a year. Let's assume that you are on the higher end and you're doing $12,000 a year. That's nice because that's $1,000 a month. And you think that if you sold it after all your expenses, you would walk away with $225,000 plus. So let's say that you've got $12,000 a year coming in and you divide that by $225,000 in equity, that is a 5.3% return on your equity. Not super amazing, especially for a short-term rental. I think you can do better. I don't think it's uncommon for you to find a 15% return on

your money, especially the area I'm familiar with in South Florida where you are owning Sarasota. So you could take that $225,000 and you could get a 15% return on it, which would triple the man of you're making from 12,000 a year into 36,000 a year, or $1,000 a month into $3,000 a month. You could also add to the amount of money that you're borrowing. You sound like a younger fellow. So I'm going to assume that you're in a financially strong position because you said you're a traveling nurse, which means that you are prioritizing, building your wealth, and making money you're not someone on a fixed income who I would give different advice to.

Which means if you sell this place, not only can you increase the amount of money you owe from $190,000 into more. But what that turns into is buying additional properties. You could probably sell this house and buy a legit three more. And if you look to house hack another one, you might even get four more houses. That's quite a bit of capital. So my advice would be this. Sell this place, buy a new one that you can house hack just like this, because you're

going to need a house to stay in, but try to find one that has three units instead of two. You can get more cash for that way. Take the rest of the money and buy more short-term rentals. Now we're also assuming that you believe the fundamentals are strong. In Florida, they are very strong, so I don't have any qualms giving you that advice right now. Increase the amount of money that you're making on the equity that you have, and you could find that this could almost replace your full-time job with as much money as you make if you do another round of this three, four, five years later.

You're in a fantastic position, Paul. You are doing everything right. Keep your nose to the grindstone. Stay focused. Keep on your hustle. Look to maximize that equity as much as you can buy in the best. best areas, manage your properties very, very solidly, and continue to save money just in case something happens, and you'll do great.

People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams, busy worrying they pick the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top rental markets across the country. Their local teams handle the build, the property management, and the details, so you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing, and there are interest rates as low as 3.75%. They've been

trusted partners with BiggerPockets for over a decade, and if you want to learn more, visit biggerpockets.com slash retirement. Taxes and reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about cost segregation. It's an IRS compliance strategy that lets you accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost segregation guys is the go-to firm, having done over 12,000 of these studies with 500 million in total depreciation identified. Head to costsegregation guys.com slash BP to get a free proposal and see

your potential tax savings. Tired of traditional lenders holding you back, host financial is here to change the game. They've ditched the DTI restrictions and they zero in on what really matters, your property's income potential. So no more chasing papers for tax returns or personal income statements. Think about it. A lender that values your property's worth over your paycheck, that's the host financial difference. Approved in 47 states, they are ready to help you make your next big move. Curious if you qualify, just head over to hostfinancial.com and find out. outdated lending practices hold you back. That's hostfinancial.com where your property's potential meets unlimited financing. Question number six from Colby Fisela in Des Moines, Iowa.

Hi, David. My name is Colby. I'm 20 years old and I've house hacked my first investment a duplex at 19. Since then, I've also flipped a single family home. I purchased the duplex for $170,000 last year and today I've subdivided the duplex into buy attached units and both units are under contract for a total of 330. With a profit of around 150, along with the profit for my last flip, I have about $200,000 in cash. That is a good number for me to know. Thank you. I'm planning a building in a high appreciation neighborhood with the builder I currently work

for, but I'm wondering what I should do with the rest of the money, which is about $100,000. I'm currently running with my wife until that build is finished, and then I will be there for two years. My goal is to be a millionaire by 25. Love your opinions and advice on bigger pockets. Your show introduced me to house hacking and real estate, and now I'm never looking back. Well, first off, I'm really glad to hear that our show helped to make you $200,000 of tax-free money. That's more like $280,000 of money if it's being taxed.

So that's probably more than most people would make in years of their life and definitely more than most people would save. And you did it while still working in jobs. So you are off to a great start. So let's talk about what to do with that $100,000. Well, if you're building a home, you're probably going to be somewhat busy managing that. So there is the option where you could let somebody else borrow that money. and pay you interest for a year or two or three while you're working out some of the other stuff you have going on.

Let's say that you're not too busy. Well, you're doing this build because I'm assuming that you want to live there, you didn't mention if you're going to be doing a build because you want to rent it out. So this $100,000 could be used for something else. I'm not sure why you're putting $100,000 into the new build if it's a primary residence. You could probably put less than that unless you're buying like a million dollar property. and doesn't really sound like that's something that you'd be doing. So how can you invest this $100,000?

Is there short-term rentals around there that you can get into? Can you get into a two, three, or four-unit small multifamily property and put your money there? You work with the builder, which means you probably have access to people that do construction and you have a competitive advantage. Can you find yourself a fixture upper or an ugly home and do a side, like maybe not a live-in flip? Because it sounds like you're going to be living in new construction, but can you work on a side project. You buy a house, you rent it out, maybe you leave one of the units vacant, and you fix that one up with some of the connections you have in the construction business,

then rent that one out for more rent and fix up the next one when there's a vacancy. I would definitely look for a value add with the construction component with that $100,000. Once the house is fixed up, you either keep it and refinance it or you sell it. You turn that 100 into another hundred or maybe another 200 more. Now you've got 200 to 300 that you can snowball into the next deal. continue to make base hits continue to find properties that you can add value to continue to buy in areas where there is growing demand like where you are right now and continue to buy the worst property in the best neighborhood you do this over the next five 10 years you will become a millionaire all right we have time for one more question this one comes from christin mckamey so i'm 42 and my husband is quite a bit older than me 59 we own three small single family home a commercial building where he currently runs his business out of, our primary home, which is a pretty modest home, a duplex, which I tried to do a burr on,

but it didn't appraised for what I thought, unfortunately, and a house slash cottage in Florida that we rent out as two short-term rentals. Now, to buy the last two properties, I now owe over $88,000 on the HELOC and $30,000 on the 401K loan. But we have another exciting potential opportunity as well from a guy that we know that wants to sell his 13 unit apartment building. But he's a little bit back and forth, wants to wait a couple years. He's in his 70s. It's paid off.

The rents are low, so it seems like it could be a really good opportunity for us. So our goal would be to sell two of our single family homes to put down on the apartment building and then use the HELOC once I pay that off as a backup for repairs. Now, I also feel more pressure since my husband's quite a big. bit older than me and I want to be able to retire at the same time as him, basically retiring from my W-2 job early. We don't have any kids, so we do have a lot of flexibility there. So I'm just wondering a couple things. I have a really good job. Should I continue paying the HELOC and the 401k off and save up like I've been doing for the past few months, even though I feel like I'm really missing out on an opportunity for cash flow. In the meantime, I'm just not really sure if the smart thing is to pay off

debt or to try to invest more with the risk of over leveraging ourselves. And I'm also not sure if I should put all my eggs in one basket in regards to this apartment. So I appreciate you listening to my story and providing any advice you have and what you would do if you were us. Thanks. All right, Kristen, thank you for that. You did give me some pretty good context about what your goals are and that helps me to give you the best advice I can. The question of should we continue paying off our debt or should we go invest in real estate? Now, if you had said, I have 25 years before I retire, I would have said, well, then continue paying off your debt. But because you're in somewhat of a rush and you're trying to catch up with your husband so you guys can retire at the

same time, that does change what you have to do. You're not going to get where you want to get at the current trajectory that you're on, which means that there is going to be some increased risk if you're trying to shorten the timeline of when you can retire. This 13 unit apartment complex, I don't know the details. I don't know the area. I don't know the condition. So keep that in mind. But just assuming everything is good, this looks like a really good opportunity. I'm also assuming that the two properties that you would sell to buy it would be cash flowing a lot less than this 13 needed apartment complex. So I don't really see a reason why you would not do that. If you could sell those two properties and buy his apartment complex, that would increase your

cash flow would put you much closer to being able to retire. But you said he's 70 years old. He may not need you to actually get a traditional loan and pay him off. You should ask if he's interested in seller financing. You might be able to buy his apartment complex that's paid off without selling your properties at all. You could keep them. You could just take out a note, give him whatever down payment he's looking for, which could be from the rest of your HELOC line. I just thought about that. And you could get these properties without having to sell the ones you have. If you do have to sell the ones you have to buy his property. It doesn't mean you lost two properties.

It means you traded less cash flow for more cash flow, less equity for more equity, and that you can take the cash flow from this apartment, start saving that money, and then go buy two new duplexes to replace the ones that you had to sell. Okay. So this is something I see people get into pretty frequently. They look at it like, if I do this, then I don't get that. And at the beginning stages, that is true. But if you structure it the right way, there's almost always a way that you can have this and that.

It just means how much time can you take to get there. So it sounds like you guys are making a lot of moves the right way. Do you have equity in the commercial building that you own? Could you tap into that through a cash out refinance or a HELOC and use some of that money to buy the apartment complex? There's probably ways that you could get into it that don't involve you having to sell two assets that you like. but if you do have to sell the assets that you like, just come up with a plan to save more money to buy two new assets to replace them and decide how close that's going to get you to the money that you would need to be comfortable

retiring. I am rooting for you. I hope you guys are able to retire at the right time. I think it's awesome that you're doing this with your husband. Please tell him that we said hi. And then remember, when you retire, you're probably not going to stop doing real estate. You might actually make more money when you retire from the equity and the cashier that you build in your portfolio than you are making at your W2 job. I see that all the time. And you guys

already have a good enough of a head start that you're going to be making some serious traction when you do start making moves. So don't like a retirement like it's just a scary thing and you're going to lose money. It may actually make you more money when you get there. All right, that was our show for today. Thank you very much for joining me. I really appreciate that. I hope that you like these types of episodes because we put a pretty decent effort into getting them set up for you because we are told you guys really like this. If you do like the Seeing Green episodes, please let me know that in the comments below if you're listening to this on YouTube. And if you are listening to this as a podcast on an app, whether that's the Apple podcast app, Spotify, Stitcher, or what's the other one?

SoundCloud that people use. Leave us a review on there. More people will get to hear about this if you would do so, and we really appreciate it. If you would like to follow me or learn more about me. My name is David Green. You can follow me on social media at David Green 24 or on YouTube at YouTube.com slash David Green real estate. And BiggerPockets has an entire website for you to explore. It is more than just this podcast and YouTube channel. Please go to BiggerPockets.com and check out everything. You can start at BiggerPockes.com slash podcast. And you can see a whole suite of podcasts we have. We have a rookie show. We have a money and financial independence show. We have a show geared specifically for women. We have a show geared specifically for people that want to invest in

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active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes? 10% below market value in the best markets across the country without making real estate your second job. That's exactly what rent to retirement does. They're a full service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of their down payment back at closing, plus interest rates as low as 3.75%. They've partnered with Bigger Pockets for over a decade helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more.