Rich Habits Podcast - Q&A: Lost $80K Day Trading, 1031 Exchange ($2M), & Real Estate Investing in College

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Starting point is 00:01:12 Rich Habits Podcast or you can email us your questions at Rich Habitspodcast at gmail.com. Robert, I think we've got six, five, six, seven questions here in today's episode all across the gambit. I mean, we're talking. day trading. We're talking 1031 exchange, real estate. Like, there's a ton of really cool stuff that we're going to answer in this episode. And I can't wait to dig in. Definitely. I'm excited about this one. I love our Monday morning filming of the Q&A episodes. And we just get so many cool questions. So always make sure if you're out there, you're following along, but you've got that hard, unanswered question about your business, your finances. We don't care what it is. We're here to help because

Starting point is 00:01:52 personal finances personal. So make sure, email us. send a carrier pigeon, hit us up on Instagram, whatever it takes, get that question in the mix, so maybe we can answer it. So our first question is coming from Cynthia Kay. Cynthia says, hi, Austin and Robert. I hope you both are doing well. I'm a big fan of your show and I listen to your podcast during my weekends. I have a financial situation that I like to share with you and get your advice on.

Starting point is 00:02:17 I'm 44 years old and I'm a day trader. Back in November, I bought 500 shares of Oracle stock at an average price of 311. $155,000 investment. I bought it because I expected Oracle to profit off the AI boom, given its involvement with data centers as well as TikTok. Right now, the stock has fallen to around $138 a share, which means I'm sitting on an $80,000 loss. I haven't sold because I'm not sure I want to lock in this loss yet. My hope is that the stock can recover. I think a lot of price targets have it in the mid-200s and that could shrink my loss by about $50,000, but my fear is that a recovery is not guaranteed. I've learned a lot about trading since November, but looking back at it, the company's

Starting point is 00:03:04 financials look solid and there was no bad news at the time, so I can't quite put my finger on why Oracle has not ridden this AI wave like the other tech giants. So my questions for you all are what options do I have for managing this position? Should I hold out for a rebound, cut my losses, or do something else? I'm really not too sure. Thank you, so much for the show. Can't wait to get your answers. Robert, what a situation. Holy smokes. Let's zoom out for a second, though, and kind of walk through maybe when someone listening might find themselves in a similar situation. So we never want people to go like super all in on a single stock like this. It could be Apple, Nvidia, Oracle, we don't care the name. I'm not going to go tell

Starting point is 00:03:47 someone to put a big chunk of their net worth into a single stock. Now, by big chunk, I define that as like double digit percentages, right? I don't know this person's net worth, but I don't know, 150K on a single stock at 311 bucks is, it seems like a big bet. Also, it doesn't seem like it was a dollar cost average move. I mean, you're a day trader, right? That was the move was to make some money on this, which is again, day trading is dangerous. On the flip side, if you are listening and you do own single stocks like Robert myself do, our approach is a little bit different. We say, hey, let's have a core satellite portfolio strategy where 65 to 85% of the portfolios and index funds and ETFs, big index funds like the S&P, the NASDAQ, the Dow Jones that trend up into

Starting point is 00:04:27 the right over a long period of time. So your net worth goes up with them. And then you can diversify 15 to 35% of your portfolio into the single stocks, the different asset classes, the real estate, the cryptocurrency, the precious metals, thematic ETFs, things like that. So when you do want to bet on a single stock or have a, you know, a conviction, an especially specific name like this. You're not betting the farm. You're betting three, four, maybe five percent of your portfolio at one single time. That's how I've approached it myself. Yes, I've made terrible single stock investments as has Robert and everyone else listening right now. No one can time the market. Things happen. But at the end of the day, it's okay because even if we do make a bad

Starting point is 00:05:04 single stock investment, we only put two and a half percent of our portfolio in it, it went down 20, 30 percent or maybe we lost conviction or whatever. We can live to fight another day because the vast majority of net worth are in index funds and ETFs that go up over a long period of time. So in this situation, I want to answer the question. And then, Robert, I want you to rally behind me here with, with your perspective as well as to what you think they should do. But I want to specifically answer the question of, I can't quite understand why Oracle hasn't ridden this AI wave like other tech giants. So there's a website. Robert and I have a ton of cool websites and platforms we like to use. And we talk about them all the time inside the rich habits network as to help us better understand

Starting point is 00:05:45 and what a company's fundamentals might be, the valuation multiples, you know, help us forecast into the future, things like that. And there's a website that we've been using for a while. We'll have a link in the show notes below for it. I'm pretty sure if you use our referral link, you'll get a discount there. But it's called FastGraphs. FastGraphs.com. And FastGrafts does a really cool thing.

Starting point is 00:06:04 They tell you, historically speaking, is a stock overvalued or undervalued. Right? So historically, looking backwards, is a stock right now overvalued or undervalued? valued. And you can look at things like the PE ratio, the operating cash flow multiple, free cash flow multiple, things like that. But in this instance for Oracle, and I pulled it up here on my screen for Fast Graphs, let's look at the PE ratio. As you can see here, this black line is the stock price, right? And the blue line is their profits. So you can see that the profits for Oracle for the last call at 10, 12 years have trended up into the right. And looking forward, Wall Street thinks profits

Starting point is 00:06:42 are going to skyrocket. But Oracle stock traded to your point up to $300.1.311, you might have quite literally bought the top. But what I want to call out here is the PE ratio was at 47 times. So what does that mean? That means the price to earnings ratio is 47 times multiplied by that earnings per share. So long story short, you're paying a lot of money for a little bit of equity in this company. Right. So the higher that PE ratio is, technically speaking, like apples to Apple, the less amount of the company you actually are able to purchase with the same dollar as if it was a lower PE ratio. Now the PE ratio is back down to 18 times. You can see normal PE ratio throughout history is about 18 and a half here. So technically speaking, Oracle now at, what is it, $142 a share,

Starting point is 00:07:31 is fairly valued, historically speaking. So I want to make sure we're on the same page, especially for our friend Cynthia here, who's got this question. Before you make an investment, and we talk about this again, inside the rich habits network all the time. Before you make an opportunistic investment to a single stock, you want to look at that valuation multiple, right? Are you, is it overvalued or undervalued, historically speaking? If it's overvalued, maybe there's a reason for that. You want to look at forward profits and forward cash flow and, you know, revenue growth and things like that. You also want to look at, you know, from a technical perspective, is the stock trading above or below that 200-day moving average? There's a lot of things to look at. And again, we cover all this inside

Starting point is 00:08:09 the rich habits network. But I think what's most important here is, you bought Oracle when it was overvalued. And now, unfortunately, the investors in the stock market are saying, hey, we got a little too euphoric there. It's never traded at 45 times price to earnings. Let's bring it back down to 18 times, which is the historical average for this company. And then the stock will begin to rise as profits rise as well. I know that was a little bit long-winded, but I think it's really important to really share the visual and help people understand. Buying a stock is not just saying, oh, it's at 300. It's going to go to 400, right? There's a lot of behind the scenes there.

Starting point is 00:08:44 And again, we talk about this all the time inside the Rich Habits Network. We have a whole breakdown called how to analyze a stock from scratch inside the classroom. But Robert, I want to push this over to you now so you can talk toward thinking through managing the position, rebound, cut the loss, other strategy. What's your take here? Yeah, I think you did a great job. My take here is the first sentence of this. I'm 44 years old.

Starting point is 00:09:06 I'm a day trader. To me, that is the biggest red flag in this entire question. I would want this person and anyone else that considers themselves a day trader to lose that moniker and think of themselves as a long-term investor. You can day trade, you can swing trade, you can do anything you want. But if you're looking at yourself as a day trader, to me, that means you think of yourself as you're going to get these quick hits. You're going to make all this money and these quick bursts.

Starting point is 00:09:34 That to me almost never works. And this is a great example of that. secondarily for me when I see this, $155,000 total investment. That only makes sense to me is if you have a net worth, a total cash net worth of $3 million or greater, because otherwise the percentage of your total portfolio that you have invested is far greater than that 5% we like to see for one position. So that's where you're putting yourself in harm's way

Starting point is 00:10:05 because you went so heavy in this. I assume someone told you Oracle's going to crush. Oh my God, you've got to get into Oracle. You got euphoric. You fell into that trap of using a motion to invest. So that's problematic for me. So those are a couple things right off the gate because I don't see anywhere where you said you were dollar cost averaging into it over time.

Starting point is 00:10:28 So it looks like you literally bought the top. So what should you do now? In my opinion, Oracle probably has a pretty good upside. long term, but it is fairly priced right now. They spent a ton on their CAPEX spending. They just haven't had the profits that they assumed they would have. So there are some problems short term, but long term, I could see you getting back in a good position in Oracle, but that could be two, three years down the road. So you have to decide, do I take this 80K hit, use that against my gains elsewhere? I'm hoping you have gains elsewhere because there are a lot of really,

Starting point is 00:11:07 you know, good positions you may hold otherwise. But if you don't have anywhere to offset this, I would probably try to ride it out a little bit longer because you also say you're sitting in an 80% loss right now, 80K loss. You're not sitting at a loss unless you sell. It's just on paper. Stocks go up and down and everyone needs to understand that emotion

Starting point is 00:11:31 and build the muscle to be able to think long term. So if this helps you at all, and I can get you out of your day trader brain and get you into a long-term investor brain, then I think, in my opinion, I would wait it out unless you can write these 80K losses off, sell the position, and gain the opportunity cost somewhere else

Starting point is 00:11:52 to where you can better utilize this money moving forward. What a great breakdown, Robert. And I agree, right? You go look back at Wall Street's expectations for Oracle. Like, I recently built an Oracle position myself. It's not $150,000. I'll pull it up right now. It's much less than that, but I've got an average cost of $122 a share. We talked about, you know, again, Oracle is undervalued in the Rich Habits Network a couple weeks ago,

Starting point is 00:12:16 months ago, whatever it was, and we started buying it. But this was after, right, that massive correction. Two pieces of advice I want to share. Number one, any stock, any precious metal, any cryptocurrency, any, anything. What tends to go vertically hyperbolic straight up? Normally doesn't last, right? If it goes straight up, it tends to come straight back down. So if you use, you can use Oracle, for example, you can use silver recently back in January as an example. You can use a ton of different examples of this. If it goes straight up, that normally does not last. And so if you just look at the price here of Oracle, it went straight up in a short period of time.

Starting point is 00:12:52 And Cynthia, and everyone else listening, I hope you take that as advice of maybe I don't chase things. Maybe I don't get emotional with my money. The second piece of advice I want to give you is you do have 500 shares of Oracle. There is a world here where if you did want to keep this position, you could generally. generate meaningful income against it with covered calls. So I just did the math here for you. I think with the December 18 expiration date in a $175 strike price, you could generate about $2,700 of premium over that, let's call it two month period of time. Now, that's nowhere near. I mean, it's one and a half, not even two percent, right, of your $155,000 investment. But if you genuinely have conviction in

Starting point is 00:13:33 Oracle and you do like the stock and this, this, that, and the other, and you want to keep it for the next two or three, four years like Robert was alluding to before, you know, you might see some action on it. Our recommendation would be to learn how to sell covered calls, get comfortable with rolling them forward, get comfortable with that strike price expiration date, find the right delta for you and your risk tolerance, and use this position to generate income in your portfolio, and then take the income you generate and put it into index funds because you need a big old base of index funds, in my opinion, my day trading friend here. Thank you for your question. We hope that you get this figured out. If you end up due selling it, obviously it's an $80,000 loss you can use

Starting point is 00:14:10 against profits elsewhere in your portfolio. Maybe you've got some profits from day trading you want to upset. I genuinely have no idea. We don't have that context here in the question. But please do not day trade. It's not a good idea long term. 78% of day traders lose money in the first year. Don't be a day trader. So our next question comes from Scott C. Scott says, hi Robert Nostin. We are currently in the process of selling our property in California and expect to have about two million to reinvest through a 1031 exchange. We currently live in Missoula, Montana and are trying to determine the best path forward with these proceeds. We're fairly open in terms of the type of real estate investment. It can be multifamily, hospitality, single family rentals or something we could

Starting point is 00:14:50 self-manage. Our main goal, though, is to find an investment or a combination of investments that can generate $100,000 per year in income after operating expenses. We've also been considering putting a million dollars into a Delaware statutory trust, a DST, and using the remaining one million to purchase a multifamily or other income producing properties that we could manage ourselves. Really appreciate your thoughts on how we could approach this $2 million of 1031 proceeds. And do you think the 100,000 of annual income target is realistic? Do you think we should split that between the DST and real estate? We're really not too sure on that one, but we're open to other strategies as well. Robert, you are our in-house, no pun intended, real estate expert here. So I'll

Starting point is 00:15:33 kick this one off. Great question, Scott. But let me first start for everyone listening. What's a 1031 exchange? In its simplest form, it is a way for you to sell a current property. And then you have 180 days to buy another property that is like that property. So that way you can kick the tax man down the road because you get a 100% deferral on the tax. from the sale, the profits of the sale, if you do a 1031 exchange. Now, to get to what I don't like about this, Scott, great situation, but I'm a little bit nervous about the Delaware Statutory Trust. I know they're hot right now.

Starting point is 00:16:13 Everyone is talking about them. And you mentioned splitting maybe a million between each. I wish we knew your age and here's why. When I look at these Delaware Statutory Trust, there are some cool things. You know, you get professional management, you know, you've got some other cool factors about it. But there's a lot more cons, in my opinion, with investing in one. And the biggest one that I have heard about, I don't use them, is that they're very, very illiquid. Sometimes over 10 years where you cannot get access to your money, that is one of them.

Starting point is 00:16:49 Also, in these trusts, you don't have any operational control because you are investing in a group and you don't have any voting power. So keep that in mind as well. And then also, there are a ton of front-end fees in these Delaware statutory trust. So in my opinion, I would rather see you take all $2 million through the 1031 exchange, be able to do the other project. I would say probably multifamily would be best. It's going to give you the highest percentage of chance to be able to generate that income that you

Starting point is 00:17:25 want that $100,000 a year. And so I would say I would probably do it with a multifamily, maybe a four unit, six unit, 12 units, something that is within that two million dollar budget. And that is how I would proceed unless you're older or if you have a very, very long term view and you want someone else to manage $1 million of this, then maybe I'd consider the Delaware Statutory Trust. But otherwise, I don't like being in vehicles where I have no voting rights. I have. have no decision powers and it's going to be illiquid for 10 or more years. So that would be my take. Got it. So just to make sure on the same page, a Delaware statutory trust is a legally recognized business entity created under a Delaware trust law that allows multiple investors to hold

Starting point is 00:18:14 fractional undivided beneficial interests in income producing real estate. So there's context on what Robert was just talking about. As it relates to the two million dollars here, I've seen a lot of conversations with really smart real estate investors. Now, the kind of real estate they're buying is worth tens of millions of dollars, hundreds of millions of dollars. But I got a feeling, especially now as interest rates are higher, you know, the cap rate's going to change a ton when you're getting into this multifamily stuff. Like, I think there's a world where, because cap rates have gone up so much, you have the ability to just steal some real estate. I mean, especially if you're paying cash for it or, you know, a lot of cash or something of that nature.

Starting point is 00:18:57 I don't know if you can pay cash for some of the multifamily stuff. Two million is not too much when it comes to multifamily. But I do think there's a world where there could be something that's sat in the market now for the last nine months. And because interest rates are six, seven, eight percent, depending on how you borrow the money or who you're borrowing it from, you could come in and say, hey, you've been sitting here for nine, ten months. You've still got the carry costs. You've got all these operating expenses. I'll take this off your hands for a 37%.

Starting point is 00:19:22 discount to your asking price. And theoretically, at asking price, you might not have been able to, you know, clear that $100,000 of income goal you might have had. But at a 37% discount, maybe you could. Right. And so I would get rude with how I'm, you know, bidding on some real estate because I do know some people are in a pickle right now. We were just talking about, you know, off camera, Robert, a couple friends of ours that are that have found themselves in real estate pickles as of late. It's real. It's a real thing. Especially this interesting. rates continue to rise because a lot of the debt they have on this real estate is not fixed, right? So it is rising with these rates as well. So that's what I would do. I'd find myself in a

Starting point is 00:20:01 situation where I would, if it's, I don't know if I'd do that with single family homes because you have to buy a lot of single family homes to profit that $100,000. I think what I would probably do is find one, maybe two multifamilies, or maybe hospitality. If you're into that sort of thing, I just, I don't think hospitality. Maybe I'm wrong. I don't know. But like I'd probably go with the multifamily route. Find one or two of them that is like they've been either, on the market for too long or something's going on where you can come in and say, hey, I see this for sale for, you know, $2.4 million, I'll give you $1.4 million and I'll pay cash in 15 days from now. And depending on their situation, right, they might say yes. And now you've got $1.5 million or

Starting point is 00:20:40 whatever I just said, 1.4, whatever it might be there. You pay cash and now it's cash flowing $120, $130,000 of income annually off of that with a, you know, call it a 7%, 8% cash on cash. Like, there's a world where this could take place. So it depends on the price you pay. And I would not, if I were in your situation, I would not feel discouraged on just sending root offers. I really wouldn't. I would just send some root offers because there will be desperate people out there that maybe they got a little aggressive in 2021 and 22. Maybe they didn't do the right diligence and they'd need to get out of something. Like, I would do that. And I think you could probably find 30 or 40 of those opportunities and maybe one or two of them might actually come through. I think that's a great. call out you hear me talk in the rich habits network all the time that most of my biggest real estate wins came from me shooting my shot with ridiculous offers and these were during times when the market wasn't as juicy as it is right now because we see it every day austin right now everyone's like real estate real estate terrible terrible i'm over here trying to buy properties as fast as possible because you can practically name your own price so that is such a cool situation

Starting point is 00:21:52 they're in. I do want to highlight one thing, though. If you end up buying multiple properties through the 1031 exchange here, make sure you understand that the new property's total value cannot be greater than 200% of the property you're selling in order to qualify for the 1031 exchange. So make sure you remember that when you're out there on that hunt. But I love the shoot your shot. Rude offer a comment because so many people, they see something that's $2 million, they think, oh, I better not offer less than 1.9 or 1.95, guess what? People are struggling out there. I would rather get a quick F off than somebody that accepts an offer really quick because you know you left a ton of money on the table. I remember a property that I bought

Starting point is 00:22:43 that ended up being a big winner and an incredible property for me was listed for $1.895 million. I offered $795,000 only because of what the real estate agent representing the seller told me that they were older and they were out of state and just were done with the property. So I offered really low. They told me to F off. I came up to 825 and I ended up settling for 839, almost a million dollars off because I asked. So Austin,

Starting point is 00:23:14 I love that call out for everyone watching. Yeah, 100%. And I can feel the judgment right now. Y'all are judging me. You're thinking I'm on Facebook Marketplace. trying to ask for a $10,000 car for $2,000. I'm not that guy on Facebook marketplace. We all hate those people, right? Don't get me wrong. But to Robert's point, when it comes to real estate, when it comes to this much money, like you never know what type of situation someone might be in.

Starting point is 00:23:38 And I don't mean to say that as a way of exploiting people, but also it's like when it comes to real estate investing, when it comes to the stock market, when it comes to anything, it's quite literally a zero-sum game. Like it is my gain is your loss or your gain is my loss. And if it's between me and the other person, I'm going to look out for myself. And so in this instance with our friend Scott C, I would look out, look out for yourself. Find that 30, 40, 50, multifamily properties in the area you want to look for that have been sitting on the market for 9, 10, 12 months. And there's just no traction, no action going on. And put in those offers.

Starting point is 00:24:13 Find some, find a number. Maybe use your favorite AI to help you figure out kind of what you're thinking, you know, a price could be like things like that. Like, there's a whole lot of ways you can think about it. But I think Robert's story about that, that property that he purchases a cool one. Definitely 100% shoot the shot. Robert, speaking of using our favorite AIs, before we jump to our next question, we've recently started using an AI called Granola, like the snack bar. Granola is an AI powered notepad that makes your meeting notes actually useful.

Starting point is 00:24:44 It captures what happens in your meetings and then turns them into a clean, structured note with decisions and action items that are pulled out and made really easy to find. You can just search like keywords pops right up. Yeah, it's a game changer for me because it transforms messy meeting calls into something that I can actually reference weeks later. Your notes become searchable, organized, and the key term is listen up, actionable. For example, Christian, Austin, Eric, and myself have a weekly call on the podcast and the network and the social media, everything.

Starting point is 00:25:17 and we started using granola for these calls a few weeks ago, and it has totally changed the game because everyone knows I have a ton going on, and it's just so hard to keep track of it all, and granola is awesome. Yeah, we find ourselves searching for specific action items. We then connect Granola to Claude's MCP, and then it takes those action items from our call,

Starting point is 00:25:39 and it does the action item. Like it just says, oh, they want to do this, I'm going to go do that for them, and it does it, right? It's so cool. productivity as a small business here. It's gone through the roof and we are genuinely impressed with Granola AI. It's really hard to put into words just how capable this product is, especially for someone who isn't an AI power user, but instead an everyday W2 employee trying to be a better

Starting point is 00:26:03 note taker or an entrepreneur looking to be more efficient in their business. So once you try it in the first meeting, it's hard to go without. You can try it totally free. head to granola.a.a.a.comfront slash habits. That's granola.a.i.fron slash habits to get your time back. Go to granola.orgia.com and try it on your next call. So, Austin, let's get back to the episode. Let's do it. So our next question comes from Raphael P. Raphael says Robert and Austin, I would love your take on our situation because we feel stuck in a never-ending loop when it comes to buying a home. My wife and I are 29. We have a six-month-old, and we make about $190,000 a year. We have $100,000 invested. We're contributing to our retirement accounts and are currently

Starting point is 00:26:50 saving around $2,000 per month toward a home. We live in Miami. We're the type of home, and the area we'd actually want to raise our family in seems to start around $650,000 for what we want to buy. Our rent, though, is only 1900. So every time we run the numbers, buying would potentially mean jumping to a $4,000 plus total monthly housing payment, plus putting a significant amount of our savings into the down payment in the closing cost. Feels like we're stuck in a loop. We make good money, we save and invest, but the longer we wait and build up cash, we worry home prices could keep moving away from us. At the same time, buying now feels like we're sacrificing a lot of our monthly margin, that cash flow every month, that we could put toward investing just so that we can

Starting point is 00:27:32 give it to a bank in interest. So in our position, would you continue? Would you continue? renting cheaply and building wealth and what financial factors would you use to determine when buying a $650,000 home actually makes sense? What a great question. Yes, keep renting. It's don't do it. Don't go put $4,000, $5,000 a month just to say you own a home. Right? When you're renting for $1,900 all in versus, oh, I have a condo or a home, but the HOA this and the house insurance this and the, you know, whatever it might be, we're all in now at $4,200. That is, that's a big. That's a difference there. That's not what we want to do here. We want to make sure that $2,000 difference, whatever it might come out to, more than $2,000, is moving in the right direction for your financial

Starting point is 00:28:15 future. Now, the hard part, though, is that second section of your question, which is like, what's the framework? What financial factors would you use to determine when buying a $650,000 home actually makes sense? Oh, I wish it was easier because, like, quite literally, I bought my first home In 2019, I did a 3% FHA, interest rates were 3%. I paid $279,000 and the monthly mortgage payments, $1,200. And I'm not an anomaly in that. That is quite literally, I think the stat right now is 60% of Americans don't have a mortgage on their homes.

Starting point is 00:28:53 And like half of the ones that do have a mortgage have an interest rate below 4%. It's like a lot of people find themselves in this really cool situation where they've got a very low interest, very low monthly payment, this is that and the other. But on the flip side, as someone who's building the house right now and is going through the process of getting a mortgage and interest rates now are 7 plus percent, like, you know, you find yourself and you look around, you're like, wait, this is really expensive. This is much different than it was just a couple of years ago. And unfortunately, Robert, we saw wages, I think, are annualized now at just 3% growth in the last 12 months. News flash, inflation is 3.4%. So right now in America, our wages are not

Starting point is 00:29:31 keeping up even just with inflation. So that is also causing a lot of people to have, you know, animosity and some anger as it relates to their situation. Now, our friend Raphael here is making great money, $190,000 a year. What's the framework I would use? Quite literally, the only framework that I think makes sense is have a big enough down payment where your monthly mortgage plus your, you know, all in cost to own this home is about a third or less of your take-home pay. In this situation, right, $4,000 a month, making $190,000 a year.

Starting point is 00:30:07 I mean, we can do just some quick math here, $190,000, multiply that by 0.75. So you're taken home roughly $12,000, $1,500 a month. You take $4,200, you divide that into that $12,000 a month. You're at that 33%, 35%, third. So, like, technically, you could afford this home. You got the margin in your budget. Like, you should be fine. But a lot of people find themselves, and, situation where 40%, 45%, 50% of their take-home pay goes to that housing expense. Dave Ramsey's side is a little more conservative. He says 25% or less on a 15-year mortgage, which is even, you know, different there. So it's a situation where I don't think I would give up a $1,900-month housing payment to increase, you know, my monthly cost by $2,000, knowing that a big chunk of that $2,000 is also just going to interest to the bank.

Starting point is 00:30:57 Yeah, I think that's a great breakdown, Austin. And the other little things that I want to add to this is with having $100,000, they do have their base built. That gets wiped out if they buy this house. So then they're back at zero. I don't ever want to see anyone get back at zero just to buy a house because right now, especially at 29 years old, Raphael needs to think about it and get it out of their mind because this isn't the 70s, the 80s or even the 90s where you need to be buying that primary home first and foremost because owning a primary home is not an investment. It doesn't pay you capital. It doesn't pay you monthly. You have, yes, you have capital appreciation and other things most of the time, but I love your take.

Starting point is 00:31:41 I would stick to renting. I would keep stuffing that money away and building my wealth because we need to get our audience to understand. Stop looking at renting as a loop, a vicious cycle, all the things we hear all the time. It's not. renting I rent I rent where I live even though I own a lot of rental properties because those make me money this cost me money so I love the idea keep renting invest more and think about it down the road because you have to think right now you're looking at it and saying well we're looking at this $650,000 house and prices keep going up you don't know that right now we're seeing higher interest rates than we've seen in years we could see housing prices even in a town like Miami come down 10, 15, 20% in the next 18 months. And then that same $650,000 house might be

Starting point is 00:32:34 $585 and get you in a better position. So I would keep renting, keep doing what you're doing. You're 29 years old. You've got $100,000 saved and invested. Get that to a couple hundred, $250,000 while keeping an eye on the housing markets, but not focusing that you're somehow missing out. Robert, I love to call out about you renting right now. And I think it's important to kind of put in perspective, right? Because Raphael, his situation is like, I can pay $1900 a month for rent or I can have this home and have $4,000 plus as an all-in monthly cost. I think it would be interesting to talk about how much you pay for rent versus how much it would be if you had actually purchased this luxury condo that you're leasing right now. Like that massive difference there on that monthly cost to just show how much smarter it is sometimes to rent on a monthly basis from a cash. flow perspective. Yeah, no problem. So I just rented in a brand new luxury condo building here in St. Petersburg. So this unit is brand new, was never lived in before me. I looked at buying a unit here, this exact unit, I looked at buying it. And the total payment for me to buy it with HOA and insurance was going to be around $13,500 all in for everything. I was able to do an all in rental,

Starting point is 00:33:50 including utilities for $8,500 a month. So roughly a $5,000 a month disparity there. So think about that from that perspective. Right now, most purchases just don't pencil to make sense. And a lot of times it can be the HOA fees are too high. It can be the insurance is too high. Or maybe it's just the interest rate is blowing out the ability for you to be able to afford the payment and make it make sense.

Starting point is 00:34:18 And I always look at it this way. I've been a renter multiple times in my life and I still own homes. I own my Ohio home outright, but in a situation where I wanted to be in this building for these amenities, it didn't make sense to purchase. It only made sense to rent and I got a great deal. And I think that illustration of that $5,000 or $6,000 a month difference, like quite literally like that's like interest, right? I mean, it's just, it's renting versus buying right now is very, very interesting for people

Starting point is 00:34:47 to consider, especially if you're still renting and you look over. and you're like, wait, I can go buy a $400,000 home or $500,000 home or in this instance, $650,000. But I got to put down 10, 20%, and I still have a monthly payment of $3,500, $4,500. Like, I'm renting right now for $1,900 or $2,200, like, whatever it might be. So it's a really interesting time right now for those renters to say, I'm going to stay renting and then that difference of what I would have had, you know, to pay extra if I were to purchase a home. I'm going to invest that in the markets. I'm going to get that rock and and roll it for me my retirement accounts or whatever it might be.

Starting point is 00:35:22 100% because I think that so many people live in this other end of the cycle and that is being house broke. We talk about that all the time. And right now, over 35% of American households are considered house broke because they bought too much house and they didn't have the money set aside to actually be able to afford it. Because remember, you should never buy what you're approved for. you should buy for what works within your debt to income ratio and your current income, not the income you're going to have in 10 years from now. So I think that's a good call-out. So our next question comes from Michael B. Michael says, hey guys, I've been listening to the podcast for a while and I got a quick question. I currently invest in my company's 401k to get the match.

Starting point is 00:36:08 I have about $38,000 in there and I'm only 25 years old, so I feel pretty good about it. My company's 401K is with Vanguard and they have a managed option that I've been using for a while. They invested in some different funds for me, but I recently turned it off and I've just been using a target date fund. Do you think there's any value in using a managed account for my 401k? Yeah, there could be value for that. I mean, I would much rather do a managed account, assuming the vast majority of it is invested into index funds and ETFs and, you know, good growth things at the age of 25 years old versus some sort of target date fund that likely has a mid to high single digit percentage of your portfolio sitting in. bonds and cash, which I don't think you need any of in 2025 with inflation at three and a half percent. So if the managed account means you're actually getting aggressive like you should,

Starting point is 00:36:58 rock and roll. If there's a world where you can log into your Vanguard account, and instead of doing the target date fund, you're 25 years old, literally take, I don't know, 75 percent or, you know, a majority of your $38,000, what I would do is I'd put that in the S&P 500. Then I'd take the difference, put it in the NASDAQ and then maybe take a small sliver of that and put it into some international like VXUS and you're off to the races. I mean, that's quite literally how easy it can be. If you're looking for maybe a NASDAQ alternative because I don't know if they offer NASDAQ on Vanguard or versus just Vanguard funds, right?

Starting point is 00:37:32 So you're thinking V-O-O, maybe VUG or VGT could be your NASDAQ alternative. And then VXUS could be that international fund that you're looking for. These are all Vanguard funds that I'm sure you could find inside the platform if you decide. to self-manage. I just don't know if it offers that. But Robert, maybe take a second to talk about your hatred of target date funds. Yeah, at 25 years old, I would have to do the math, but I can't even imagine if you were a solid investor from 25 to 65 years old, how much money you would leave on the table in that 40-year span by setting it and forgetting it with target date funds. They just underperform, they're expensive to own, and you don't have, even though they claim active management,

Starting point is 00:38:18 they are built to be bulletproof to not lose your money. They are not built to make you all the money and optimize your gains and all of that. So in my opinion, Michael B and anyone else listening, don't get money, put it into target date funds or some of these mutual funds, and set it and forget it for your life, because that is not how you build. build real wealth. One simple term that I use all the time is make your money work as hard for you as you work to get it. And target date funds is not your answer. And I also don't believe with you just starting out with $38,000, you don't need active management. You need S&P 500. You need NASDAQ. You might need a little bit of exposure to a couple other like an AI sector or an energy

Starting point is 00:39:06 sector three, four, five of these funds and you are up and running and you're going to crush it and beat every target date fund out there. That's my take. I don't like to see people sit on the sidelines why we're having years. There are 25% gains, 18% gains, 16% gains. And they're over here making 5, 6% with a target date fund. So that's my take. I just really don't like that product, especially as you get more and more wealth and you get older because you're just leaving so much money on the table and it just doesn't work for me. Yeah, and I just looked up. It's called VTTSX, which is the Vanguard Target Retirement 2060 Fund, which is what I'd imagine like you've probably got figured out there. 8.4% of this fund. So 8.5% is in bonds. Why do you have 8.5%

Starting point is 00:39:58 of your portfolio at 25 years old in bonds? It just gets me so upset because that 8.5% if you kept it like that. I mean, one, it's going to grow over time because that's the whole point of target date funds is to grow the bond, grow the cash portfolio side of it to be, you know, double digits, 20, 30, 40 percent in retirement age, whatever you want to be there. But that eight and a half percent, you go look at the Vanguard total bond market index. First off, it's down five and a half percent this year. So eight and a half percent of your portfolio is down five and a half percent in a year where the S&P 500 is up double digits. And you're 25. Like, your your investment time horizon is 40 more years.

Starting point is 00:40:37 You've got time to ride this wave, go through the volatility that is the stock market, and compound your wealth over a long period of time. Target date funds, they are no fun, Robert. Yeah, I did some math just now, and this is a little bit broad, but worth sharing, if the average person at 25 years old is 65, so that 40-year example, put their money in a target date fund versus just the S&P 500, like V-O-O, over a 40-year period, it says that they would leave anywhere between $500,000 to $2.5 million of gains on the table depending on what their contribution amount was monthly.

Starting point is 00:41:17 So 500,000 minimum, up to $2.5 million. So please don't set it, forget it. Don't fall for these fancy sales pitches on these target date funds. Keep an eye on your money and make it work as hard for you as you work to get it. So, Robert, before we jump to our final question, got to give a shout out to public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, or putting on a hedge. On public, you can now create AI agents that handle all of these tasks on your behalf. Just describe what you wanted to do in plain English, like if the VIX hits 25, buy a put option on the S&P 500, or if my cash balance goes above $20,000, move the excess into my direct index.

Starting point is 00:42:01 you approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as you define them. Public is the world's first agentic brokerage in investing platform driven by your intent, not just your clicks. And you can get full read and write access to your account via their public API if you're into that sort of thing.

Starting point is 00:42:23 So go to public.com slash rich habits and earn an uncapped 1% match when you transfer your portfolio to public. That's public.com slash. rich habits. Paid for by public investing. Brokerage services by Open to the Public Investing Incorporated, member FINRA and SIPC.

Starting point is 00:42:42 Advisory services by public advisors LLC, SEC registered advisor. Complete disclosures available at public.com slash disclosures. So our final question comes from Aubrey on Instagram, and I think Robert you're going to like this one. Aubrey says she's an 18-year-old college freshman. currently working as a server. Her goal is to start investing in real estate and eventually build up income and live off of it, mainly through house hacking and flipping houses. Aubrey asks, how would you recommend getting started with little to no credit history and limited capital?

Starting point is 00:43:16 And is getting into real estate at this stage too risky while I'm still in college. Robert, maybe talk about your own experience of investing in real estate in your late teens and early 20s and the advice you could offer her. Well, the advice I will offer you today is not what I did back. back then at 23 years old, I bought my first 4plex. I definitely did not have my entire base built, that $100,000 that we talk about. I definitely used credit cards to buy materials, but I was so excited to get into real estate. So now let's fast forward.

Starting point is 00:43:49 You're 18, you're in college, you like real estate. First and foremost, I would build your credit. Go get the Discover It card. Go get yourself a credit card, even though you know, you may not need it right now because you're doing okay as a server, I would start building that credit, use it for small purchases, pay it off every month, build up that credit. Second, I would go immediately as soon as you see this and you go, yes, they answered my question, go open a public.com account that when I want you to do is every single time you get your tips or your paycheck, I want you to put aside whatever you can. I don't care

Starting point is 00:44:25 if it's $50 a month, $100 a month, whatever you can do, I want you to do that. Even pick up an extra shift. Maybe you make a hundred bucks a shift. Take all of that, put it into public, get it in there in a traditional broker's account, and you're going to earmark that as you're by your first property fund. Get it invested into the VOOs and the QQs and let that rock and roll for two, three years to get to 21, 22 years old. Then I want you to think about house hacking. I want to do that. I love that. I would rather see you house hack than flip, because starting out and flipping is really, really tricky. A lot of people think it's just buying a beat up house, put money into it, flip it and make a bunch of money. It's not that simple. I don't know the numbers,

Starting point is 00:45:10 but I would say probably over 80% of flippers lose money. And these are people that have been doing it even longer than just getting started. So that would be the takeaway that I would do, build the base, build the credit, get some money put forth, but also keep learning. You can even look at saying, hey, I want to go be an assistant to somebody that's in real estate that crushes it in real estate. Go work for them on Saturdays or go work on job sites maybe on a Saturday or Sunday for one of these real estate companies that's developing or flipping these homes so you can learn the trades and get entrenched in it. Because if this is something you want to do like I've done for 40 years, over 40 years now, I strongly suggest you learn

Starting point is 00:45:53 everything you can, but that does not mean buying right out of the game. because we got to get some money built up and we got to get your credit built up because the last thing I'd want to see you do is get an owner financing deal, run out of money, you can't find anybody to help you finish it, then you have to sell it at a loss and start over.

Starting point is 00:46:11 So keep that in mind. I've been doing this for many, many decades and that's how I would approach it. What a great breakdown, Robert. I've got nothing else to add there. Aubrey, we are rooting for you. You can do this, and I think that was awesome. Everybody, thanks so much for tuning

Starting point is 00:46:25 into this week's episode of the Rich Habits podcast question and answer edition. Don't forget to join us inside the Rich Habits Network. Over a thousand of you have already joined us inside the Rich Habits Network. There was well over a hundred of you that did your seven day free trial in the month of September. Now we're five, six, seven, eight days into October and we've already gotten dozens of you trialing the Rich Habits Network as well. Please join us inside the Rich Habits Network. We've got that seven day free trial. We host two hour weekly live streams every Tuesday. night. You can invest alongside Robert and I in pre-IPO companies, and we offer a hour-long office hours on Fridays now, which is a cool time for us to all hang out, plus eight hours of video

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Rich Habits Podcast - Q&A: Lost $80K Day Trading, 1031 Exchange ($2M), & Real Estate Investing in College

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