Q&A: Recasting a Mortgage, Starting an ATM Biz, & Arbitraging Tax Refunds

0:00Rinse takes your laundry and hand delivers it to your door. expertly cleaned and folded so you could take the time once spent folding and sorting and waiting to finally pursue a whole new version of you like tea time you or this tea time you or even this tea time you said you hear about Dave or even tea time tea time tea time you so update on Dave it's up to you we'll take the laundry rinse it's time to be great when you walk into a Burlington you're walking into amazing prices and great gifts. That's main character energy. Because at Burlington, the holiday savings aren't the only things turning heads.

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1:19Before we jump into those questions, a couple quick reminders. The first one being to check your email inbox every single Thursday. The Rich Habits newsletter is sent out to like 45 ,000 people and everyone loves it. They eat it up. We get a lot of positive feedback about our newsletter. So if you've not yet subscribed to that, there's going to be a link in the show notes below. And if you have subscribed and you enjoy it, consider forwarding that email to a friend so that they could also enjoy the Rich Habits newsletter. And don't forget, our next webinar is August 15th at 4 p.m. Eastern. We are going to dig deep into all things angel investing, show you how we do it, teach you how to do it.

1:59And really, it's going to be an awesome webinar. We can't wait. Yeah. And you will also be presented with an opportunity to invest alongside of us. Literally going to show you guys how you can invest into these massive multi-billion dollar pre-IPO companies that Robert and I get asked to. I mean, Robert, you were just asked, I think it was about two months ago, to invest into XAI, that new Elon Musk AI company that he built. So we get these opportunities all the time. And we have finally figured out a way to unlock access to all of you. So be sure to reserve your spot to that webinar. Again, that's August 15 at 4 p.m.

2:34Eastern, and it is completely free. Robert, you were just here in Nashville. We got to hang out with each other over the last weekend. What was your favorite part? Oh, I would say my favorite part was all of the filming because you and I have created so much incredible content over the last year and a half, but we rarely get to do it side by side, chopping it up and really just digging into all of the great things that we get to talk about for our listeners each and every day and breaking it down for them. So I think filming together was incredible. I really enjoyed learning more about Nashville and the surrounding areas in case we get a place there.

3:15So as we build the Rich Habits Network, it makes things easier for you and I logistically. So that is really exciting thinking about it because I love the beaches and I love Florida, but I also really am excited for the Rich Habits Network and our future. So seeing some areas so I can visualize where I would want us to get a place. I think that was top of list. And then the food, we ate way too much. So now I'm gonna need a few days away from you and all that food. So I would say those are my top three things. I'm right there with you, man. And speaking of the network, if anyone wants early access to the Rich Habits Network, we've already had over 200 people send us an email asking for that.

3:57But if you've not yet sent that email, again, throw the word network in the subject line, email richhabitspodcast at gmail.com with that subject line and let us know why you want to join and we will do our best to give you early access so stay tuned for that now robert before we jump into the episode i do want to take a moment to talk about our sponsor public.com because if you're looking for a simple yet sophisticated investing experience you got to check out public from stocks to options bonds to crypto it is all there you don't have to juggle or switch between different apps, Public lets you manage your entire portfolio all in one place.

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5:14This is a paid endorsement for Public Investing, 5.1 APY as of June 17th, 2024, and is subject to change. NerdWallet overall rating of 4.6 out of five stars was as of May of 2024. Full disclosures in the podcast description. All right, Robert, let's jump into our very first question. Our first question comes from Giselle V. Giselle says, I'm 23 years old and I'm in the armed forces. I just received a$15 ,000 bonus and at the moment, it's sitting in my public.com T-bill account, earning 5.4%. I want to invest this money wisely though, not just keep it in T-bills, so these proceeds can aid in my goal of retiring by 45 years old.

6:00I don't plan to have any children. So do you guys have any ideas? I was told to think about an ATM business, but I'm not too sure. I'll kick this one off. So to talk about the ATM business first, I was also almost bamboozled into starting an ATM business. I feel like that's one of the flashier sort of, you know, start here, start now, easy businesses that some of these fake gurus like to talk about. I found some people back and I think it was 2018 or 2020 on Instagram that were talking about the millions of dollars they were making in ATMs. And all you have to do is buy their course and put$10 ,000 into one of these machines.

6:35It's crazy stuff. So probably better side hustles out there. If you do, though, are into this idea of true passive income, you could look into the vending machine business, right? You know, I had a vending machine business. You know, we started it back, I think it was in 2022. We paid like$40 ,000 for it. It was doing about$2 ,200 a month in free cash flow. It was about one times annual profits is what we paid for it. And you can find these on Buy Biz Sell. You can find these on, what is it, LoopNet and some of these other cool websites where they're selling existing businesses. But the hardest part about that is the maintenance.

7:08So just be ready. If you do want to have like some sort of physical machine, like an ATM business or a vending machine, I would definitely lean toward the vending machine side of the equation. But what would I do with$15 ,000? That's such a great question. I guess the first thing I would do is I would make sure that I already have the taxes set aside for that$15 ,000. I don't know if that was already pulled out of your paycheck and set aside for you. but I would make sure I 100 % have my taxes set aside and figured out for that money. So come April of next year, I don't have a weird$3 ,000 or$4 ,000 tax bill that just causes me to go into debt or sell my investments or something silly.

7:44The second thing I would do is, of course, I would make sure that I'm depositing$7 ,000 of that in the calendar year of 2024 into my Roth individual retirement account, and I'm investing that money immediately. I don't want that just sitting around. I want to deposit and invest. Assuming you've already done that, unless you've already built your base, Giselle, which I'm not sure you said you did. I don't see anything in this question about that. But unless you've already built your base, I'd make sure this money goes toward that. I mean, you're 23 years old, you're very, very young, and you have an opportunity now to get a great jumpstart on building your base.

8:16And assuming you have built your base at 23 and you're just rolling in it, the last thing I would now consider is real estate, right? A$15 ,000 sort of bonus can be a great aid toward building a down payment on a duplex or a triplex. Maybe you can find something for four or$500 ,000 and this money could go toward that. Those were a bunch of different things I would consider doing. So Robert, I don't know if I left you that much meat here on the bones, but I'll let you answer the question as well. Yeah, Giselle, first and foremost, always ask yourself, is the market you're considering investing in growing or shrinking?

8:50And in the instance of an ATM business, you have to think that we are going away from the dollar, not the dollar in general as far as fiat currency, but people just don't carry cash anymore and have less need for cash these days. And that's gonna continue to trend into digital rather than back to cash. So that's why the ATM business to me is no longer the business that it once was. So I would definitely stay away from the ATM business. That's my thought. Austin covered it well. I feel like it is too one of the shiny ball syndrome things where people can sell you a course for your done for you ATM business.

9:30I think it's very scammy. And so I would just stay away from that because like Austin said, there's so many other better side hustles you could do with your money and invest in. And I just don't think the ATM business is it. I would also, I mean, it seems like you're into this idea of passive income. So maybe there's a world where you can park all$15 ,000 into maybe a high income ETF, like an SPYI or a QQQI. And that would start to yield a couple hundred dollars a month to you in tax advantage, pretty much tax free income. So depending on where you are in sort of your journey of building wealth, there's a couple ideas here, but I agree with Robert.

10:12The ATM business, I think, would be at the bottom of the totem pole for me. A really good question. And thank you so much for your service. Our next question comes from Ryan W. Ryan says, hey, Austin and Robert, I recently found your podcast and I've been binge listening to every episode on my way to and from work. All right, Ryan, you're driving right now. Make sure whenever you hear your name and your question, you don't freak out too much and swerve out of your lane. Keep eyes on the road, eyes on the road, Ryan. All right, Ryan says, my wife and I decided to buy a house together before selling our primary residence.

10:43And after we sold our home, we had 350 ,000 in cash. We got lucky and have a 4 % interest rate. And this happened though before I found your podcast. So we did a recast on our new home, bringing our monthly payment down to$2 ,800 a month after deploying all$350 ,000 in cash toward that mortgage. We both work in my parents' family business and our household income is$325 ,000 a year. We have a one-year-old daughter and since listening to the podcast, I've really restarted and paid more attention to investing. We also have a brokerage account with Schwab that has$60 ,000 into it. My Roth IRA has$100 ,000 and we just opened a Roth IRA for my wife.

11:23On top of this, we put money into public.com every week into almost all the ETFs you guys mentioned on the podcast. Now here's my question. In a recent episode, Austin said if you had$400 ,000 and you dropped it into SPYI or QQQY, you can expect to earn$4 ,000 a month in income. My question is, should I actually try and do that by pulling the equity out of my primary residence? But if we were to do that, we would have to take on a HELOC. And I do have a dream of paying off this primary residence eventually. We're even paying an extra$1 ,100 a month toward our principal to achieve that. And we have$360 ,000 left to pay off.

12:04It is worth$820 ,000. Robert, that was a bit of a long question. So just to give everyone a quick recap here, he's pretty much trying to figure out, should he take$350 ,000 of equity out of his primary residence that he took as a proceed from selling his previous house and using that as a way to begin generating passive income using a covered call ETF or some other high income ETF? I'll let you go from there. To me, it's a little bit tricky because I feel like you recast the mortgage. And for those of you that don't understand what that means, let's break that down for a second as well. Recasting your mortgage basically just means that you're taking a large sum of money and you are recasting it by dumping that into the mortgage to lower the amount owed, then they recast what your payment will be using the same property, the same mortgage, and the same interest rate.

12:57So by doing that, they were able to substantially lower their payment, but now after learning that that probably wasn't the optimal thing to do with that money, The question now becomes, do you do a HELOC or something to get that money out and get it working in an SPYI or something else? So for me, it's a little tricky because I don't know that the math is going to work out right now. Because if you take a HELOC out at 7%, let's say 7.5%, which is probably what you can get it at, you're going to be paying that back in interest. And then you have to consider, is the positive arbitrage on your money in VOO or SPYI or something else worth it?

13:42And in my opinion, I just don't think it is. So I would just sit tight where you're at, but don't do that anymore because we always talk about if you can borrow money for less than what you can make with it, you always borrow. And I wish we would have met you sooner to keep you from recasting the mortgage. so we could have invested all of that cash because we probably would have been able to make$40 ,000 a year with that cash. So that's my opinion, Austin, but I can see you're ready to take something on here. So go for it. Yeah, so unfortunately for Ryan, average HELOC rates right now are nine and a half percent.

14:18So the math really isn't even mathing, assuming you can get a 12 or 13 % sort of yield there, right? Just you're going in too much risk for a couple percentage points. It just doesn't make sense. So kind of doing some quick math here though, right? You guys are taking home about$20 ,000 to$22 ,000 a month after tax take-home pay, and you're adding an extra$1 ,100 per month to the principal to pay this off. In my opinion, if you are really gung-ho on this idea of making some passive income and building up, you're 46 and 47, you have another 15, 16 years until you can really touch your individual accounts here.

14:54You have this brokerage account with 60 grand. I guess what I'm trying to get at is if you're really gung-ho on trying to build up this bridge account, allowing you to retire five, seven, maybe eight years before you can touch these actual retirement accounts by dipping into the bridge account, then maybe you stop doing the extra$1 ,100 per month in principle and you begin putting that into an SPYI. And you guys, again, are taking them 20 grand a month. Maybe you carve out four or 5 ,000 of that and you quickly now have an extra$60 ,000,$70 ,000 a year that you're deploying into these passive income ETFs, allowing you to get to that$350 ,000,$400 ,000 range over the next four, five, maybe six years.

15:36Now, you fast forward six years and you have a brokerage account that's paying you$5 ,000 or$6 ,000 a month every single month in passive income because it's invested into these high income ETFs that are very tax efficient. And you can take a portion of that, use that to pay off your monthly mortgage. And now you have sort of this like, you know, a little bit of financial independence, a little bit of financial freedom, but most certainly flexibility as to how you want to look at your expenses on a monthly basis. If you want to maybe even take this income and use that as an extra way to pay down the mortgage faster, maybe try that.

16:07But I really agree with Robert here. You should not take out a HELOC at 9.5 % interest against this to try and earn an extra 1 % or 2%, maybe 3%. It just doesn't make sense. But if you instead want to begin building up an account over the next four to five years, I think that's a wonderful idea because again, it gives you that flexibility to even use the monthly income from that to start paying down your mortgage faster. I love it. Yeah. I think that's just a great takeaway. And we're glad that you found us now because we are here every single week for everyone to really help kind of spell it all out and figure out what is the best strategy?

16:41What would we do if we were you? And what have we done for ourselves in the past? So I love questions like that. So our next question comes from Josh W. Josh says, hi Austin and Robert. I have a question. I've been meaning to ask you off for a while. Just like you two, I'm a big believer of buying the dip when the chance comes. If I believe in the asset, I'm more than happy to buy it at a discount. However, having the funds on hand and ready to go when the time comes has been a struggle for me because I usually invest my money as soon as it hits my bank account. When we had the dip recently in cryptocurrency over the last month or so, I wasn't prepared.

17:14So I had to pull a couple thousand from an emergency fund. Obviously, this is not optimal and something I want to avoid in the future. So my question to you is this, what's the best way to keep funds set aside in preparation for buying the dip? All right, Robert, I'll take a stab at this one. And I think it comes back to the sort of phrase we like to say, broke people react, wealthy people forecast, right? And Josh, I'm not calling you broke. But what I'm saying is I know exactly how much money I'm going to invest during the month of August before the month even begins. Okay. And I do that because I can forecast ahead.

17:45I know what my budget looks like. I know how much money I'm going to make. I understand, what life events are coming up. So I know that I'm going to invest about$20 ,000 into something during the month of August. It's up to me what that looks like, but that's my amount. And so what I will do, Josh, is I will take$20 ,000 from my bank account and I will deposit it into my investment portfolio. And once it's inside of this portfolio, my brokerage account, on normally in every other day, sometimes a weekly basis, I will begin depositing and deploying that money into the markets. I think it's totally fine to kind of average that out over a couple weeks, definitely average it out by the end of the month, right?

18:21I want to have it all deployed over that 30-day period. That's what I do. And it allows me, Josh, to buy those dips when they do come, right? CrowdStrike, for example, has had an awesome, massive dip that I'm really excited to buy into. And I now have money to do that. I was able to kind of buy and get excited about that. Same thing to your point, Robert and Josh, with this cryptocurrency pullback we had a couple weeks ago. I think it got down to like 55 or 57 with Bitcoin. So being able to forecast the next month and being able to sort of put that money into your brokerage account and then deploy it systematically every day, every other day, every week.

18:55Is it a Friday? Is it a Tuesday? I don't know what it is for you, Josh, but that's what I do. It works and it allows me to buy the ups, the downs, and I'm buying nearly every day of the month. It's pretty cool. So I'm going to take it a little bit different direction, more from a layman's terms, because Austin is one of the most prolific thinker investors I've ever met as far as how much he automates everything. So I'm gonna break this down for the average Joe. So Josh, assuming you wanna be prepared for the dip, I think one of the easiest strategies you can do is to have the money earmarked for when you look for that dip or you see that opportunity and just keep it in like a public high yield savings account, somewhere where you can make a little money with it because you don't want it sitting for a month or two or three if you're not sure when a dip or what dip or what you're buying is gonna be.

19:46We automate our investments much more than most people and that's why we win. But when you're getting started and you're not quite sure where the money's gonna go, I think it's fine just to take whatever money you have, have it set aside, have it spoken for for your investments, whatever that might be, and just look at a high yield savings account because it's simple, it's easy to get to, It's 100 % liquid. And then you can make sure you don't miss any dips. And that's how I would do it for the average person out there that's looking to take advantage of downswings in the market. Yeah, I think like, you know, it'd be even more tactical than that, Robert.

20:23Let's say that someone gets paid every two weeks or on the 1st and the 15th, right? So every paycheck, I mean, let's say you know that you're going to invest$1 ,000 a month. So every paycheck, you set aside$500 and you deposit it into your brokerage account. And then maybe that next Monday, right? Assuming you get paid on a Friday, the next Monday, you invest 250 of that. So half of that, then you wait a week and then you invest the other 250. Then you get paid again. And it's another 250, another 250, giving you that$1 ,000 a month. That's a way to do it. If you want to be a little bit more patient to Robert's point, of course, you can put it in a high yield savings account.

20:56But I do agree with Robert that you should not have money sitting to buy the dip for more than a month, right? I mean, we want you investing every single month. I don't care how big the dip is. I mean, no one can look and predict the future one month, two months, three months out. So again, dollar cost average on a weekly, bi-weekly, or monthly basis is always the best way to be an investor. Really good question, Josh. That's why you never hear Austin and I say, buy the dip. We always talk about dollar cost averaging because buying the dip, in my opinion, is kind of a fallacy because no one really knows when the dip is going to be, if there's going to be a dip.

21:31Is it going to be prolonged? How severe is it going to be? And you hear a lot of the fake gurus that are out there on Instagram and TikTok every day when they're like, the market is getting wrecked right now. All techs are crashing. And then you look and you're like, wait a minute, Nvidia is down 3%. Amazon's down 2%. That's not a crash. That's normal business. And so that's why we prefer to look at it as dollar cost averaging and try to automate as much as possible versus sitting there holding money, just watching the markets, hoping for a dip, because you don't know if it's ever gonna come or how severe it's gonna be.

22:08Right there with you, man. I couldn't have said it better myself. Our next question comes from Emmanuel S. Emmanuel says, I love the podcast and I wanted to ask my first question. I hope I make the cut. Well, Emmanuel, you're here. Thanks so much for listening, my friend. Okay, Emmanuel says, on an episode earlier, you all said that getting a tax refund is a bad thing. It is like the government holding your money and then giving you those taxes that you overpay back. Would it instead be smarter to not have taxes withheld from my paycheck each pay period, take my own taxes out, throw it in a high yield savings account, make money off of it until tax time, and then pay the taxes that you own but take the profits from the high yield savings?

22:49It's easy money to make if you ask me, but am I thinking about this wrong? Ooh, okay. Emmanuel, dude, I appreciate that. What a guy. Emmanuel's over here thinking of every way that he can arbitrage his money, make a little bit more here and there. We love the mindset, Emmanuel. We just want to give you your flowers, dude. We love where your head's at. Now, here's the deal. I have pretty much one rule in my life. I don't like to play with the government of the United States, especially the tax man. I will always pay for the top-notch accountant so that I can protect myself. I will always be happy to overpay in taxes just a little bit, assuming I can get that money back.

23:27But I guess what I'm saying is I just don't like getting risky with Uncle Sam. He has a lot of power and he is a very mean guy that will find the heck out of me if I do one thing wrong. So in this instance, I love where your head's at. I wouldn't do it. I would though, Emmanuel, I would try and figure out what that perfect amount is, where if you do owe taxes, it's just a little bit, right? You're not getting that one, two, three,$4 ,000 of tax refund back. Maybe you're getting back 200 or$300. Maybe you owe two or$300, right? You can absolutely optimize for what that tax refund might look like in the year going forward.

24:06Just go to your HR department, ask them to withhold a little bit less or a little bit more, whatever it is for your instance here. But I appreciate it. I just wouldn't do it. I'm just not that type of guy. Maybe that's the type of guy Robert is. I don't know. What do you think, Robert? No, I don't mess with the tax man. Do I push the envelope as far as I can to make sure that I'm fully within every single law, but not just leaving money on the table? Absolutely. At the end of the day, the tax code is there for us to exploit it. It is there for us to learn. It is there for us to grow. It is not an enemy of us.

24:42The IRS is not our enemy. They are our friend, but I don't want to mess with them. So for me, same thing as Austin. I want to make sure that I just follow the letter of the law, but I make sure I push the envelope as far as I can in my favor. So although I like your sentiment, I agree. I wouldn't do it. I wouldn't mess with it because the last thing you want to do is get them on your trail and get them going through everything you do and keeping an eye on you because, you know, that just generally doesn't end very well. Yeah, I also feel like your employer wouldn't be very happy with you doing this either.