419: Finance Friday: Barely Breaking Even? Here’s How You Can STILL Invest

28:25I still try and slide it in there into conversation like organically. As far as like my brand, I, I'd like to think I'm kind of funny. So I started trying to make TikToks and Instagram reels. Probably back before I started this job, I was I was a little more consistent at it. And I made some pretty funny videos if you ever want to check them out. but I just I wasn't and I should have just kept going with it it's you don't see results right away and I know that but trying to think of content all the time I just I need to just be focused on it but I was just like not getting results and I didn't know if it was the content was reaching people that wanted to see it and so it was kind of hard for me but I know I've seen other people do it and it works for them so I I can't give my I can't get my hopes up.

29:18I can get your hopes up for you. I'll get your hopes up for me and say, Scott, what's that Pat Hyben book? Seven? Seven Steps to Seven Figures. Yeah. Seven Steps to Seven Figures. That is a, and BiggerPockets just republished that. So we'll send you that book too. Seven Steps to Seven Figures as a real estate agent or something. One of the tips that he suggests is to copy, like borrow from other people. Don't borrow from the other Fargo agents, but borrow from somebody in Minnesota who was doing really great videos and you think they're funny, rebrand them in your own face and your own style and your own way of talking.

29:54And somebody in Florida is doing something awesome. Do it for you too. Hey, we don't have pools up here in Fargo, but we do have snow. Look at what you can do in this house or like whatever it is you're doing. It's social media, especially like you have a phone, right? Everybody has a phone. It's so cheap to do a good video to do your own promotion and people get used to seeing Liz's beautiful face, they will look for these videos again. I'm sorry, Scott just corrected me. It was six steps to seven figures. So that's even better. You only have to do six things and you'll be making seven figures.

30:31Six steps to seven figures. That's right. And yeah, I think I got that wrong. But yeah, I think that's a good one. Look, when I look at you, your situation, and I zoom out strategically, it seems like the job is getting us by. And my challenge to you would be, how do you find a way to get most of that benefit or all of that benefit or as close as you can to the benefit you're getting from your current full-time job in the winter months, and then go all out so that every single day full-time, you can be focused on the real estate business, which is the real prize in your financial position during the seasonal high period.

31:06And if you can approach the year in a tale of two halves here, I think that could be the secret to unlocking at least a chance at really strong income. And you have the savings and the financial foundation to do that responsibly. You have$40 ,000 in cash and$15 ,000 in debt. That's a good runway for you. So I just think it comes down to that. And your problem is I don't have enough time for marketing. Well, this solves that problem. So you're able to market and build this business in the times when people are thinking about selling their properties. Yeah. And you guys are going to think I'm crazy because the year before, so 2021, I think I was right at like$43 ,000 that I made in real estate alone.

31:54And I mean, then I had to pay taxes, but I was right around that$40 ,000 mark. So I'm like, I can do it. I can do it. And that was while working a full-time job, right? No. So I actually did. I just did part-time when I made the$40 ,000 that year. Got it. Would you like to simultaneously pay no taxes and save for your retirement all at the same time? Yes. I would love that. Okay. So here's what I do. My real estate agent business does not pay Mindy Jensen. It pays my LLC. And then my LLC pays me, except all of my income then goes into my self-directed solo 401k. So I think the contribution limit right now is$22 ,000.

32:38For the sake of math, let's call it$20 ,000. I put all of that in and then my LLC, my company can match my income up to 25%. So all of that money then gets matched 25%. So that's an additional$5 ,000 plus change. I'm not doing the math quickly enough. So now I've got$25 ,000 in there. The first$25 ,000 of my commission is automatically no taxes because it's going into my 401k. I'm not doing a Roth. I'm doing a regular. And the first$25 ,000, I'm not paying taxes on. So that's all of your income right now. So as you start cranking it up more, 25 % can go into their additional up to$54 ,000 that you're not paying taxes on because it is matched through your LLC.

33:27And of course, you're going to want to talk to your self-directed solo 401k provider just to make sure that I am giving you the right information. But that is a homework assignment for you to look into the self-directed solo 401k. I think they're fantastic. And I've been doing this for several years. And I pay. I do pay taxes, but I live at a higher cost of living state where the properties cost more. So I think that's a great tip for retirement accounts. If you're going to work for yourself, you need to set up a system if you would like to contribute to retirement accounts and take advantage of that, perhaps beyond the Roth.

34:02You might be able to just use the Roth for the time being because you're still in a relatively low income tax bracket. And then when your real estate business takes off, you do exactly what Mindy just described there and take advantage of the powerful retirement account options available to small business owners or the self-employed. um i do want to talk about though asset allocation overall because right now um again we talked about accumulation which is the most important part in your journey how do you set up a system where you're generating a lot more income so there's a bigger spread between income and expenses and you can actually get ahead on a consistent formulaic basis here and again i love the approach of potentially thinking about marrying the two seasons here and figuring out a way to earn a stable income in the winter and sky high income in the summers as an agent.

34:46Now, when we get to asset allocation, right now you've chosen to allocate essentially all to cash, right? You have

34:58$50 ,000,$52 ,000,$50 ,000 to$55 ,000 in total assets. And 40 of that is in cash alone. Some of that's about to go into a house, what are you thinking here? And what's the strategy for asset allocation? So I'm open to suggestions here. That's why it's all sitting there as cash. And I hate that it is because I know I can be doing more for me. I just am not sure where I can put it to in the most logical way to to keep keep building on it um i it's i i'm worried that now that i'm buying my personal home that i'm gonna have a hard time trying to figure out how to um do a money or a house hack um i do have help with the down payment so we're doing 15 down down and uh family's helping with that so my uh my partner and i are doing 15 down and we're having family members help with the down payment for that so our cash reserves won't dry up completely which is nice um i think i'm coming i'm i'm gonna try and come up with like 15k uh but i i've looked at doing like, have you guys heard of the real estate investment trusts?

36:25I hadn't heard of them. So I was kind of interested to get your input on that or an ETF, like a Vanguard account, stuff like that, where I can be putting that cash to maybe start growing for me, but I don't have to maybe do a lot with it. Where do you want to be in five years? What do you want your portfolio to look like? It's a really good question. I want to be on the right track to not having myself be in the red for sure. Like I want to be moving away to where I can, like I can, I want to be moving towards where I can be my own boss and have the flexible schedule again. And because we're going to, you know, I plan to hopefully get married and have kids someday.

37:08So having that flexible schedule and being around at home again would be great. So I would like to get my portfolio to have, I'd like my money to be working for me in like seven different locations, but I'm not afraid of like the market fluctuations. I just want to know that I've put them in the right spots and I don't have to touch them. I don't want to touch any of my savings or investments, which I'm getting worried that I'm getting to that point where I might have to be pulling from areas that I don't want to take from. But yeah. When you say don't want to touch, do you mean you don't want to actively manage your investments or you don't want to have to withdraw those investments?

37:52I don't want to have to withdraw them. Okay. So real estate's not out of the picture. You're willing to manage a property. You just don't want to have to sell the property, right? So you don't want to be forced to sell it and extract the equity. Is that right? Yeah. I think also I would like to put money, invest money into something that can work for me instead of buying a property and managing it. I don't have a problem doing that. I'm at the point where I'm worried that I'm not going to be able to do something like that now that we're buying this house. Okay. So let's zoom out three to five years.

38:29And I'm going to construct two portfolios and ask you which one feels better, right? So one is you accumulate$15 ,000,$15 ,000 to$25 ,000 per year. That would be aggressive. That would be a step up from where you are now. It would be your agent business doing well and you finding a way to cover costs with the full-time work or other job. But let's say$15 ,000 to$25 ,000 a year. Let's be generous and say, let's call it 20 grand a year you're accumulating. So in five years, that's$100 ,000. dollars. Which would you prefer? Would you like to have a home with$300 ,000,$350 ,000 with $75 ,000 in equity, a retirement account with$50 ,000 to$75 ,000,$10 ,000,$15 ,000 in an emergency fund and be in that position?

39:21Or would you rather have$100 ,000 to$150 ,000 in stocks, real estate investment trusts, REITs, which are also called REITs, and maybe a rental property? Which one of those sound... Maybe, again,$10 ,000,$15 ,000,$20 ,000 in cash. Which of those portfolios sounds better to you? Right now, at the second, the second one does because I'm not afraid of a little risk. I don't have a lot to I don't have a lot of obligation right now like I'm not married I don't have kids I am going to be a homeowner so that's something to take into consideration but I think the other option just sounds more safe and I'm hoping in four to five years that I'm that I have more you know like I'm my goals have been met like with having kids or being married and stuff like that okay so then Then walk us...

40:16So the big question here that's going to make the biggest difference in terms of the asset allocation decision after the accumulation piece, it's how much income and how much money you make and how much you spend is the biggest variable. The second biggest thing though, is this housing decision. How much is the house going to be purchased for? What's it look like? What's its potential from an exit standpoint? So it's a five-year-old haul. We got it at$343 ,000. That's pretty standard around here. Three bed, three bath. It's on probably 0.17 acre lot size. They kept it in great shape. It's got newer appliances, stuff like that.

40:58But I did think a lot about like resale standpoint, looking at this as like a three to five year investment versus like a long term home for us. I feel like I want it. I would love to rent it out when we move. if I'll have the cash to put down for another home at that time and not have to use the equity from that home to buy a new one. I'm not sure. But I would love to use that as a rental someday because it's a great area for it, you know, for families that maybe can't buy a home and they want to rent something. So I looked at it strategically. I just, if it was just me, I would have probably tried to do a house hack and bought like a duplex or something like that.

41:45But I think with my partner taken into consideration, we were leaning more towards a single family home versus a duplex. I didn't do much convincing on that on that part. And I don't know if he would have maybe been interested in doing something like that. But yeah, so we ended up getting this house. But what would it rent for? Oh, man, I could probably I could probably rent it for like. $2 ,800 to$3 ,000 a month. Okay. That's much better than I was thinking. What's the payment going to be on it? We're going to be probably somewhere around$2 ,400. Okay. So you actually have a... You're pretty close.

42:28It's not a great rental with that, and it would probably be slightly negative, but it's not way under. It's not right at the the same lines there, even with today's interest rates. So I don't think this is going to... I was setting up for this being a real blow to your financial position. And it's still not as good as a house hack. It's not as good as renting someplace that's cheaper. If you could get a place for$1 ,500 or$1 ,250, for example, and stashing that away. But you also got to live your life and enjoy your life for the next five years while you're doing this. But yes, this will be the biggest hurdle to overcome.

43:09You'll need to cover the expenses associated with your living costs with your income and in conjunction with your partner, and then apply those to another investment. That could be a down payment on the next rental. It could be to your stock portfolio. It could be to something else. So I think this... My instinct is, okay, this is not helping you. It's probably slowing you down a little bit, but it's not something that's going to set you back two decades like most home purchases do for most people if they're attempting to get moved toward financial freedom. What's your instinct on this, Mindy?

43:48Well, I'm wondering if there's any opportunity to rent it out short term, either on an ongoing basis, like maybe once one weekend a month or when there's a big thing, a big event happening nearby. You said it was a good area to rent long term. Is it a good area to rent short term? Could you rent it for Christmas? If you're going to go back and visit your family for Christmas, could you rent it out at Christmas time and maybe take a whole month of mortgage payment off of your year of expenses just by renting it out over a specific time? I don't know a ton about Fargo outside of the fact that it's really cold in the winter.

44:35So maybe there's like seasonal festivals or something that would make it advantageous to leave and rent it out on a short-term basis. Is there – you've got a two-car garage. Could you rent storage to somebody in the two-car garage? Could you park an RV on the side? Could you use it to generate any income to kind of offset that mortgage payment? And another thing that I was thinking of when I saw this, it's your mortgage payment is going to be$2 ,400 at the current interest rates. Yes, they keep talking about raising interest rates, but I also hear them talking about them, the ethereal them, talking about interest rates will eventually come back down.

45:21If you are able to refinance, that'll make this an even better property. One thing to note is that if you do refinance, do like a cash out refinance or even just refinance as an owner occupant, you would have to live in the house for another year to satisfy the terms of the loan. So just like tuck that in the back of your mind. But one thing that gives me a little bit of pause is that your current living situation has your rent payment at like$750, and this is going to increase that by about$500 a month if you're going to be splitting it with your partner. So we talked about that because he makes a bigger consistent income than I do.

46:11uh so he's he's told me that he's willing to take on more of the uh like a 65 45 basically so i would pay about 45 and then we could we could talk about like bills and if we want to split them down the middle right now he's paying for groceries so he's he's a great partner he's he's really understanding of the situation. Do I want him to have to do that forever? No, I think a partnership is a partnership and we shouldn't have to be, you know, paying. We shouldn't. I like to think of it as a 50-50 thing, but it's nice to have somebody who's understanding of the situation and willing to accommodate that.

46:57So the split down the middle is probably not going to be 50-50. It's going to be more of like that 45, 65 on our mortgage payment. So how long have you been with your partner? Two and a half years now. Okay. Um, I do think it would be best practice to just put this in writing and one, you know, um, or, and how that's going to shake out from the ownership perspective. And if you're having any trouble broaching that conversation, which can be a little uncomfortable, at least to talk about it first. Um, one way to put it is you're not really, we're not negotiating with each other, but like, what if I get hit by a bus.

47:33And now you got to deal with, you know, everyone's got that annoying family member that the other person would then have to deal with. You know, you'd want this in writing to make sure that there weren't any issues or whatever with that. So I would certainly, you know, and you need to work that out and what that looks like and ask them some questions about how does ownership and equity look in this property if there's not an even split payment? And again, this doesn't have to be super complicated, but it would be good to get that in writing somewhere. So there is an agreement in place. Yeah. Do you suggest just doing it ourselves or is there somewhere where you'd go to get something like that done?

48:12I would do some research on this online and figure out some starting points about where you want to go. And then I'd call an attorney to validate some of those. And this shouldn't be a thousand or $1 ,500 engagement. This should be a few hundred dollars at most to make sure your I's are dotted identities are crossed. Sweet. Yeah, I can do that. Yeah, I think that's a really good point. And Scott, that was great advice about that annoying family member. That is a great point. If something should happen, people are going to fight about money. And oh, this is a 50-50 split. Well, actually, we said 65-35.

48:49Well, that's not what I understand it to be. So having that document will protect you both. You know, Cousin Barb, who you hate, well, she's in my will. Yeah. Yeah. So I think that, you know, whatever, you don't have to go that far, but I think that would be good. And then one tip I'll just kind of give you, you should talk to your attorney about this, but something I've used in the past is called the shotgun clause, which means that if for some reason parties want to break up, either you guys or someone, you know, in the, in the, one of the heirs, someone who inherits the estate, the shotgun clause basically allows you to break the, break the agreement with a very good idea.

49:30simple out. You just say, I'd like to end this. I will buy you out at$343 ,000 valuation. And then the person can either accept or they can say, nope, I'll buy you out at$343 ,000. So that means that parties are going to come to the table with a single good offer, single counter, accept or trigger the shotgun, and you're out. And it can be a simple tool for something like this, where you just know the rules of engagement going in. So you might want to ask your attorney about that if that's something that you guys decide to pursue and it may work in your situation. Awesome. And yeah, I noticed I was saying 4565.

50:09My math is off there. So thanks, 3565. All right. No worries on the math. Also, the REIT person that Scott really likes is, I don't know how to pronounce this, Jussi Askola, J-U-S-S-I Askola, A-S-K-O-L-A from seeking alpha. Yeah, I think that guy, and I've read a few of his pieces, but I think that so far from what I've read, he's got an interesting beat on the market. He's very bullish on certain REITs. I'm probably a little bit more skeptical on commercial real estate right now, but that's a temporary thing. Over a long period of time, REITs, real estate investment trusts, tend to perform worse than the stock market.

50:52So an index fund of the stock market, for example. So I personally own no REITs. I own no real estate investment trusts. It doesn't mean that they're a bad investment and that the future could be different. I just haven't liked what I've seen from historical return perspective and instead prefer to put my money, if I'm going to put it into public securities, into a Vanguard index fund personally, but to each their own. So that would be a good resource. Again, I think that guy does a good job of analyzing a lot of real estate investment trusts over at Seeking Alpha. Liz, what else can we help you with today?

51:27So I just have some cash on hand and I'm wondering where I can be putting that cash to be working for me or if I should have it sitting around for a rainy day. My personal preference here, I think your position is very strong from a balance sheet perspective. So what do we do with cash? We put it to the highest and best use. So first, what are the interest rates on your student loans? They're in deferment, right? Yeah, they're deferred right now. okay, let's say that they were above 6 % or 7 % interest. In that case, once the deferment period ends, I might consider taking some of the cash out of your position and paying those off.

52:08Why put them into your savings account earning 3 % when you could just pay off the student loans at a higher interest rate? That seems like a good use of cash. After that, there's a number that you will be comfortable with in terms of the amount of cash you want sitting in your bank account and not being put to work. If you have a very stable job that you've been at for 10 years and is clearly not going anywhere, you might have a very low savings balance, three months of cash on hand and put everything else into investments and expect that to continue. If you're a real estate agent with very variable income, you might want to have six months to a year of cash accumulated.

52:51And that might be a good business decision, allowing you to focus on growing your income rather than having to worry about cashflow management. That might provide really good returns for you in a subtle way you can't see. If you wrote a book called Set for Life and would be very embarrassed to go broke, you might have a year and a half to two years of cash on hand because you couldn't handle the jokes if that were to ever happen. So it just depends on your personal preference, but I'd pick a number and then say everything above that number, I'm then going to invest. And you may find that after this down payment on the house, you're not there yet.

53:27And the best use of cash is either paying off these student loans or just building up to what I would ballpark to be$20 ,000,$25 ,000,$30 ,000 in cash again after the down payment and maybe after the student loans are paid off. I will tell you what I'm doing with my extra cash. I am putting it into Vanguard. I'm sorry, VTSAX and VTI when it comes up. My husband really likes QQQ, which is a super fancy ETF. I don't pay attention when he talks about that. And of course, he's always looking for more Tesla stock to buy. So what is it that you like? Are you comfortable with the Vanguard Total Stock Market Index Fund?

54:14My husband was a computer programmer. He reads every tech report ever about everything. We invest more on the tech side. If that's not you, then maybe the Total Stock Market Index Fund is better. That's the like the darling of the personal finance community is just the total stock market index fund, set it and forget it. And there are other options available. If you really like tech, maybe go for a tech fund. If you really like insurance or maybe a REIT is the best. I would say do some research into what feels good to you. There are some sectors that I don't invest just because I either don't have any interest or I don't want to support it.

55:02So just look at what you want to support and what you like. But I was typing the like waiting for Scott to finish so I could say, oh yeah. And I would say, what does it feel comfortable having, how much feels comfortable having in your emergency fund? You don't have to get rid of it all just because you're like, well, I have too much money in cash. No, you have to be able to sleep at night. So how much feels good being able to sleep at night. I really relate to Alex's episode. I don't know what episode number it is, but it's the fire by 45. I feel like I'm in a somewhat similar position other than the fact that I don't have$120 ,000 of cash sitting around to do an assumable mortgage, which I wish I could have done.

55:47But I liked that episode for relevance to how I am right now. Your position is very stable, very, very, very strong balance sheet. It's just a matter of now setting up a grind, a several-year accumulation process with this and having a plan for where you want to put those assets. You have time to figure out the asset accumulation piece. And this summer is about making it rain with the real estate business. Yep. And we're going to send you those books so you have a lot of reading to do. Let us know what you think. Awesome. Sounds great. Okay, Liz, thank you so much for your time today. And we will talk to you soon.

56:28Thank you guys for having me. It was awesome chatting with you. All right, Scott, that was Liz. And she has some interesting circumstances. She's actually doing really well, despite her expenses being slightly more than her monthly income right now, which is due to her super fun tip of saving money and just her mental state of, I'm not going to spend all the money that comes in. I still save. And she's saving her real estate agent income. Yeah. I think Liz is doing just fine here. And getting ahead involves thinking through, how do I solve this problem of wanting to be full-time in real estate?

57:09Which we imagine, we could be wrong on this assumption, but we imagine there is no real full-time for a real estate agent in that particular area because transaction volume, we believe, is going to be so seasonal in that region that she'll need to find other income. So once she stabilizes that and gets a path to accumulation that is predictable and or has big upside, then it's about having a plan for where she wants to go. And that needs to be thought through a little bit more. We can always... If you ask me for the answer, how should I build my portfolio, I'm going to give you what I would want, which is not what you might want.

57:46What I want is flexibility. I want a financially flexible position with a big cash cushion, stable, spendable, passive cash flow. And I'm willing to forego investments in retirement accounts, HSAs, a nice primary residence equity, those types of things, a nice car, whatever, in order to get that. That may not be aligned with your values. And that's where we always have to come back. If you let me ground the situation, I'm going to give you what I want, which I think Liz needs to do some more searching and thinking about what it is that she wants fundamentally from her portfolio in what amount of time and the trade-offs necessary to achieve that.

58:23Scott, you missed the Fargo pun. You would be willing to Fargo this. Oh, it was set up for me. Minus. It was set up for you. You get an F minus. Also, that's right. If you ask me what you should be investing in. I'm going to tell you what I'm investing in. This is specific to my circumstances. I'm not investing in bonds, even though I'm 50 years old. I'm investing in aggressive growth because I'm looking for aggressive growth. All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the BiggerPocketsMoney podcast. He is Scott Trench and I am Mindy Jensen saying cheerio, dingo.

59:05If you enjoyed today's episode, please give us a five-star review on Spotify or Apple. And if you're looking for even more money content, feel free to visit our YouTube channel at youtube.com slash BiggerPocketsMoney. BiggerPocketsMoney was created by Mindy Jensen and Scott Trench. Produced by Kaylin Bennett. Editing by Exodus Media. Copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.