Rich Habits Podcast - Q&A: NACA Loans, Co-Signing Student Loans, and Depreciating Real Estate

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Starting point is 00:00:55 From binge all episodes exclusively on Paramount Plus. Hey everyone and welcome back to this week's episode of the Rich Habits podcast question and answer edition. Before we jump into things, we have a quick word from public.com. As you might know, public.com is the all-in-one investing platform. Now they've launched options trading and with it, they're doing something no other brokerage has done before. Public is sharing 50% of their options trading revenue directly with you, the customer. So whenever you trade options on public, you get something back and of course there are no commissions or per contract fees either by sharing 50% of their options revenue you'll know exactly how much they make from your options trades because

Starting point is 00:01:41 public is literally giving you half of it in other words it's a more transparent approach to options with no fees and you'll get something back on each and every trade so go to public and activate options trading by March 31st to lock in your lifetime rebate. We could not be more excited about this. Go check them out. Seriously, it is going to be a game changer for y'all who are doing covered calls, any option trading. I mean, this is so transparent.

Starting point is 00:02:10 It is super, super important. And as a quick disclosure, this was paid for by public investing. You must activate your options account by March 31st to get that revenue share. And remember, options might not be suitable for all investors and do carry significant. risk. If you want to read the full disclosures, that's going to be in the description of this podcast, and this is for U.S. members only. Now, before we jump into these questions, I have a massive reminder. I want to share. Robert and I are going to be hosting a webinar all about covered call option contracts, right? Seriously, this is a way that I've been able to generate $4,050 in completely passive income,

Starting point is 00:02:45 all by myself since September 12th, I believe it was the date I started doing this. But it's so simple. It's so straightforward. Robert and I are going to break down everything for you. So all you have to do is attend the webinar and just pay attention. It's really that simple. There's going to be a link in the show notes below to register. We'll bold it. We'll highlight it.

Starting point is 00:03:02 We'll do whatever we can to make sure that you see this. And remember, the first thousand people are the only ones who are able to join. Right now, we're around the 700 people mark. So we've got a week now until February 7. So make sure you're one of those next 300 folks before we hit our limit. And remember, it's free. What better way to get education from two guys. guys like us and the guests that we have coming in, rather than free, you can't get any better than that.

Starting point is 00:03:26 So our first question comes from Anna. She says, I want a house hack and I want to know what is best. A knack a loan or an FHA loan. Robert, what the heck is Anna talking about? So Anna, great question and a lot of people ask this question of what is the best thing for them. So a knack alone is a neighborhood assistance corp of Americas. And what that means is it's part of the housing HUD program in most jurisdictions. And these are pretty good loans. They have a lot of paperwork to get them done. But I'm going to read off a couple of things for you. And what this means for the NACA loan is the lower your income, the better rate you get. So that can help people that are sometimes in need. So they are much lower interest rates than a traditional mortgage. Number two,

Starting point is 00:04:13 they do not go off of your credit score for a knock a loan. They do what is called a character based lending. So this is very important. So if you have a good job, you haven't had a lot of trouble with the law, et cetera, et cetera, you can get approved even if you have a very low credit score or no credit. And then the other part of that is, is they go off of your debt to income ratio. And in this instance, they generally want the house that you're trying to get to be 33% or less of your total debt to income ratio. So with that being said, the NACA program is good, lots of criteria to meet, but also easier for many people to get the loan. But another one I want to make sure everyone listening and you included take a look at is

Starting point is 00:04:57 the Fannie Mae 5% mortgage. This is a great program for someone that might have a better credit score because I think the criteria is 650, but you get a 5% down rate on this and you can buy up to four doors and up to $1.3 million. So keep an eye on the Fannie Mae program as well. And if the NACA program is for you, I hope that breakdown helps you understand it a little bit better. Wow. Okay.

Starting point is 00:05:23 I'd never heard of this. This is really interesting. So the three things again, Robert, one was like the debt to income ratio. And another one was the good character, right? Good employment. No trouble with the law. And then also the rate varies depending on how much money you make. Is that it?

Starting point is 00:05:38 Yeah. And basically how it works is like right now, let's say you had a 550 credit score, but you have this good, what they call the character-based lending. If you have a lower credit score and a lower income level, you can actually get a mortgage right now for five and a half percent. If you're below the average household median income, but then if your income was above the average household, then the rate would be six and a half percent, still lower than a traditional mortgage. And the reason being is these programs are meant to help kind of these neighborhoods that need help and that they're looking for gentrification and they want to see renovations and some of these older homes brought back to life. These are great programs. What a good question by Anna. I mean, this is what it's all about, right?

Starting point is 00:06:21 Asking questions, I get to learn. Robert, you're coming in here, school and me. And hopefully, we both here can answer Thomas's question up next. Thomas says, good morning, Robert and Austin. I hope you're having a nice week. And I really appreciate all the work and advice you give. Thomas, we appreciate the kind words. Here's my question.

Starting point is 00:06:36 I've got $25,000 in my 401K for my previous employer. I recently switched jobs and I'm thinking of rolling over my 401k into a Roth IRA with Vanguard. The catch is there's a 6% match with my new employer after 12 months. Which one should I prioritize? Really, really good question, Thomas. And Robert, we talk about this all the time. And this is sort of our investing playbook, as you might. Match beats Roth beats taxable, right?

Starting point is 00:07:04 So what does that actually mean? Every new dollar you make and every new dollar that you're able to deploy and invest toward your future should be in that order. So if you have a 401k at work, Thomas, and you're able to now get that six match, assuming you've been there for at least 12 months, you can then invest that money up to the match into your 401k at your employer and get your free money because I don't know about you, Robert, but I like free money. The second line item there is the Roth IRA. We want to make sure we're always maxing out our Roth IRA every year. For the year of 2024, that's $7,000. Last year

Starting point is 00:07:36 it was $6,500. I believe until April 10 or April 15, you can still invest back retroactively to 2023, Thomas. So be sure to do that as well. But the reason, we have that and why that's so important is because you have autonomy over the Roth IRA. You can choose the index funds. You can choose the single stocks. You can choose the ETFs that you are investing into ensuring good market performance. And if you still have money left over that you need to invest, that's what the taxable account is on public.com. That's the crypto. That's the other ETFs we talk about, the other single stocks, you know, maybe some collectibles. Maybe that's artwork or money on fundrise, whatever you want that taxable to be. But it's really, really important to follow that

Starting point is 00:08:16 framework, free money, autonomy, and everything else. And remember, Thomas, I know you said thinking about rolling over the 25K of the 401k over to the Roth, just remember that that is a taxable event. So make sure that you are willing and you're able and ready to set aside the money for those taxes. And as we always say, we'd rather get the tax man out of the way now and have that tax free income for life over kicking the can down the road. So just make sure you take that into consideration when making this move. Great question, Thomas. Thanks so much for asking it.

Starting point is 00:08:48 Now, our next question comes from Brody. Brody says I'm taking out student loans later in May, and my total cost for college to get my RN will be about $50,000. I plan to specialize in anesthesiology. Do you have any advice for what I should do regarding my loan? Is there anything I should avoid here? I'm co-signing with my mom. She's got a great credit score.

Starting point is 00:09:08 Just looking for an extra push in the right direction. Brody, this is a great question. And in this instance, I think it's a great investment spending that 50K. You've already predetermined what your job is going to be. So you have a really good idea what the outcome is and what the income from that outcome will be. So this puts you in a really, really good spot. And I think it's totally fine if your mother is willing to help you with that co-signing situation and help you get these student loans so you can get this degree. I just always say if you don't know what the outcome is for a college degree and it's,

Starting point is 00:09:43 just generalized, it's not a good time probably to invest that much money because you don't know what the outcome is going to be. And in this instance, you really do know. And you'll have a very good idea day one what you'll be making in that field. So I think it's a great move. Yeah, good question, Brody. And just for some added resources here, Robert and I are friends with the guy named Harrison. And Harrison founded a company called Sparophy. And what Sparify does is essentially they allow you to find student loans, like Google Flights allows you to find the cheapest flight to your next vacation, right? It's like Google Flights for student loans. I'm going to leave a link in the show notes below for you, Brody, to go check out Sparify. No pressure to use it or not, but if you do end up using it,

Starting point is 00:10:24 it's going to do a lot of good for you. It's going to show you exactly what you're going to pay throughout the life of the loan. It's going to show you different rates. It's a really, really cool platform. So go check that out for sure. And anyone else now with student loans, you're looking to find student loan providers. Sparify might be a good solution for you. Again, there's going to be a link in the description below to go check that out. So our next question comes from Leanna. She says, hey, y'all, I love the podcast. I've learned so much about finance, and I'm really excited to keep learning from you.

Starting point is 00:10:48 A friend recently told me about the SPXX, ETF. Are there benefits in investing into SPXX over the S&P 500? Thanks in advance. So here's the deal. SPXX is essentially a competitor to SPYI, except they're doing a very bad job. of competing. So remember, SPYI aims to deliver the total performance of the S&P 500 to their investors while focusing on tax-efficient monthly income. SPXX, essentially doing the same thing, but they have underperformed SPYI by at least 50%, maybe even 60%, just looking at these numbers. So here's some

Starting point is 00:11:32 context. SPYI delivered a total return last year of 19%. SPXX was only 7.5. I don't know about you, but I would much rather take 19 over 7.5 any day of the week. Now, is there any benefits to answer your question here, Leanna, you know, directly? Not to this fund, no, but to investing into SPY. Yes. And those benefits are specifically, if you are looking like myself to generate passive income

Starting point is 00:11:58 in your portfolio, passive income that you can withdraw from your brokerage, take it straight to your checking account and use that to pay bills, fill up your gas tank, like whatever you want to do, which is how I spend my money, then SPYI might be a really, really good ETF to add to your diversified portfolio. And something else, Leanne, a great question. And I don't know if you should keep that person as your friend, maybe put them off as the more distant friend. But also when you're looking at these types of investments, also look at the expense ratio.

Starting point is 00:12:27 SPXX is infinitely more expensive from an expense ratio part than SPY. So that also is kind of a red flag for me because when we invest and we talk about investments that we like, we want the lion's share of the money and the profits to go to us. And quick announcement, Robert, Neos funds launched a new ETF as of January 30th called QQQI, which is the same thing as SPYI, same tax efficiencies, same monthly income, all the good stuff we love about the ETF. But it aims to track the total performance of the NASDAQ. talking about the NASDAQ, that thing that delivered like 40% last year. Well, now you can have exposure through that in a tax efficient, passive income focused way in your portfolio with QQQI. I went out and bought $3,000 of it today.

Starting point is 00:13:16 I'm so excited about this ETF, Robert. It is going to be a game changer for a lot of people. I know I'm so excited to get some money in on it. I just have to transfer some money around and get in now. So I'm excited for that one as well. Before we jump into our next question, I just want to remind everyone that public is officially the cheapest way to trade options. That's because they're doing something no other brokerage has done before. They're sharing 50% of their options revenue directly with you, the customer.

Starting point is 00:13:44 This is amazing. Whenever you trade options on public, you get something back. So go to public.com and activate your options trading before March 31st to lock in your lifetime rebate. Public.com, the cheapest way to trade options. And it really should say go to public.com and activate your options trading before February 7th webinar where we're going to talk about covered calls, all the fun options and all the cool stuff during that. So yeah, definitely do that by February 7. If you've not yet registered for the webinar, this is us reminding you to do that. You're going to love it. I am literally so excited about this webinar because I cannot wait to show you every single transaction I made in 2023, specifically between September 12 and the end of the year and show you

Starting point is 00:14:27 how I generated over $4,000 for my portfolio, right? That's $4,000. I took out of my account and I put into my bank account and I spent it on other fun things, right? That's what we want to show you all how to do with covered calls, owning stocks you love. It's going to be a lot, a lot of fun. So our next question comes from Sean. Sean says, thank you so much for the amazing podcast and all the information you share.

Starting point is 00:14:49 So here's my question. I want to divert money from my 401k after match, which only provides target date funds to a brokerage account, either. public.com and when finance or fidelity. So over the long run, what's going to cost me more? The small transaction fees on buying some of these ETFs and stocks or the payment for orderful of fees by using these platforms. That is a great question. And it really comes down to getting you to look at the macro view of what you're trying to accomplish in your wealth building journey and not worrying, tripping over pennies why dollars fly by. Now, Austin and I talk about all the time

Starting point is 00:15:24 of maximizing the amount of money that comes to us versus the platforms and the people that provide these investment opportunities to us. But in this instance, I don't think it matters as much because the PFOF fees versus the M1 finance or the public fees are going to be so nominal in relation to how much money you're investing over time and your gains that I don't think you should worry about it, maybe as much as you're looking at now. Now, when I look at something like if it's the difference between V-O-O and another S&P 500 fund, let's say. I always say V-O just because I always want the lowest expense ratio. So there might be another fund that performs exactly the same way.

Starting point is 00:16:08 But if I can save money on those fees overall in the larger dollar amounts that I'm investing, then it's going to add up. But in the general sense of things, I don't think you should bog yourself down in the minutia of worrying about these smaller fees. And you know, Sean, I was right there with you at some point, right? I'm a math nerd. I love to nerd out on stuff and figure out how I can best optimize every little penny I have. But it really reminded me of a quote for one of my friends.

Starting point is 00:16:32 It wasn't really a quote, which is a conversation we had. But we're talking about investing. And I was telling him how I was trying to invest this and get this yield here and do this and that. He's like, you know what the biggest indicator of wealth is? And I was like, well, I don't know. Of course. What are you going to say? He's like, the biggest indicator of wealth is actually investing the money.

Starting point is 00:16:52 It's not over analyzing where it's getting invested. It's just doing it, right? It's just automating the process, taking a motion out of it, and just simply doing the chore of investing, which shouldn't even be a chore. It's actually kind of fun. But, you know, Sean, that's just where I want to help you kind of make that mindset shift of the little transaction fees you might experience if it's 20 cents here, 30 cents here by buying an ETF or, you know, an option contract or something like that, right?

Starting point is 00:17:16 All of these little fees, do they add up to maybe 10 or 20 bucks over a couple of years? Sure. but $10 or $20 isn't going to be the differentiator between you becoming a millionaire in retirement or not, right? It's just 10 or 20 bucks. Like, I'll Venmo you 20 bucks, Sean. It's not that big of a deal, man. So our next question comes from Sonia.

Starting point is 00:17:36 Sonia says, Hi, guys. I absolutely love the podcast. I have a question regarding when to stop losses versus waiting it out. I purchased a stock a couple months ago and it has since plummeted. Didn't even seem to recover. I'm now down 33%. Would you recommend to wait for it to maybe recover?

Starting point is 00:17:53 Or would you recommend taking the loss and reinvesting that money somewhere else that might be more promising? Thanks in advance. Robert, you want to take this one? My thesis on this is pretty simple. If you believe in the company and you've done your research and you're down 33%, but you think it's going to recover, then it's up to you and your risk tolerance and what rolls around in your brain to decide what to do. But just always keep in mind that you can't forget an investing of opportunity cost. It's so, so incredibly important that you understand that if you put $5,000 somewhere else and you're down 30% and you just keep waiting and waiting and hoping and hoping, what would that money that's left over do somewhere else more promising?

Starting point is 00:18:34 Because also remember, those losses aren't really realized losses until you sell, but also even if you do sell with a 30% loss, you can recover those losses as a write-off against your gains elsewhere. So just always keep that in mind that it's not like that just goes away. You can write it off against other gains. So keep that in mind, but you just have to understand your risk tolerance and what is the best move for you and then decide from there. Yeah, Robert, you really alluded to this in the beginning of your answer, which is correct portfolio allocation. That's the name of the game.

Starting point is 00:19:10 We always talk about Robert building your base, right? Everyone needs to have a portfolio whose core holding. the foundation of that portfolio are index funds. S&P 500, NASDAQ, Dow Jones, Russell 2000, whatever you want, right? But notably the S&P. And the reason being is, we know that a well-diversified portfolio who has these index funds inside of it is going to perform well over a long period of time. Now, if Sonia, you want to go out and roll the dice on buying a single stock like you did here, that's totally fine. I've rolled the dice and lost plenty of times myself. However, you need to do it in a responsible manner.

Starting point is 00:19:51 Now, for some people, that might mean 2 or 3% of their portfolio. For others, it might mean 5, 6, or 7%. I would be very scared myself to put more than 5% of my own portfolio, like my total invested capital into a single stock. I've done it a couple times and it's worked out fingers crossed, but it's not something I'm very comfortable with. I want to have between 2, 3, maybe 4% in a single stock, kind of throughout my whole portfolio here with a handful of those.

Starting point is 00:20:15 They're not a core. It's only a handful that I really, really, believe in, right? Now, to answer your question more specifically, Sonia, should you sell the stock? It's totally up to you because what's really important to think about here, however, is the opportunity cost of not selling the stock. By not selling the stock every day that your money is in this specific stock that's down 33%. That's one more day of perhaps the S&P 500 or Bitcoin or you know, Invidia or any of the other names, Tesla, who knows, right? But any of the other investments you can make with your money, another day goes by that you're not earning money with

Starting point is 00:20:48 them or you know going up and down with the markets in general so it really just depends on your specific financial situation if it were me i would probably cut my losses perhaps write them off my taxes if it was that big of a loss and at the end of the day sonya you lost a little bit of money it's okay just call it your learning tax move on and don't make the mistake in the future now our last question comes from louise louise says i'm 32 married and i have a one-year-old i work in big tech in seattle i bought a condo back in 2020 with a 2.8% interest rate and i've put $15,000 down on the purchase. The condo is being rented out and I'm breaking even from a cash flow perspective every month. According to Redfin, property value has decreased by about 10% over the last

Starting point is 00:21:31 few years. I want to buy more cash flowing properties in cheaper parts of the country, but I'm not sure what I should do. Get a he lock on the dead money at 9.2% interest right now or just save the money in a more traditional fashion. Okay, Lewis, great question and thank you for the detail on this, without knowing how much you paid for the home and assuming the amount you talked about is accurate for the he lock. Here's my takeaway. I think the he lock at 9.2% is just too expensive. We would consider that high interest debt. So I don't think that's a good idea. So I think you have a couple options here. You save up for that next property and you get aggressive to get the down payment money because also I would hate to see you get a helock on a property in a market

Starting point is 00:22:13 that is depreciating in value because you might find yourself in a negative equity situation here in the next couple of years if that market doesn't recover. And then secondarily, I think you could look at what is called a DSCR loan. That would be a way for you to look at. You'd still need the down payment, but you wouldn't be trying to take money out of the home like we discussed. So look up a DSCR loan, see if that works for you because there are other ways to do this and find that way to get the next property while still dealing with where you're at on this one. And Lewis, as someone who's not a professional in real estate, but just an outsider looking in here, I would be curious if you're renting out your condo at current market rates. You're saying you're

Starting point is 00:22:58 breaking even on cash flow every month on this half a million, $600,000-ish dollar condo that you're alluding to here. And assuming your mortgage is probably call it maybe $400,000, because you put $115,000 down on the purchase, at 2.8%. Your monthly payment should be probably around $2,000, maybe a little bit less than that. I would imagine you can rent out a condo that's worth $600,000 a little bit more than what you're doing right now to start cash flowing at least a couple hundred dollars a month. Not even just break even, right? So definitely try and re-up on the market rates.

Starting point is 00:23:31 If that's something you can do and anything above that, right, that could perhaps be new money to now deploy or save into some of the options that Robert talked about. And also, Lewis, thank you for presenting the question. keep in mind that with this real estate, cash flow isn't everything. You have capital appreciation. I'm sure in that area from what I presume in Seattle is pretty high. So you have to look at it that way. So in the future, you should see that rebound. And then secondarily to that, you have depreciation, which you can use some of that as well. So there are other positives to this. I know you're probably not happy that it's depreciating. And that's just because you probably bought at the top of the market in 2020.

Starting point is 00:24:11 So just keep that in mind. It's not all gloom and doom, but there are other ways to skin the cat here. Really good question, Lewis. And also, just to wrap this up, dude, you work in big tech. You're probably making several hundred thousand dollars a year anyway. Just save some money. Save it for three years. Go use that as a down payment. Now you got a property. Do that every three years. You're going to have 20 houses before you know it. Everyone, thank you so much for listening to this episode of the Rich Habits podcast. Friendly reminder, go check out our covered call webinar. It's going to be a blast. We're going to talk about passive income. We're going to tell you stocks that we personally like and use. We're going to have Wall Street experts from the Neos team join us. It's going to be so much fun. We've got 700

Starting point is 00:24:49 people who've already joined us. We can only take 300 more. So be in the first 1,000 and don't miss out. And again, thank you all for joining us each and every Monday and Thursday here at the Rich Habits podcast. If you love it, please share it with a friend. Give us a five-star review. Keep growing with us as we build more and more great educational tools and channels and communities around the Rich Habits brand. We thank you all each and every week. And don't forget to follow us on Instagram at Rich Habits Podcast. We post social cutdowns of some of our favorite questions from these episodes on the Instagram channel. So to always stay up to date on what our answers are on some of your amazing questions, go follow the Instagram account. It's going to be a lot of fun.

Starting point is 00:25:31 Thanks, everyone, and have a great rest of your week.

Rich Habits Podcast - Q&A: NACA Loans, Co-Signing Student Loans, and Depreciating Real Estate

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