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David:
This is the BiggerPockets Podcast Show 615. If you’ve got two different duplexes that are sitting on their own lot, you’ve added value to the property, you’ve actually literally created equity out of nothing, and value out of nothing. You can now refinance them, you can now sell one of them if you want. You won’t increase your cashflow, so to speak, but you will increase the value of the property, and that gives you options. Like I said, you could sell one of them and reinvest into something else, you could refinance one of them to get the money and put into something else. I would be a bigger proponent of this.
What’s going on, my people? This is David Greene, your host of the BiggerPockets Real Estate Podcast, coming to you live. Well, it’s actually recorded but it’s live when I’m saying this. With another Seeing Greene episode of the BiggerPockets Real Estate Podcast. In these Seeing Greene episodes we take your questions directly from the BiggerPockets community, submit them here for everybody to hear and then I do my best job of answering them. The goal of this podcast is to help you see what goes on behind the scenes and get a deeper dive into different questions that people have so that you can learn from the experiences of myself, as well as others, and those that are asking the questions.
In today’s show we get into some really good stuff. We talk about how a Special Use Permit can affect property value, particularly if you want to sell it. We talk about how an agent can get started in a new market and crush it if they don’t know anybody, and we talk about when to subdivide a lot, when to leave it alone and how to approach it if you’re going to subdivide it. We get Into a lot more stuff regarding different markets you can invest in, as well as different strategies, so please listen all the way to the end.
Also, if you’ve been wondering why the Quick Tip sounds different, if you make it to the comment section you will see, in this episode, me addressing that very question. And I want to know, do you guys like the deeper Batman-style Quick Tip voice or do like Brandon man voice, which is a little bit higher pitched.
Moving on to today’s Quick Tip. If you like something you heard me say, if it triggered more questions after you’ve heard me give an answer and you want to dive deeper into it, or if I totally botched an answer and you didn’t get your question answered, consider going to the BiggerPockets website and checking out the forum. At the BiggerPockets Forums there’s tons of questions being asked all day, every single day, and a lot of answers being given. You can search the entire website for different questions on different topics. And if you like something that came up here and you want more, go get it there.
Also, check out our new podcast page. If you go to iggerpockets.com/podcast, you can see a whole library of different podcast that we are offering you at BiggerPockets, and find more stuff to listen to when you’re waiting the next show of Seeing Greene, or the Real Estate Podcast to come out. So, getting more involved in the community, go check out th website, get everything that BiggerPockets has to offer and keep listening to these shows here. All right, let’s get into our first question.

Chris:
Hey, David. My name is Chris Jube, my wife and I run a glamping operation down here in Monument, Colorado. In fact, and one of Rob Abasolo’s students in his glamp camp. So, Rob, if you’re watching this, how you doing, brother? It’s good to see you. We’re doing a great job here in Monument and we’re entering into our fourth year, and getting ready for it. My question has to do with financing, because this year we’re applying for a Special Use Permit, chances are very good that it’s going to go through and it’s going to help legitimize our business and make it even better. But I’m anticipating justifying financing to duplicate this, so either later this summer, this fall or maybe next year, to keep running glamping opperations.
How would a Special Use Permit change the valuation of my property? Because it’s kind of like a little commercial property now< when you think about it, even though it’s a single family residential property and it’s not a large piece of acreage. Now I have a Special Use to put this business on it and the Special Use goes with the and not the person, so I could actually sell it or approach a bank. See where I’m going here? Approach a bank to justify financing for another property and another operation, maybe two or three, or four, something like that. So, that’s my question, how does a Special Use change the value of a property and how would a bank value that? So, your answer much coveted. Thank you for all you do, David, you’re crushing it with BiggerPockets. And same with you, Rob, it’s need to see… Actually, Rob turned me onto BiggerPockets, so thank you for everything you do, and I look forward o your answer.

David:
Hi, Chris. Well, first off, congratulations on your whole enterprise over there as well as your Special Use Permit, and any friend of Rob’s is a friend of mine. All right, let’s talk about will this Special Use Permit increase the value of your enterprise. First thing to consider is you’ve got properties that are improvement, then you’ve got land, then you’ve got a business that uses those land and those properties to generate money, and all of those are going to be evaluated differently. So, if you were to sell the land with that Special Use Permit, theoretically that would make it worth more. If you’re going to sell the properties on that land individually, somehow, with that Special Use Permit. Yes, theoretically that could make them worth more, but that’s mostly because the properties you have, these glamping, I don’t know if they’re tents or if they’re actual structures. If they’re not structures, if it’s just a tent then I wouldn’t actually call that a property and I would take that back. But if it was it wouldn’t be valued based on comparable sales because you’re not selling a typical property that has comparable sales.
Then you’ve got the business that you’re going to be running, and this permit would help that too. Here’s the best advice I can give you for how to look at this. The permit allows you to get an income stream that more legitimized, makes it harder for someone to shut you down, it’s making what you’re doing safer. So, when you go sell this to someone else, the value f that permit is they’re getting safety and a protection of the income stream. The permit itself does not necessarily make everything else worth more, because if you’re going to a bank and you’re saying, “Hey, my property’s worth this much.” All they’re going to look at is how much income is it generating. The bank is concerned with the income that it’s generating because they want to know that you can cover the debt service on any loan that they would give you. So, I hope you see what I’m getting at here.
Having the permit does not automatically make your business worth more money necessarily, but it does give you the ability to increase your revenue and the increased revenue will make your business worth more, both to a bank or to a business, if you’re going to go sell it. So, this is a step in the direction you’re trying to go, but until you get all the way there, which is actually creating more revenue, you’re probably not going to see an actual increase in the valuation of your business, but that doesn’t mean that this isn’t important. There’s many steps along the journey, this is a big one for you, keep going. And when they’re all in place you should have a business that generates more revenue and, therefore, is worth more money.
All right, our next question comes from Peter in Sacramento, my hood. “I’m single, in my 30s and was fortunate enough to have bought a home before the pandemic at three-and-a-half percent down. After only a few months it was obvious the house was more of a fixer upper than I expected, and even without those costs I was house poor with just the mortgage and utility so moved out and turned it into a rental. As of today I have $120,000 in equity. I would like to buy a duplex or a quadplex in the next two to three years. The current property is in a great up and coming neighborhood that would make a nice retirement home for me in 30 years’ time. At the same time, if I were to sell it I could buy a duplex as 100% rental and move in on one ide. Do I hold onto the house ad take the money out of it that way, or do I sell it for the cash and walk away?”
All right, so this is a question of do I keep and refinance or do I sell, or do I do nothing and just save up money and buy more homes? Well, here’s the first thing, Peter, I don’t think looking at this and saying, “Hey, this house is in a great up and coming neighborhood so should I hold it and move into it in 30 years?” There is no way you can know in 30 years if this is the house you’re going to want to live in. There’s a bit of a scarcity mentality gong on there, there’s a lot of houses, you have 30 years to make money, save money, buy real estate moving around, and who knows if you’re even going to want to be in California in 30 years. So, let’s just throw that out completely, it does not matter if this house is where you’re going to live in 30 years.
What matters is, will you have enough money to buy the house you want in 30 years and how can this house help you get to that point? So, that’s where I’m going to give you advice. It’s in an up and coming neighborhood so the question I’d be asking is, “Is it going to continue to grow in value faster than something else that I buy?” If you sell a house in an up and coming neighborhood to buy a home in an established neighborhood that’s not growing in value, you’re losing out on future equity over the years. However, you’re probably going to gain in cashflow if you get a quadplex or a duplex, so you have to weigh out, “Am I going to get more in equity or am I going to get more in cashflow over the long-term?”
If you have $120,000 in equity, here’s what I’d like to see you do. Sell that home, buy another home with another three-and-a-half percent down payment to replace that home that you’re going to house hack. Use the rest of the money that wasn’t in the three-and-a-half percent down payment and buy an investment property. Now what you’ve done is trade in this one house that was a fixer upper for two homes, one an investment property, one a house hack. Keep your own living expenses low by hacking out the house hack and get some cashflow from the investment property. Let those home appreciate, once they’ve gone up in value evaluate if you should do the dame thing or if you should hold on to them.
Focus on growing your equity and growing the amount of money you have n the bank, to on buying a house right now that you might want to live in in 30 years. Having money gives you flexability and then you can make choices in life that make you happier. But hands-off to you for doing a great job on your first property, let me know if there’s anything I can do to help with this.
Peter also says, “In response to a comment you made on the April 10th YouTube clip, I appreciate your direct style so please don’t stop. For those learning about something as expensive and complex as real estate, the truth needs to be told. Thank you.” Well, thank you for that, Peter.

Siri:
Hi, David. My name is Siri, I’m from San Diego. And my question pertains to how to hold ownership of property, short-term rental properties is what I’m into. My business partner and I have just purchased our first one, we’re in the middle of rehabbing it and our intention is, once it’s done and renting we’re going to BRRRR it and buy more. We’ve heard several things, we currently own ours as an LLC and we’ve heard that you should own each property separately in a separate LLC, for liability reasons. So, I was wondering if you know if that’s correct. And also we’ve heard that if each property is owned in a separate corporate structure, or not corporate if it’s an LLC but that you can sell the business to just sell the property when you sell it. True, not true?
Once you get many, many properties, because we have a 10 year plan that has some pretty expansive growth, what is the best structure for holding a short-term rental piece of property, or multiple properties? We were thinking maybe [inaudible 00:11:13] would save us money in bookkeeping if we’re not having every single one in a separate entity, but just wondering because I haven’t been able to find what best practices are in the industry and I though, probably, you would know. So, thanks for your help.

David:
All right, thank you for that, Siri. My question to you, I’ve got to know. You’re surrounded by people that have to be saying, “Hey, Siri,” to have get your attention. How often are iPhones just pinging all over the place everywhere you go that you just hear Siri’s voice responding to everybody saying, “Hey, Siri.” I think that would be hilarious that everywhere you go phones are just going off, you’re the first Siri that I’ve ever met in real life.
Now, as far as your question to me, it’s a good one. So, here’s what I think I hear you saying, “I’m going to be buying a lot of properties, do I need to have an individual legal entity,” think that’s what you meant when you said corporation, I understand, “… for each property or can I put them all into the same one?” Then you also asked if you have a business can you sell the business but keep the property. Let me answer that one first because I think I can do it quickly.
From what I’m understanding of your question, you own a business that would be a legal entity, which is incredibly easy to do. So, first off, everybody out there, when you hear someone say, “I’m a business owner.” That could mean nothing. It’s kind of like saying, “I have a podcast.” It’s pretty easy to make a podcast, you can have three followers and say you have a podcast these days, same as self-authoring a book. Being a business owner doesn’t mean anything, a business entity is just a way that you take title to a business and you run your cashflows through. Well, if you have no cashflow you have no business.
If you’re buying a business and putting a property inside of it, if that property is the only thing generating cashflows you would have to sell the property with the business or else nobody would be buying it. Let’s say that you owned a assisted living facility and you had a property that you ran this through, in that case you could technically keep title to the property but sell the actually labor of the business, sell the business and the income streams that people pay to rent out your place, and you could run your opperations in the house and have whoever bought the business pay rent to your house.
So, there’s some situations like that where the real estate is independent of the business and that might be what you’re thinking about when it comes to this Airbnb situation. So, I guess, technically you could sell the business which would be the right to list the house on Airbnb and manage it, and have someone buy it with an arbitrage model where they just pay you rent to use the house, but I wouldn’t think that would happen very often because most people are going to want to use the 30 year fixed rate loan to buy the house and inherit the business with it. So< I don’t know, for your situation I don’t think it’s good to think about business and how separately they’re going to be too tied together.
As far as how you should keep title to these properties, the reason you would do this is if you had one accident happen in one of your properties and you’re sued. The person suing you would theoretically only be able to get access to the equity of whatever is in that LLC. So, if you have one property in that LLC they’d only get access to the equity that is in that LLC, if they were to win a judgment. The problem is, if you put a new LLC together, or a new legal entity together, every single time you buy a new property you end up with a lot of them and it’s very difficult to manage. So, most people try to find some happy medium. They keep several properties in one LLC.
Now, I want to highlight, my understanding of this from the people that we’ve interviewed on the podcast that do legal protection, is it doesn’t matter how many properties you have there it matters how many equity you have there because that’s what someone is going after. So, having one million dollar property completely paid off has $1 Million of equity, whereas having five million dollar properties that have a loan of 900,000 on them, there’s only $500,000 of equity. So, even though there’s five properties there’s less for somebody to get after.
That’s what I’d be looking at. There’s no problem to keep all your properties in the same legal structure, and then as the equity grows consider moving an individual property into its own legal structure at that time and leaving the other ones in there. Just remember, it’s not how many properties are there it’s how much equity is inside of that individual entity. Thank you very much for asking this question, and please go on YouTube and let me know how often you hear, “Hey, Siri,” and hear phones going off.
All right, thank you everyone for submitting the questions that we have so far. If you would like to submit a question, please go to biggerpockets.com/David, where you can submit your video or your written question there and hopefully we get to answer it on the show. In this segment of the show we go over the comments that other people left on YouTube after watching these videos. Please consider going to YouTube and leaving me a comment yourself, I’d like to know what you think about the show, what you’d like to see different and what you don’t like a all.
All right, our first comment from Rena [inaudible 00:16:02], “David, you and your analogy is like a man in the Biblical times speaking in pericles, lol.” That’s not me saying lol, she said lol. “One of my predictions has been that people are going to start saying lol in real life because we do it in text so often. I love it, I love the content and all BP continue to share.” Well, thank you Rena, that’s very sweet of you to say. I appreciate that.
From Kevin Katao, “Seeing Greene is the best BP show right now. Thank you David.” Well, that’s pretty cool, thank you for that. Next show question, “Many in this community believe that landlords provide an important service by providing housing to others. How do you refute someone who is anti-landlord that states landlords are taking away homes that owner occupants could buy, particularly in single family residents? If landlords buys homes they aren’t taking away opportunity and raising market prices for non-investors looking to live in the dream of home ownership.”
Yeah, there is a pretty big debate going on in that space, so here’s basically how I see it playing out. When home prices go up people say, “Why are so many people buying homes?” And often will all these greedy investors get brought up. And the idea is, because investors pay more than somebody would for a normal home, they’re driving the price high and making homes unaffordable for someone that wants to just live in it. So, the argument would be, if landlords were not allowed to rent out homes, they would not buy them, then there would be less competition and home prices would be lower, and somebody could buy a house to live in themselves.
And to be fair, that’s probably true. If you took investors out of the housing market then it would make homes more affordable in most cases, and easier for someone to buy. But here’s the thing, not everybody actually buys homes. In fact, a lot of the time the reason that landlords are renting them out is they’re renting to people that don’t want to buy or can’t buy. So, I don’t know that there’s as many home owners out there that are really trying to buy and they just can’t, as what people think.
And here’s the flip side, if we did that you have all these tenants that now can’t live in a home, where are they going to go? Well, they’re going to have to go into an apartment, which means we’re going to build more apartments, which means we’re probably going to have more public housing to support all these people that need a place to live. Public housing is usually not the best housing, think about your experience with anything public like the DMV. It’s usually not great.
So, if we did what these people are saying we would just have a different problem. We’d have a bunch of people that are living in apartments that are complaining that it’s not fair to them, because don’t they deserve to have a yard, don’t they deserve to be able to rent a house in an area where they want to put their kids to school, why are they being discriminated against just because they don’t want to own real estate or they don’t want to buy a house. Maybe they have bad credit and so they’re going to claim that it’s not fair that they’re unable to buy a house, and they’re regulated into cheap public housing or project housing that the government has made to house these people.
Even if they go in the private sector they’re still stuck in a small apartment complex, they don’t get a bigger home, it’s harder to have pets, it’s harder to get outside, you don’t have a yard, you can’t have a garden. There’s a lot of things that would suck, then we would just have people complaining about that. So, when it comes to refuting someone like that, the best advice I can give is if you’re going to engage with them, paint a picture for what it would look like if they got their way.
It’s very easy to complain about something and only look at the first step, but if you allow wisdom to run its course and actually think about how things would look if that person won, the end result is often worse than what we have right now. Hope that that helps.
All right, these next couple of comments come from my changing up of the BiggerPockets Quick Tip because I don’t love the super high pitched Brandon Turner Quick Tip that he made me do for years. Coming from Primetime21, “I love the analogies, David, and the Batman Quick Tip.” So, that’s something that I brought to the podcast so I was a little different than Brandon. I use analogies and I like to say, “Quick Tip.” Jimmy, “Fr the Quick Tip new sound, put in a clip of Brandon’s voice. We all love Brandon and it keeps it OG.” Not a bad idea, so there could be times where I’m saying, “Here’s today’s Quick Tip,” or we could have Brandon singing his very high pitched melodic, angelic version of the Quick Tip.
Hammer Radiology, that’s kind of a cool name, says, “Definitely the high pitched Quick Tip, it makes me chuckle too,” which is I think why Brandon did it because he likes to make people laugh. Batman vs Brandon, I’m glad we’re getting into this debate. Do you guys want Batman or do you want Brandon man? Your call.
All right, are these questions and comments resonating with you? Do you enjoy hearing what other people on BiggerPockets are saying? Look, you are a part of a community if you’re listening to this podcast, get more involved in that community. Get in the YouTube and leave comments, say something funny, say something positive, say what you’d like to see more on the show. Ask the question that’s never getting asked on the show, that you wish was, so that we could get into it. As long as you’re keeping it classy, we want to hear more from you.
So, please, if you’re listening to this on iTunes, on Stitcher, on Spotify, on SoundCloud, wherever you listen to the podcast, just check us out on YouTube and go there, leave a comment and let us know what you think of the show.

Oladimeji:
Hello, my name is [inaudible 00:21:11]. I am from Brooklyn, New York, and my question is about ethical wholesaling. Now, in your BRRRR book, David, you seem to place an emphasis on the buy and you tell us that the way to build equity is in the buy itself. Now, correct me if I’m wrong, that kind of comes across as you telling us that we should figure out how to pay less than market value for a property. So that way once the purchase is completed, we have equity built in that property already, before even doing a rehab, et cetera.
Now, in your Ethical Wholesaling episode with Jamil you seemed to place more of an emphasis on paying market value for a property and figuring out how to add value to that property, as opposed to focusing on how to pay less than market value for the property. Hope this isn’t confusing, but those two messages seem to be at odds to me, they seem like they’re conflicting. Please clarify, my apologies for the long-winded voice note. If I haven’t mentioned this already, I am [inaudible 00:22:16] from Brooklyn and looking forward to hearing from you. Thank you.

David:
Hey, Oladimeji, my man, thank you very much for asking this question. It doesn’t bother me at all. I actually appreciate that you’re asking this because it means it’s on the minds of other BiggerPockets community members, and gives me a chance to address it, and there is a really good answer. So, when I wrote the BRRRR book we were in a different market than were in today. At the time I wrote it I was just ripping through BRRRRs because nobody wanted fixer upper homes. Real estate investing was not as hot as it is right now, and so when someone looked at a fixer upper home what they saw was a problem they didn’t want to deal with. And the way that I was solving the problem that no one wanted to deal with was through a rehab.
So, I would give the advice on how I was finding deals, at the time I was looking for properties that had been sitting on the market for a long time, stuff that some other flipper had started to undergo and then ran our of money and couldn’t finish. I was looking for things that wouldn’t qualify for conventional financing because they were in such bad shape, so I could go in there and buy it cash at the discounted rate that I described to you, put money into fixing it up and then when the house was in better shape and would qualify for financing, I would go refinance it.
The strategy was working and I was buying two to three houses a month, at a certain point. It was amazing. Well, I wrote that book and then I also wrote Long Distance Investing, and then BiggerPockets published them, and then everybody in the world was able to see what I and other investors were doing. And what do you think happened? Everybody rushed in and did the same thing. At the same time that was happening the Fed was putting ridiculous amounts of money that was just inflating the economy by a lot, and they were holding interest rates super low so that people that didn’t want to invest in real estate were forced to because they couldn’t keep their money in the bank, and the values of real estate was going up ridiculously fast because interest rates were low. It was a perfect storm that caused everyone to flood into the market.
Well, what happened is those fixer upper properties were now problems other people were also looking to solve, it wasn’t just me and investors like me. And that’s why my advice changed, because the market evolves and so does my advice within it. This is not uncommon for anything else in life. You look at how people played football in the 1930s, it’s a lot different than how they play it right now. The advice that somebody would be giving to somebody in the NBA in the Bob Cousy days is a whole lot different than what they would be giving to someone in the Shaquille O’Neal days, and now in the Steph Curry days.
We have to evolve our strategy, now I totally understand why this would be confusing for you because you’re getting into this space and you’re seeing all of this information that’s being presented at one time. Your not understanding the timeline of how it was evolved. So, I believe when you were referring to the latest advice I gave I was saying, “It’s okay to buy a property at market value if the area is continuing to go up in value.” I’m giving that advice because if it’s market value r nothing, market value is better. Previously, in a different market, if it was market value or less, less was better.
Now, I’m not turning down opportunities to buy deals below market value, I find them occasionally. I just got one in Moraga, California that I got way below market value. Before that I got one in Pleasant Hill, California where it was the same thing. But then there’s other properties that I bought, like with Rob, were only slightly below market value, and other properties that I buy at market value. You don’t always know how it’s going to come in, but what I’m doing, and I can only share how I’m investing, is I switch from saying, “Here’s market value, I want to buy a house below it, to the area being below market value.” I’m looking for undervalued locations. Okay, so where I used to say, “All right, Jacksonville, Florida, the property is worth 150, I’m trying to buy it at 120.”
I’m now saying, “All right, I can’t put a number to it but where are people moving to? Which areas are appreciating in both rents and values and demand, faster than others?” And I want to go buy in the area that I think is undervalued, meaning the properties in that area are likely to have rents that go up faster than properties that are around those. Now, this is a harder way to do business, I totally recognize it because you can’t put this information into an Excel Spreadsheet and let the numbers do the work for you. But that’s where the advice that I’m giving comes from.
If you’re able to buy a property that cashflows 2% in Miami, Florida, it’s probably going to crush it five years later because Miami is going to appreciate a whole lot more that Gary, Indiana. It’s just a different way of approaching it and, to be honest, I don’t love it, I don’t like that this is the way that I have to play the game right now. I wish that I could go back to just fining properties that were under market value and only buying those. Here’s the problem, if I only buy the very best deals in my situation I’m going to lose a lot of money from buying solid deals, just getting base hits and getting on base, and letting the market carry it.
Now, not everybody is in that situation, if you don’t have a lot of reserves, if you don’t have a ton of money, if you got to get it right, you’re going to have to work harder to get that deal under market value like what you’re saying. But if you’ve done well, if you’re in a strong financial position, if you’ve saved money, if things are going well for you, don’t hit home runs every time. You can’t always get a home run, sometimes you just got to get on base and then let somebody else bring you in. For me, that’s the market, I get on base and I’m letting the market bring me in. Thank you very much for asking that question, I appreciate you giving me the opportunity to clarify it. I’m really hoping that put off a lot of light bulbs over the heads in the BiggerPockets community members, as a whole.
Let me know in the comments below, what are market that you guys like, what are your concerns with trying to buy in a market versus buying a property, and are there strategies that you’re seeing that are working that I’m missing on the show, that you’d like to share?
All right next question comes from Britt in Placerville, California, which is also not too far away from me in Northern California. “Hi, David. I have two duplexes on a large lot that can be split into two lots, both units are lined up along the street.” That is helpful information, by the way, because if they’re both lined up on the street horizontally, you can have two addresses. If they’re lined up vertically you’d have a house behind the house on the street, very difficult to build it out. “I believe there’s a lot of potential benefit to splitting up the lot and eventually selling them down the road, if I choose. But is there any benefits of splitting it up a lot sooner rather than later, if so are there any downsides to insurance or taxes?”
Okay, Britt, this is a great question and you’re in my hood. So, side note, anybody who’s in California, please reach out to me, DM me, message me on BiggerPockets, let me know. I want to get you in my database because I do run meetups out here I’d love to invite you to. I’ve got a real estate team in Southern California as well as a team in Northern California, so we are pretty well situated.
Now, your question about splitting up your lot, the first thing is you’re going to have to ask the city if they’re even going to allow you to do this, they may say no. If they say no you’re going to keep checking back every six to 12 months to see if they’ve changed their mind and they’re going to let you do it. As far as having higher insurance and taxes, yes that is true, If you do this you may end up having slightly higher taxes and insurance because you’ve now take two duplexes on lot and turned it into one duplex on two lots, and you just have two of them. So, that’s okay, but my guess would be the overall value is going to be much better than the increase expenses, and here’s why. If you’ve got two different duplexes that are sitting on their own lot, you’ve added value to the property, you’ve actually literally created equity out of nothing and value out of nothing.
You can now refinance them, you can now sell one of them if you want. You won’t increase your cashflow, so to speak, but you will increase the value of the property, and that gives you options. Like I said, you could sell one of them and reinvest into something else. You could refinance one of them to get the money and put it into something else, I would be a bigger proponent of this. Now on the downside, let’s say you don’t do it and say, “Hey, I’m just going to do it later.” You don’t know what changes are going to happen in zoning, you don’t know who’s going to get onto the city council that doesn’t like landlords. If you’re in a favorable position now it could get worse if you wait. So, I don’t think that the increased expenses are going to be worse than the increased value, I think you’re better off to do this sooner rather than later. And if they tell you o, I would keep checking until it’s a yes.
All right, now let’s consider a hypothetical situation here where you have a property on a big lot, and that lot could be divided into two pieces. So, if that was the case you’d have one lot that has the property on it and another lot that you’ve now created that is unimproved or doesn’t have a property on it. I’m going to answer that same question as if someone asked it in that format.
As far as the downsides to insurance or taxes, I don’t believe you’re going to have any insurance on a lot without an improvement, you typically only get insurance if you have an improvement on a lot. I’ve never owned vacant land so, please, if this is wrong don’t everybody jump down my throat, I’m just sharing my understanding of it. There’s no fire insurance if you have a building that can catch on fire.
Taxes could go up, so what you need to ask the city is if you split it into two lots, how are they each going to be valued because you’re probably going to end up paying property taxes that are a little bit higher if you do it earlier, because you may have a lot that’s valued at 300,000 and once you split them into two they’re each valued at $200,000 which is an extra 100,000 you could be taxed on. However, land is typically not valued nearly as much when nothing’s built on it so the taxes are a lot lower than most people would actually realize. I would be looking at doing it sooner rather than later.
You never know when opportunity’s going to come around, this is something I’ve learned a ton. A lot of times we wait until an opportunity comes and we scramble to try to get ready and it passes us up. If you’re ready before opportunity comes, if somebody wants to buy that lot or you meet a builder and you want to build on it, whatever it is that happens you’re ready to go and you don’t miss the opportunity. So, if it was me I would jump on it sooner rather than later.

Ryan:
Hey, David. Ryan here from Pittsburgh, Pennsylvania. I am a real estate agent and investor, I started buying properties last year and I have eight doors in Cleveland, and then I also have a short-term rental in the Smokey Mountains. My question to you, though, is more geared towards the real estate agent side of things. I got my license back in 2019 but I was only part time for the past three years, I went full time this past March because help from the rentals, and everything, I was able to get out of my nine to five.
My question to you as far as the real estate side of things of being an agent is, if you had to move into a new market, for whatever reason, a market where you didn’t know anybody or you didn’t know very many people, what would you focus on to generate leads and basically dominate that market? I just started doing videos because heard obviously that that’s a big part of it, but I wanted to get your insight on it and I have your first book, I have the second one pre-ordered and everything so I’m waiting for that to come out. But just would like to get a gauge from you, and answer from you on what you would do in a new market like that, if you were presented one, and how you would go about it to generate leads and everything, and get noticed in that market.
So, that’s it, that’s my question, and appreciate everything you guys are doing at BiggerPockets. You truly are changing lives, and you’ve changed my family’s trajectory for sure in the past year just alone, with eight doors and the rentals that we’ve gotten. So, I appreciate it and looking forward to hearing your answer. Thank you.

David:
All right, thank you for that, Ryan. And thank you for mentioning the books that I wrote, they’re not as well known in the agent series. So, everyone knows I wrote the BRRR book, people know that I wrote Long Distance Real Estate Investing, but not everybody knows that I wrote books for agents. Sold is the first one and the second one, Skill, is coming out in a couple of weeks, if you go to biggerpockets.com/skill you could pre-order that book.
Personally I think Skill is twice as good as Sold and Sold is doing really well. The premise of Skill is, this is how you become a top producing agent, this is how you be someone who does a lot of business and makes a lot of money that different than just a person who can have a career where they make some money in real estate, which is where people start off and that’s what Sold was written for.
All right, here’s what every realtor needs to know if they really want to do well. Instead of starting where you are and saying, “What’s my first step? All right, I should make videos, I’m told that. What’s my next step, I should cold call. Okay I’m going to do that. What’s my next step, I should go knock on doors. Okay, I’m going to do that.” What happens is you end up taking all of these steps and then seven of them don’t work, you finally get the eighth one that does and then you start over and you take another eight steps and only one of those is going to work. It’s very time intensive and it’s not very conducive to being successful.
What you want to do is go actually to the end and say, “How do I want to look when I’ve done a good job? So, people come to me to have me sell their house or help them buy a house because they trust me that I know a lot about real estate. If you’re listening to this and you have a house to sell, I want you to come out to me and let me know because I’m into real estate, that’s what I’m doing.” And that’s really what we’re all looking for, you guys are listening to BiggerPockets because you trust that the people that are giving you advice are good at what they do. We all want to work with someone that we believe already knows how to do the thing better than us, I hired a mechanic for my car because I believe they know way more about cars than I do and they’ve done it a lot.
When I’m looking for an agent I’m looking for someone that owns the type of real estate that I want to buy. Their advice is much more valuable to me. I’m not looking for someone that answers their phone every single time I call, I’m not looking for someone that is super friendly and makes me feel happy, I’m looking for someone with experience. And if they’re quirky, they’re a little bit weird, I have to work around their schedule, that’s okay because I value experience that much more.
You’ve mentioned something that gives you a huge advantage, you have eight rental properties. You’ve done this, you understand what it’s like to own real estate not just to be a sales person. I always give this example of someone who goes into a car lot. I don’t want a salesman who’s really nice being the person to sell me a car, I want to talk to a mechanic who understands that car or a person that owns that car themselves, who can tell me what it’s like to drive a Ferrari versus a Lamborghini. And I use those luxury car example because to most people buying a home, the purchase is so big and scary it’s the same as I would feel if I had to go buy a Ferrari or a Lamborghini.
I don’t understand, I don’t know what all my expenses are going to be, what if I choose the wrong one, which one’s going to go up in value more, which one’s going to lose value? I have all these questions, it’s a scary thing. That’s what owning a home is like for people that haven’t bought it, and you’re somebody who owns eight exotic cars. You can tell them which cars they should buy, what cars work best for which purpose, and what to expect when they buy that car. This is a huge advantage.
So, if you were to go into a new market where you don’t know anybody, the first thing you should do is set up educational meetings. You should be doing meetups, you should be making videos that specifically talk about home ownership and what people should expect. You should drop what I call hooks, and in my book series I talk about these hooks, they’re little lines that you can mention at a open house or in a meeting, that tells people something they would not have know if you didn’t say it and makes them wonder what else do you know.
So, for instance, many people don’t know that property taxes are different in different parts of the city. There are special assessments that are put in place, there’s things that are called [inaudible 00:37:34] in certain areas, which are extra taxes to pay for schools or fire departments, or land improvements, or whatever it is the city’s doing and they’re making the people who buy a house in that area subsidize those decisions. If you can tell clients that certain areas have cheaper property taxes than others it makes them wonder, “Well, what else do you know? I want that to be my agent.”
And that’s what you should be doing, you should be talking about real estate, the benefits of home ownership, the risk that you can help them navigate and you should be doing this to as many people as you possibly can, and then just work backwards from there until you get to where you are right now. Thank you very much for asking this question, Ryan, and remember you have a huge advantage over other agents, you need to take advantage of that.
“Hello, all, I have a question about NOI. I have seen it the way you get net operating income is your gross income minus expenses. It is taught on BiggerPockets to put away for vacancy, CapX, et cetera. Would all those fall as an expense reducing my NOI when it came to looking at my cap rate to round out the value of a property?” Okay, I see your question here, Daniel, and I think I can also see why you’re confused. This is also coming from Daniel in Northern Arizona.
NOI is a metric that we use most often with multi-family properties, okay. When we talk about BiggerPockets, when I say we I’m referring to our calculators and how we’re telling people to analyze a property, we’re letting them know you’re going to have expenses like vacancy, capital expenditures, maintenance, stuff like that. You’re kind of conflating those two worlds, so different people are going to come up with their income minus their expenses differently. NOI as a bank is going to use it, it’s going to be different than how we’re telling the individual investor who’s buying a house, “This is what you should look for.” So, don’t make the mistake of mixing up multi-family with residential property.
Now, it wasn’t in the notes I read but my understanding is you’re looking to buy a six unit property which is technically a multi-family property, and it’s going to be evaluated like that. Here’s the best way to move forward, talk to the lender who’s going to be funding the deal and ask them the question you’re asking right here, “Hey, when we’re coming up with the NOI that we’re going to use to determine the value of the property, are you going to look at these things and if not what things are going to be included?”
There you have it, another episode of Seeing Greene BiggerPockets. Appreciate you guys hanging out with me, and I really appreciate those who submitted questions, we can’t have the show without questions. So, if you like these shows please go to biggerpockets.com/David and ask your question. It doesn’t matter what it is, it could be about getting a deal, it could be about how to better manage a deal you already have, it could be a philosophical question about real estate or it could be a tactical question about real estate. I want to know all of them because what’s important is that you all figure out a way to buy the right kinds of properties to give you the life that you really want. If you got some time please consider checking out another one of our videos and make sure you follow me on social media, I am DaviGreene24.

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 304, finance Friday edition, where we interview Colton, and talk about making a prioritized set of investment and debt pay down decisions.

Colton:
Here’s a problem noticing overall about your situation, I got student loans here. Some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit 401(k). I’ve got this live in flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around picking up and sending it around, right? I think what I would advise is you make a prioritized list of these opportunities, and then go more all in on your top one or two of them.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and joining me today is my co-host, Scott, not just another pretty face, Trent.

Scott:
Thank you as always for the great looking introduction, Mindy.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments and assets like real estate or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am excited to talk to Colton today. He has a great set of circumstances with a little bit of a monkey wrench. He makes a great income, but he’s got some student loan debt to tackle.

Scott:
Yeah. Colton has a tremendous… He has positive cash flow, but he’s got huge amounts of student loan debt. He’s got a live in flip going on. He’s got a side hustle. His wife’s a veterinarian about to have a baby. There’s all these different convoluted things, and they’re tugging at different financial strategies. Today, we have to kind of unpack that convoluted situation between life, debt, investment options, house hack, live in flip and two different careers and come up with a prioritized set of initiatives and to design a financial plan around that.

Mindy:
Yup. I think he’s got a lot of great opportunities. We just have to focus on which one is the best for him given his different set of circumstances. Colton, I am required to tell you that the contents of this podcast are informational in nature, and are not legal or tax advice and neither Scott nor I nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice for professional advisers, including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate.

Mindy:
Okay, Colton. Colton and his new wife have a great income, but they took out some hefty student loans to help finance their college degrees. Those loans are now in forbearance, and they’re looking for tips for what to do with the extra cash that they have on hand. I said extra cash in air quotes because as we all know, there is no such thing as extra cash. If you have extra cash, go ahead and send it to me. Colton, welcome to the BiggerPockets Money Podcast.

Colton:
Thank you so much. Great to be here, Scott and Mindy.

Mindy:
We’re going to jump right into it because we have lots of things to talk about. Colton, what is your income and where does it go?

Colton:
Yeah, absolutely. Roughly, we bring in around 11,000 to 11,500 depending on the month. That’s a combination of W2 income. Then, I do kind of a little some side hustle on the side doing some flipping of furniture and things like that on Facebook marketplace. That’s very minor in the scheme of things, but it does pay for some bills here and there, it pays for car payment. That’s kind of the main reason I do it is to pay for the truck. Justify that truck payment a little bit. That’s the income side of things. You want me to go into liabilities or expenses?

Scott:
Is that pretax or post tax?

Colton:
That’s net.

Scott:
It’s net?

Colton:
Yup.

Scott:
Okay. That’s cash coming into your bank accounts?

Colton:
Exactly. Yeah.

Scott:
11.6?

Colton:
Yeah. Approximate.

Scott:
$11,600, okay, great. Yeah. Where’s that going? What are your expenses like?

Colton:
Yeah, we just bought a house in January. The mortgage on that is 2,500. Our utility is a little bit south of 200 to 190, cell phone 98, internet’s 45.

Scott:
Where are you living?

Colton:
Reno, Nevada.

Scott:
Reno, Nevada. Okay.

Colton:
Yeah. Internet’s 45, car insurance for combined is 190, food, it varies on the month but we kind of average about 800. I know there’s room for improvement there but we buy organic and we eat pretty healthy, not to mention my wife’s pregnant so that kind of throws a wrench into things.

Scott:
Awesome.

Colton:
There is no choosing as to what we eat. The baby chooses at this point, at least, for the most part. Gas for the vehicles, we average about 180. We both work remotely. That’s why that number seems pretty low, kind of force ourselves to get out of the house sometimes to actually use that gas budget. We have a dog between his pet food and pet insurance, it’s about 175. That seems also kind of high, but my wife has a veterinarian background so that food is very expensive and pet insurance.

Colton:
Most people don’t have, is an expense that we justify. Our miscellaneous category, it’s kind of random things such as gym, gifts for friends and family, and some household expense up at that at about 400 per month and that varies really depends when you need to buy toothpaste or toilet paper, et cetera, things like that.

Colton:
Entertainment category also varies, it’s about 125 per month plus or minus, depending on the month. We have two cars, as I mentioned. We have a truck and an SUV. The combined car payment on that 624 with a little bit skewed towards the truck, because it’s a little nicer, a little newer. That breaks down to 322 and 302 on the SUV. We have an orthodontic payment that we have at 0% interest that we’re debating, killing with some FSA money. Right now it’s 246 a month. I think the term on that is, I think there’s about nine months left on it. We’re debating if we just keep it at 0%. Keep paying it or just knock it out with some FSA funds that need to be used regardless by the end of the year.

Colton:
Then, lastly, we have subscriptions, Spotify, I think Amazon is amortized over 12 months on that as well at $30, not terrible on the subscription side of things. If my math is right, or if Excel’s right, that’s about 5,603. Then, in August, is when student loans may or may not kick back in. That will be an expense of 20 to 40. It would be our minimum payments if it kicks back in in August. That will be added to our total expenses if that forbearance does not get extended.

Scott:
Great. What are your assets and liabilities? We had a lot of tactical items there to go in, so that’d be fun. We’ll come back to that.

Colton:
Yeah. The assets, our cash position, we try to keep it about one and a half to two months right now, just because we have some things that we’re trying to pay down such as the cars. There is a balance transfer card, which I’ll mention on liabilities that we’re going to strategically pay down here over the next six or nine months. Cash position really depends. We just bought the house too, so depends on home improvement matters as well. We just had a fun irrigation project. That’s a little damping on the cash position.

Colton:
Equity in the house is approximately 100. I mean, that’s really just based on the number that I was looking at as its estimate. We could probably list the house for a little more than that right now, but obviously we’re not looking to go anywhere. I just threw that in there. The truck technically has equity in it. Vehicles obviously are not assets in my but I mean, there’s still, if we needed to, if we could sell the vehicles downgrade and get something cheaper. It’s approximate 14,000 value in the truck. I’d put approximate, probably 8 to 10 value on the SUV. There’s only about 4,700 left on that loan.

Colton:
I have a 401(k). It’s sitting at about 6k with my current employer. I have a rollover IRA. It’s just a traditional sitting at 25. A Roth IRA sitting at 5,500. Then, my wife has a 401(k) at approximately 10 plus or minus 7 check that 100% and then she has a Roth IRA as well sitting at about 6.

Scott:
Awesome. What do we pay your net worth at here?

Colton:
Not including student loans or including student loans, Mint technically says net worth is around a hundred, I think it is, but I don’t put my student loans on Mint because I don’t like to see that number pop up. That was assets. I mean, if you’re including the student loans, we’re technically negative. Negative approximate to 200 to mid-200. I actually haven’t done that calculation exactly which is because forbearance has been in place for so long that that we forgot about our student loans. It’s that the payments haven’t been required for this whole time.

Scott:
Got it. Okay. What are your goals? How can we help you here?

Colton:
Yeah. I had mentioned to Mindy, that I’m looking for some live in flip tips, because we just bought a nicer house that was mid renovation when we purchased it. Kind of curious on because Mindy has some experience on obviously live in flips and that’s her arena. That’s one topic I’m curious is we know some home improvement, how to help on the cost side of things when you’re doing that live in flip. How do you stay sane with your spouse, those types of things?

Colton:
Then, we were we just purchased in January, we put down 10%, so we have PMI. I’m curious about strategies that you might think about when we should think about doing an appraisal, because the market conditions, I think we’re pretty close to that 20% mark, which is kind of crazy. It’s only been about four months since purchasing. I think we got to hit maybe 5k more to be at that position where the PMI might be shut off.

Colton:
It’s the traditional loans. It’s not FHA. We’re not stuck with it for the course of the loan, but we’re kind of curious when might we start thinking about that, so you don’t want to pay for an appraisal, just for fun. Then, also a secondary point is thinking about a potential HELOC once there’s some equity in the property to do some of these renovations. Nothing is in dire need, but the kitchen is a little, it’s old as the house. It’s 21 years going on now. There’s some upgrades that could be done there. Kind of twofold on that as when might we start thinking about getting rid of that PMI?

Colton:
Kind of a naive question is, I assume that we’re paying for that appraisal. I don’t know the process behind that. I’m not sure if either of you have experience of shedding PMI. I know that FI community hates PMI. They’re allergic to PMI, but in our situation, we were comfortable taking on the PMI. Our lender was phenomenal. We got a really good rate at the end of 2021, closed early in 2022. Then, obviously, their rates have gone up since.

Colton:
Sitting at a very good interest rate on that mortgage at 2.99, PMI is only about $100 a month. It can improve our cash flow a little bit getting rid of that 100 bucks off of our mortgage. Yeah, I’m just kind of curious strategies on that point. Then, if we have time, I’m curious if you think that downgrading on the truck might be a good idea to get rid of that truck payment. I think my wife’s pretty set on keeping her vehicle. That’s not on the table at all.

Scott:
How about longer term goals? Is there anything like, what do you want to be in a couple of years from a financial standpoint?

Colton:
Yeah, a couple of years from now, my wife and I foresee paying down loans, targeting mine first because there are some strategies where she could pursue the forgiveness side of things. She’s on that pathway right now. We’re not 100% sure if we’re going to stay on that path because 20 years for forgiveness on her pathway. Well, she’s part of the way through already. Basically, you pay the minimums on that income based program, and then you are forgiven after the set timeframe.

Colton:
Mine, I’m just paying traditional. The goal would be to tackle those student loans on my side and then potentially tackle hers and maybe pay them down faster and just avoid the income-based program payments and get it paid off sooner. The way we’re thinking of doing that is through real estate. We just bought this house and I call it a live in flip. It’s a nicer live in flip. It wasn’t that dilapidated when we moved in. I foresee either renting out this property and moving to another house and doing another live in flip or house hacking to some extent if we can get a duplex or triplex, quadplex.

Colton:
As I mentioned earlier, our family situation has recently changed. We’re due in August. We’ll see if the baby dictates no house hacking or duplex will be fine. I mean, but house hacking, sharing bedrooms is probably not in the picture. We’re in a different stage in our life. I think 5 to 10 years ago, I probably, I could have house hacked a lot more. I could have done what was it a credit card [inaudible 00:15:24] that lives in his living room and rented out every single square foot of his house. It was possible. We’re a little beyond that phase, I think just because of family planning, and just where we’re at in our career and those types of things.

Colton:
Eventually, I think ramping up the real estate side of things and probably with property management, would be my thought. I don’t know if I really want to be on the ground doing all that irrigation, and toilets and all those types of things but we’ll see. We’ll see where things go.

Scott:
Great. Well, that’s super helpful. Thank you for sharing all that. Let me just make a couple of high level observations about your position here. We’ve got the, what? $300,000 plus in student loan debt, is that right?

Colton:
Yup.

Scott:
You’re accumulating cash at a great clip, you’re accumulating 5000, $5,500 per month after tax, right? That’s hitting your bank account right now on average.

Mindy:
Is it?

Colton:
Yeah.

Mindy:
Okay.

Scott:
That’s $60,000 per year, was that $65,000 per year. You’ve got five years. If you want to pay off your student loan debt, you could just do that for five years, and you paid it off, plus whatever the live in flip equity comes in if you’re able to generate equity on that.

Colton:
That’s what the caveat, that’s without student loans. We’ll see what happens with student loans. I don’t know if it will be a five-year timeline necessarily because we have student loans that takes our cash position down 20 to 40 each month.

Scott:
Well, that’s perfect. We need to face this problem head on, right? The bogey in your financial position is the student loans. You don’t include it in your Mint because you probably don’t like looking at it too much and there’s the forbearance and all that, but let’s approach it head on. That’s coming back in August. Maybe it’ll get postponed again, but that’s the elephant in the room for your financial position.

Scott:
I’ll tell you that it’s a lot but what you just told me from a savings rate perspective, it’s not that much. You’re saying, “Hey, yeah, I’ll have the baby in August.” There’ll be additional expenses that come with that. You’ll have to pay interest on the student loan debts whenever they come out of forbearance, but you’ll also get a raise, at some point in the next couple of years. Your wife will make more income at some point in the next couple of years, if she chooses to continue to pursue that or do this, it depends on the student loan forgiveness programs.

Scott:
Sometimes they don’t have quite as much income generation potential on those but you’ll have plenty of options to generate more income, in addition to some additional expenses. I’d say puts and takes on that. I’d still give you five years, maybe less if you get lucky with a couple of things with a live in flip audit. Is that a grind? Yes. But is it insurmountable? No.

Scott:
The other option you have there to eliminate these student loan debts is to invest instead of paying them down. If that’s the case, then you said you’re going to pay 2,200, 2,250 per month on those student loan debts as required payments, essentially, when they resume in August, is that right?

Colton:
Yes.

Scott:
At that point, you’re going to generate $35,000 per year after tax in cash. That’s called 36, 37,000 per year, and after tax cash, again, with the opportunity to potentially expand that to some degree, and again, with the opportunity to have live in flip income. There’s another case there where you invest that and then pay off the student loans in lumps over the next 3 to 5 to 7 years, or 10 years depending on how you want to manage it and that will come with perhaps less linear gratification of paying off one loan then the next, and the next, and the next but maybe more wealth at the end of that 7 to 10-year time period. Have you kind of thought about it with that lens before?

Colton:
Yeah, and we’ve, we even have friends who… Being in the veterinary industry, she’s in one of the industries where you take on a lot larger of loans than the income potential justifies, I mean, there’s a debate on that. It’s a passion industry. A lot of people do it for the passion not for the money. The loans I mean, it’s crazy that there’s similar to being a doctor in human medicine. We’ve talked to people who have kind of done that grind, especially during COVID where they were looking at it as 0% interest, and we’re paying it down that whole time.

Colton:
Retrospectively, do we wish we would have done that? Probably. Were we in a position to do that? Probably not. We kind of checked all the boxes at once. We got married. We bought a house, and now we’re having a kid. We were kind of progressing through our relationship, family planning, all of that. I think, looking forward, we have thought about, we need to kind of do that grand, like you said, and potentially look at some of the buckets that we have, and see if we can pull back on some of them or see if we can increase our cash flow to some extent too because then that would accelerate that process even more, but even at our current position, I agree, we can just grind it in and get it done probably five, six-year mark, maybe faster, if our careers accelerate faster than we anticipated.

Scott:
Remember, all these different things will happen over that same time period, right? You have two cars, both of which are financed, right?

Colton:
Yup.

Scott:
How long is the loan term on those cars? When do you pay off the first one or the second one?

Colton:
The SUV is shorter term. It’s only got 4,700 left on it. I think that would be paid off, if we just kept paying by middle of next year, I think is approximately where we would be at. The truck was a 60-month and I just took it out last February. We’re still looking at four years and change on that. That’s another potential strategy is kill those car payments. Either paying them down or selling and downgrading to something a little, get a beater truck or get a beater.

Colton:
Ironically, I own the Corolla that was paid off before I bought this truck, so that I put down on my notes to Mindy. I was the five friendly Corolla paid off. Then, I decided I wanted to buy a truck because we camp and we hike and we kayak and you know, we cycle and all those types of things. The recreational piece living in Northern Nevada, we wanted a vehicle that was easy to do all of those things.

Colton:
Ironically, in 2021, we didn’t get to do a lot of that because of the crazy fires from California, Oregon, everybody was on fire and our air quality was probably, I think, it was the worst in the world. At the time. There was a lot of news articles about-

Scott:
We had a similar thing here. Probably it wasn’t quite as bad but yeah, we went on a trip to Fort Collins around that time, and it was raining ash from the sky, from one of the-

Mindy:
[inaudible 00:22:55] Fort Collins and it was raining ash in my pool. Yeah. Okay, I’ve got a couple of things. First of all, let’s go back to the student loan thing, because you had mentioned a forgiveness plan that is 20 years long. Are you any sort of timeline into this or have you not yet started the 20-year forgiveness plan yet?

Colton:
Yeah. It would apply to her loans only. All of her payments would qualify and also the forgiveness or forbearance months also supposedly qualify. There’s been some news articles about some servicers not properly applying them and things like that. I think that that’s probably been straightened out recently, but yeah, every payment she’s made since getting out of school has been towards that. I think she’s in the four or five-year mark on that, but really, the calculation is can we pay it down faster than waiting that additional 15, 16 years? Yeah, absolutely.

Mindy:
Yes. You can.

Colton:
Yeah.

Scott:
How much of the loans are hers?

Colton:
Approximately two thirds.

Scott:
Two thirds. Okay. It’s like 100k, 115?

Colton:
Two thirds of 300? No.

Scott:
Okay.

Colton:
She’s in the 200 range. Yeah.

Mindy:
Two hundred.

Scott:
Two hundred.

Mindy:
Yeah.

Colton:
It sounds like [inaudible 00:24:11].

Scott:
Wow, four seats. I’m not supposed to be doing this.

Colton:
No, yeah. She’s in the 200 range. I’m just north of 100.

Mindy:
Okay, what is not, I don’t think what is not really promoted in this forgiveness plan is that you will owe taxes on the amount forgiven and $200,000, taxes on that is going to be a fair penny. That’s not over the course of 20 years. That’s all in one year. I am with Scott, since you are five years into it, if you were 19 years into it, I would have way different advice, but you’re five years into it and you would have already been paying those loans anyway.

Mindy:
I would go with Scott’s advice to try and tackle, I mean, first tackle your loans and see where you are. Continue to pay on hers, when the forbearance is over, start back up with the payments, but tackle yours first because you don’t have any benefits to keeping yours for a super long time. Pay all of yours off, and then look at your financial position. Okay, now we’re seven years into her loans. It looks like we could just knock them out in a couple of years. Do that because 20 years, that’s you having to work for 20 years and pay for 20 years, whereas you could be done with it and on your way to financial independence.

Scott:
I would say, I’m not necessarily at camp, grind and pay them off. I’m definitely in camp grind but it’s camp grind, and then pay it off or grind and invest in alternative assets and ignore the student loans or make the minimums on them. Those are the two options that I see here. As a huge bet, one direction or the other about what’s going to happen over the next 5, 10, 15 years from an economic personal standpoint, to make that decision. There’s no right answer there. I think there’s something we can discuss at this point.

Scott:
I do think that it would be wise if the interest rates are close to pay off your student loan debts first, if you’re going to pay off the debt, and then attack hers, but if you find, “Hey, it took us a year and a half to pay off my student loans of 100,000 and I come back into and now a year and a half later, I got this promotion at work. My income’s at this level. Inflation has been really nice,” but inflation is your friend in this particular scenario because higher inflation means that the debt value is lower than a few years than in real terms than it is today and you’ll hopefully be earning more with that.

Scott:
Those are all positions to think through in terms of paying off, but I don’t see any reason why you guys would have to, in this situation, wait 20 years to get forgiveness on this. In 20 years, you can build a position that’s worth millions of dollars, literally, with compounding and investing. Why would you sacrifice that or box it off into a corner for 200 grand, 1/10 of the amount that I think you could reasonably accumulate with your income over a 20-year period.

Colton:
Absolutely. I agree on that. It’s just kind of an interesting calculation because if you were to go on a standard plan, that minimum would jump up surprisingly. It’s kind of a weird strategy to stay on the income based until mine is paid off. That’s what we’ve determined is the best way to do this. From a tax standpoint, it also throws a wrinkle into it because I don’t think she would qualify on the income base if we were married filed jointly. This year, it was our first test on that is we had to file, married filed separately in order for her to keep that income-based plan, which kind of threw a wrench. We’ll see what 2022 taxes look like.

Scott:
You should think through that once you have your regular strategy because those loans are still accruing interest, right? The pile is getting bigger and bigger. If you do decide to pay it off, that might be biting you because you’re paying more in joint taxes together. If you do decide to pay it off, you’re just going to be piling interest onto the pile. You’re going to pay off in the next couple of years anyways.

Colton:
Yeah, good point. That’s an analysis that we have yet to do, but it’s a point that we were looking towards because of the tax deadline that just passed. We did it married filed separately just for this year, just to kind of keep it a little less complicated. I don’t think we’re going to change it in the short term. I think that that loan minimum would bump up to, because my minimum is 1,590, which is almost a mortgage payment in itself.

Colton:
Obviously, our mortgage is more than that, but I just listened to one episode where the woman in Southern California had a $1,600 mortgage and I’m just like, that’s my student loan payment. I was over there cringing. I’m like, I wish I lived in, I think it was San Diego or wherever she lived in Southern California. She said she has $1,600 mortgage payment. I’m like, yeah, I would take that, but yeah, I mean, I think that the analysis there is there’s going to be restricting our cash flow significantly if we were both on standard payments.

Colton:
I mean, we probably still would have made like, it could be backing into that math by 2,000 or 1,500 leftover if we bump up those student loan payments to standard plan on both, but yeah, I mean, we will do that analysis. There’s definitely an analysis to be had thereof.

Scott:
That’s going to be the right choice. If you decide I’m going to spend five years and pay these things down aggressively, then you combine the income, you get the taxes advantages and aggressively pay them down. If, for example, you go the other avenue and say, I’m going to buy a bunch of real estate and stocks and invest, or I’m going to invest, and try to arbitrage the spread between my interest rate and what I can get from a return perspective, then what you’re doing may make sense because you’ll preserve more cash flow to invest in those types of assets.

Colton:
Yeah, that’s what gives me pause is the opportunity cost to work with that cash be deployed in investments, I think. Could we generate significantly more money by doing investments rather than paying them down on those standard plans? There’s definitely an analysis that happens, maybe is to happen there.

Scott:
Which of you has more time to invest outside of your work activities?

Colton:
We’re pretty even as far as spare time.

Scott:
Okay. Are you both kind of jointly interested in the real estate space?

Colton:
I would say I’m more interested than her. I’m sitting here, listening to BiggerPockets two to three times a week. She’s a FI, all these types of FI, podcasts, things like that. I tell her about it and she kind of just, “Yeah, yeah, yeah. We’ll get there. We’ll get there.”

Colton:
I’m definitely the one that’s the more frugal one, the one that’s saying we should do this. We should have a game plan for this. I think I would be the one sort of starting those conversations, but we did pretty well. I mean, we do our money dates about once a week trying to stay on the same page. That’s something that definitely picked up from you guys. It’s an awesome tip of staying on the relationship page as far as finances go.

Colton:
These conversations have come up on student loans. How do we, do we invest and just ignore them, so to speak, and keep these minimums or do we both go to standard plan? There’s definitely an analysis that needs to happen there, but I don’t know what the right answer is. You just kind of got to pick a path and go with it.

Scott:
Yeah. That’s going to be the big thing is you have to make a large decision with imperfect information. The sooner you make the decision, the better off you’re going to be, either way, right? It’s like, I’m going to either pay down these things aggressively, or I’m going to invest and go all out in that, because you’re going to generate $60,000 in cash this year. It’s a question of whether it goes to student loan payments, or whether it goes to real estate. You’re going to generate at least 35, 40,000 in cash this next year. Where are you going to put it?

Scott:
The question is, if I’m going to sustain real estate as a 10-year plan for my wealth building approach, then maybe that makes sense. If I feel like I’m going to be very casual participant and kind of in and out of that while I’ve got all these other demands on my time, then maybe the student loan payments make a lot more sense. That’s super simple. You just pile on the money into the student loans, and you passively invest in index funds, once you get them paid off and have a little party and then and then go on.

Scott:
Either way, in 15 years, when your student loans would have been forgiven, you will have a much larger pile of money, in my opinion, doing it this way and 10 years of your life with optionality, for your wife at least, that you wouldn’t have had otherwise, or 15 years that you wouldn’t have otherwise.

Colton:
Yeah, it’s kind of funny. The conversation shifted on that forgiveness, because it seemed like that was what she was gung ho about when I first met her. She met with a financial planner. She knew about the tax penalty. She was kind of setting some money aside planning for that. I kind of was scratching my head, like, “Does that really make sense?” You could tackle that a lot faster than 20 years. Even if you had a 10-year timeline on it, you could pay it down faster.

Colton:
Yeah, I think the conversation shifted towards, yeah, we’re going to kill both sides of the student loans, mine and hers. It’s just picking that strategy that we want to go with. There’s a little bit more analysis that I think we need to do there. Then, we need to just pull the trigger and do it.

Scott:
Yup.

Mindy:
Something that we haven’t talked about is the fact that there are 7% interest and their federal student loans. When we spoke with Robert Farrington from The College Investor back on Episode 267, he said for everybody who has already refinanced out of their federal student loans, the forbearance doesn’t apply, but if you have not financed out, now’s not the time to finance out because you have a 0% interest rate, and it’s in forbearance, so you don’t have to make any payments.

Mindy:
Once it comes out of forbearance, and it is currently at the end of August as we record this today on April 26th, but who knows, maybe every time I record an episode about student loans, that next day, the government’s like, “Hey, we’re going to extend it.” It’s probably going to be extended. There you go, Colton. That’s my gift to you and I’ve extended your student loans by talking about them.

Mindy:
Once they come out of forbearance, 7% seems like a high interest rate. I would look at what you could refinance out. I think SoFi refinancing student loans, well, I know SoFi. I don’t know who else refinances student loans. This is one area of the world where Scott and I are actually rather uneducated is because we didn’t have student loans, but Robert Farrington from The College Investor, and Travis Hornsby from Student Loan Planner, both have a lot of information on their websites about student loans and where you can refinance and repayments and things like that.

Mindy:
The forgiveness plans, et cetera, they can help you make a more informed decision about your choices, but I think once you do come out of forbearance, look into refinancing and interest rates are going up, maybe that’s going to be a really great rate. It certainly has helped you over the last two years to have a 0% interest rate.

Scott:
I like the real estate and the house hacking for this as well, right? You add value to your house via the live in flip in a really calculated way and then you cash out refinance or you have the option to cash out refinance, if and when interest rates are, interest resumes, forbearance ends on these student loans.

Scott:
Now, you’re swapping that 7% rate for three and a half or four or maybe 5%, depending on where rates go this year and your home equity on a 30-year amortization period, which may be more advantageous than your payments for your, well, for owner occupant, I think the rates will be, I can imagine the rates jumping past 6%, Mindy, on owner occupant loans this year. I mean, payments last words, but we’ll see.

Mindy:
I don’t know that they’re not there now.

Scott:
For owner occupants?

Colton:
Yeah, they’re close to five and a half right now. I wouldn’t be surprised if they’re at six.

Scott:
I’m going on an investment property at 5.8 right now, but I didn’t realize that was the case for owner occupants as well.

Mindy:
When did you lock it in?

Scott:
Four weeks ago?

Mindy:
Yeah, it’s oh, there’s been a lot of change in the last four weeks. It’s unreal how fast rates have moved, but yeah, I think that’s a good point. Hey, if you’re looking at rates, get quotes early, get quotes often because they’re changing rapidly. That 2.9% interest rate that you have on your house, I would not pay an extra dime towards that because that is, I’m assuming that’s a fixed rate.

Colton:
Yeah.

Mindy:
Yeah.

Colton:
[inaudible 00:37:41].

Mindy:
[inaudible 00:37:41] on that. Your truck is at 1.9%. I wouldn’t pay extra on that. Your SUV is at 3.5%? In my opinion, with 4,700 leftover and you’re generating 5,400 extra in cash, knock it out now, pay it off, and then take that payment and put it towards something else. I mean, it’s six of one half a dozen of the other, but you don’t have to think about that anymore. You casually mentioned that maybe you could get rid of your truck. I don’t see your truck as being a huge burden to you financially.

Scott:
Yeah. I agree.

Mindy:
However, if you want to free up $14,000 or $28,000, take that truck and sell it. Get a tow hitch on the back of the SUV and buy a trailer off of Craigslist. I just quickly looked in your area. There’s one for $1,500. Sell the truck. Get whatever kind of car you want. You have a tow hitch on the SUV.

Mindy:
Now, you can pull the trailer around and still pick up your Craigslist items, still take your kayaks. You’re not going kayaking anytime soon with the baby on the way or biking. Maybe you don’t even need the trailer right away. You probably do if you’re going to do more of that Craigslisting stuff but I think that that would be a personal decision. I don’t think that’s the difference between success and failure financially for you.

Scott:
I agree. You got a really strong income, 11,000 after tax, that’s probably like 175 a year in combined income, and somewhere in that ballpark for pretax, is that about right?

Colton:
Yeah, it’s a little it’s a little more than that, because we have health insurance 401(k) backs out of that. Our employers don’t cover 100% of the health insurance. It’s a little bit more than that, but yeah, it’s a strong position. And I don’t see that as a breaking point. It’s just, it’s an easy target in my mind like that 14k equity in the track could be applied towards other things and then or you can put it in a brokerage account, put it in VTSAX and let it ride, right? There are strategies there.

Scott:
I think you’re in great shape from an overall strength. Ten years looking back, if you look back from 10 years from now, you’re going to be able to accumulate a large amount of wealth If you stick with one of these variations of the plan and crush it and continue to generate that cash flow and put it towards your financial future instead of buying things with that, but you can afford to have a few luxuries along that journey, and still crush your financial goals, because of the income and expense gap you have.

Scott:
This truck may be one of them that’s super reasonable in your position, if that’s something that you’re going to use and enjoy. If you’re not, then I think Mindy’s suggestion is great, and do something else, but you can definitely, both of you have a $500 a month expense, guilt-free, I think in this particular situation. That’ll delay you somewhat, but it won’t change the game for you in a huge way. You’ve got a huge surplus, you can take 10% of that surplus and, and enjoy life a little bit here.

Colton:
Yeah, absolutely. We try not to live this super frugal life, but we try to be frugal where it makes sense. When I was looking at trucks, I went to Toyota and like Chevy and test drove the brand new shiny one for $45,000 and I didn’t see a difference between that one and then the used one that I bought on Facebook. The guy on Facebook was a firefighter. He had 60,000 miles on the truck and it’s like a brand new truck to me. I paid half the price for that truck. That was kind of a frugal win in itself that I was like, “Oh cool. I found this truck that was four years old, not a brand new off the lot but brand new to me.”

Colton:
It just kind of hurts on the car payment because I just haven’t had a car payment in so long. Going from that Corolla, which was very, very frugal, very gas friendly, very, everything about it was cheap. The registration was cheap. Insurance was cheap. Then, everything about the truck is polar opposite. It’s not, crazy guzzler but it definitely is a luxury. That’s just why. It’s low hanging fruit is all.

Mindy:
It is and if it weighs heavily on your mind, then sell it. But I don’t see it as a big problem.

Scott:
I agree.

Mindy:
A moment ago, Scott said that he is on team grind. I am going on record as being opposed to team grind. A lot of people know that my husband has a blog, and he wrote an article called, My Death March to Financial Independence. It was kind of, he published it in 2017 and it was kind of a recap of all the things that we did. We didn’t enjoy ourselves. We pushed and pushed and pushed and pushed and it was a big grind and he was working full time and flipping a house full time. I was momming full time and it was just this like, we never took a break ever.

Mindy:
You have a similar income to what our income was when he was working. It wasn’t any fun. I want to send you that article. I’m going to link to it in the show notes because I think it’s really important to read and remind yourself that life is still meant to be enjoyed.

Mindy:
I’m saying this right here like I live it now. I’m still learning this lesson, but if I can take my years of knowledge and pass them on to you at your age to enjoy your life instead of just push, push, push, if you get to financial independence three years later, but you enjoyed the whole journey. That’s better.

Colton:
Yeah. I agree.

Scott:
Yeah, I would completely agree with that, with the caveat that you need to set up a lane that you’re comfortable swimming in for a number of years, knowing that if you do what you’re currently doing right now, and the student loan debts, for example, remain, with that you’re going to generate $60,000 in cash per year, ideally a little bit more than that with puts and takes over the next couple of years, baby coming in, but also hopefully raises promotions, income increases at work with that. That’s the journey, right?

Scott:
If you want to delay that to six years or seven years to have more of the comforts during that journey, that would be totally fine, but set up the grind and you can use a different word if you want, the journey and the parameters, and you just need to cruise with that over a period of time either investing or paying down the debt.

Scott:
That’s the reality of your situation. It’s not a bad situation. You’re going to be able to accumulate a lot of wealth if you stick with that, but you can’t escape the fact that there’s going to be time that needs to pass while you generate this surplus and put it towards the debt and/or investments here.

Mindy:
Yes. Agree.

Colton:
Yeah.

Scott:
That’s what I call the grind. My grind was brutal all out for three, four or five years to get to the end state. I think I enjoyed my life but I definitely said no to lots of trips and other types of things with that. For me, I didn’t mind that so much, but I definitely wouldn’t go to a place that makes you and your family miserable.

Mindy:
I don’t think we knew that we were miserable in the moment, but reflecting back, we’re like, “Wow, that really kind of sucked.” Yeah, just read the article and you’ll get a sense. I mean, I just reread it and it’s like, “Oh, there’s a lot of despair in here.” You had asked about a reappraisal to get rid of PMI? I am going to send you to your lender or whoever is currently holding your mortgage, it would really, really stink to pay like $700 for an appraisal, only to come back $5,000 short, and you can’t get rid of the PMI?

Colton:
Yeah.

Scott:
That would not be the end of the world because if you think you’re close, you can gamble and do that and then just pay $5,000 more towards your mortgage to get out the PMI, right?

Colton:
Good point.

Scott:
That will get you to your equity level with that.

Mindy:
Okay. That’s a good point.

Scott:
That wouldn’t be efficient, because you’re not really avoiding the interest payments, you’re just speeding them up by a handful of months or whatever. It’s not a great investment but if you think you’re close enough that you’re in the bubble, you want to take the gamble, that’s how you would get around that problem.

Colton:
Even that’s not a breaking point like that $100 cash flows’ not going to change our position very much. Maybe we just wait and when we know, for certain/ that it’s crossed that benchmark, we just do it. Yeah, unlocking that $100 cash flow, pretty minor point but if we kill the ortho pay, that we kill the car payments, we kill that, we take that down 100 bucks, there’s some extra accumulation there that can be had.

Mindy:
Yeah.

Scott:
That’s what I’m talking about where you grind, if you don’t like the term, accelerates, right? You just knock out 100 bucks here, the car payment here, the orthodontist bill here, one of the student loan debt there, right? Then, that all just continues to snowball your cash generation.

Mindy:
I’m glad you brought up the ortho. With the FSA, that is a use it or lose it plan. I believe 250 or $500 rolls over to the next year depending on your plan documents, and definitely read those ahead of time, but I would plan to use that in the last month of the year that you can since it is a 0% interest loan. Just in case something else that’s FSA eligible doesn’t come up.

Scott:
You’re going to have a baby.

Mindy:
Well, but I think they-

Colton:
Yeah, I don’t think we’re going to have any issue spending that money to be honest.

Mindy:
Yeah, well but FS, do you have an HSA plan or a regular plan?

Scott:
He can have both.

Mindy:
Okay. You can but FSA is only for teeth and eyes. You can, but FSA is for teeth and eyes only if you have an HSA plan and it’s for anything.

Colton:
Yeah, it’s a different type of FSA.

Mindy:
Yeah.

Scott:
I did not know that.

Colton:
We actually have an HSA from a prior employer. I just don’t know what the balance is, now that you say that. She has an HSA with, I don’t know, probably 2 or 3,000 bucks in it. That’s why I forgot about it, because it was just sitting there. We might, well, I’m just going to let that one ride, though. That’s an investment account as far as I’m concerned. I’m not going to use it.

Mindy:
I would definitely look into that as being an investment account. I’m not sure how that works with regards to current expenses. I thought you could only use the HSA account for expenses incurred when you had the high deductible plan.

Colton:
Good point. That might be a research point to look into.

Mindy:
Yeah, research opportunity and we’re going to ask that in the Facebook group, HSA expenses question. I’ll just make a note so I put it up there, but yeah, definitely make plans to spend all of that on that just because why pay for that with post tax dollars if you don’t have to. Yeah, going into next year, the baby’s due in August, you’ll probably be able to spend all of that FSA money.

Mindy:
Next year, you’ll have a lot of doctor’s visits just because babies go to the doctor all the time for well checkups and things like that. Look into your FSA for that as well. Now, if you both, do you both have separate insurance plans?

Colton:
Yeah. I might get on hers when it goes up for open enrollment because hers is way better than mine. Her plan says that to have a baby, it’s like 300 bucks. That’s unheard of. It’s this crazy grandfathered in plan that is awesome.

Mindy:
That is fantastic.

Colton:
We’re separately paying through our employers right now because we weren’t married until late last year, but yeah. There’ll be some changes in that arena moving forward, but nothing that it’s going to be too drastic.

Mindy:
Okay.

Scott:
Great.

Mindy:
Then, you wanted to talk about live in flips. I’ve saved the best for last.

Colton:
Yeah.

Mindy:
How do you save on costs? DIY. How do you have time for DIY with the baby? I can’t even remember those days anymore. I had no sleep. I have no recollection of how we did this DIY, but we basically did everything DIY. We popped the top and we hired somebody to add on and then we finished all the interior work. I don’t do roofs. I don’t do cement flat work. I don’t do gutters. You can hire these out way cheaper than you can do it yourself, but Home Depot and Lowe’s teach classes on how to do things and the University of YouTube is an excellent place to learn.

Mindy:
Like you said, you have a basically cosmetic flip. All of these things that, all these jobs you’re going to do, are going to be fairly easy to DIY. Definitely check with your city’s building code to make sure that you can do them yourself. Some cities require that you hire everything out or hire out things like electrical and plumbing. Some cities will allow you, the homeowner, to do the work yourself so long as you live there for X number of time afterwards. My city says I have to live here for a year after I do all the work myself.

Mindy:
We just DIY-ed solar panels. I mean, you can DIY anything you want here in the lovely City of Longmont, Colorado. You just have to live there afterwards. That’s the number one tip for saving on costs. If you don’t have time, or don’t have the knowledge to do it, and you don’t, I mean, learning how to do electric is going to be a tough job. I should say that my father in law was an electrician for 40 years. We had kind of an in. We’ve learned with real help. Electric and plumbing is kind of the same thing. It’s not the same thing, but it’s like they’re easy to do if you know what you’re doing.

Mindy:
Step number one is turned off the source. Turn off the electric, turn off the water, and then it’s not so hard. If you make a mistake, you know real quick that you made the mistake, but I can understand why people would be very leery to do these themselves. If you’re going to do a plumbing job, all the plumbing all at once have the guy come in and the person, I’m sorry, the provider, I don’t want to be sexist, have the provider come in and do all the work at once.

Mindy:
Have all the faucets you’re going to have changed out, all of the work that you need to be done all at once so they’re not coming out multiple times, and you’re incurring multiple charges just to come visit the site. Think about what you really, really, really want to have done. You can paint yourself. You can install flooring yourself. I’m such a proponent of DIY.

Colton:
Yeah. We’ve already passed that route.

Mindy:
I’m such a proponent of DIY, because it’s so easy to do and renting a tool versus buying a tool. I mean, I have every tool just because I’ve used it at least once and it doesn’t all have to be done right now. I mean, you’ve got a baby coming. You’ve just moved in. You’ve got two years in order to hit the capital gains exclusion. Make a plan for how you want to tackle it and then just get to it when you get to it.

Scott:
I also think, in addition to all of Mindy’s great tips, here’s a problem I’m noticing overall about your situation, I got student loans here, some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit in 401(k)’s. I’ve got this live in flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around, picking up and sending around. I think what I would advise is you make a prioritized list of these opportunities, and then go more all in on your top one or two of them.

Scott:
For example, here’s an incongruency in your situation, I’m trying to pay off my student loans, but I’m also trying to flip my house at the same time, right? One strategy is conducive to having a very small cash position, finding all the dollars in your budget, knocking out expenses and keeping that grind consistent and paying off all the surplus into your student loan debt.

Scott:
The other situation calls for a very large cash position so you’re able to make these calls and say, “I’m going to do this project myself and I’m going to buy all the materials and spend these couple of weekends doing it and it’s going to cost me three grand.” This one, I need to do call the plumber and do all of the plumbing all at once and it’s going to cost me 15 grand. It’s going to be much cheaper to do it all at once but 15 grand, right?

Scott:
That’s going to be your challenge here in the next couple of months is you need to pick a framework, prioritize these things and stick with them. There’s no wrong answer or there’s no right answer to it, except to attempt to dabble in all of these different avenues a little bit. You’d be much better off, in my opinion, kind of pick one and go on with that. Mindy, I imagine, all that said, Mindy, did you have a large cash position or make that a component of your situation when you were doing some of these live in flips?

Mindy:
We had a large cash position and the ability to find more cash if we needed to. We also could have benefited from that advice, Scott. Where were you 15 years ago? Because we don’t even do that now. We’re like, “We’ll do it all. We can do everything and we’re going to prioritize. Everything’s number one.”

Mindy:
Then that’s how you get to the position where, on your days off, you’re laying flooring in your daughter’s bedroom, until 8:00 at night while she’s like, “I’m tired. I want to go to bed.” You’re like, “No. I just have three more pieces to put in.” It just kind of exacerbates itself over and over.

Mindy:
I like Scott’s advice even better than mine. Make a list of the things that you want to do, make a list of the extracurricular you want to do. Make a list of all the things you want to do on your house and prioritize one or two at a time because yeah, that baby’s going to come in. You made a comment, “Well, the baby might dictate,” the baby will dictate.

Colton:
Absolutely.

Mindy:
The baby will say, “I demand all the things.”

Colton:
Yeah, Scott, you hit that point. I hit that nail on the head. My wife is going to listen to this and be like, “Yeah, that’s exactly who you are.” Pinball brain, back and forth. We’re going to do this. We’re going to do this. We’re going to do this. I think the student loans we kind of ignore right now just because they’re in forbearance. That’s not something we’re like, super focused on.

Colton:
I think the house is really the focus right now. The flip activity really doesn’t take a lot of my time. It’s actually on an auction site. I don’t like to run around town all day. I buy things on this auction site, put them in my garage, put them together, like maybe an hour to a week and then, people come to your house for Facebook marketplace. That’s kind of interesting… Like last month, I made six, almost [inaudible 00:57:10] for two hours of my time, which is I thought it was a decent ROI.

Scott:
That’s awesome. That’s your hobby, it sounds like.

Colton:
Yeah, it’s kind of a hobby side hustle thing. It’s kind of funny, but yeah, definitely not a huge-

Scott:
If your house is the priority, which makes perfect sense, right? Say, what’s my after repair value? What’s the project plan to get there? That is the first priority. I’m going to talk about the money date each week or each month when I have that and I’m going to go in and say, “Great.” Is the rest of my plan backing into that as the number one priority, right?

Scott:
First thing I would do, if the house is your number one priority, is bump up that cash position from 1.5 to 2 months to 6 months and that’s your first financial priority, because you’re going to need that cash in order to make judgment calls about that project, to execute the project plan, right? That’s totally fine. That makes perfect sense.

Scott:
Once you have the equity realized in the house, what am I going to do with it next? Am I going to cash out refi? Am I going to pay off the HELOC? Am I going to sell the place and go on to the next one? That’s great but I would have no problem as an outsider looking in saying that the house is a good first step there.

Colton:
Do you do the six-month emergency fund before paying off the balance transfer? In my mind, the balance transfer probably needs to be paid off. I mean, technically, it’s August 2023. It’s a sitting at a $6,600 balance. It’s not something we couldn’t tackle in the next four to six months.

Scott:
What’s the interest rate going to be on it right now or when?

Colton:
Right. I mean, it’s 0%, so August of next year, and then I think of bumps to like 19 or 20. Definitely, it’s not something we want to be sitting there [inaudible 00:58:46].

Scott:
We’ll do sixth month cash position right now, and sit on it and use that to fund your house. Then, when the when that comes up, you can decide to pay it off, just like you will with the student loans. You’ll have the cash. You’ll be able to allocate it and say, “But there’s no interest accruing on it right now and you have all that liquidity to build. You could spend the next couple of months building the equity in the house and do that. You’re not going to run out of liquidity unless a catastrophe happens to your family right now. Right?

Scott:
You have to juggle some balls. You can have it all perfect all at once, until you go through, let some time pass and your position but I would build a liquidity position right now and begin using that to attack your number one priority, knowing that you’ll have to allocate 6,600 by the end of the year to this balance transfer in order to avoid accrue in 20% interest. There’ll be no higher use of your dollars than avoiding 20% but it’s not 20% right now. It’s zero.

Colton:
Yup.

Scott:
The return on cash is going to be huge if you’re using it to flip your house or it’s a good bet.

Mindy:
That’s only one month of spend spending. If you have a six-month emergency fund, you use the six-month emergency fund to pay that off, and then you rebuild your emergency fund. I mean, that’s slightly more than one month of your extra.

Scott:
Yeah. Now, once your house is finished as a project, you have another decision plant, am I going to do another live in flip? In which case keep the six to month emergency reserve and maybe move it to 12 months? Because you need a lot of cash to continue doing these projects, especially you take on a bigger one or am I going to sit? Am I going to sit? Am I going to show him his house, refinance to something that gets rid of the PMI or get out of the PMI, and I’m going to start granting the student loan debt.

Scott:
Okay, at that point, I’d go down to 1.2 to 2 months, or what you currently have, essentially, keep a small bank thing and just drive all the excess cash flow to the next highest debt payment. That’s where I think, if you can come up with a prioritized set of investments in a plan for the next couple of years, you’d be much better off, because you’re able to prioritize where things go and build your whole position around those priorities.

Colton:
Yeah, absolutely.

Mindy:
Okay, the last thing I want to tell you before we let you go is you asked about staying sane with your spouse during a live in flip, we generally tend to jump in with both feet and rip out everything and that is not the way to go. The way to go, the way to stay sane with your spouse is to have one room with a door that closes that is untouched. Usually, your master bedroom or a different bedroom if you’re working on the master bedroom where you can retreat away from the dust, because every once in a while, you’ll have a day, and she’ll have a day and the baby’s off schedule and you’re just like, I can’t handle this. I can’t concentrate on this at all.

Mindy:
You go into your bedroom, you close the door, you watch a movie, you eat in bed, you just don’t flip the house that day, and it recharges your batteries but when you’re in the middle of dust and all the walls are ripped out and you can’t find any place to not be in the middle of your flip, it’s really weighing on your conscience. I’ve only had a few days like that in every single house that I’ve lived in flipped and it passes but you just need a space that you can retreat to that is door closed that is untouched on the inside. That can be the first room that you do. You work on that room and then you move into it as a nice space. Right now we’re in our master bedroom and it’s still ugly. I have wallpaper from the 1970s, the foil guy that’s really, really gross.

Colton:
I think that is our master bedroom right now.

Mindy:
Yeah.

Colton:
For us, it’s still the safe space. The rest of the house, the 80% of the house has no baseboards. It just seems like the whole house is unfinished to us because you see like the old paint where the baseboard used to be and it’s just, it’s funny. When we moved in, I came in and sprayed the whole house with fresh paint because the walls were like yellow from nicotine. Disgusting.

Mindy:
Yeah. That’s my house too.

Scott:
Smells like money.

Mindy:
It smells like money, sure did. Nobody else smelled that money, but yeah, now, go in and get the baseboards. Make that your next priority, and it will feel more finished. Maybe she will be more excited about the house in general because it’s not unfinished.

Mindy:
My daughter really hated the fact that we didn’t have any window trim up for a long time. She was embarrassed that we lived in such a disaster of a house. I said to her, then if your friends care. They walk through the house to go to the pool. That’s part of the reason that we got such a great deal on the house is because they had this pool that’s in terrible shape, but it holds water. She can have a pool party. None of the kids care that the house is a disaster because they don’t spend any time in it.

Mindy:
She’s so embarrassed by it. Once we got that finished now she’ll invite friends over. Little things can make a really big difference. That is my advice to you, have a place that you can go, to get away from it all and also put in baseboards.

Colton:
I appreciate it. Thank you.

Mindy:
Okay, Colton, is there anything else we can talk about today for you or answer any questions for you?

Colton:
I don’t think so. I think we hit most of the high points there. Obviously, it’s just picking a lane and going for it like Scott said.

Mindy:
Yeah, I agree with Scott.

Scott:
Yeah, I don’t think you have any wrong or right choices here. It’s art. There’s no, you have to make huge guesses about the economy, your personal situation, interest rates, all this other kind of stuff. I think you pick one that you’re comfortable with. Pick a prioritization, a list of prioritization that you’re comfortable with and design your whole situation around the top priorities and you will be just fine.

Scott:
You’ll be cruising out of this in over the next five to seven years with a significant increase in wealth and/or students debts paid down depending on what you decide with it as long as you kind of keep the income and expenses relatively consistent over that period.

Colton:
Awesome.

Mindy:
Okay. Well, Colton, thank you so much for your time today. This is a lot of fun. I think you’ve got a great position ahead of you and congratulations on your baby.

Scott:
Yeah, congrats.

Colton:
Yeah, thank you so much.

Mindy:
Send me pictures when the baby’s born.

Colton:
Absolutely.

Mindy:
Okay, we’ll talk to you soon.

Colton:
All right. Thanks so much. Have a good rest of your day guys.

Scott:
Bye.

Mindy:
All right. That was Colton with his great set of circumstances, his not so great set of student loan debts, but a good opportunity to pay them back. I think that does some great ideas for him and some great research opportunities for him, Scott?

Scott:
Yeah, I think this theme, this probably applies to a lot of people who are in similar situations to Colton, right? I’ve got some debt. I’ve got some investment opportunities. I’ve got a hankering for real estate. I want to become financially free. I want financial flexibility. How do I allocate my surplus dollars here, once I get into a strong fundamental financial position, which is what he is in his way of have a strong and have a strong positive net household cashflow, and are likely to continue that for many years to come barring a problem.

Scott:
When you have that situation, you can do anything. There’s a lot of good options out there, but you can’t do everything. You have to prioritize a set of initiatives, one by one, and build your strategy around that. That decision, we’ve harped on that, we have done that multiple times throughout the show so I don’t want to beat a dead horse, but you have to make that decision. You have to prioritize it, there’s no right or wrong answer, but once you do, you go from there.

Scott:
This problem is going to affect the $200,000 a year household income family like Colton’s family, and it’s going to impact the $50,000 person who’s just getting started the same way. That’s where we have all these tradeoffs around, retirement account, investing, or building financial runway, or your emergency reserve.

Scott:
You can’t do all of those things. You can’t take all the advice out there, you have to prioritize according to a plan, and then stick with it. The worst thing you can do is have a little bit in all these different areas and diversify away your chance of actually moving aggressively towards any of the financial goals, debt free or long term wealth or passive cash flow or whatever it is you want.

Mindy:
Yeah, ultimately, you can only take that dollar and deploy it in one place at a time. Now, it’s just up to Colton, to decide where is this dollar going to go and sit down with his wife and his weekly money dates, I love that, and decide where are we going to deploy these dollars? Where are we going to deploy these dollars? What’s the best use of these dollars at this time? Then, you can change your mind down the road, but right now they need to just formulate a plan. I think they’re going to have a huge amount of success. I’m just super excited for all the opportunities that they have.

Scott:
Absolutely. You can think about a couple of different situations, though, where, hey, I’ve got a, one case A, I’ve got a paid off all my student loan debt, paid off my house completely, have relatively few investments, and a six-month emergency reserve and five years, it was called seven years. That’s a great position to be in, completely debt free, and have an emergency reserve and are now able to invest.

Scott:
Another great situation to be in is, I’ve got $800,000 in assets that I’ve invested in across real estate and stocks and 250,000 down from 300,000 in total student loan debt and still have a mortgage on the house, right? That’s another position that could be very, very, very strong, but a position that would probably be very weak is, I don’t have much cash, I have a smattering of investments, mostly in retirement accounts, a little bit of home equity, and still have my student loan debt in seven years.

Scott:
That’s the least flexible position with the least promising outcome. You have to make one of those extreme choices in one of those two directions to get to that more positive situation. You can see that playing out with many of the folks that we’ve talked to on BP money where you want an ideal, what is your ideal portfolio and how are you backing into it?

Scott:
A debt free, modest portfolio that can sustain financial independence is a great outcome with that. A optimized for long term value creation portfolio with a healthy amount of leverage, is a great outcome. A mixed bag where I’ve got money in my 401(k), mostly in my home equity, a little bit of cash and relatively few investments outside of that, that’s the middle class trap that’s going to lead to the least amount of freedom. You’re not going to be able to realize that benefits, that financial position until retirement age unless you make very drastic life, and 401(k) penalizing decisions, which is really hard.

Scott:
I think that’s where we come back to make a decision, go into direction. There’s lots of good ways to go about it but have a plan and go with it and know your to make tradeoffs. You’re not going to be able to go down the whole stack, maxing out your 401(k), and having real estate, and having a paid off house, and having no debt and having stocks and get to your end goal soon. You have to make a choice.

Mindy:
Yes. Oh, that’s great. That’s a great wrap up, Scott. Great recap.

Scott:
Mindy’s telling me my rant is going too long. We need to wrap up.

Mindy:
No, I’m saying that’s a good wrap up. That’s what a great way to phrase it. Okay, but you’re right, you’re going on too long. We got to go. Are you ready?

Scott:
Let’s do it. From episode 304 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying Get in the Truck, Cock.

Ashley:
This is Real Estate Rookie, episode 186. My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the stories, the lessons, the information, and inspiration you need to kickstart your real estate investing journey. Ashley Kehr, what’s going on? What’s what’s new in your neck of the woods? How are things on the east coast today?

Ashley:
Well, I think I’m going to head over to a property that I recently purchased, and just kind of wander around a little bit. It’s 30 acres. It’s got three ponds and it’s finally a nice day. I’m finally walking kind of [crosstalk 00:00:42].

Tony:
I was going to say, how are you going to wander around? You mean hobble or bear crawl your way through those 30 acres?

Ashley:
Yeah. My son actually hurt himself on a trampoline last night, my youngest one, and he decided last night that he needed to use my crutches. So we put them as low as they could go and, obviously, still not compatible for him. And he just basically drags them around the house that he needs crutches. So at least they’re still getting good use, I guess.

Tony:
There you go. Like mother, like son. I love it.

Ashley:
Yeah. What about you, Tony?

Tony:
Actually, today, my big focus is working on the presentation for our Big Bear resort. So, whenever you do these big syndications, so I’m learning a lot as I go through this process. Whenever you do these big deals, and you have one big meeting where you invite all the potential investors and they kind of see what the deal looks like. So yeah, we’re just working on that, so that way all of the accredited investors that are interested can kind of learn the ins and outs of what we’re doing. So we’re super excited about this project.

Ashley:
Is there a pitch deck you’re putting together?

Tony:
Yeah. Yeah, it’s a pitch deck. Yeah.

Ashley:
Cool. Yeah. I can’t wait to see it.

Tony:
It’s going to be the pitch deck. Yeah. There’s so much upside here, so we’re really excited. So it’ll be a fun day for us.

Ashley:
Are you using a software yet to manage the syndication?

Tony:
So the actual investor’s portal and all that stuff? So what’s been recommended to us is called InvestNext. We [crosstalk 00:02:06].

Ashley:
Did you sign up for them yet? Because, I have an affiliate link. That’s what I was getting at.

Tony:
You do have an affiliate link? Well, there’s some guy that does, it’s called fund administration. So he helps you make sure that your distributions match what your PPM says. So I guess this guy has some kind of relationship with InvestNext. He’s actually creating the account for us.

Ashley:
Yeah. Cool. Well, nice.

Tony:
Yeah. So it’ll be exciting.

Ashley:
Yeah. InvestNext recently just sent me a super nice North Face zip-up, so make sure you get one of those, too.

Tony:
Oh, okay. Yeah, I got to grab one. Are you using InvestNext for one of the campgrounds?

Ashley:
No, I’m setting it up as just a portal to collect names, to create a list of accredited investors, so that when I am ready, I have that list set up, so.

Tony:
Oh, cool. That’s awesome. Yeah. So if you guys haven’t heard of InvestNext, they’re a software tool that a lot of syndicators use to help manage their accredited investors that come into the syndication. Well, I guess technically, they don’t all have to be accredited investors, because some syndications you can allow for non-accredited. But anyway, when you’re doing a big fundraise like this, it’s a platform that kind of helps you manage all the people that are investing. So if you’re doing that kind of thing, be sure to check it out. All right. So today’s question comes from Aaron Nygaard, and a quick side note, if you guys haven’t watched the show Fargo, the main character, his name is Lester Nygaard. So anytime I see the last name Nygaard, that’s what I think of.
So anyway, Aaron Nygaard is today’s lucky guest. So Aaron’s question is what paperwork do I need to close on an off-market deal, and why? If there are cash offers, can it all be done between me and the seller? Do you typically ask for an inspection period? Any help with those questions would be great. So I’ve done a few off-market deals, so I can kind of share my experience. Typically, what we do first, Aaron, is that we’ll get a purchase contract set up. And then once we have that purchase agreement signed between both parties, we’ll take that, here in California, I usually take it to an escrow company. And then escrow is the one that kind of facilitates that transaction between me, the seller, and title. And then they’ll draft up pretty much all the other documentation you need to make it a legally binding agreement.
You can still ask for everything you would ask for on an on-market deal. So you still maybe put an earnest money deposit, you still have your inspection period. If you are buying this with a loan, you can have a loan contingency. So all of the things that go into a regular on-market transaction, from a purchase agreement standpoint, can also go into this off-market transaction. The only difference is that the property was never listed and typically, there’s no real estate agent kind of playing the role of middle man between the buyer and the seller. So you guys make an agreement, take it to title and escrow, they facilitate that transaction. So how has it been for you, Ash?

Ashley:
So usually what I do is I’ll do a letter of intent first. So usually it comes out to one or two pages. And basically, it’s just stating your intent is to purchase this property, located at, the buyer is, the seller is, it’s going to be a cash offer at this amount, the deposit is going to be this, and then if there are any contingencies. So I always put contingent on attorney approval, contingent on if there’s going to be financing, financing, or you sell your own house or something like that. I always put that in there. And then there’s just a couple other things. If you Google letter of intent, you can kind of get a bunch of ideas, a bunch of samples, of what it could look like. It’s really not meant to be a contract. It’s really just to get them to agree to the terms.
And then I take that letter of intent, in New York State, you have to use an attorney for closing. So I take that letter of intent and I send it to my attorney, who actually takes that information and puts it into a real estate contract for the property. And then my attorney takes it from there. And the seller, I’ll recommend them an attorney to use, or if they have their own attorney, I’ll give them a copy of the contract, once it’s executed, for them to give their attorney. And then our attorneys communicate from there. And basically, it’s out of my hands after that, and they take care of everything such as the title work. So definitely the letter of intent is nice, because if they don’t accept your offer, you didn’t waste a ton of time going through a real estate contract at first.
And then I also like to do multiple letter of intents, maybe one seller financing, and then one conventional financing, or a cash offer. And then I present them to the purchaser, or the buyer, that way. And then as far as an inspection, it depends what type of house I’m buying or what property. So I’m trying to buy a campground right now. I am doing an inspection on that property, because if the water lines are bad, that could be a huge expense to me. But if I’m buying a $20,000 dumpy little cabin that I’m gutting anyways, I do not do an inspection. But as Tony said, anything that if you were buying a property off the MLS, you can put any of the same contingencies or things in the contract as you would if you were buying on-market, including furnishings, if you want furnishings included or the lawnmower or things like that, too.

Tony:
Yeah. So I guess the last piece of advice to Aaron would be just go out and find a local, either attorney, escrow company, title company in whatever market you’re in, let them know that you have this off-market transaction, and most should be able to kind of guide you through that process, because that’s how we got started the first time we did an off-market deal.

Ashley:
Yeah, Tony, that’s great advice. And even contacting them before you even start looking for those off-market deals too, so that you have them ready and they can kind of guide you, this is what we would need from you in order to put together a contract, so you know what you could put into your own initial contract or your own letter of intent, too, so. Okay. Well, we have to get out of here, and Tony is actually doing something exciting today. He’s got interviews for a personal assistant.

Tony:
Finally. So if you’ve ever sent me an email or a text message and it took me days or weeks to respond, hopefully that will all change after we finish recording [crosstalk 00:08:25].

Ashley:
Yeah. Well, exciting, Tony, and I hope the interviews go well. Thank you guys for listening. And if you missed out on applying for the position as Tony’s administrative assistant, make sure you follow him at Tonyjrobinson on Instagram to find out about any more new hires he has, and then you can follow me at wealthfromrentals. And I have no idea what I need, so if you listen to this podcast and are a loyal listener and you know something that I need and that you can help with, please message me a DM, slide into my DMs and tell me what I need and how you can do that for me. Thank you guys so much for listening. My name is Ashley and he’s Tony, and we will be back on Wednesday with a guest.

Homebuilders have outperformed, and Evercore ISI homebuilder analyst Stephen King joins ‘The Exchange’ to explain why.

Yes, I admit it. I am scared of a real estate bubble. But I’m continuing to invest anyways. Here’s why. 

Over the past several years, I’ve heard the following claim consistently made by investors both in my home market of Denver and nationwide. It seems by far to have been (and continues to be) the most popular prediction made by investors, both experienced and novice:

“The market is probably going to [reset/correct/crash/fall/decline/etc.] over the next 18 to 24 months.” 

Pundits have predicted a price squeeze or bubble that was two years out on average every year for the last six. Don’t believe me? Check out article after article from basically every major media outlet in the United States predicting a bubble at some point in the last eight years. I’ve even compiled a sampling for your reading pleasure below:

2013:

2014:

2015:

2016:

2017:

2018:

2019:

2020:

2021: 

I could go on.

How Long Are You Willing to Wait for the Impending Market Crash?

If you believe that a market crash is coming, you are either right—or else you might be waiting a long time to get started in real estate investing. People were waiting for the next crash in 2013, 2014, 2015…and every year since up until now. 

Oh, and of course, there were just as many equally well-written and well-researched opinions talking about the housing market’s great health and future growth. These bullish opinions are just as prevalent today. I could easily compile a list of housing market bulls to complement the bears I posted above.

But the point is that I’ve heard about an impending market crash throughout my (admittedly short) entire investing career.

Let me ask you this: When the next crash comes, will prices drop below 2013 levels? Below 2015 levels? Below 2017 levels? How much do those waiting for a crash stand to gain by waiting it out, and how much will those who own property today lose?

How low do prices have to go to eliminate the gains of the last eight years here in Denver? How about your city?

I don’t believe that these pundits have any real advantage in predicting the market on you or me. The thing is, I don’t think anybody knows when the market will crash. Nobody knows if that will happen this year, next year, the year after, in five years, or in 20.

To be clear, I’m not saying that I think the market will continue to go up forever. And the truth is, I’m scared. I’m afraid of two things:

1. I’m afraid that the market will crash and that I will lose a ton of equity very quickly.
2. I’m afraid that prices and/or interest rates will climb much higher and that I will miss the ride if I don’t buy more.

I’m equally afraid of both of these things!

I’m sure that if you have an opinion on the market over the short-to-medium-term (two to five years) future, you have great reasons. I bet you have a bunch of charts, just like those pundits. I’ll bet that you can cite numbers that talk about supply, demand, interest rates, leverage ratios, employment, household income, the stock market, bitcoin, inflation, the trends of the Millennials, the trends of the Baby Boomers, or something else that’s just as important as all of the above.

But I’ll also bet that the fellow who is just as smart as you—but has the exact opposite opinion—has strong data behind his beliefs as well.

The fact of the matter is that if you believe that the market will crash, you could be right! You could also be wrong! Or (and in my opinion, the worst and saddest waste of being able to say “I told you so!”) you could be right and still lose.

The thing is that you don’t know which of those metrics and factors will be the lever that actually moves the housing market over the next few years.

As I hope I’ve demonstrated with the news articles above (and I can anecdotally tell you that I’ve been part of discussions on BiggerPockets about this very topic since 2014), we hear this song and dance about impending crashes all the time as real estate investors.

It scared me when I was thinking about starting to invest in 2013, and it scared me in 2014 when I bought my first property. It scared me in 2015 as I held that first property, and it scared me in 2016 when I bought again. It scared me in 2017 as I held those two and bought a third. It’s scared me as I’ve bought more since 2017, and it scares me as I just closed on a property here in May.

One day, the doomsday prophecies will come true. These pundits (and you, if you agree that we are headed for a correction/bubble burst) will be proven right eventually. But will that be this year? Next year? Five years? What if the correction comes in seven years? What if every metric that you can conceive of screams, “bubble!” and still prices climb? What if the bottom of the correction sees real estate prices and rents much higher than today’s?

Those sitting out will be right, and they will still lose.

That is why I continue to invest—even though I, too, fear a bubble. I believe that over a long time horizon, say 20 or 30 years, prices and rents in my market will appreciate at a rate equal to or greater than inflation. I believe that this will be the case regardless of whether I buy at the top or the bottom of the market today. And I believe that so long as I can ride the tides of market volatility and sustain possible cash flow, that I will not regret my decisions over time.

I also believe that I am incapable of accurately predicting when the market will boom and bust.

I could be wrong on these beliefs, and I constantly reassess the foundation upon which I construct my investing philosophy. But this is my philosophy and approach for now—and the one I have acted on and plan to continue acting on until I find something better.

Given my overall take on investing, I believe that I can maintain a system of investing such that I give myself reasonable odds of winning financially in all three market scenarios:

• I win if the market goes up. If you don’t own real estate, you lose if the market continues to appreciate.
• I win if the market goes sideways. My portfolio cash-flows and I amortize my mortgages and generate a yield even without appreciation.
• I win if the market goes down. I believe you have a reasonable chance at winning if the market goes down if the following are true:

A) You have the personal financial position and stability in your portfolio to make it through even serious market drops, particularly in rent.

This means a substantial cash cushion and substantial cash flow from existing properties. And I have no doubt that a sudden drop in equity will be hard. I try as best I can to mentally prepare for that ride and to learn from folks who have been through the 2007 recession.

B) You have the reputation to convince lenders and potentially other investors to invest alongside you when/if bargains do begin popping up.

Guess what? If you own no real estate, you cannot develop this reputation. I am not investing alongside someone in a recession or depression who has no experience, who owns no rental properties, yet who tries to convince me that they’ve known all along that the crash was coming. A very long parade of people have come through the BiggerPockets forums and every major news company in the country over the past 10 years predicting a crash. 

I am instead going to look for someone with years of experience and the confidence to say, “Sure, I’ve lost some equity, but I couldn’t care less! Every month, I achieve a 10%+ cash-on-cash return, and I’m foaming at the mouth to buy as much as I can now that I see 20%+ cash-on-cash returns everywhere!”

No one can predict when the market crash will happen, how severe it will be, or what its effects will be. For all we know, we might be in for a run of inflation for 3-5 years in the double digits. The Fed might have to spike interest rates to 10%, 15% or higher to combat it! 

If that happens, prices might fall in real estate, but rents might skyrocket. Meaning that buy and hold investors like me see a tremendous run-up in cash flow that we would not be able to realize if we were not in the market the whole time, but also realize an uncomfortably low rate of appreciation during that period.

To be clear, I am not predicting this or any event. I’m just pointing out that this is one of many possibilities that could negate the effects of other market conditions and throw off the predictions of even the best pundits.

Why I’m Not Investing Aggressively

Now, all this said, I certainly do not believe that now is the time to overextend. I buy well within my means, with a rock solid personal financial foundation, and spend very little on my lifestyle. I maintain a high savings rate and have stashed away a large cash reserve. I also own a large stock portfolio (which, by the way, the pundits were finally right about – for the first time in 10 years, we are seeing a sustained drop in equities – I’m continuing to buy my boring old index funds as I write this).

I do this because, just in case the pundits ARE right this time (and we are certainly 9 or so years closer to the next correction than we were in 2013!), I do not want to be caught with my pants down.

Related: 3 Strategies I Use to Succeed in a Cooling Multifamily (or Any) Market

But I am not staying out of the market entirely, regardless of what may or may not be on the horizon. I’m doing this because I believe the best policy is to adopt a conservative, winning formula and to apply it consistently. And that is what I’ve done and plan to continue doing.

I do not believe that continuing to buy is any riskier for me than staying out of the market is. Although I tremble with every purchase. 

Conclusion

Should you wait for the next market crash? I don’t know. Someday, the pundits will be right. I’ve shared what I’m doing and why, and I hope that perspective gives you something to think about.

I’ll caution you, though. I think, personally, that it is unwise to invest a large, lump sum of money all at once in a real estate investment. And when I say large, I mean an amount that is more than one to three years of savings, given your current financial position.

If you do this, it means that you might be investing in a manner that is unsustainable for you. And if you are investing unsustainably, you risk losing a huge chunk of savings, perhaps all of your investment and then some, all in one go.

I believe my system has a good chance of working for me because I believe that I have an excellent probability of being able to buy similarly sized or larger properties year in and year out in my market and sustain a system of dollar cost averaging.

If I wasn’t able to do that, I’d be finding another market to invest in, developing another investment philosophy, or working on my personal financial position outside of real estate to the point where I thought I could sustain my approach in an up, down, or sideways market.

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Back in 2002, I made my first deal as a real estate wholesaler.

I was literally walking the streets looking for a deal when I came across a tired landlord looking to sell his property. 

Beforehand, I had already found a buyer and was able to sell the property to them. In the end, after all of the fees and titles, I ended up making a profit of $47k. 

To say this was life-transforming is an understatement. 

If you’re starting in real estate, you might be skeptical about where investing is headed. Reading the news, you can see that both the Dow Jones and the NASDAQ are down 6% and 17%, respectively. 

While I’ve never been a fan of the stock market, I am a trading man and do far better in Vegas than I do in stocks. If you do invest, you probably know that the market tends to react in times of uncertainty. 

And boy, were the last 2-3 years uncertain!

Because the market is so uncertain, be sure to check out the new On The Market podcast featuring Jamil and others as they talk about the market, economic trends, and prepare you for the next stage of real estate investing.

For instance, the International Monetary Fund recently held a meeting. Its chairwoman, Kristalina Georgieva, announced that they would become more aggressive on funding. 

When Chairwoman Georgieva speaks, investors listen carefully. 

With this announcement, plus the uncertainty we’re still facing in other sectors of the economy, bond yields rose, which directly correlates with the economy and explains the rise in mortgage rates. 

But even with all of this going on, you can still start investing in real estate. 

How? Wholesaling. 

Wholesaling is probably the easiest and fastest way to get your feet wet as a new real estate investor. Two big things can help kick start your business: 

1. Tools and resources 
2. Buyers ready to purchase

Let’s look at both of these.

1. Invest in a Tool That Helps You Find Properties 

When it comes to wholesaling, you don’t need to be at a location physically, at least not yet. 

One of the best things you can do is find a tool or resource, like BatchLeads, that can show you where investors are buying properties in a specific region. 

If you see a neighborhood where the market is hot, properties going for cash, or have a lot of attention, that’s a great sign of a hot market. 

With these tools, you can easily find these ideal markets without physically being there. 

2. Let the Buyers Do the Work for You 

You are a legitimate buyer since you have the money to purchase a property. So, if there is a property that has potential, lock it up with a nice due diligence period. 

Instead of flying out to the property, send the deal out with a $5,000 mark-up to other investors in the area. 

This gives you a pulse of what buyers are seeing and what they’re telling you about the wholesale market in that area. Let them do the work for you! 

Let them do your due diligence, bring the contractors, do the inspections, and then let them tell you if you’ve got a good deal or if you’re out to lunch. 

When you have a cash buyer, it helps legitimize you as a wholesaler and when you have a property with potential, ask the buyer what they believe would be a suitable selling price. 

You should also go a step further and learn how to underwrite and comp properties. By doing this, you can get a good idea of what housing is going for in that area.

If you’ve got a good deal, you could take that $5,000 wholesale fee and sell the contract to another investor and let them deal with the property themselves. 

Boom! You’ve made $5,000.

Or you could decide that all the buyers want this property, so you choose to keep it for yourself to sell. 

Either way, you’ve saved yourself some money from traveling, made $5k, or bought yourself a property. 

Despite what’s happening in the world or the stock market, there are so many opportunities to get started in real estate. 

There’s no better time to do so! You just need to take the first step.

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