Rich Habits Podcast - Q&A: Pre-IPO Investing, Real Numbers Behind House Hacking, & Tax Refunds

Starting point is 00:00:00 Are you one of those media strategy people clicking through slides, scrolling spreadsheets? Yes? Good. This is for you. Because on Spotify, there's an audience that's different. Locked in. Loyal, invested. They're called fans. Fans don't just listen to music. They feel seen by it, like it belongs to them. So when your brand shows up on Spotify, that's who you're talking to. And you're right next to artists like me, Lizzo. So, are you ready to talk to fans? Spotify Advertising. You're among fans. Hey everyone and welcome back to the Rich Habits Podcast question and answer edition.

Starting point is 00:00:35 These are our Thursday episodes where we take your questions from email at richhabitspodcast at gmail.com, Instagram DMs at Rich Habits Podcast on Instagram and even the questions posted inside of the Rich Habits Network and answer them live right off the dome. We don't really prep too much for these. We want to give you the raw, authentic reaction to some of these questions. And we love these episodes. We have a lot of fun with them. Yeah, it's crazy. think over the years now how much these episodes have grown and how many people just really love them. It's a lot of fun for us to record these and it's also just so rewarding because we're digging into all of the different things that you guys are concerned with and giving you our best sauce

Starting point is 00:01:18 on what to do with those situations. So I love these episodes. And quick shout out to Robert. He's looking exceptionally tan. I look like a ghost right now on this screen compared to this guy. He's got a point. Porsche convertible and he said he was riding around in it in Florida over the weekend. And dude, you got to pick me up or something. I got to get a tan. I'm not here. I hear you. Yeah, I had meetings this weekend. I'm like, you know what? I haven't driven the Porsche in a few weeks. It's sunny. It's beautiful out. I'm glad to be back in South Florida. So yeah, this is what you get when the top is down and and you're cruising around. So yeah, it was a good weekend. So a couple quick callouts before we jump into the episode, our friend John Who, who is the co-founder,

Starting point is 00:02:00 and CEO of Stan, stand for creators, Stan. Stand.Store is their URL landing page there. They're essentially the Shopify for content creators. They are hiring for a bunch of open roles right now, head of product, product manager, head of creator marketing, events and programming lead, product marketing manager, data scientist, video editors, product designer, engineers, like they are all over the place. So if you're someone who's a top 1% human being who's ready to go jump into the startup world, and work your face off and go build equity in a cool company.

Starting point is 00:02:33 There'll be a link in the show notes below to learn more about how to apply for some of these jobs at Stan. Yes, Austin and I both love Stan. We both use Stan Store for creators and we're investors. So it is a really, really cool platform. We've used it now. I think I've been using it for three years. And I think, Austin, you've been in it for five or six years or something like that. So really cool company.

Starting point is 00:02:54 They're hiring. Definitely go check it out. Now, before we jump into our first question, I need to remind everyone, If you're looking for an online broker that was actually built during this century, you need to give public.com a try. Because on public, you can invest in almost anything. Stocks, bonds, crypto, options, and more. And if you're like us and you like to keep an emergency fund, you can take advantage of their 4.1% APY offered by their high-yield cash account. Discover why NerdWallet gave public five stars for its ease of use and investment selection.

Starting point is 00:03:27 Fund your account in five minutes or less and earn up to 10. $10,000 when you transfer your investments to public. And for a limited time, public is offering a 1% match on all IRA contributions. So if you're finally investing towards a Roth IRA this year, do it on public and earn a free 1% match on all contributions paid for by public investing, full disclosures in the podcast description. All right, Robert, let's now jump into our first question. This was sent to us via email at rich habits podcast at gmail.com. And this is from Nathan P.

Starting point is 00:04:00 says, hi, Austin and Robert. My name is Nathan, and I preach this podcast to my family. I love the different perspectives y'all offer with personal finance, and it's been truly the foundation for my finances moving forward. All right. So here's my question. I've heard a lot of information about house hacking with the Fannie Mae 5% down loan, living inside of it for a year, etc., etc. But I was wondering if y'all could just go more in depth on how to leverage this debt, how to make a profit, explaining how the numbers work. I mean, it sounds really simple, but I know it's it's going to be much more complicated once I get started. Robert and I thought this was a great opportunity for us to go find a real example

Starting point is 00:04:36 and share with you what the real numbers would look like if you did this for yourself, Nathan. So I graduated from the University of Tennessee, GoVals, and that is in Knoxville, Tennessee. So I went on to Zillow. I typed in multi-families in Knoxville, and Robert and I found one for $650,000. It's a fourplex, right? So four different units are inside of this. According to the Fannie Mae 5% down, you could put again, five percent. down on this $650,000 property, which would be $32,500.

Starting point is 00:05:05 You could borrow the rest at about a 7% interest rate, which would make your all-in monthly payment about $4,200 when you include insurance and taxes and things like that as well. So your goal here, again, is to live for free, but even if you're living at like a major discount, that's a big win too. So of course you want to aim to rent out the three other units for $1,400 a month, which would pay for the entire 4,200 a month mortgage. But, you know, we're talking about one bedroom, one bathrooms here. Maybe you can get $1,100 or $1,200 a month in rent instead, which means you're now only paying about $600 a month, which is the difference there, which I think is a really,

Starting point is 00:05:43 really great way to be living, right? You're living super, super cheaply. You're building appreciation in some awesome real estate, not to mention all the tax benefits that come with that. So, Robert, why don't you walk through beyond just the numbers? Why do people want to be house hacking? What are some cool ways that they can leverage the debt to go do other things or maybe, you know, possibly impact their taxes, things like that. Yeah, I love this strategy. And this is a great question. And I'm so happy that we get to break down the numbers because a lot of times the numbers just don't add up. But in this instance, they add up really, really well. I don't know what the comps are for one bedroom, one baths in that area. But assuming they could be $1,11, $1,200 like you alluded

Starting point is 00:06:23 to, it just really makes the math great. Because even at those prices, and let's say Nathan then is paying $600 a month for his unit, that is substantially discounted. And on top of that, he gets the tax benefits of the depreciation of the property. He gets the appreciation of the property. So he's building equity into this property. Let's say, let's call it in Knoxville, maybe it's four, five, six percent a year. So over time, this is a great way to build wealth and to follow along and adhere to the loan rules, the mortgage rules, he only has to live there for one year. So I tell people all the time, find a duplex, triplex, triplex, or quadplex, live in it for a year, build some equity, then do it again

Starting point is 00:07:10 and again and again, because then it's an easy way to get up to that 10, 12, 14, 16 doors that you own, then go by the primary home. I think people start out thinking because we We've been brought up to think that you should own a primary home as your first property. But in my opinion, house hacking is one of the greatest ways to build wealth early. And it's just a year of living in this property. You have to own or occupy it to be able to qualify for the Fannie Mae 5% down mortgage. So let me break that down just real quickly. The Fannie Mae 5% down mortgage is exactly that 5% of the purchase price.

Starting point is 00:07:47 But you can buy up to four doors because that's still considered residential. Anything over four doors is. commercial and then you can buy up to $1.3 million, I believe we'll have to check that, but you can buy up to $1.3 million. So it is a great, great hack to use for someone that's just getting started in the real estate market. And just a double click now, you mentioned like the depreciation that comes with things like that. So how I understand it is if Nathan wanted to, he could go out and do a cost segregation analysis on this $650,000 purchase of this. 4plex. It doesn't include the land. So let's say about 550,000 of the 650s actually the 4plex itself.

Starting point is 00:08:30 And I believe what normally shakes out to be the numbers is about 60% of that purchase price can be bonus depreciated in the first year of owning the property. So about $300,000 is the depreciation that Nathan is able to write off against his ordinary income. That's right. So let me be super clear about that. Nathan, if you're like a doctor or something and you're making $200,000 a year and you went out and bought this and you bonus depreciated $300,000 against that $200,000, you would essentially get a tax refund that it equates to all the federal income tax that you had paid in for that whole first year and even the next six months of the next year, right? Like owning real estate is not just about the cash flow and the appreciation, but it's

Starting point is 00:09:16 also about using it as a tax strategy to offset your earned income. via these cost segregation analysis studies and other ways that real estate investors are just like rolling in it. It's such a cool way to build wealth. Yeah, 100%. Something that I say all the time and people are probably tired of me saying it. It's not what you make. It's what you keep. And Austin and I had an awesome conversation just while prepping for this episode about all the different ways you can use the tax codes to your advantage. And the cost segregation study is something everyone should review and understand. And make sure you talk to your accountant or someone who ever does your stuff.

Starting point is 00:09:54 So you get it right because there are a lot of stipulations. But it is a great way to help you write down against your ordinary income these properties if you're to buy them. So you're getting it from all directions. You're only putting 5% down. So you're keeping all of your hard earned cash making money somewhere else. You're being able to get this really low cost per month for you to live for now that one year of occupying this property.

Starting point is 00:10:18 You could stay longer if you wanted, which I love because then you own the property, the tenants are paying most of the mortgage and you get all the benefits. So that's just the way to look at it. That's why I'm always preaching house hacking, and I love this question from Nathan. So our next question comes from Farhan S

Starting point is 00:10:35 on Rich Habits Podcast at gmail.com. Farhan S says, Hi, Austin and Robert. My name is John. Oh. Okay. All right, I guess it's John now. Coming from John. Hey, Austin Robert, my name's John, a big fan of the podcast. I've been learning so much since I started listening earlier this year. Thank you all for the knowledge and advice. It's been super helpful in getting my finances on order. I'm 31. I make $138,000 a year with a typical bonus of about $25,000. I file taxes as a single person, so my individual income limit is too high to contribute to a Roth IRA. I currently have $95,000 in my 401k and my employer matches 5%.

Starting point is 00:11:17 I have $10,000 in a high-yield savings account and another $10,000 in a taxable brokerage account. I know the typical waterfall that you guys talk about is match beats Roth beats taxable. So I'm wondering, is this still the case in my scenario? Should I look at opening a traditional IRA and then contributing to the Roth IRA via a backdoor scenario? If so, would I just convert my traditional funds to the Roth annually? Do I do it monthly? Like, how do I go about this? So we've had a lot of questions about the backdoor Roth IRA, especially now as like, you know, we're recording this on April 14.

Starting point is 00:11:52 Tax day is tomorrow. People are trying to figure out I want to max out 2024, want to do 2025, but I make too much like what's going on. So let me just break down the backdoor Roth IRA real quick, Robert. The backdoor Roth IRA is a strategy for high income earners to contribute to a Roth IRA with those after tax dollars and have that tax free profit in retirement when their income exceeds the IRA. limits for those Roth contributions, which if you're a single filer here like John, that's $165,000 a year, or $246,000 if you're married and you're filing jointly in 2025. So we thought it would be a good idea to provide you guys like the step-by-step instructions on how to actually execute a backdoor Roth IRA. And we try to come up with a broker that would make it easy as possible. So we just did Fidelity here in this instance. So the first thing when it comes to doing a backdoor Roth IRA on

Starting point is 00:12:44 Fidelity is to confirm your eligibility. You need to ensure you do not have any pre-tax funds already sitting in a traditional IRA across all other institutions, as these can trigger the IRS pro rata rule and make your taxes very complicated. So I want to make sure that's either parked in a 401k somewhere else or just moved around. You don't want any traditional IRA funds sitting around. So next step is to make sure you open up the right accounts. You want to open up a traditional IRA. So you just log into Fidelity, hit open account, retirement, IRA, open traditional IRA. Also, same thing with the Roth IRA. You got to have both accounts if you're going to do the conversion. Next, you want to fund the traditional IRA. So you want to log into

Starting point is 00:13:23 Fidelity, navigate to hit that traditional IRA you just opened, click contribute or transfer, and contribute $7,000, the full $7,000 amount for 2025. Next, you want to convert the traditional IRA with the $7,000 inside of it into a Roth IRA. So you want to go to accounts, you want to hit transfers. You want to transfer cash or shares between Fidelity accounts. Choose that traditional IRA account. Transfer it to the Roth IRA as the new destination. That full amount is now going to be transferred. You're not going to withhold any taxes as non-deductible contributions aren't taxable unless they are gains. And we're not having any gains here with our cash just yet. Once the transfer is complete, you now literally went from $7,000 in a traditional IRA to $7,000 in a Roth IRA. It'll take a day or two.

Starting point is 00:14:10 and now you've got to go invest the $7,000. Don't make the mistake of just putting $7,000 a year into this account and just saving money that way. You want to invest the money into the VOOs, the QQQs, the VTs of the world, the big blue chip index funds and ETFs that we talk about. So that's the play-by-play for you, John, and everyone else that's trying to figure out how the heck do I do a back-to-a Roth IRA in 2025. that was awesome and that was a lot so please take notes and take action one of the things that i want to just kind of briefly touch on is make sure you invest the money i'm shocked at how many people come to me and say here's my roth IRA i have 27,000 dollars into it i'm like that is awesome what are you invested in within what have you been doing in the account they're like what do you

Starting point is 00:14:59 mean i invested in the roth IRA i'm like no no no no no so let's everyone understand this the Roth IRA is the component. It is the vehicle you're investing through to get these tax benefits for life for retirement. It is not the actual investment. So make sure you understand. That's why we always tell everyone, once you get the Roth up and running, and I think everyone should have a Roth IRA, then you have to still invest the money in those low-cost ETFs that we talk about every single day of our lives to make sure you guys are making

Starting point is 00:15:31 that steady income for years and decades to come. So our next question comes from Bradley W. Bradley says, hey Robert Nostin, I'm 19 years old and I have $25,000 in my bank account and $3,000 in my Roth IRA. I'm saving up for a house with that $25,000. Would it be best to just continue saving for a house or maybe take some of the money and invest it into my Roth IRA? And if I should keep investing it, is it best to put the remaining $4,500 for the year in all at once or spread it out? So I want to make sure we're on the same page here, Bradley, you can only contribute $7,000. $7,000 a year, unless something changed that I don't know about into the Roth IRA for 2025. So want to make sure you said you got $3,000 in your Roth IRA. Assuming all $3,000 of that is cash contributed, you can only contribute another $4,000. Maybe you contributed $2,500. It grew to $3,000, whatever. But just make sure that you're not contributing more than that $7,000 a year because that is a big no-no.

Starting point is 00:16:28 The IRS will take a 6% penalty per year that you over-contribute to your Roth. IRAs. So be very careful about that. Now, Robert, how do you want to answer this question? Yeah, I think this is a good question in the first glaring, you know, red flag that I see, and it's a good red flag to have, is too much cash. You're 19 years old. I don't know why you're sitting on $25,000 in cash. I know why the end result, you want to buy a home with it, but right now you need to be thinking about, should I have some of this money in a high yield cash account on public.com that we talk about all the time? What should I be doing with this money to keep it liquid, but also get it working because you don't know when you're going to buy this house.

Starting point is 00:17:08 And so for me, that would be the number one thing is lower down the amount of cash that's sitting, get some in a high-yield cash account. I would maybe consider opening just a traditional brokerage account instead of the Roth IRA because then you could put it in some safe investments like we talk about to use the money and try to grow the money while you're waiting to buy the home. But I definitely just think you should don't overload the raw. if you're going to need it right back out because you have to remember the Roth component, the Roth IRA is something we want you to build forever and not take out until you are ready to retire.

Starting point is 00:17:44 If you're going to have money that you're saving for a house or, you know, maybe down the road you're going to get Mary Nev kids. That's why we talk about having the bridge account. So that money is fully accessible. There's no penalties. There's no worries. There's no concerns. And yes, you can get your money out of the Roth.

Starting point is 00:18:00 Any principle you put in, you can take out whenever you want. But that's just not the habit, the mindset we want you to use when thinking about the Roth component. That would be my take. I like that perspective, Robert. The only thing I would add is I want to see Bradley maxing out his Roth IRA at such a young age. I think, you know, every dollar that Bradley puts into this account and invests into the S&P 500, the Dow Jones, the NASDAQ and all the other index funds and ETFs we talk about turns into $20, $30, $40 in retirement. right we just had that episode with chris camillo talking about what compounding does and how much it helps your money grow over a long period of time so i want to see bradley contributing and maxing out his roth IRA every single year and the other thing i want to call out for bradley is like don't get me wrong

Starting point is 00:18:49 i loved being able to buy a house at i think it was 24 25 years old i put three and a half percent down and my mortgage rate was like 3 percent 3.2%. The mortgage on that house is $1,300, right? It's a no-brainer. But I don't think that exists right now, at least at these 7% interest rates. And at 19 years old, sure, you could only put down that 3.5%, which is, I think, what you're trying to figure out and do for yourself here, Bradley. But if I were you, I would really want to get my base built first. I would really want to get 50,000, 100,000, somewhere in that range. It doesn't have to be 100 grand, right? It takes longer to do that. I think it's eight years on average to get your first 100,000 invested. but before I put a bunch of money into, you know, a single family home, I would want to see

Starting point is 00:19:33 $50,000, $60,000, $70,000 invested into these index funds and ETFs that we talk about. Because again, that money will double on average every seven years or so. And by doing that at 19, 20, 21, 22, you're going to have hundreds of thousands of dollars by the age of 30. I turned 30, not this year, but next year. And if I could go back and tell my 19 year old self to do something, I would say, yo, go invest more because now I look at it. I wish I had more, right? I think that's everyone's kind of gripe with investing is.

Starting point is 00:20:07 What's the slogan there, Robert? The best time to invest was 20 years ago. The second best time is today. So what we want you to be doing, Bradley, is fast forward 20 years. You're not kicking yourself saying, dang it. I wish I had invested a couple more thousand or tens of thousands more into my retirement accounts and my bridge account, knowing that. compound interest is going to work for me over the coming decades and throughout my lifetime.

Starting point is 00:20:30 Yeah, I love it. And I agree. I do like the concept of having the Roth maxed out early, you know, and letting compounding do its magic over time, you know, but I also agree with you that I just wish more people wouldn't be in a rush to buy a primary home. There is absolutely nothing wrong with renting for a few years. You know, some people say, oh, you're throwing away money renting. Well, guess what? somewhat you're overextending yourself by buying a primary home because it is proven right now, especially in this market, that renting is more cost-effective monthly. And if you can arbitrage that difference, say between owning a home, even a starter home versus

Starting point is 00:21:11 renting, you can save $600 a month, maybe it's more. That money going into your investment accounts is going to just grow and grow and grow over time. So I love how you broke that down in a way to get people to understand. And we always want to see that base built first. You're completely right, Robert. The statistic is the median rent in 2024 in America was $1,850, where the median cost to buy a house, monthly cost, is $2,700. It's a thousand dollars a month gap.

Starting point is 00:21:43 And that $2,700 also includes a down payment that's normally tens of thousands of dollars down. So I totally agree, right? I'm not mad at people that rent. I'm really not. If you're someone that is still building your base, you're not ready to go out and just sink tens of thousands of dollars into a single family home. Because remember, you know, rich dad, poor dad, right? This property isn't producing cash flow for you. It's just a place for you to live at the moment. Right. And I think that's what Bradley is trying to sort of navigate right now. So Bradley, we're wishing you the best of luck, my friend. So our next question comes from Solomon. Solomon. Solomon says, greetings. My name is Solomon. And the nature of this inquiry is to get further advice as to what direction I should go. in order to retire with $3 million of assets by 70 years old. Currently, I have an annuity getting ready to mature. I'd like to know, should I build a portfolio of ETFs with dividends, or should I expand it into other things?

Starting point is 00:22:39 I'm a novice with just currently $260,000 to my name, and I want to grow it fairly quickly. Robert, you want to kick this one off? Yeah, I mean, Solomon, everyone wants to grow quickly. So we appreciate the question. and without knowing your age, we're just going to make some assumptions that with this $260,000, we're going to say that you're 40 years old for the sake of some easy math, and you have a 30-year time horizon to continue investing until you're 70.

Starting point is 00:23:08 So if you don't do anything and just invest that money for 30 years or more and generate that 8% annual return, you would be able to get up to about that $2.85 million or so in retirement. Here's the kicker. If you took that same money but added $500 a month to this amount that you're investing, that would turn your retirement money into roughly $3.5 million during the same period of time. So this assumes you're investing in the S&P 500, the NASDAQ 100, and other Blue Chip Index funds and ETFs that we talk about that generally return 8 to 12% a year over the long period of time. So keep that in mind. know your age next time. So anyone's submitting a question where it's very, very financially driven for an amount and you need math done, always include your age because it helps us better serve you when answering the question. 100%. Yeah, 260,000 parked in, you know, some of these index funds and

Starting point is 00:24:09 ETFs growing at 8% per year for 30 years. That's going to be 2.85 million in retirement, just like what Robert said. And to your point about this annuity, yeah, once that annuity matures and you have access to that money and you're not contributing to it or like whatever's going on there, park an extra 500 bucks a month into whatever the investment account, this $260,000 is sitting in, and you'll have $3.5 million by 70. I mean, the numbers work in this situation, but that's again, assuming you're 40 and not 60. Everything changes if you're 60 years old. You only have 10 years to invest versus 30 years to invest. So we're rooting for you, man. I wish we had more information to answer this question, Robert. But Solomon, I think that there's a lot to

Starting point is 00:24:50 get excited about in your situation, specifically to answer your question about, like, what should I be investing into? It's the index funds and ETFs we talk about. If you want to have some dividends and you want to buy a dividend ETF, SCHD is a great one. But yeah, you just want to buy these index funds and ETFs. Don't overcomplicate it. Get this money working for you and growing over a long period of time. Definitely 100% love the question. So our next question comes from Raphael W. Raphael says, hey guys, my wife and I are in our early 40s. We both have Roth IRAs of $26,000 and $24,000, which we max out yearly. These are all invested into the ETFs that you guys talk about.

Starting point is 00:25:28 We have an investment account of $600,000 that's managed by a financial advisor. We contribute $1,000 a month to it. It's currently broken out between 26% in ETFs and mutual funds, 20% in treasuries, 11% in money markets, 33% in individual stocks, and 10% in private market funds. Thanks to you all, we started another account. with public that has $40,000 invested into it, and it's invested into the index funds and ETFs that you guys preach, as well as a couple individual stocks. We have less than 1% of our money in crypto, and we fund this account with the interest earned from another $130,000 we have

Starting point is 00:26:06 in a high-yield savings account. We also have a Coinbase account, but it's sitting at about $1,500. So here's the thing. The $130,000 that we have in our high-yield savings, I look at as both our emergency fund and our when and if we need a home remodel or maybe a cool investment opportunity comes about. I'm being offered right now the opportunity to invest into a SPAC startup. It's going to require $50,000. Doing this will somewhat deplete my overloaded emergency fund, which will lower my weekly contributions to this public account, but the potential upside may be well worth it within a year or two. So my question is, in your opinion, am I financial? ready to take on that kind of risk, or should I continue the course of building up and diversifying

Starting point is 00:26:52 my public account by adding more into crypto, precious metals, things of that nature? Am I ready to take the sleep? Any other suggestions or strategies would be welcomed. So Robert, let me just answer his question of, am I ready? The answer is yes. You are ready. You have hundreds of thousands of dollars invested. You guys are very prudent. You're doing an incredible job of getting money invested into the markets and growing your wealth for you. In my experience, when it comes to investing into high-risk privately held companies in startups, I want to allocate mid-to-low single digits of my investable capital, right, my net worth essentially, into these types of deals. So in your situation, you guys are sitting on about, let's call it, $800,000, which means, you know, low to mid-single

Starting point is 00:27:40 digits of net worth on that is about 40,000 on the 5% range and as low as, you know, 8 to 12,000 on the 1 to 2% range there. If there was an opportunity where if I were in your shoes and I saw a wonderful high risk, high reward investment opportunity that was out there, I would say, yes, I'm ready to take this leap and I'm willing to invest between eight and maybe $30,000 or $40,000 into it knowing that it very well could go to zero. So what I would not do is invest all of that 5% allocation into one deal. I would invest 8 to 10,000 in about three or four deals over the course of, you know, let's call it 12 or 18 months, spreading out my risk a little bit further. Robert, I'm going to let you talk more about what this opportunity is

Starting point is 00:28:26 and some takeaways from your perspective. But I did want to just quickly answer, you are ready theoretically to take these leaps, but you need to do it the right way. Yeah, I'm going to unpack, I the most important part of what you said. And that is, are they ready and are they ready for this type of investment? I'm going to go the other side of the fence on this and say, yes, you're ready, but I wouldn't do this particular deal. And here's why. I've been doing this, let's call it, investing in these pre-IPO startups, SPACs, just so everyone understands. You know, a SPAC is a special purpose acquisition company. So what that means is they raise money to go out. and buy other smaller companies where they roll them up into this fund.

Starting point is 00:29:13 So keep that in mind. Not saying it's good. I'm not saying it's bad. But here's kind of the modus operandi that I operate from now and I didn't 10, 15 years ago. And just like Austin alluded to, I like to buy more deals at smaller amounts rather than one big shot. Because if that big shot, the 50K you're talking about goes to zero and that represents almost 5% of your total net worth or maybe more, then that's a problem because it just sets you back so far. So when I look at like 50 grand, if you were setting that aside, I'd rather see you do three or four deals at $15,000 a piece and then have three shots at three different opportunities to really make that money work.

Starting point is 00:29:58 Because when you're investing in these higher risk asset classes like pre-IPOs and SPACs, you want to kind of look at it that if you do 10 investments, your profit. going to have five go to zero, two or three are going to make a little bit of money, with your goal being that one or two are going to give you that 20, 30, 50, 100 X. That is how I look at it. It has worked very well for me over the years, but I personally at this point and juncture in your financial career, I would not invest the whole $50,000 into one deal of that nature. So for added context, right? For the last half decade, my business partner, Christian and I have been investing into privately,

Starting point is 00:30:38 held companies and tech startups and everything of that nature, specifically tech startups, right, venture back tech startups. And I would say total capital outlay has been about 350,000-ish that we've invested across 25, 30 different companies. I think by now I'd want to say seven to 12 of those companies have just like ceased to exist, right? They couldn't find product market fit. They couldn't go raise another round. I mean, like, and that money is just gone, right? So it's not like I'm getting any capital back. I think there's been three companies now that have returned capital to me in the sense of,

Starting point is 00:31:11 hey, we're shutting down, but we still have 20% of your original investments. We can give it back to you. And to your point, there's three companies of the 25 that have, I mean, I just told you the other day, one of those companies just experienced a 16x markup. So our $75,000 investment is now worth like $1.2 million or something. So just that one company and that markup paid for everything else. And now everything, you know, these other two opportunities that are going to be great markups as well are just gravy. So that's how you want to be thinking about this, Raphael's like, how do I take 10 to 15 swings over the course of two to four years across a multitude of different, you know, sectors in the privately held tech startup space or whatever? And the easiest way to do this is to be an LP or a limited partner

Starting point is 00:32:01 on someone's fund. So for example, I'm an LP with a fund. I don't want to name any names, but that fund has just absolutely crushed it. They've invested into some of the most, like names that I'm sure you guys listening at home are like, whoa, that's cool. I've heard of that company. Like, they've got some really cool opportunity. Like, I would never have that opportunity, but because it's what they do for a living and they, you know, I give them my $10,000. They're able to deploy my money in these deals as well.

Starting point is 00:32:31 And so, Raphael, if I were you, the first place I would start would, I would be a LP in an existing fund, investing alongside all these other people who have done this for decades in a long time. And then if you really wanted to get more risky about it and you wanted to start investing into like specific deals, as you guys know, inside the Rich Habits Network, Robert and I get incredible pre-IPO deals all the time that are sent to us that we share with you all. We've actually shared seven deals since the inception of the Rich Habits Network last August and hundreds of thousands, if not millions of dollars, has been invested into each of these deals since that period of time. If you are interested, Raphael and, like, really getting into some

Starting point is 00:33:14 of these, like, pre-IPO ideas and other, like, investments and, like, privately held companies, join the Rich Habits Network, learn more about the different opportunities that we're sharing over there. Because, like, you know, Robert, just the other day, we both invested into Mr. Beast. Mr. Beast had a round recently, if you guys know the YouTuber, he's got the feastables, he's got his toy. He's got lunchly. He's got all these other cool things he's doing to come out with a skincare brand pretty soon. So it's like all these things are happening through him. And we have the opportunity to deploy some capital into what his like holding company is. And so we get those opportunities all the time. And if we say, hey, let's participate in it. We then share it with

Starting point is 00:33:51 the rich habits network if we're obviously able to because it's not always up to us. It's up to the people who are offering it to us. And that's nine times out of 10 the case. And so I want to reiterate what Robert said, take multiple swings. Do not just go a big lump sum 50K into one deal, because if that one deal goes sour, you're now out $50,000. Yeah, it's all about the at-bats and take more risk with more opportunities so you don't take the one big shot. I learned the hard way, you know, back in the day, I would have a million dollars to deploy and I would do two, 250,000 and one, $500,000 investment. And I just don't write checks that big anymore. because I'd rather have more shots.

Starting point is 00:34:32 I hope this helps you guys. So our next question comes from Elizabeth H. Elizabeth says, Dear Robert and Austin, my husband and I are avid viewers of your show, and we're writing to request your financial expertise. We recently received a $10,000 tax refund, and we're seeking guidance on the most prudent investment strategy. We're currently considering several options.

Starting point is 00:34:52 One, investing in the S&P 500. Two, placing the phones in a high-yield savings account. three, purchasing bonds through public 7% return bond account or four, investing into some high dividend-paying stocks. We would be really grateful for any insights that you could offer to help us make a more informed decision. Thank you for your time and consideration. Robert, I'll let you kick this one off. Okay, so we don't have all the information here, but I'll take a shot at it based on what's listed. If I was getting $10,000, I would probably do $4,000 into the S&P 500, so V-O-O, and then I would

Starting point is 00:35:27 would probably do $4,000 into a high-yield savings account, like you mentioned. You could do the high-yield cash account on public. And then I would do the remaining $2,000 into that 7% yield with the bonds on a public account right now. And then the only thing I would do different to add in some additional high-dividend stocks is maybe look at lowering the S&P, the VO, down to 2000, and doing 2,000 into SPYI, which is a NEOS fund that we really love. And we really like the strategy of the NEOS funds as well. So that's what I would do based on the information you provided in the wish list. I think you're spot on.

Starting point is 00:36:10 And that would be the weighting that I would recommend in this situation. Hell yeah. All right. Let me take a stab at it. I would throw 2,500, maybe up to even 5,000 of it into Berkshire Hathaway. I think Uncle Warren is a good part. person to bet on. Berkshire Hathaway is up 17% year to date. So I think I would get some Berkshire Hathaway in there. I've got a big position myself. Maybe even put some of this money into real estate via

Starting point is 00:36:39 fundrise or VNQ, maybe VICI or ticker symbol O, or even the IYRIETF by Nios. I think I'd also want to get some of this money maybe into Bitcoin if you don't already have some, maybe two or three thousand dollars. And I also want to make sure, Elizabeth, you are only doing this after you've maxed out your Roth IRA for the year. We always want to make sure we are maxing out a Roth IRA and contributing to these tax advantage, tax free retirement accounts as we continue to build wealth over time. But yeah, maybe buy some public bond account stuff, high yield cash account. I'm here for all of that, Robert. I love it. Yeah, I mean, that's why we do this show is having two different thought processes and two different ways to look at it. And then that is also why we speak diversity so much,

Starting point is 00:37:25 because if you're diversifying, you're always going to have your basis covered. And based on Elizabeth's word of prudent investment strategy, I think there is a lot of good information in that answer between both of us to help them figure out what to do with that additional money. 100%. So our next question comes from Diego M. Diego says, I've heard you guys mention tax loss harvesting a couple times and with the current drops in the S&P 500 and the NASDAQ, I've seen a lot of context suggesting that this is a good opportunity to tax loss harvest. When thinking about the ETFs you guys talk about, for example, one suggestion that I've seen is to sell off your shares of VOO and then replace them with shares of VTI since they're not identical, but very similar.

Starting point is 00:38:12 I realize that this stuff can get really confusing and complex for investors like myself that maybe are not as experienced and maybe don't understand all the rules involved. But can you explain what is tax loss harvesting and how I could take advantage of it for myself? So Robert, I'll kick this one off. Good question, Diego. Thanks so much for listening to the show, my friend. Tax loss harvesting is exactly what it sounds like. You're harvesting your losses for taxes, right? So like let's walk through that. Let's say, actually I just did this. I invested like a idiot, $75,000 into Ethereum at the pico top back at like $3,500 of coin, I don't know how many months ago. It's now down to like 1,800 or 2000. And so I lost about $40,000 on paper on that investment. So what I did,

Starting point is 00:39:01 I sold my Ethereum for that $40,000 loss. I booked the loss of $40,000 on my tax form. And then I used that same amount of money. So in this case, it was just about $35,000 to go back can buy the Ethereum back. So I still have all the same Ethereum that I had whenever I first invested it at that $75,000 price tag. But I've realized a $40,000 loss along the way. Now remember, you can use any capital loss in your portfolio to offset any capital gain elsewhere in your portfolio. So on the flip side, I've been taking profits on Bitcoin most of this year. I think I've taken profits on like 50 or $60,000 and those are profits. Like I'm talking like 20, 30, 40, 50,000 of profits on my Bitcoin. So theoretically here, I made $40,000 on my Bitcoin investment over the

Starting point is 00:39:59 last two and a half years and now I've lost 40,000 in the short term on my Ethereum investment over the last couple months. So essentially, I have all the same Ethereum that I bought back at, you know, let's call it earlier last year. And I've taken profits on. on this 40,000 of Bitcoin that I've begun to sell off, and I've used the sort of losses to offset those gains elsewhere in my portfolio, which is this Bitcoin. So what that means is I don't have to pay taxes, a diamond taxes, on up to that $40,000 of profits that I've realized on this Bitcoin because I've already taken the loss elsewhere. Now, let's talk where this doesn't make sense and how it begins to unravel in the example that you gave us. Unfortunately, this

Starting point is 00:40:43 wash sale rule doesn't apply to ETFs in stocks. At the moment, it only applies to cryptocurrency because in the eyes of the IRS, cryptocurrency is property. It could very well change in the future. I have no idea what the IRS is going to do. I'm surprised it even works today, but it does. In the instance that you shared, these are the rules. If you sell your VOL and you cash in on some short-term

Starting point is 00:41:08 capital losses and you then go take that amount of money to go buy something like VTI the same day. Not only are you buying something very identical to the original investment, which negates the whole thing first off there, but you are doing it within a 61 day period of time. So here's how this works, right? You sell your VO, let's say, for example, on April 1st of 2025 for a $10,000 loss. You repurchase VTI or VO on May 2nd, which is 31 days later. But the I.R. R.S wash rule sale applies if you buy the same or a substantially identical security within 30 days before or after, which is a 61-day window of the sale. So long story short, tax loss harvesting works easily with cryptocurrency. It's much more difficult when it comes to single stocks and ETFs, which is why we use FRECFOREC.com for our tax loss harvesting. Yeah, that was a great breakdown.

Starting point is 00:42:11 And it's something that more people really need to study. You know, so instead of these late nights where you're up doom scrolling and spending your time on, you know, Netflix, read up on some of these things that we talk about, the 1031 exchange, tax loss harvesting. Really make yourself an expert in some of these because it will save you tens of thousands, if not hundreds of thousands of dollars over your lifetime by understanding how to take advantage of all of these tax. strategies that are right in front of you and easy to implement into your daily lives. So before we jump into our next question, let's hear from this episode's sponsor. Listen up, folks.

Starting point is 00:42:50 Time could be running out to lock in that 6% or higher yield at public.com. You can lock in a 6% or higher yield with a bond account, but remember your yield is not locked in until the time of purchase, so please act fast. Lock in a 6% or higher yield with a diversified portfolio of high yield and investment-grade corporate bonds only at public.com forward slash rich habits. Again, that is public.com forward slash rich habits and get up to $10,000 in a bonus, depending on how much of your money you move over from your old portfolio on Fidelity or Schwab or Vanguard into public. And they have that 1% match right now on that IRA. So go check that out as well. public.com forward slash rich habits.

Starting point is 00:43:36 Now our final question comes from AG. AG says, good morning, Austin and Robert. My wife and I are expecting our first child this year. Congratulations. That's really exciting. We are pretty early on and the baby isn't due until November. I've been trying to plan ahead as much as I possibly can, so I went and I created a 529 account.

Starting point is 00:43:53 I've also been thinking about other expenses and how tariffs could possibly affect them. I feel like a doomsday prepper even asking this, but should I just bite the bullet and buy most of our larger dollar? items now, like a stroller, a crib, and a car seat before costs potentially increase because of tariffs? Or do I just ride it out until closer to November? I know we have a baby shower and I want to just ask people instead of buying us cribs and strollers and car seats to contribute to

Starting point is 00:44:22 the baby's 529 instead, but any input is greatly appreciated. Robert, you want to kick this one off? Yes, I love this question. And AG, I'm going to give it my best shot here. I personally feel that you have to look at it how much of the price is really going to increase in the next four or five months. I don't think it's going to be that much. But you also have to look at it

Starting point is 00:44:41 that are people going to be uncomfortable if you tell them in this exchange for the baby shower, we don't want gifts, we want money put into this account. I think it could backfire and people could look at it the wrong way. I think it's very smart

Starting point is 00:44:54 and it depends on your audience and your friends and your family group. I personally would stick with the plan. Keep putting the money into the 529, buy the items you want and need as you get closer to the baby rather than getting ahead of it. Because if it was a major purchase, I could totally get it. I could go on and on about a story we had about a lumber package for a building that we were building. And we were told, you better buy it now because with tariffs and everything happening and price increases during COVID,

Starting point is 00:45:23 you're going to pay a lot more money. And it ended up costing us like $75,000 more because we didn't do it at the time. But in this instance, I don't think it's going to make. much of a difference for you, maybe a couple hundred dollars. And I'd really rather see you stick to the plan, be more traditional because as much as I love the idea of the 529 plan in lieu of gifts, I just think it might rub people the wrong way. And you might find yourself not really getting what you would expect out of that thought process. And the only piece of advice that I could give you AG is stack up some cash. Obviously, we are praying for a happy, healthy baby, but some things happen

Starting point is 00:45:59 in delivery. Things happen along the way that might cause a large, unexpected medical bill or something else. So I just want to always encourage people whenever they are expecting. Sit on a fortress of cash because the last thing you want to do is only have, you know, $10,000 or $15,000 sitting in a high-yield savings account for your emergency fund and then something terrible happens and you now have to cash out a 401k or cash out a retirement account at a penalty and the taxes associated with that to help pay for whatever this, you know, catastrophe turned into. So I 100% would say, just stick to the plan, pile up some cash along the way, and give your wife everything she needs because burying children is incredibly hard. What a great take and just incredible

Starting point is 00:46:45 questions in this episode. A lot of really deep thought out items for us to break down. So what a great episode. I love it. And just really appreciate how many questions we get submitted to week, so it's so much fun. Everyone, thank you so much for joining us for this week's episode of the Rich Habits podcast. I really, really enjoyed this one, Robert. I felt like we answered a bunch of different questions from a bunch of different, you know, perspectives and walks of life. And I just, I love being able to come back every single week, take the questions in from our audience and, you know, share our perspectives. Yeah, for sure. I am overjoyed with appreciation of feeling abundance in our lives because we get to do this every single week.

Starting point is 00:47:28 We don't have to do it. We get to do it. And just building this audience and building this base of people that we get to voice our opinions and try to help and provide value to every week is one of the most meaningful things I've ever done in my life. And I just really, really love doing it every single week. You're totally right. We get to.

Starting point is 00:47:48 We have been afforded the opportunity by our hundreds of thousands of listeners to come back every week and share our perspectives. and we are super grateful that you guys continue to come back and support the show. If you want more from Robert and I, consider joining the Rich Habits Network. We're running a seven-day free trial right now. This includes eight hours of video coursework, as well as a two-hour weekly live stream. It's like a Zoom call. Robert and I hop in there.

Starting point is 00:48:12 We answer your questions. It's him and I just zooming with you for two hours. It's a lot of fun. People love it. And there's just a ton of stuff that we talk about in those calls. Don't forget to also sign up for the Rich Habits newsletter. That's completely free. and join 52,000 other investors that come back every Thursday to read the newsletter and understand

Starting point is 00:48:29 what's going on in the markets because of it. Thanks, everyone, and have a great rest of your week.

Rich Habits Podcast - Q&A: Pre-IPO Investing, Real Numbers Behind House Hacking, & Tax Refunds

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