Rich Habits Podcast - 82: How to Buy Real Estate Like a Pro

Episode Date: September 16, 2024

In this week's episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share their 6 best tips on buying real estate. ---⭐️ Mortgage loan calculator, ⁠linked here!⁠⭐️ Join our weekly email newsletter covering the stock market and the economy, ⁠click here!⁠⭐️ Join the Rich Habits Network, ⁠click here!⁠---💥 Get $250 when you open an account on Frec, ⁠click here!⁠💥 To get a 30-day extended free trial with Monarch Money, ⁠click here!⁠---⭐ Download our FREE Budgeting Template – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Earn 5.1% on your savings with a High-Yield Cash Account – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Trade stocks, options, music royalties and crypto on Public – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Get a $35 bonus when you start saving & investing with Acorns – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Automatically buy stock where you shop with Grifin – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Protect your family with term life insurance from Suriance – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Use code “Spotify” for 15% off our 4-module video course – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⭐ Optimize your portfolio with Seeking Alpha – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠---👤 Explore everything Austin does – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠👤 Explore everything Robert does – ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠❓ Ask us questions for our Q&A episodes – @richhabitspodcast on Instagram📬 Inquire about working together – [e-mail]---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

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business podcast on Spotify. My name is Austin Hankwitz and I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur in his 50s with lifetime revenue of $300 million, and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. As the show name might suggest, every single episode. We talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives, one from an industry veteran, which is Robert, and the other myself, someone who's still in the process

of building wealth and figuring it all out. Robert, this episode is one I'm really excited for, so why don't we break it down? In this episode of the Rich Habits podcast, we're going to share our real estate buying blueprints so you know how to buy real estate like a pro. A little known secret when it comes to real estate is that you don't make the money when you sell the property. You make the money when you buy the property. buying the property in a rising market for a fair price, you're setting yourself up for success later on in life, no matter if this is a primary residence or an investment property. And the best investor of our generation, Warren Buffett, has a quote that despite not being about real estate

makes a lot of sense. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Buying a wonderful piece of property at a fair price is far more advantageous than buying a crappy piece of property at a wonderful price. Keep that in mind throughout this episode. It's very important. Robert, I'm not going to pretend that I'm a veteran real estate investor. I've only purchased two properties throughout my lifetime, but you certainly do know what you're talking about. You definitely have purchased dozens of pieces of real estate throughout your life, and you know what to look out for when it comes to buying real estate, if that's investment property, or even a primary residence. So in this episode of the Rich Habits podcast, we'll walk you through

our most important considerations, how to approach the search process, how to think about the borrowing process, but most importantly, what pitfalls to look out for. So Robert, let's dive in. Let's dive into point number one. Ask yourself this question, am I ready to buy? Rightfully so, a lot of people jump the gun when it comes to buying real estate. Either they see the mortgage rates are beginning to come down, or they want to act quick before real estate prices rise as a result, or their friend just bought some real estate and they want to get in. the game and get excited about and all that. But I want everyone to take a moment of pause, just usa for a little moment and understand, are you ready? Is it the right time? And what is the

right kind of real estate for you to buy? So no matter the reason why you want to buy real estate, you need to actually be ready. So how do you do that? How do you know when you're ready? Here are a few thought starters for you to consider. And please everyone, make sure you save this episode. Take some notes because as you get into the real estate game, these gems are going to be so helpful to make sure you don't miss an important step. And trust me, from someone that's been buying real estate for 35 years, it is easy to do. And later on in the episode, we're going to share a few mistakes and things that I missed along the way and I've learned from. So it's very important. So number one, do you have a solid down payment save? This can be 10, 20% of the purchase price. And of course,

the more money you put down, the less money you have to borrow, lowering your monthly payment. Number two, have you lived in the area long enough to know this is somewhere you want to stay put for at least five years? Jumping in and out of real estate can be very costly, especially when you consider buying and selling and closing fees. That is why even for me when I moved to St. Petersburg a year ago, I could have bought something right away, but I rented an apartment because I really wanted to understand the lay of the land, the area, the restaurants, make sure it's the right place for me. That is why I always recommend when you get to a new area if you're not sure rent first because it'll give you a better idea to get your feet wet and make sure it's the right place for you. And the next consideration

is your family expected to grow? And if so, are you taking this into consideration with your buying strategies? Now, I'm not saying you should buy your first property as your forever home to where if you have one kid now or no kids, but you think you're going to have three and you're going to jump the gun and buy this massive house that might not really be fully used for a few years, but definitely keep it into consideration of what your two, three, four year family plan is in your purchase consideration. And then our next step is, what is your job situation? You'll need at least two years of stable income to qualify for the mortgage, so you want to make sure you have all of your ducks in a row. So by asking yourself these

questions, you'll be getting a jump start on identifying where you might be lacking, allow you to be fully prepared to buy real estate when the time comes and you've got all your ducks in a row. I also think, Robert, that during this sort of, are you ready to buy thought process that we're going through, doing market research is incredibly important. Of course, real estate prices trend higher over a long period of time, but some pockets of the market might not trend as high as others. Miami experienced a massive explosion during the pandemic, for example, and now that's beginning to come back down to reality. I would look at, at Redfin's price data for your specific region. I would look at trends on Zillow as well.

But more importantly, look at population trends. Look at job growth. Look and see if large companies are opening new headquarters in an area or surrounding area of where you want to buy. For example, Oracle just open to headquarters in Nashville, where I live, right? That would be a positive factor to add when doing research. Most importantly, get your feet on the ground and look around for yourself. Don't just trust the opinions of these expert reports or even a real estate agent.

put in the work yourself to understand the area and what's happening in this community. Are people moving here? Our jobs coming. How do we feel about this region of the country in general before you buy? It's incredible what you can learn by just driving these different areas that are up and coming. You hear the term gentrification all the time. That is one of the best ways to learn what is happening. And just really getting out there and immersing yourself in these areas because then you're

going to have a better idea of what's next. 100%. Now, you've asked yourself these questions, you've gone through the sort of thought starter process. It's time to set a realistic buying budget and actually stick to it throughout the buying process. Robert, I want to kick this one off because I actually have a really funny story. I want to share when it comes to this. So when I was in the market to buy my first property in Nashville here back in 2019, my lender told me that I could borrow up to $350,000 on a property.

I was like, okay, that's cool. But like, what is the actual monthly payment? For perspective, I was making $65,000 year at the time. And after taxes, 401K benefits and whatever else came out of my paycheck, I was taking home about $4,000 a month. Well, if I had borrowed and said yes to that $350,000 sort of budget my lender gave me, my monthly payment would have been $2,100 more than 50% of my take-home pay. I just simply could not afford that, which is why I ended up only borrowing $270,000, not $350,000.

So the takeaway here is that what you can borrow, no matter what type of property you're looking to buy, isn't always what you should borrow. What you should borrow is what you can personally afford. It shouldn't be what a lender is trying to push down your throat so they can get a bigger commission. 100% correct, Austin. It's so easy to fall in love with a property, and it seems exciting when a lender tells you you can borrow that up to 350K. But if that monthly payment doesn't align with your honest budget that we talk about all the time,

meaning it's more than that 30 or 35% of your take-home pay, you can't afford to borrow that much money full stop at the end of the day you have to do what's right for you long term because as we're always talking about we just don't want to see people house broke for years and decades and it happens a lot and by going over your budget you find yourself in that situation of being house poor and this results in having little to no money to invest every month considering the bulk of your monthly budget is going towards your mortgage payment so you have to figure out how much you can afford to spend every month on a mortgage, no matter what type of real estate and work backwards from there. We like to reverse engineer it to make sure you're

staying within the numbers of your debt to income ratio that makes sense. And we'll link out a calculator tool in the show notes that we found on Google that can help you figure out how much you should actually borrow considering the monthly payment and your net income amount per month. So always get pre-approved for a mortgage that's in your monthly budget. before you begin shopping, and that will force you to shop with parameters and discipline. Let me say that again, parameters and discipline. So many people set a budget of that 350K, and then they talk themselves into the $425,000 house because it's only just a little bit higher.

And guess what? That's going to put you in that zone of danger of being house broke, and it's very important to stay away from that. Because you also don't want to forget about the maintenance and other monthly costs. There's lawn care, HOA, upkeep, and other expenses that come with home ownership that will inflate the monthly costs beyond your mortgage amount. And don't forget the pesky PMI. This is such a cool episode, Robert. I feel like we're just laying it all out for our listeners, and I'm so excited about it. So let's move on to our next point. Working with a qualified professional.

You've gone through everything we've talked about. You asked yourself the right questions. The answer was an astounding, yes, I'm ready to buy. You've made your budget. You've done the research. and now it's time to get a real professional involved. Working with the real estate professional local to your area who's not a fresh college grad or someone extremely young is a great next step. Now, this is no offense to the budding real estate agents out there, but working with someone who has lived in the area for 20 years and transacted thousands of pieces of real estate has leaps and bounds more to offer to you

than someone who just started a few months ago. Again, not trying to knock any new real estate professionals out. there go earn your stripes i'm just saying if i was going to spend three four five six hundred thousand dollars i want to work with someone who knows what they're talking about has been doing this for 20 years not someone who just got their license three months ago and don't forget it's just not the real estate agent that needs to be experienced you should also make sure that you have an experienced lender in your corner you know you want to make sure that you're getting different quotes two or three different lenders to make sure you're getting the right mortgage for the right

property at the right time for you as well as an This is a killer, killer, killer thing that many people forget about. Don't trust the homeowner and don't just trust the inspector that's sent your way. Do your research. Ask around. Ask friends that own properties who they've used because you want to make sure you flush out all of these items to ensure you're in good hands when buying your properties. So that leads us into the next portion. Conduct a thorough property inspection.

A mistake, a lot of new real estate buyer. make is they completely skip the home inspection or they try to skimp on the home inspection thinking they're going to save themselves a couple hundred dollars and they think they can simply trust the seller and they take them for their word well guess what not everyone in the world is honest especially when it comes to real estate and i can think of many times that i've been lied to in my own real estate journey so shop around for your inspector don't just go with the one that's recommended to you buy the real estate agent or anyone else that's making money in this deal you need need to have full autonomy over your choice. And sometimes it's even a good idea to have the

property inspected by two different inspectors. And I can't wait to dig into why. Always make sure that you get every point inspected. Above ground, below ground, in the attic, outside the house, the roof, the plumbing, the electric. Every single piece needs to be inspected. And don't be afraid to pay for it. It's always better to spend that few extra hundred dollars in the beginning than rather finding out later on because you also have to think, did you check environmental? Did you check for asbestos issues? Did you check a full title search prior to the title work during your due diligence period to make sure there's no mechanics liens or other things that are lingering out there that can really hurt your cost basis later on? So it's very important to be very thorough

in your due diligence period when you're buying any type of property. It's okay to spend five, $750, $1,500, $2,000, making sure you have all your ducks in a row, all the boxes are checked, and every part about this house that you were told is correct is actually correct. So let's get into our next section. Consider the specific location and long-term value of owning in this region. The small things people forget about when buying real estate are the school districts, the crime rates, the access to public transportation, and other taxpayers. funded amenities. All of these things compounded over 5, 10, 15, 20 years over time can

greatly impact the long-term value of the property you're purchasing. But it's very important for you to look to the future because when you're buying a property that could be your dream home, your primary home, long-term investment property, you want to understand what is the future outlook for this area. Is it an area that is gentrifying and growing or it is on the dissension and it's going backwards, it's going down in values. People are moving out, crime rates are higher. You want to make sure you do your research and here are a few things I like to look for. I like to look for planned infrastructure improvements. Think dog parks, bike paths and other many communities. I know there was a tangor outlets just built three miles from Austin's house.

So that is a great example of this. Also, look at proximity to public transportation. Now this might not be applicable depending on where you live. But if you're close to a metro area having access to that transportation is definitely a plus long term. And then also look at neighborhood growth. If you're somewhere in a newer neighborhood, are they building new ones around you? I know Austin is experiencing that like crazy right now. The goal here is to really understand the desired markets growth potential and what the yearly capital appreciation could look like. I like to drive around, look at the rate of development and don't forget to look up. The more cranes you see, the better.

I know it sounds funny, but when you're driving in a downtown area or a new area and you see developments in cranes everywhere, this is just an awesome thing to look for. And also one of my favorite real estate hacks, a friend of mine's company does, is they follow the regional development newsletters. And their tactic and they have built a billion dollar company around it is whenever a company, announces a major development like an Amazon or a FedEx hub, as soon as they see the foundation and the rebar is poured and it's being built, that's where they start buying properties around there because they know there's going to be massive job growth. So I love this section and it's something

everyone needs to consider when they're looking at buying, whether it's a primary home or they're building a portfolio of investment properties. I couldn't agree more. And I think, though, that people should be weary of, I know Robert, you've shared this example in the past of, you know, downtown Toledo, Ohio, or like these specific areas, it's going to get gentrified. And there's this new investor with half a billion dollars or two billion that's going to come in and do it all, but then like it takes 10 times longer than what people actually expected. You know, there's a new development around the Nashville area that is a new Tennessee Titans football stadium. And it's being built right now. It's a whole thing. It's massive. It's going to be one of these planned new developments that Robert's

alluding to, and there's a lot of people that are buying and selling real estate around that so that they could hopefully make a return on their investment in a five or 10-year period. But just want to make sure that you don't bet the farm on that, right? That is one component to this larger theme that Robert kind of laid out to us, which was not just understanding what sort of those plan developments are, but also the crime rates, the school districts, is there job growth? What's the population trends? Is there other neighborhood growth?

It's one component of a larger equation that you need to run for yourself and figure out. Wow, you really brought up something by mentioning Toledo, Ohio. Here is a great example that happened to me. I started buying properties around a couple of our legacy businesses in the east side of Toledo. And at one point, I owned one and a half city blocks of every commercial property on this two block radius. And the goal was to keep building out the infrastructure, get it gentrified further. And for years, we were told that one of the largest healthcare properties, providers was going to build a campus there. So my thought was, cool. They're going to buy me out.

I'm going to make millions of dollars and it's going to be great. And I was buying a lot of these properties an area that was not growing from a gentrification standpoint. But I still felt it was a sound decision. So over time, it did not happen. So for years and years, I waited. I kept buying and and buying and buying. Nothing happened. So four years ago, I sold all the buildings except for the two buildings and the warehouse that my businesses reside in and I sold them to a developer who also felt that was going to happen and now four years have passed and they have gotten zero money, zero help, zero development and the worst part is they made that two block radius and opportunity zone, but they ended it on the south side of the street and all of my old buildings were on

the opposite side of the street one street away from the opportunity zone. So that guy is in bad financial shape, the development company that bought them from me. So it's crazy out there and you just need to make sure like Austin said, you do not fall into that hype. We're just breaking down strategies from experience I've had over decades of being in the real estate business to help you make sound decisions in your real estate journey. So let's get into our last point, total ownership cost of real estate. This one is my favorite and probably the most overlooked by so many people. Far too many simply consider the mortgage payment, the insurance, the HOA, the utilities, and just that's it. That's what they believe is their total ownership cost.

And they simply overlook driveway maintenance, roof replacements, landscape maintenance, HOA increases, and general maintenance and repairs. And this can be really, really bad sometimes. And you just really have to be careful on this instance and really think through what can happen. because people don't think of underwater sprinkler systems that are decaying or maybe broken. They don't think of pool leaks that could occur for these in-ground pools that are on these properties. There are so many different pesky but high expenses that can occur when owning these properties. So make sure you're budgeting for them because it's very important to understand your total ownership cost. You always hear us talk about the honest budget.

The same thing has to apply when you're buying a house or an investment property. is be honest with yourself of what the total ownership cost is going to be so you can make sound real estate investment decisions. Yeah, I learned this lesson the hard way. I've already had to replace a dishwasher, a microwave, an oven, and countless other small things around the first property, actually, that I bought. So just make sure that you have that emergency fund beefed up as a homeowner because there's definitely going to be things that you will be replacing or changing or doing because you can't go to your landlord or you can't go to the apartment complex and say, hey, the dishwasher doesn't work. Come replace it. It's on you now. And also something I started doing,

Robert, is making a little list of the things that I have been replacing so that if I ever do sell this property, I can kind of bake that in to the selling price that I want to ask for it, hoping that I can get my money back over time. Yeah, one of my favorite real estate hacks, and it's not just for buying investment properties. It can be if you're opening a small business and you need a brick and mortar location. It can be if you're buying a plaza. I go buy a $1.99 black binder with all of the little clear inserts inside of it. And every project I do, I put the receipts. I put all of the appliance booklets in there. I put all the color swatches. I put all the business cards. For each individual project, I make a binder for every one of them. Because even though I might have it on a

computer or an emails, I like a reference point that I can go to for every project, and know exactly, hey, where did I buy that floor tile? Hey, who did the tile work in that property? Because it might have been five years ago. It has been one of the smartest things I've done. And I probably started doing it about 16 years ago. Holy moly, it makes life so easy to know exactly where something came from. Because after the fact, when you're going to renovate it or you need to make repairs,

you want to know where you bought the things and who did the work. Hopefully everyone now feels a sense of confidence, a sense of understanding. I mean, that's the whole deal of this podcast. We want people to have and be able to make educated decisions with their money, with their real estate, with their portfolios, everything in between, right? Rich habits is what we're focused on. So now I think our listeners know how to buy real estate like a pro. They've asked themselves the questions, am I ready to buy?

They've sort of laid out that realistic budget for themselves. They've worked with qualified professionals. They got the property inspected. They consider that specific location for long-term value growth. and of course the total cost of ownership. There's so much that goes into real estate, but lucky for you, you know how to buy real estate like a pro. That's right.

And after you watch this episode, if you're part of the Rich Habits Network, fire away in the Q&A. If you're looking to buy that next property or that primary home, if you have any questions and you need any help, we will be there to give you the answers. All right, Robert, now before we jump into our Q&A section of this episode,

let's do a quick update on an investment we made on FRAC. What they're building is an automated way to tax loss harvest while you direct index your investments. Wow. These are big buzzwords. What's going on? So just like we invest into the S&P 500 with VOO, you can invest into the S&P 500 on FREC. But instead of buying a share of an ETF that represents a basket of stocks with FREC, you're actually buying the stocks. You're actually buying Apple and Microsoft and Amazon and META.

You're actually buying all the names, the 500 names inside of the S&P5. Now, what's cool about FREC is they automate the tax loss harvesting process, which essentially means if any of these stocks experience a decline in value from where you originally bought it, they will sell it, harvest that loss, and allow you to use that loss as an offset against a potential capital gain you might have in the future. We originally invested $20,000. I think it was June 6, June 7th of 2024 here. And we've harvested now $810 of losses since then, while our $20,000.

$20,000 investment is now worth $20,750. So we made $750, Robert, and we harvested $810 of losses, but we didn't lose any money. Now, what's so cool about that is our cost basis on this $20,000 investment is now about $19,050. So FREC is a really cool platform. We love it. Again, we invested $20,000 of our own money. We'll continue to give you guys monthly updates on not just the performance of the investment, but also how much money we've harvested and losses.

So hopefully when Robert and I have a big gain in the future, we can offset those profits. Yeah, definitely. I love Freck. And like everything we do, it just shows that there are more ways to invest, even just in the S&P 500. You know, we talk about frack.

So we've got that tax loss harvesting. Then you can invest just directly into the S&P 500 with the VO's of the world. So it's just really cool to find additional ways to make income and just really grow your portfolio. So I love it. If you guys want to get a free $250 whenever you deposit your initial investment into FREC, use the link in the show notes below. This episode of The Rich Habits podcast is brought to you by Monarch Money.

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Dot com front-slash habits for your extended 30-day free trial. We appreciate them supporting the show and all of our listeners. All right, Robert, our first question comes from Shea C. She says, hello, I wanted to ask a question for the Q&A episodes of the podcast. I'm 44. I have two small children and a husband. We're getting started investing really late in life, but we want to quickly set ourselves up and our children for financial success in the future. I've recently started buying some stocks. What else can I do at this stage in life where we make $180,000 collectively?

Robert, I'll let you kick this one off. First and foremost, Shea, thanks for asking the question. You are not too late. It is not super late in life. That is ridiculous. You need to lose that mindset. 44, don't care. You have plenty of earnings and time in your career to really set yourself up well.

So here's the blueprint in our opinion. We talk about this all the time and I'm excited to share with you. Number one, you need to get the honest budget in order. There is a budgeting tool in the show notes. You can grab, help you get set up and figure out that budget. And when we say honest budget, that means everything. Don't leave out the skin care, the dog treats, the festival tickets, put it all in there so you have a real idea of what your budget is.

Number two, figure out your debt to income ratio. We want you to understand how much you can carve out a month with hopes that you can get to 15% of that income, that net income per month that can go into investments. And then number three, and the most important, is you're going to build that base. You hear us talk about it all the time. We want to make sure you get that $100,000 base built,

and that does not mean yoloing that 15% in individual. stocks. That means getting yourself set up correctly. You want to get the individual brokerage account or the Roth account set up. Make sure you have those basket of index funds that we talk about. So you have money making while you sleep. And then you're going to start expanding on that until you get to that $100,000. Then you can start considering getting the individual stocks and going out and playing around a little more. But right now you need to hone in on those three things to get yourself set up correctly. I love that, Robert. And just to put some numbers around that. Robert mentioned having that savings rate of about 15%. So if you make $180,000 a year,

let's say after taxes, you're making about $140, that's about $12,000 a month. 15% of $12,000 a month is $1,800. That number right now might seem way bigger, daunting, scary to even think about investing every single month, but you have to work toward it. Because if you can invest 15% of your monthly take-home pay, every single month on a consistent basis toward building this 100K base, toward maxing out your Roth individual retirement account every year. And this also includes your 401K. This also includes, you know, the 529 plan, which I'll talk about here in a second for your children. Right.

But you want to have $1,800 a month collectively across all your avenues being deployed toward your financial futures. Now, I mentioned the 529 plan. You said you have two small children. What I've done already for my nieces and nephews is I went to Vanguard's website and I opened up a 529 account. What this account does is it's a college savings account where you deposit money into the account, you then invest the money into the stock market and all the profits you make throughout the lifetime of the account are tax-free profits assuming you use them to pay for college-related expenses. If your child decides not to go to college, they can take 35,000 of that

money inside the 529 account, immediately roll it over into a Roth IRA and then have now, at 18 years old, $35,000 in their investment account, which is going to double every seven years and leave them with $1.2 million in retirement, assuming that 8.5% annual return, assuming no money gets taken out, and no money gets added to it. So when we talk about generational wealth, these are the steps people need to be taking to ensuring that their children are taking care of as well. The last thing I want to mention, you're 44, you got two kids, you are that family now, right? You're in your 40s, it's family time. You're comparing yourselves to your kids' friends' family. going to be in the neighborhood with all the other kids and the other families, right? Comparison is the

thief of joy. If you can make a mindset shift away from the keeping up with the Joneses, I got to get the new minivan, I got to drive the new Jeep, I got to get the kids this, I got to go on that trip with the kids. No, the word no is a full sentence. You can say no to so many things. And if you guys kind of make the mindset shift now to say, I don't want to do those things, we're not going to worry about keeping up with the Joneses, but instead focus on what's going on in our own house and making sure that we are working toward financial freedom. You all are setting yourselves up for success. Oh, man, I love this. Can we just end the episode right here? Holy moly, that was so good. We could, but Martha C, our next question might be upset with us. Martha says,

Hi, hi, Austin, Robert. I love your show. I discovered it a few months ago, and it's so informative. Thank you for all you do. I had a question for you. I'm 39, single, and in my ninth year as a teacher. I make $77,000 a year. I left my employer of eight years, and now I'm at a new employer who offers a different 403B service. My current 403B has $35,000 in it. I talked to my 403B provider, and they explained that to roll over my old 403B to the new service would cost me 5%, but then it would go down by 1% every year if I don't contribute.

My other option would be to just convert it to a Roth IRA. I don't currently have a Roth IRA, but since I recently paid off. all my debt. My goal is to open one this year and begin maxing it out like you all say. Which is the better decision? Do I roll it over to this new service provider or do I roll it over into a Roth IRA? Thanks so much. You want me to take this one? I mean, this is a slam dunk, Martha. You're going to roll it over into the Roth IRA. You're not going to take those penalties because at the end of the day, the Roth IRA is the most important, powerful tool we have towards building wealth. And this is an Easy, easy, slam dunk answer, roll it over.

Yeah, so when it comes to building wealth, you want to have autonomy over your money. Because unfortunately, a lot of these services, the 403B, the 401k, these retirement offerings, they take your money and they invest your money how they want to invest it, not how you want to invest it. And how they want to invest it underperforms the market over a long period of time. They have you in too much cash. They might have you in international stocks. They might have you in too much of some specific sector that doesn't make sense. As investors, we should fully understand what we're invested into, but also invest into things that tend to do well over time.

And you know what's done very well over time, Robert? The S&P 500. It's gone up on average 9, 10, 11% every single year over the last 90 years, right? That's the annual average return over a long period of time. Where these 4-3Bs that might be invested into international stocks or bonds or whatever else can't actually do that. So, yes, Robert's correct. Open up the Roth IRA, roll it over into a Roth IRA, Do not take the money out of the 403B.

Do not take it out and put it in your checking account. You're going to call them and say, hey, I want you to send the money from this 403B to my Roth IRA. They're going to send it for you. You don't touch the money, right? If you touch the money, that is a bad, bad penalty. It's like a 10% penalty. It's not good. Now, because you're in a 403B and you're rolling over into a Roth IRA, there will be tax implications.

Roth IRAs are after tax dollars being invested into the markets because when we turn 59. and a half and in retirement, we can use that money. We can use the profits that are generated inside of this account tax-free. That would not be the case with the 403B. You would have to pay taxes on those profits because you wrote them off your income in the past. So think about it like this. You're going to take the $35,000 and it's going to be deposited into your Roth IRA, $35,000. Unfortunately, your income just went up by $35,000, which means you're now going to be taxed on that extra $35,000 in income. That might be $7,000, $9,000 for you. You have two options. You could save aggressively on this 77,000 a year income you have to make sure that when that tax bill does come in April of 2025, you can pay it.

Or, and this is not what I would advise you to do, you can take that money from your retirement account. But just know, if you do take that money from your retirement account, you are going to pay a withdrawal penalty of 10%. So not only are you going to take $7,000 out of the account, you're also going to pay $700 to take that money out to begin with, right? So if you can save up the money, that's a great idea. Now, the best part about this, Robert, is once that is all taken care of and the IRS is paid, you now have a potential $35,000 that's going to grow for you until you are 59 and a half. And we know the rule of 72 tells us this is going to double every seven years, which means if you don't even touch this money, it will be worth $300,000 at 60 years old.

And that $300,000 is tax-free. Yeah, I mean, the key here and takeaway to this question is, We don't like to see people kick the taxman down the road because we don't know what's going to happen later on in life. And so we want to get those tax bills paid now because in the Roth, then, it is tax free for life. And that is why we love the Roth component and think everyone should have one. Our last question comes from Michael T. Michael says, hey, y'all, I recently found your podcast and I've been loving it. I recently got engaged and had a question for you.

Do you recommend that we share a brokerage account or should each of us have our own? Here's a little bit more about us. I'm 31 and she's 27. I have a brokerage account, but it has a very small amount invested in it. She also has a brokerage account and it has a lot more in it because she's been working and saving and pursuing a degree. We max out our respective Roth IRAs every year. The goal is to be in a position where she can stay at home when we have kids in the future.

Thanks for your amazing insights. Robert, what do you think? Michael, keep them separate because right now the government and everyone else involved in this country looks at you as two separate entities. until you're married and you sign that marriage document, your two separate entities, and you should take advantage of that. So in my opinion, you keep your money separate until you get down the road to you get married to you get settled in because there's no reason to join your funds right now.

And also the way to look at it is if you decide to get into real estate before you get married, then you can take advantage of several different programs to where you can each get an FHA loan or maybe you take advantage of the Fannie Mae 5% down mortgage and you could buy two multifamilies because right now you're still two separate entities. That is what I would do. I think it's the best strategy, especially because you're looking at your investment future.

And I don't think because you're not married that you should join your funds in one account right now. I like that perspective, Robert. Michael, congrats on recently getting engaged. It's really, really exciting. I'm pumped for you too. I agree until you guys are married, there's no reason to combine your finances.

However, when you do get married, yeah, just open up a joint brokerage account where both of your, you know, well, actually, not even both your checking accounts, you will have a joint checking account then once you guys are married. I guess what I'm saying is when people get married and if they want to achieve a financial goal, the best way to achieve that financial goal is if both of those people are on the same page about that financial goal and both people on the same page about money. When you're married and you guys are both on the same page about her staying home with the kids in the future, you all now get to say, okay, cool, we can then combine our finances. We know how much

money we can save every month and invest every month. We know how much money can go toward perhaps paying off a debt or buying a new home or doing whatever we want to do with our money. And so what we're trying to help you figure out is getting on the same page with money once you're married so you can achieve your goals. There's no use in trying to, you know, do all this. Of course, being on the same page with money before you're married, but do not combine the finances. There's no legal, you know, reason to combine them yet. You guys are not a unit yet. Wait till you're Then once you're married, just rock out it, get it done, and we're rooting for you, Michael. I love it.

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