Office Hours: Using Real Estate to Build Wealth, How to Use Your Discretionary Income, and Best Practices Around Mentorship

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1:35Welcome to the Prof G Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehours at ProfGmedia.com. Again, that's officehours at ProfGmedia.com. I have not heard or seen these questions. First question. Hi, Scott. I love listening to your pod. Thanks for chiming in on all these questions. So I've been working a few years. I'm in my late 30s, and I'm playing catch-up. So I've been maxing out retirement, bought and sold a home at a profit, reinvested that profit into another home that I hope to make rental income on.

2:07But I'm also encumbered by student loans from a master's degree. And the interest rate is roughly 9%. I consider the Department of Education a predatory lender. I could refinance the private lender at a lower rate, but I'd lose the security forbearance options and other forgiveness programs. So despite some of these aggressive financial moves, I'm finding it really difficult to build wealth as a single person, especially when my student loans are a second mortgage. Right now, my best asset is my credit score and being able to qualify for buying another rental property. But if I do that, I'll be extremely leveraged.

2:39And my job is insecure. It's a year to year contract. So my question for you is, leveraging myself to take this type of risk, what separates the wealthy from not? And if not, should I just be cutting coupons, living well below my means, and just investing in the stock market instead? I know every case is different, but how do you build wealth with the constant drain of student loans? Most financial advisors say to just keep paying them off slowly over time. especially now with the uncertainty with the Biden administration about what will or will not get forgiven. Thanks a lot. Oh, gosh, that's a tough one.

3:10It's a very thoughtful question. So first off, I just want to acknowledge, and I don't mean to make this a blanket statement, like when your grandparents say, oh, you'll figure it out. You are clearly a really thoughtful young woman. And I also want, hope you take time to pause and recognize your success. the fact that you own an investment property that you're renting out puts you probably in the top 10 % of quote-unquote shit-together people in our nation. And you obviously have the discipline to save money. You invest it in yourself. So to your question, 9 % seems like a lot. So the bottom line is you just need to kind of map it out.

3:48If you could refi at 3 % or 4 % and you have$50 ,000 in loans. What's that? That's a savings of, call it 5 % on$50 ,000 or$2 ,500 in interest a year. You constantly want to be thinking about figuring out a way to refi down or decrease the interest rate across every loan you have. 9 % is a serious interest rate, even in an economy with inflation. Our inflation is running at 5%. So that seems especially onerous. Now, in terms of rental properties, there are few ways to build wealth more consistently and reliably than real estate and rental properties. And one of the reasons why is that the real estate industry is some of the most tax-advantaged or one of the most tax-advantaged asset classes in the world.

4:32So your rental property, you can depreciate 3 % a year. So there's very few assets that typically go up in value, which real estate over the medium and long-term usually does, and still you can depreciate it. So if I have$100 of the Amazon stock and it goes to 120, I don't get to take a$3 tax deduction depreciating at 3%. You can on real estate. Also, it sounds like you have taken advantage of a 1031 exchange, which is also unique to the real estate industry where you bought a rental property, sold it, and you can take, I think as a single person, up to a quarter of a million dollars of that profit tax-free, or you can roll it into another property within six months.

5:11So you get tax advantages. Also, you can, if you buy another like property or similar property within six months, I believe, you don't have to pay taxes on it if you roll it. So one way, a decent way, a decent, reliable way to get wealthy is to wash, rinse, and repeat. And that is buy a new property, fix it up, hold it. You got to buy smart. You got to understand the area. You got to be disciplined. You can't fall in love. You can't become emotionally involved in a property because that means you overpay. And then you add value yourself. And it sounds like you know how to do that. You fix it up, you understand the right questions to ask about a property, and then you rent it out.

5:46But the thing about a house, you buy it and it can be an anchor around your neck. Assume the worst. Say you can't make the rental property on it. You give it back to the bank. And I know no one ever wants to do that. But real estate on the whole is the one place I would argue you can justify levering up. There's few asset classes where you can get five to one leverage on your money at that pretty reasonable interest rate typically. And so what it comes right down to is I would assemble a kitchen cabinet of people who understand real estate, understand your situation, and really lay out everything.

6:21Your job, how much you make, how much disposable income, realistically how much rent you think you can get, how much time do you need to fix the place up, and decide if with some other people if this type of leverage and risk makes sense. The highest paid people in the world have one thing in common, leverage. Private equity is all about borrowing money at a very low rate and levering up and going and buying businesses. And hopefully those businesses increase in value as you pay down debt. And that is the best type of debt. I buy a rental income place. I can meet my payments with the rent, right?

6:54And I have the equity to put into it. Ideally, my rent covers, my expected rent covers the cost there. So even if I lose my job, I'm not up a creek without a paddle. And the value over time, especially if you can hold in real estate, goes up as the debt goes down. And the delta between the two is where I get real leverage and can make real money. Because if I buy$100 in stock, I don't get any leverage on it unless I use margin. But even margin is more like, you know, one and a half to one or two to one. But if I buy$100 with a real estate, I only have to come up with$20. So if it goes up 3 % a year, the value of the property, I'm actually getting a 15 % return on my equity, not a 3%.

7:33So that type of leverage is unique for an individual in your situation. I'm not going to tell you to do one thing or the other. What I'm going to tell you to do is, one, I have a gut reaction that 9 % is pretty extraordinary, and you should think about refinancing that. Two, you need to put together a kitchen cabinet of really thoughtful people who understand you, be very honest about your cash flow, your job, and then look at the specific property. The one place I would encourage people to take some amount of uncomfortable leverage is in real estate, the most tax-advantaged asset class in America.

8:08And let me finish where I started. You obviously have your shit together. Take some pride, pat yourself on the back that you are behaving so responsibly and building wealth. Anyways, thanks for the question and best of luck to you. Question number two. Hi, Prof G. I'm Rebecca and I'm currently working in a bank in Hong Kong. I'm a huge fan of your show and I really truly listen to your advice, come to the office, set aside some money in ETFs every month, and work out three to five times a week. My question to you is, should I travel to connect with people or more importantly, stakeholders in other office locations?

8:43I'm too junior to be flown out for business travel. I only have less than five years of experience and most of it was as a reporter. So I wasn't even working in a bank before. But I can somewhat afford to occasionally get a plane ticket and crash at a friend's couch to, quote unquote, show my face to stakeholders in other offices. Singapore, London, New York. You mentioned that personal connection matters a lot in being promoted. In Asia, the dynamics are slightly more distributed. A lot of companies have different team heads located in both Singapore and Hong Kong, which is why I'm considering this option.

9:18Should I save up to fly for these trips? perhaps like once every half year? Or does this send a message to the company or my managers that Rebecca will fly at her own expense and we don't have to arrange anything for her? Looking forward to your advice and rock on. So first off, Rebecca, you're thinking the right way. And that is promotions are a function of relationships. And that is when there's a promotion or a spot available, there's always more than one person who's usually qualified for the job. But that's what I found. Say there's three people qualified for the job or three people in their mind are qualified for the job.

9:54The person who gets promoted will be the person that the decider has the best relationship with. When you have an invested interest in someone emotionally, you like them personally, you want good things to happen for them and you want to use your sway to help them excel in the world. So, and relationships are a function of proximity. There's a lot of studies that show you make more money when you spend more time at headquarters. If you're good and you're at headquarters, you're more likely to get promoted than if you're great and you're in a regional office. And companies try to adjust for this.

10:20They try to recognize that, okay, if Lisa is running the European office, we got to keep in mind she's doing a great job there. But there's just no getting around it. Proximity is hugely important. So you're thinking the right way. Having said that, having said that, with your finite personal income, your discretionary income, and more importantly, your discretionary time, I wouldn't travel to other offices. I think you just need a break. What you want to do is establish relationships at other offices, take opportunities if they present themselves to go spend time in another office. Maybe at some point transfer to another office if your company offers that.

10:56I think young people before they collect dogs and kids should absolutely take any opportunity to move to another country. That not only looks good on your resume, it's just a great life experience. It forces you to meet other people. You are kind of a novelty when you're Rebecca from Hong Kong. That's an interesting rap when you're in the Singapore office or the Seoul office or the Los Angeles office. But Rebecca, my guess is you're working hard. And I want you to take that discretionary income and that discretionary time off. And I want you just to have a wonderful time. If the company is not willing to pay for you to go to another office, then don't go to another office.

11:32Go sit on the beach somewhere. Go party with friends in Tulum. Go check out, you know, Anger Watt, whatever it is, right? Get, you know, travel, for God's sakes, go do something great in Europe. You're living in such a great part of the world. You know, go to Tokyo, what a fucking incredible city. I was just there. And try and find another friend who will go with you. But no, don't pour your discretionary income and time back to going to another office. Use the platform, make an effort to meet other people in other offices. If you make friends, then great. The two of you should take a vacation somewhere where there isn't an office.

12:09You deserve to chill. You deserve to recharge. Again, take that thing. Take that finite capital as a young person. Explore the world. Do cool things with cool friends. At the end of the day, your time off is your time off. Your discretionary income is your discretionary income. Thanks for the question, Rebecca. We have one quick break before our final question. Stay with us.

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14:54welcome back question number three hey prop g this is josh from austin texas i'm 36 years old married father of three and working in a career in the industry that i love first let me just say thank you my father passed away when i was 20 and it was pretty much right around the time that I was beginning to appreciate his wisdom and ask his advice. I've slowly missed his presence over the years and have had to beg, borrow, and steal advice and wisdom from whatever mentors and father figures have and enter my atmosphere. Thanks for all that you do. Now, here's my question, and it's about mentorship.

15:26Given my situation coming out of college, I don't think I would have made it as far as I have without key people taking an interest in me. In my career, I've generally benefited from varying forms of mentorship over the course of my work life. Some relationships have been great. Others may be disappointed. Some felt incredibly structured while others happened organically. They all felt important, informative. How would you coach people and professionals to think about mentorship? When and why to seek it out? Who we should ask if we're seeking mentorship? How official versus organic the arrangement should be?

16:00How to know if you're in a place to provide mentorship to someone else? I'm convinced these relationships are critical to my success. I still don't feel like I fully understand them. We'd love for you to shed some light. Thanks again. It's a great question. And I'm wondering if there's, I'm immediately thinking I wish I'd done some research on best practices around mentorship. I think that it's especially important for young men to make an effort around mentorship. I have found, generally speaking, that because women were so disadvantaged in the labor force for so long that corporations have been doing better about trying to create structure around female-to-female mentorship programs.

16:42A lot of companies have them more structured, more formal, but they usually don't have them for men, recognizing that we've needed to catch women up, if you will, professionally. And also men have a more difficult time expressing anything resembling affection or being proactive around a relationship that it kind of insults or deflects our sense of masculinity. So there's two sides of this as a mentor and the mentee. As a mentee looking for mentors, I think you obviously, if it happens organically, that's great. But I wouldn't be afraid to ask somebody out for coffee and then ask them for advice.

17:17I don't think you ask them to be your mentor right off the bat. What I think you do is you ask them out for coffee and you say, you know, I respect you. I'd love to just get your thoughts and some advice from you. People, generally speaking are really receptive to that. You know, a lot of us, especially men, we have these very paternal and fraternal feelings, and we don't oftentimes have the confidence or the context to share and coach people. I love coaching young men. I love having boys, and I feel as if I can add value. And I enjoy, I've basically been giving advice for a living for 30 years, but mostly to old white dudes who are the CMO or the CEO.

17:58And I found what's really rewarding now is I enjoy giving advice and coaching young men. I also coach young women, but not nearly as much because quite frankly, I just relate to young men more. Also, I think young men probably need mentors even more than young women. Why? Because young men, and I'm not saying this is true of you, I'm saying you kind of be honest and clearly sound like a very responsible man. But young men are just fucking idiots. Our prefrontal cortex doesn't develop as quickly. We have poor judgment. We're actually more sensitive and more vulnerable. There's more single family homes in the US and any Western country with the exception of Sweden.

18:36And the outcomes for boys are much worse in single parent homes than in dual parent homes. What's interesting is they're not that much different for girls. It ends up that boys are physically much stronger, but emotionally and mentally much weaker than girls. They don't recover as quickly. They're more vulnerable to changes in the household or changes in the situation. And we have an entire generation of young men that quite frankly are just failing. So I think some sort of mentorship or more acceptance around getting involved in a young man's life. You know what really bummed me out? I was on the Bill Maher show, and I said, or I suggested, that he should get involved in a young man's life.

19:18And he said, there's no way I can get involved in a young man's life. While, while, this is the hard part, while making them feel safe, they've been taught that it's toxic to express that interest. It's not. Even if I wanted to help you with this, it's too risky. You know, they would just say I was a pervert. It was, oh, boy, Bill Maher suddenly took an interest in a 15-year-old boy. Not a boy. Yeah, they would. No, I'm sorry. Anyway, speaking of this. The most underutilized, the biggest waste in the world is good intentions. And that is if you have the intention to help somebody or get involved in someone's life, you should absolutely do it.

19:54Anyways, back to the professional mentee thing. I think it's absolutely fine for you to say to someone, can we grab coffee? I'd love to just ask you some questions or get some advice. Approaching someone, and this has happened to me a lot, saying, will you be my mentor is intimidating because it's like you're signing up or you're committing to a long-term relationship. and sometimes you're not comfortable to committing to that. But if someone asks you out for coffee and then starts throwing questions at you and wants your advice, that's enjoyable and rewarding. So young men, don't be afraid to ask people out, both men and women, and ask for their advice and get them emotionally invested in your success.

20:28And two, if you're a little bit older or feel like you have something to add, don't be afraid or be very open to helping people or coaching them, especially in a management role. but also if you know someone down the block, you have friends, you have a nephew that's a little bit younger than you, you have friends whose younger brother or son is struggling. I just have been shocked how many people are receptive to saying, you know, I'm around this weekend. Does your son want to grab coffee? Does your brother want to come over and talk to me about his, you know, what's going on with him at work or whatever?

20:59Just putting it out there. There's a lot of people who need, especially young men who need help. Long-winded way of saying the real men, the real men, protect and advocate for people they will never meet. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehours at profgmedia.com. Again, that's officehours at profgmedia.com.

21:29This episode was produced by Caroline Shager and Jennifer Sanchez is our associate producer and Drew Burrows is our technical director. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly markets show. What do walking 10 ,000 steps every day, eating five servings of fruits and veggies, and getting eight hours of sleep have in common? They're all healthy choices. But do all healthier choices really pay off? With prescription plans from CVS Caremark, they do. Their plan designs give your members more choice, which gives your members more ways to get on, stay on, and manage their meds.