Q&A: $270K in Probate Court, Private Credit, & 7% Mortgage Rates

23:54And so I just, I would aim for that low to mid single digits. Now, as it relates to the blended note, the individual note, like all that stuff, if there's a way and I've not done a deep dive on percent.com, but if there's a way where you can get like exposure to 20 different small businesses and not just one Max's cookie shop, but Max's cookie shop, Martha's bakery and Taryn's barbershop, that could be really cool. And you can rock and roll that way and have a little bit more diversified approach to how you're doing the private credit. That's what I would do. And then finally, how you should consider an exit strategy in three to five years.

24:26I would just, again, treat it like you would treat a satellite section in your portfolio. I mean, if you are getting 8%, 10%, 12 % annual returns, rock and roll. That's cool. I hope that that is what's taking place here. Because remember, and I think this is the most important takeaway from any investment in your satellite portfolio that's not the S &P and the NASDAQ. You always want to be thinking about the opportunity cost. The S &P and the NASDAQ happen to go up by about 10 % a year, right? Call it 7.5 % to 9 % adjusted for inflation. So every dollar that you are not investing in the S &P and the NASDAQ is money that you're technically losing out on because it could have been invested in the S &P and the NASDAQ.

25:04And so whatever's in this satellite section of your portfolio, including private credit, you just have to know and be cognizant of the opportunity cost of what that dollar could have been if it was invested into a completely liquid, completely normal thing like the S &P and the NASDAQ. I think that's a great breakdown. And I just want to add a couple things for everyone listening. Don't get too fancy too soon. Private credit can be great. Yes, there are upsides. You can make a lot of money through this. But if you don't have that base built or hundreds of thousands of dollars or millions of dollars, I would not suggest you dabble in private credit lending just because there are a lot of pros and cons.

25:40But I think the cons outweigh the pros here, especially if you don't have millions of dollars, because you have to remember these are very illiquid. Sometimes you don't really know where you're at on a specific investment because there's a lack of clarity around the profitability of that cookie shop that Austin alluded to. So make sure you understand what you're doing in this instance and don't get caught up in the numbers you see on one of these websites where it says you're going to make all these incredible returns. And make sure you're prepared to understand exactly what you're getting yourself into because do I do private credit lending?

26:14I do from time to time. Am I an expert? No. But I also don't like to get too fancy with my money because then I feel like I lose control of it. And which is what Austin alluded to of keeping it simple, stupid in many instances. So just make sure if you go down this road and for this particular question, you understand what you're getting yourself into and also understand that that liquidity window that you stated may sound good, but may not always come true because you don't control the liquidity on these investments. Yeah. And I think another call out is just like the fees. I know percent is pretty transparent with their fees, which is good.

26:49Obviously, our friend Rom here is using percent, but maybe someone's listening and there's a banker that's talking about private credit. I mean, there's private credit has blown up in the last five years in popularity after interest rates from the Fed started to go up so aggressively in 2022. And so it's just gotten really popular. And so if you are approached for private credit or maybe your financial advisor is like, listen, I got this private credit thing going on. Like it should just be thought of as a part of a well-diversified portfolio. It's not the end-all be-all strategy. It's not what you should bet the farm on.

27:22Private credit is just another asset class inside of a well-diversified portfolio that's going to allow you to build wealth over a long period of time. 100%. I want to focus and talk about something I'm excited to start using more of. and it's that Ultra Pouches Instant Focus in a Pouch. I know you've been using these for the past year and I'm finally jumping late, but better than never on the train. And these pouches, just so everyone understands, are nicotine and caffeine free, which means they use clinically proven nootropics and adaptogens to deliver immediate focus and smooth energy that lasts a couple hours.

27:58Ultra partnered with leading neuroscientists to design these pouches, Robert. They use Infinity PX, which is a cleaner, smoother energy boost than caffeine. L-theanine, which is an amino acid promoting calm energy and attentiveness. Alpha-GPC, which is a nootropic for enhanced mental processing. And vitamin 6 and vitamin B12 for balanced energy and mood. And the bottom line here is if you're looking for a way to help you lock back in at work, get you through that afternoon slump, or maybe you're on a diet like me and you're looking to suppress that appetite, Ultra pouches are a great way to help keep you on track and achieve those goals.

28:35Use code RICH15 at checkout to get 15 % off your purchase. That's RICH15 at checkout when buying from takeultra.com. And Robert, people are like, why y 'all talk about Ultra? I've used Ultra for so long, guys. Austin Reef got me on Ultra. Shout out, Austin. I love Ultra pouches. They're awesome. When we found out they want to work with the podcast, I said, count me in. So Ultra Pouches, I've used them for a long time. Go check out Ultra Pouches, rich15 at takeultra.com. So our next question comes from an anonymous listener. They say, hey, Robert and Austin, love the podcast. My girlfriend and I are planning to get engaged soon and we're trying to decide between renting an apartment or buying a condo when we move in together in about a year.

29:17Ultimately, our goal is to be in a strong financial position to buy a starter home in roughly four years when we expect to move closer to family and start having kids. For context, we're both 23 years old, making about$80 ,000 a year, so about$150 ,000 to$160 ,000 combined. She just started working, so she has minimal savings and investments. I currently have about$46 ,000 saved across my Roth 401k, Roth IRA, HSA, and 529, plus$21 ,000 in a taxable brokerage account. I also have$15 ,000 in a high-yield savings account, with$10 ,000 of that reserved as a six-month emergency fund. The remainder could be available for a down payment.

29:53If saving for a down payment, I could save an additional$20 ,000 to$25 ,000 over the next year by pausing contributions to my brokerage account while still getting my employer's 401k match and maxing out my Roth IRA and my HSA. My girlfriend estimates she can save about$15 ,000 with a similar strategy while paying her parents back for college, which is the only debt we have between the two of us. So we can get about a two-bedroom apartment for just over$2 ,000 a month and continue to invest aggressively for the next four years. Or we could pause our extra investing for a year to save for a down payment on a condo, hoping the equity we'd build over three years would leave us with a larger down payment to put toward a starter home.

30:29Love to hear your thoughts on which option makes the most sense given our goals. Alright, cool situation. Congrats on wanting to get engaged. I hope you guys do that very soon. Two quick call-outs. $10 ,000 for a six-month emergency fund sounds super light. Right. That's like$1 ,800 a month of expenses. I would beef that up to be$1 ,500,$1 ,500,$1 ,500, because that is like what your expenses would be when you got, you know what I'm saying? Like, I just don't understand why that six-month emergency fund is so small. Maybe I'm missing something there. So just beef that up to like what you think it should be or make it a three-month emergency fund.

31:01I mean, you guys have two stable jobs. I don't know if you need six months of cash just sitting, right? That should be fine. And the other thing about this question I want to call out before I just toss it over to Robert here is that you're saying, I hope in the equity we build over three years would leave us with a larger down payment to put toward a starter home. I don't think much equity is being built in a condo in a three-year period of time. HOA goes up. Normally, insurance could get kind of tricky there. People need to know that they're buying into a condo. Condos don't appreciate the same as single-family homes.

31:27So if I were you, I would not go into this with a time horizon of three years. Whenever you buy real estate, from my experience, and Robert, I want you to talk about this a lot here, is you need to have a five to seven-year time horizon on that purchase for yourself here. That single-family home, that condo, whatever you're living in to ensure that you're giving yourself enough flexibility where the equity can go up, the mortgage can go down. And when you sell this, you're going to have to pay for some repairs. You're going to pay the commissions to the real estate agents. A lot of other unforeseen things have to get paid.

31:58So you've got to have that longer time horizon to make sure that you even have the equity and the money after that five or seven year period of time to ensure that you're not coming out of pocket when you close. But Robert, take this one away. Yeah, this is a difficult one. So please, anonymous listener and anyone else that's in this situation, don't take this the wrong way. The very first sentence is we plan to get engaged soon. But everything else about this question in this scenario is built on this premise that you're already married. You're not married. You are thinking about getting engaged.

32:27You're going to get married, hopefully, and all of it works out. But right now you have to look out and say, OK, wait a second. We have a plan, but we have to do this plan separately because you said which option makes the most sense. I don't think either option makes the most sense. You have to keep building your net worth. She has to get her net worth built and you can be doing it concurrently to say, hey, when we get engaged and when we get married, this is what we're going to do collectively. But until then, here's the better mousetrap, in my opinion. You do your thing. You do her thing with a plan.

33:00But what I would do if you have a three or four year window, I would get the base built. I would get yourself dialed in. I would not save for a condo. I would save money and have it invested in a high yield savings account. And each of you buy a duplex or a triplex before you get married. Don't immediately go into a condo like Austin said. They don't appreciate like single family homes or like duplexes or triplexes. You could buy one in each of your name before you move in together. She lives in one, you live in one for a year, so you qualify. Then when you get married, use the income from those two properties to pay for the single family primary home.

33:38But until you're engaged or until you're married, you can have all the beautiful rosy plans you want, but you still have to remember things change, things could go wrong, and you don't want to be basing everything on a plan that might not work out, but you are on the right track. And I love everything you're doing here, but you still have to be careful and make sure you're building for your future separately until you become one. I love that breakdown. I could not agree more. I love that you all are talking about this. I love that you all are planning your future, your financial future. Like that is a healthy relationship.

34:10That's what you should be doing. And to Robert's point, you can do those things while still keeping things separate until you have to make the move here. So to answer your question plainly, trying to decide between renting an apartment or buying a condo, rent the apartment, rent the apartment. You're saying that the apartment rent is going to be about$2 ,000 a month. That's awesome. Live in an apartment, do that for two, three, four years, and then say, okay, great. Fast forward six years into the future. We are married. We've been living in an apartment for three, four years now. Everything's hunky-dory.

34:41We've been doing this additional$20 ,000,$25 ,000 over, pausing some contributions over here while still investing, right? That's the key. Still maxing out the Roth IRA, still getting the 401k, all that fun stuff. And now you're saying, OK, we've got, you know, call it six figures for a cool down payment on something. Or maybe you took Robert's advice and you're doing the duplex, the triplex or the quadplex and you're doing that then. Like there's a bunch of different ways to think about this. But what you're not going to want to do is jump right into a condo and make these decisions while you're still both single in the eyes of the IRS and the eyes of the government.

35:12Yeah, I want to linger on this for a minute because this is a great example of why, through my experience, I suggest these things. One of my dearest friends to this day, this is about 15 years ago, met a woman. He was very far along in his financial journey. She was not. They moved in together. He paid for nursing school. He paid for all the bills. He paid for everything for, I think it was four or five years. She got the nursing degree. She got the dream job. Everything was great. They're ready to plan the family. And then she just simply left it. And he had no legal boundaries or no contracts in place.

35:44So he spent well over six figures on this relationship with the goal of being married and having kids. And then poof, it disappeared because he looked at it as one when that wasn't the case. So just I'm not trying to be a Debbie Downer, but make sure you guys understand that you need to protect yourself first. And then you can have all the plans in the world. It just makes sure you do it right. 100%. Have, combine, do everything when you're married. That's how it should be, right? You should be one household income, one household net worth, one household debt. It's a household once you're married.

36:17But until you're married, you got to just keep those blinders on and keep doing what's right for you. Now, before we jump to our next question, Robert, we were just talking about having money sitting in a high yield savings account. The Federal Reserve just raised interest rates for the first time in three years, which means all of our high yield savings accounts are now earning more money, earning interest on your emergency fund. So it's not withering away to inflation, which by the way, is at three and a half percent right now, right? That's their entire purpose. And as we always say, Robert, making your money work for you as hard as you work to earn it has always been the goal.

36:48But the problem is that most businesses don't have access to an interest bearing account, which means they're earning next to nothing on their idle cash. And Waldo fixes that. Waldo helps small and mid-sized businesses do what Fortune 500 companies do with their idle cash by giving them access to high yield treasury accounts. We're talking dentists, healthcare clinics, law firms, construction companies, manufacturing, e-commerce, retail, you know, all of these smaller to mid-sized companies and everything in between. Waldo offers access to yields up to 5 % alongside SIPC insurance coverage up to$75 million with no minimum deposit and no need to switch who you're banking with as a business.

37:32So if you have a business and your cash is sitting in a checking account earning nothing, go open an account on Waldo and start earning yield on your idle cash right now. Opening an account takes less than five minutes and learn more about Waldo at waldo.ai. Click the link in the show notes below and do what the big companies do with their cash. And use code rich habits when you sign up and you will receive a 1 % deposit match up to$1 ,000. Go see full terms and conditions at waldo.com. But if you use rich habits at sign up, Robert, and you deposit$100 ,000 because you've got that in your business account and you want to start earning some interest on it for the first time, you will get up to that 1 % match or a free$1 ,000 against that$100 ,000 contribution, like deposit.

38:16But again, here's the cool part, no minimum deposit. So you could put$2 ,000 in there and rock and roll, whatever. Businesses are all shapes and sizes. They all have liquidity needs. Robert and I were talking about this personally. Why isn't there a high yield savings account for businesses? Where are the 4 % or 5 % yields for businesses? Because they're the ones that need it most instead of these Fortune 500 companies that use all the crazy stuff with the treasure, all that stuff, right? This is for the everyday person. We love Waldo.ai. They're a very powerful tool. And again, rich habits at sign up for a 1 % deposit match up to$1 ,000 worth of that match.

38:48It's awesome. Go check out Waldo.ai. So our final question comes from Grant Y. Grant says, I like the debate you guys had in last week's episode about real estate. I'm 22, living in Minnesota, and I'm thinking about whether I want to keep renting or buy a small house to live in. I've been doing some research online. It seems like a lot of people are split and maybe even leaning slightly more toward renting now because the average interest rate on a mortgage is now above 7%. I would love to hear what your opinions are on the rent or buy debate. I still love the podcast and I listen to every single episode.

39:20Robert, this debate's been, you know, around for a while, but it's never been more important because interest rates, I know we've been talking about this for years, right? But like when we were talking about it, interest rates were 5%, 5.5%, which is like, yeah, go like, it's cool. 5 % mortgage, that's fine, right? But I'm doing a jumbo mortgage for this house I'm buying, and my interest rate that I was quoted is like 7.3%. The S &P 500 does 7.5%. So holy smokes, what's going on here? Robert, walk us through why interest rates are so high and what your take is on the debate rent versus mortgage.

39:55Yeah, this is a big topic, and I think it's very important for people to understand, but I want to start with why I think if you're looking to have a single family home, renting makes more sense. And that is a term called total ownership cost. So many people, when they're looking at rent versus buying, they say, all right, mortgage rates are really high right now. They're over 7 % for the 30 year. And they say, all right, well, this payment on this house is going to be 3 ,300 and I can rent for 3 ,000. So I'm only going to lose$300 a month, but I'm going to own my property. And that's just not the math.

40:30People need to do a better job of understanding the total ownership cost. What is the insurance? Is there HOA? What is the PMI? What are all the other lawn care, pool care, any of these other things? So it gives you a better understanding of the disparity between renting versus buying. And I agree right now, Austin, I think anyone that's looking to just get started and they don't have their base built and they don't have hundreds of thousands of dollars, I think they should rent because then they're all in cost is determined. They know what it is and they don't have to worry about all of these additional fees that most people don't calculate because most people are house broke right now in the United States because they borrow what they're allowed to borrow instead of considering how much they can actually afford.

41:14And it puts them in a place of disparity because they can't invest every single month like we want them to because they're living beyond their means. So I think if you're going out and you're looking for a place to live, whether you're single, married or getting married, I would rent first till you get your base built way up because interest rates are very high right now. I think the 30 year ticked to 7.17%, which is ridiculously high at the time. And I think it's important to understand that difference of the total ownership cost, because we don't know when these rates are going to come back down because the Fed just raised the rates 25 basis points.

41:50And even though the Fed is not directly tied to mortgage rates, it's definitely an indicator that we probably will not see mortgage rates go back down to 3%, 4 % anytime soon. I remember when the Fed started cutting interest rates, I think it was September of 2024. They had their dot plot and everything, and they projected end of 2026, interest rates were going to be, the federal fund rate was going to be somewhere, I think in the high twos or something. And now our federal fund rate is going to eclipse 4 % here, so double that. But it's just like, you know, you can try and think about and hypothesize what the future is going to hold.

42:23And you can try and do all this planning. But nine times out of ten, right, reality is just a little bit different. And so the advice that I would want to offer someone is buy a single family home when you can afford to buy a single family home. That advice is very different than the action I took in 2019 when I bought my townhome. I had about$11 ,000 down. It was a$278 ,000 townhome. My interest rate was 3.2 or 3.3%. The mortgage was like$1 ,200. It was a very different time back then. Now, interest rates are 7 % or higher. PMI, I feel like, is crazy. Insurances are much higher these days too.

43:05Don't find yourself in a situation where this American dream of buying a single family home, and if I don't own a single family home, I'm not really living. I'm not really doing it right. That is a false reality. I'm building and we'll close on a single family home here in the next month and a half or whatever our closing date is. And it's been something that I've saved several hundred thousand dollars for for a down payment. I've got seven figures plus still invested in the stock market. I've got my diversified everything. This is cool. I'm ready to do this. I'm only ready to do this because I've spent so long making sure that I can afford to do this, where I feel like some people get emotional about buying a home and they force themselves into saying, oh, but I could afford that payment.

43:48Oh, I don't care about the interest rate. Oh, I'm just going to do the HOA is not going to go up. Insurance will never go up as taxes are never going to go up. It's going to be perfect. Oh, we can, we can barely squeeze by, but we're going to do it because they said we can borrow the money and we can afford it. No, no, no, no, no. You do not borrow what they tell you you can borrow. You borrow what you can afford in that monthly budget to keep your all-in housing costs below a third of your take-home pay. If it doesn't work out where it's below a third of your take-home pay, then maybe renting is the move.

44:15I mean, I've got friends here in Nashville who are renting for$1 ,800,$2 ,000 a month. Like, you can't touch a mortgage right now and anywhere in Nashville without paying$6 ,000,$7 ,000,$8 ,000 a month. Like, it is bonkers. Please, if you're someone that feels like you're behind because you don't own a single-family home yet, or you don't own property, you don't own real estate, and you're like, oh, but the American dream has passed me by. Just know that it is not a smart investment right now to go put a lot of money into a single family home at this 7 % mortgage rates. It's not a smart move. What's smarter is to have a lower monthly payment via renting and then take that difference, that margin in your budget, and invest it in the S &P, invest it internationally, invest it into the Dow Jones, right?

45:00Invested into private credit, maybe, right? Who knows, right? But like, get that well diversified portfolio trending in the right direction for you. And then heck, maybe interest rates come down. Maybe you've got a large enough nest egg, we can have a larger down payment. So like, there's a lot of different ways that you can own property in the future. But please don't get emotional about buying a home right now, especially as we're facing 7 % mortgage rates. I think that is a great breakdown, because I believe there is so much societal No pressure. And let's get one thing straight for everyone watching and listening.

45:30Austin and I believe everyone should own real estate throughout their lifetime and their financial journey. 100%. There are a lot of benefits. But if you're just starting out and you have the pressure of buying a single family home or even worse, a dream home, it is not an investment. Because most of the time, you don't have the money already saved and invested in your bridge account and in your base to really accelerate your wealth building. And you're taking all the money you've saved up and you're putting it towards this house, then it's illiquid. You generally won't have a lot of upside capital appreciation year over year, maybe in some neighborhoods you will, but also you're restricting your ability to invest because you're probably living beyond your means.

46:09So make sure you understand the difference. I think renting versus buying is always a good choice, especially early on. Or if you really want to buy something, don't buy the dream home, buy a duplex, live in one unit, rent out the other units so you're living affordably, take all the difference in the world and put that towards your investing strategies and you'll be in a much better place in five to 10 years. And here's my final piece of advice. And I wish someone gave me this advice earlier, which is when you buy or eventually go out and you buy that single family home, don't just think about how much you're paying for the single family home for yourself, but also think about who's going to buy it from you in the future.

46:49Because all this equity you're getting all like everything like that's cool on paper but that's that equity is only worth what someone's actually going to give you money for and so as you think about buying that 600 ,000 800 ,000 one million dollar home and it's your drink whatever it might be right just think about who's going to buy that home from you for 50 percent 75 percent more in the next five seven ten year period of time because if you can't think of who's actually going to buy it for more because you're like oh my gosh like these prices are insane I can't believe they're like this much now.

47:20It's like someone's going to think the exact same thing in three, five, seven, 10 years from now. I just, I think that's, that's really important because the only way people get money out of real estate, specifically that single family home is when they sell the real estate. And so you have to figure out who's going to buy it from you at a higher price than you bought it at because the location's great or the, you know, whatever's going on, but yet think about that before you buy the home. That is a great call out. And I don't think it gets spoken about enough of people just go buy a home without thinking of the future aspects, especially if it's not the forever home.

47:53And it's really simple for people to do this exercise, Austin. You guys can check population growth. You can check what is the historical property value appreciation year over year in that zip code or in that neighborhood. So there's a lot of different ways you can see what the future values are going to be given a normal market. So really good call out Austin. Yeah, population. And then also what I'm getting really excited about too, is because I'm building this house in Nolensville, Tennessee. They've recently expanded. They're adding a Publix. They just added a Kroger. They're doing the Nolensville Town Square.

48:24That's going to be done in two or three years. So I'm thinking about not just my home and where I am geographically to the airport in Nashville, but what is the town you're in, that small city you're in, whatever it might be, what are they doing around you that's going to cause more people to want to be there as well, which I guess goes to that population side of it. So it's just like, think about everything over the three, five, seven year period of time of owning a home, because if you don't, and it's all done in the price that you buy it at. If you don't buy it for the right price, you're going to be paying for it later.

48:54Definitely. 100%. What a great episode. Great episode, Robert. Great episode. Everybody don't forget seven day free trial taking place right now inside the rich habits network, our community for our biggest fans, eight hours of video coursework, two-hour live stream taking place every Tuesday night inside of a Zoom call. What is it, Robert? 250 of our closest friends join us on that Zoom call, and we talk about the markets, our stock portfolio. We talk about private investments. We talk about everything. We answer your questions. People turn on their cameras and their microphones. They say, Robert and Austin, I got a question.

49:26It is so fun inside the Rich Habits Network in those live streams. And then, of course, again, we've got all of the private investing, the pre-IP opportunities. Those are all inside of the Rich Habits Network as well. Yeah, I might be biased. Of course I am. But I don't know of another community that provides as much value as we do throughout all of the components you get by joining the Rich Habits Network. So check out the seven-day free trial. You have nothing to lose and everything to gain if you're looking to level up your knowledge in finance, business, mindset, real estate, and all the things that Austin and I cover within the network.

50:01Thanks, everyone. And we'll see you tomorrow for our episode of the Rich Habits Radar.

50:08Thank you.

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