Starting Early & Finishing Strong with Real Estate

Mindy: Welcome to the BiggerPockets Money Podcast, show number 108 where we interview Kristi Tanner Smith and hear her story of financial independence and how she’s pursuing her financial freedom through real estate investing.

Kristi: If I could just go back and tell my college self, I would say to not focus so much on what other people think like your cars, your clothes. None of them matters. Even if your family and friends think you’re crazy, just do whatever makes you happy and start early.

Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my spectacular cohost Scott Trench. Scott and I are here to make financial independence less scary, less just for somebody else and show you that by following the proven steps you can put yourself on the road to early freedom and get money out of the way so you can lead your best life.

Scott: Wherever you are in your financial or life journey, you could begin rapidly moving towards a position capable of generating a great income, saving a huge percentage of that income and setting yourself up to make larger and larger investments on your way to financial freedom. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate or start your own business, we’ll help you put yourself in a position capable of launching yourself towards these dreams.

Mindy: Scott, I am super excited for today’s episode because I don’t know if you know this, I love real estate and Kristi is working on her financial freedom through real estate investing.

Scott: We’re really excited about Kristi’s stories today because she just has a very unique perspective. We haven’t really come across someone quite in her shoes before. She lost both of her parents by the age of 16 and was on her own to figure out college, life, money and all the rest of it. She’ll be the first to say that she didn’t make optimal decisions there, but I think you and I are just amazed at how disciplined and how strong with money she was from an early age and how she’s been able to parlay that into financial freedom, what like at 27?

Mindy: Right. Super impressive her story is because what I find interesting is she considers herself privileged and I don’t agree with her at all. I think she had some monumental hurdles to overcome, which she did amazingly well. She’s taken this idea of financial independence and early retirement. She’s taken this idea of investing in real estate to provide a passive income stream or a passive-ish income stream and she’s not shooting for the moon. She doesn’t want to have 5,000 rental units. She wants enough to cover her expenses and I love that she’s done that by age 27 without any special privilege that she thinks she has. Now, she’s able to sit back and say, “Okay, I can fund my lifestyle. What do I really want?”

Mindy: Her husband wants to start a business. Because they have done a little bit of investing here, a little bit of investing there, he’s going to be able to quit the job that he doesn’t love and go out and pursue something that he does love. That’s the whole purpose of financial independence. We need a new acronym. I don’t like FIRE, financial independence, retire early. Financial independence, pursue the dream you love, but that doesn’t fit into a nice word, so we’ll have to come up with something.

Scott: I saw somebody came up with one that was like “financial independence, rewire early”, but that’s what these folks are going to do and that’s the power of this is because they are so disciplined, smart, have executed so well, have bothered to learn about personal finance, haven’t made bad decisions that have set them back into the hole. They are going to go out and find out what their passion is on their own terms. They’re not going to get sucked into a career that they happen to fall into and they may go on to have that disproportionate impact on the world one day. That’s what this is all about and I love the example that they brought today.

Mindy: I really love the example they brought today. If you are considering investing in real estate, if you’re looking for a way to generate passive or passive-ish income, this episode is for you. Before we bring in Kristi, let’s hear a note from today’s show sponsor.

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Mindy: Huge thanks to the sponsor of today’s show. Kristi Tanner Smith, welcome to the BiggerPockets Money Podcast. How are you doing today?

Kristi: I’m doing well. I’m excited to be here.

Mindy: I’m so excited to have you. I met you on Facebook a few months ago I think and I really like your story and I want you to share it with our listeners. Can you tell me where your journey with money begins?

Kristi: Yeah, so I actually grew up with what I would say most would consider a pretty privileged childhood. I grew up in a big house out in the woods, had four wheelers, all the toys. I was an only child too, so that explains it. I wouldn’t say that it wasn’t without its struggles though. As I said, I’m an only child. My mom actually got diagnosed with a disease when I was five and was given six months to live, but she ended up living almost seven years. Throughout that time, she tried to teach me what I would have to know for the rest of my life. My mom was very good with money. She always paid cash for everything. She built our house when she was 23. Like I said, cash for cars, all of that.

Kristi: Then, she married my dad who was the complete opposite. He brought a lot of debt into the marriage. After my mom passed away, he ended up having his cars repossessed, couldn’t keep up with the bills, so other family had to step in. I had a little bit of both. My husband actually grew up the same way. His mom and stepdad were great with money, dad not so much. We just have merged since we found each other at 17 and started our journey into adulthood.

Mindy: How did your mother teach you with money? How did she teach you about money?

Kristi: Really, it’s just modeling shit and say a whole lot. Mainly, she stuck with like, “If you can’t pay for it, don’t put it on credit cards. Don’t get caught up in a lot of debt,” and that was basically all I knew. Like I said, I saw my dad with the bad examples, so I knew that I didn’t want to go down that path.

Scott: What was your position coming into maybe out of high school and into college? Did you pay for college yourself? What was your experience to money during that period?

Kristi: Going back a little bit, my mom actually passed away when I was in sixth grade and then my dad passed away when I was in 10th grade. My dad’s situation was a freak malpractice accident. I got some money from that and that actually put me through college. Leading up to that, since I was young, I grew up doing rodeoing and all of the money that I made from rodeos I saved. At the time when I was 14, 15, I was just saving for my wedding because I got caught up in like all the wedding shows and I was like, “One day, I’ll get married, so I’m just going to save a bunch of money for that.” Actually, coming out of high school from rodeoing and all of that, I probably had a couple of thousands saved up. Like I said, college, I already knew was covered.

Mindy: What did you study in college?

Kristi: I actually studied criminal justice and sociology growing up. Me and my mom watched a lot of murder shows and I wanted to be a homicide detective, but I don’t want to go the science route, so I went the criminal justice route and the closer to college graduation I got, I was like, “Why did I pick this?” and just majorly regretted my majors.

Mindy: What did you do when you graduated from college?

Kristi: After college, we actually moved two hours away and I was a probation officer dealing with mainly adults who are old enough to be my dad. It was not an easy job. I didn’t make enough money like I made like peanuts. I was dealing with a lot of tough people to deal with. Then, I worked there almost a year and that’s when we went to away for our wedding and I saw that my job was posted while we were away at our wedding.

Mindy: Wait, they were looking for your replacement?

Kristi: Yes.

Mindy: While you were on your honeymoon?

Kristi: Yes.

Mindy: Oh, nice.

Scott: Oh, my gosh.

Mindy: Well, you didn’t like it anyway. It’s never something that makes you feel awesome like, “Hey, they’re looking to replace me. Great”?

Kristi: Yeah.

Mindy: That’s got to put a damper on your honeymoon?

Kristi: Even before we found fire and all of that, I had in the back of my head because I did have this money to fall back on that I didn’t have to go after the money. I could actually my passion, so I’ve kind of always had that mindset. It was just shocking once I got to adulthood and I was like, “Oh, man. Everything that I’ve planned since I was a kid, I don’t actually like doing this.”

Scott: What was your position in this first job? It sounds like you graduated largely student loan-free. What was your overall financial position, more or less?

Kristi: We were okay financially. My husband, like I said, we met when we were 17 and he did have some student loans. He actually graduated with like less than $10,000 because he worked at Nike throughout college and they paid for his tuition. Coming out of college, all we had was his student loans and I think his minimum payment was $50 a month or something. Other than that, we weren’t in a tough position. Our rent obviously tripled after we left our college town, but other than that, we had money to fall back on because we had been saving since we were teenagers.

Mindy: What did you do with the money that you had to fall back on? Was it in investments? Was it just in a savings account?

Kristi: Because like you said, my dad passed away the day after I turned 16 and my grandfather who raised me after my parents passed away, he had always been good with money. He was my mom’s dad and he had no idea how to assist me in this situation. My eighth-grade teacher actually stepped up to the plate and became a mother figure to me. Her husband, she lovingly refers to him as Clark Howard, Jr., because he is super frugal and she is the one who was like, “Look, we have to find something to help her because neither one of us have ever been in this situation.”

Kristi: They actually found me a financial advisor in our city and I was their youngest client. They actually lowered their threshold for me because they usually only took $1 million or more. They lowered their threshold and took me on. It was right around the time I was 18. With them, they set me up, got me started investing in a Roth IRA and then they just put the rest in a brokerage account. When me and my husband were in college, like I said, he said he started working at Nike and he was able to invest in his 401(k), purchased employee stock and they paid for his tuition. By the time we graduated college, we came out probably on the plus side, $30,000 or $40,000.

Scott: Great. You started out with $30,000 to $40,000-ish financial position out of college, but a not so great job. Do you get married during college or after college?

Kristi: We got married a year after college.

Scott: Great. What’s husband, fiance, doing in that time period? Does he have a great job or does he have a job that’s similar to what yours was?

Kristi: He stuck with Nike the whole time. Right before we graduated college, he got promoted to another store and he was probably making around $60,000 when we came out.

Mindy: What was he doing for Nike? You said he worked for another store. Was he in the retail Nike stores and was he in management or do they just pay for college for everybody?

Kristi: He was working at an outlet store that was about 45 minutes away from our college. We went to the University of Georgia, so there’s not really anything like that in Athens. He was driving a good bit. He worked five days a week. His only off days were Monday or Tuesday or Tuesday and Thursday, so those were the two days he piled all his classes into and he started out as a seasonal employee during the summer after our freshman year. Then, he worked his way up to a lead position. Once you go full time, they would pay for your tuition.

Mindy: The entire tuition?

Kristi: Yes.

Mindy: Oh, my goodness. This is a huge tip. If you’re looking to get your college paid for, work for Nike or there are other companies?

Kristi: There are.

Mindy: There are other companies. It’s not just Nike is the only one that pays for college, but that’s huge. I don’t want to say you need a job in college, but you need some source of money stream coming in to help you pay for rent and food. If you’ve got a scholarship, that’s great, but if you don’t have a scholarship working at a company, 40 hours a week is your regular life. You can do full-time work and full-time college. I know I did it and there’s a lot of other people who’ve done it. Your husband did it too. It’s not maybe the most fun, but to come out with, how much student loan debt did you say you had when you graduated, both of you together?

Kristi: It was like $8,000 or $9,000.

Mindy: $8,000 or $9,000-

Kristi: That was mainly from his freshman year when we had to live on campus and pay for the meals and all of that stuff.

Mindy: That’s amazing. That’s huge. Work at Nike. This episode is not sponsored by Nike, but it should be.

Kristi: He was a finance major, so it wasn’t like he had an easy course load, but he definitely didn’t. We didn’t have a normal college experience, but it paid off tremendously after we graduated.

Mindy: Well, what’s a normal college experience? Is it just going to school and never working and partying? I never had a normal college experience either. That sounds judge-y. I’m not trying to be judge-y. Scott, what was your college experience like? Did you work during college?

Scott: I worked in the summers during college. I did not work during the semesters.

Mindy: What was your college experience like?

Scott: I did lot of the fun stuff there. No, I was captain of the rugby club and heavily involved in a fraternity and all that kind of stuff. Kept my grades up and did not work the way that you did through college for sure.

Mindy: That’s okay. Your experience is valid too.

Scott: I don’t know if that’s the normal college experience. You graduate in this great position where you have a $30,000 to $40,000 in assets, $9,000 student loan debt. You’re both working full time. How much are you able to accumulate on an average monthly basis in the first couple of years, post-graduation?

Kristi: We would save a couple of grand a month.

Scott: Great. Where did you put that money towards? What was your use of that capital?

Kristi: We bought a house about a year after, it was actually right around the time we got married, so a year after graduation and it was your typical suburbia house, just cookie cutter, brand new construction in Metro Atlanta. There’s millions of those going up right now. We lived there for about a year until my husband realized that he needed to get out of retail and he wanted a more normal job. He started applying for jobs. A few months later, he got a job in Jacksonville, Florida. We had to figure out how to sell our new house that we had been in right out a year. By that time, because where we were in Georgia is a booming area and we were able to make, I think, about $15,000 on that house in those couple of months.

Kristi: Once we moved to Florida a few months after we got here, my husband realized that corporate life wasn’t cut out for him. Right around that time, we found BiggerPockets and ChooseFI had just gotten started at that time.

Scott: What year is this?

Kristi: This is in the summer of 2017.

Scott: Great. This is a year after you graduated?

Kristi: We graduated in May of 2015-

Scott: Great.

Kristi: … so two years.

Scott: Perfect. 17 you moved to Florida with new jobs. Husband realizes he doesn’t like his job and you discovered financial independence. All right. I think I’m sensing turning points here in this story. What happens next?

Kristi: We had always talked about real estate. Real estate has always been a huge love of mine. Me and my mom used to just drive around and look at houses. We had always talked about it even when we were in college. We were in college during 2011-2012, so the market was still down. We lived in a duplex and we even looked at duplexes while we were in college. We could have bought one so cheap, but at the time we thought it was just rich old white men that invested in real estate because that was what we knew personally from the guys we knew who were real estate investors or had rentals. Once we found BiggerPockets, it was just like our whole mind exploded.

Mindy: You and your husband bought a duplex in Jacksonville, Florida?

Kristi: No, we were looking when we were in college to buy one in Athens, Georgia.

Mindy: I’m sorry, I misunderstood.

Kristi: We remember looking at the time. We just didn’t know that people actually bought rentals and you can do that. Once we found BiggerPockets four or five years later, we were just like, “Oh, my God.” Our whole mind just exploded from that combination of BiggerPockets and FIRE movement.

Mindy: Then, you went on a spending spree and you bought 57 units?

Kristi: No, not quite. We had the childhood house that I grew up in that I mentioned earlier in the middle of the woods, had been sitting there vacant for a little over three years since my grandfather had passed away. We’d always talked about renting that out, but emotionally, I couldn’t get to that point. Once we moved to Florida, I was like, “We have to do something because this house can’t just keep sitting here.” We decided that we’re going to start fixing that up, hired a contractor and everything and then a couple of weeks into the renovation, over the weekend, the air-conditioner pipe busted and completely flooded half the house. That was our first experience in real estate investing.

Kristi: Literally a week after that, my husband found BiggerPockets and was like, “I want to start real estate investing.” I was like, “Are you freaking kidding me? There’s a hole in the roof right now. We’re not doing this. You’re crazy.” Then after a couple of weeks of me dealing with that whole issue, that’s when I was like, “Okay, I want to do this. Let’s make a goal to buy a rental here in Jacksonville by the end of the year.”

Scott: By the end of 2017?

Kristi: The end of 2017. This was in July of 2017 at this point and off we went. We had a realtor because at this time too, we were also thinking about buying our primary home because again real estate investing was nowhere in the picture.

Scott: Let me ask you this real quick. Your financial position at this moment in time, you’d pocketed some cash from the sale of your Georgia residence, right?

Kristi: Yes.

Scott: You said you netted about $15,000. Around how much cash do you think you had at the time that you going into this?

Kristi: Swinging both of us, probably like $60,000.

Scott: $60,000, great. You’re a couple of years out of college from great savings habits all the way through college and post-graduation in the first couple of jobs. Are you contributing to your 401(k) and Roth IRAs throughout this period?

Kristi: Yes, I had been maxing my Roth IRA since I was about 19 because of the financial advisors. Then, my husband had been contributing to his 401(k) at Nike and buying the employee stock at that point.

Scott: Wonderful. How on a monthly basis do you think you’re saving at this point? You have all that pile of cash, you back sat your IRAs and you’re saving money on a monthly basis?

Kristi: Actually, when we moved to Florida, I didn’t have a job. Then, my husband actually took a pretty big pay cut, so he could move to Florida.

Scott: Fair enough.

Kristi: We weren’t saving a whole lot of that money.

Scott: Were you still cashflow positive?

Kristi: Yes.

Scott: Great. All right, fair enough. I admire the strength of your position going into it because real estate can be very scary and a big challenge for a lot of folks, but from the position that you guys are sitting in at this moment in time, you’re in an in a perfectly appropriate financial position to begin making large real estate investments.

Kristi: Yes. As I said, we did have a pretty privileged life because after my father passed away, when I got the financial or the, what do you call it?

Mindy: What do we call it? It’s not an inheritance. You’re being rewarded-

Scott: You got a settlement. It’s a settlement.

Mindy: Settlement, that’s it.

Kristi: It was a malpractice settlement, but the way we looked at that was we never planned on touching that at all. At that time too, I also didn’t have the financial literacy to even know what to do with that.

Mindy: You don’t sell yourself short because you didn’t spend it?

Kristi: Yes and I-

Mindy: We interviewed Jacob Wade a few months ago and he got a settlement similar to yours and he blew it on some truck. I don’t want to talk smack about Jacob Wade, he figured it out later, but he fully admits like, “This was the dumbest thing. I spent all this money on a truck.” You just-

Kristi: I struggled with that because sometimes I feel like my story can be discounted because of that, but then I also have to remind myself to like, “No, we also made some pretty smart decisions during that time period too.”

Mindy: You absolutely made smart decisions during that time period and we haven’t talked about how much the settlement was.

Kristi: To go to Jacob Wade’s story, my dad had a small life insurance policy and I did blow that because I was 16. Well, I wouldn’t say I necessarily blew it. I set some aside for college and not others like I redid the floors at the house that me and my grandfather were living in. Then, I did buy a truck, but that truck that I bought has turned into the vehicle that I now drive and have driven for the past eight years. That’s 13 years old. I wouldn’t say I necessarily blew at all.

Mindy: I wouldn’t say you blew it. Spending money to live, to redo the floors in the house, to buy a truck to get you to school and get you to work and all of that isn’t blowing it. How much did your truck cost?

Kristi: I think it was like $15,000 because-

Mindy: Jacob’s was a lot more.

Kristi: Pretty fancy.

Mindy: Not as fancy as Jacob’s. Did he put neon lights underneath it and put like an $8,000 stereo in it or something?

Scott: Yeah.

Mindy: He went big in his. Jacob figured it out. I don’t want to sit here and dog on Jacob, but you handled it very intelligently. I know 16-year-old Mindy would not have been so good with settlement.

Kristi: I have to credit like I said Ms. Taylor, my teacher who found my financial advisors for me. That was exactly what I needed at that time because I need a distance between me and the money again because I was a teenager. Even if I wasn’t a teenager, I think most people who are in that position need distance. They can’t make crazy decisions, but-

Scott: Kristi, I have some couple of observations here, right? You had a series of very unfortunate events happen in your childhood, life-changing, life-altering. From my seat, in no way do I sit here and say, “Oh, you had a privileged upbringing which discredits any part of your financial or money journey, right?” We see this from time to time where folks are like, “Oh, I have this advantage or this advantage or that advantage.” I guarantee you that most people who are listening to this episode of the Money Podcast are not thinking, “Oh, she’s in an unrealistic privileged situation, right?” You overcame some tremendous difficulties and guess what?

Scott: There’s a big lesson to be learned here because I bet you that a lot of people who could find themselves in a situation like yours, they go out and they make very bad decisions downstream, right? It seems like you had a level head on your shoulders even at 16 and made a set of reasonable decisions. Were they the most optimal long-term choices to move you towards financial independence as aggressively as possible as 22? No, but buying a five-year-old truck as a 16-year-old what sounds like a large amount of cash, large cash infusion right at that time is not a ridiculous situation or circumstance, you know what I mean? I just think it’s an interesting thing that in today’s world you feel that you need to qualify your journey as privileged. I disagree.

Kristi: Well thank you.

Mindy: I agree with Scott and I disagree with you that you did overcome quite a few things and you still have a lot to show for it. You had a nest egg of $60,000 that you and your husband saved up. That’s at what age? 22?

Kristi: Somewhere around there.

Mindy: I didn’t have a $60,000 nest egg at age 22. You’re way better than both Scott and I.

Kristi: I had spent some of my savings on our wedding, so-

Mindy: But you saved up for it. Scott, here’s you and I trying to convince her that she’s good with money. You saved for your wedding. You didn’t borrow. You didn’t put it on credit cards and figure it out later. That’s commendable.

Kristi: Since you brought up credit cards in our wedding, again we regret not finding travel hacking because I was like, “Oh, my God. Our wedding [inaudible 00:30:50].”

Mindy: I don’t think travel hacking existed when I got married.

Scott: I think you’ve done a great job so far here in this story and don’t judge any of your actions as being inappropriate or unfavorable at any point in your story so far, so I love it. Let’s go back to 2017. You’re in this position. You’re not working. Husband took a pay cut. You’re in Jacksonville, Florida. You’re interested in real estate investing. How do you get into that first property?

Kristi: We actually just found our first property, well, like you said, we had a realtor and turned out she was not that great. We ended up losing four houses because of her because she’d just taken forever to get back to us. We missed out on a lot. At that point, we fired and found another guy. Right away, he showed us probably 10 houses, and three weeks later, we were under contract on our first property here in Jacksonville and it was from MLS.

Scott: Awesome.

Mindy: I want to jump in here and say, if you are trying to invest in real estate and you are not hearing back from your agent in a timely fashion, don’t let that drag out and drag out. I’m an agent, and if your agent is not getting back to you, stop using them because like you said, you lost that on four houses and they weren’t meant to be and whatever, but that’s still really frustrating when you’re calling up your agent, texting your agent, emailing your agents saying, “Hey, I want to see this house. I want to put an offer on this house,” and there’s crickets. Unless they’re in the hospital, they need to be getting back to you. If they’re in the hospital, they need somebody else to be answering their phones getting back to you. Let me step down off my soapbox now.

Kristi: I would text her Wednesday, text her again on Thursday and she would get back to me on Sunday and be like, “Oh, it went under contract yesterday,” and I’m like-

Mindy: Unacceptable.

Kristi: … “Are you freaking kidding?” After the fourth, one my husband was like, “Find someone else. I’m tired of dealing with her.”

Mindy: Unacceptable. I will give you a bit of advice though to people who are listening because you don’t need this advice anymore, but if you are working with a real estate agent and they have you sign a contract, it’s called the exclusive right to buy contract or something like that, if they have you sign that contract, you need to break that contract, cancel that contract before you go into a contract with another agent because the agent that you have that exclusive right to buy contract with is technically guaranteed a commission or earn … How am I supposed to phrase this, Scott? I’m screwing this up. They have the right to your commission if you buy a house while you’re still under contract with them to buy a house, even though they didn’t show you.

Mindy: I disagree with that, but that’s my opinion. You just want to make sure you’re not in a contract. You’re not contractually obligated to buy from a different agent. It’s okay to sign those documents, just know what you’re signing and know that if it’s not working out, you can break that.

Scott: What was this deal? Tell us about what the property agent buying.

Kristi: It’s in about a C neighborhood. We ended up getting it for $75,000. It rents right out $100,000 right now. It had a brand-new roof, brand-new HVAC, brand-new kitchen that they had just remodeled.

Mindy: You said this was a deal on the MLS. Was it a foreclosure?

Kristi: Nope.

Mindy: Was it any short sale or anything? It was just $75,000 for a whole house?

Kristi: Yeah, it’s a three-bedroom, one-bath. It was just old older couple who was liquidating their portfolio.

Mindy: Wow.

Scott: Perfect.

Mindy: Have you had it rented out the entire time that you’ve had it, that you’ve owned it?

Kristi: Yes. We actually closed on that property on our anniversary, mine and my husband’s anniversary. It’s been right out two years.

Scott: Awesome. What happened next? Did you buy more? Did you sit on that one and learn how to operate it? What was 2018 like?

Kristi: Also, during 2017, my childhood home in Georgia, we recovered from the water damage and everything and we also got a tenant in that property and they signed a three-year lease. We’re on year two of that as well. By that time, we had the two properties. We ended up not getting anyone in the first property we bought until I think February of 2018. After that, we had plans to buy two in 2018. However, the house that we were renting, our landlord didn’t want to renew our contract because her daughter wanted to live in that house. We were forced to buy a primary home because we really didn’t have anywhere else to live and we were paying way under market rent for our house.

Kristi: We had a primary home fall into our lap and that set us back on buying rental properties for a while because that was a huge expense. It took us a while, but towards the end of 2018, we ended up buying another rental that we found on MLS and we also closed on our anniversary a year later. December 19th is a big day for our household.

Scott: That’s amazing.

Kristi: We closed on that property in 2018, and then at first, we had some trouble renting it out, just the kitchen hadn’t been updated it. It needed some paint, but other than that it was livable. We had just decided to go ahead and spend a couple of grand to update the kitchen, so we could get a better-quality tenant in there.

Mindy: The first property you bought for $75,000 and it rents out for $1,000 a month. This is well over the 1% rule, which is if you buy a property for $75,000 it should rent out for $750 or 1% of the purchase price. You’re killing it there. Did you get a mortgage for that property or did you pay cash?

Kristi: We got a mortgage.

Mindy: What is your cashflow on that property?

Kristi: It’s about $300.

Mindy: $300 a month. Then the next property, how much did you pay for that?

Kristi: $98,000.

Mindy: What does that rent out for?

Kristi: $1,100.

Mindy: What is the cashflow in that property?

Kristi: It’s about $200 okay.

Mindy: You’re making $500 a month from these two rental properties, plus you have the childhood home in Georgia. What is the cashflow in that property?

Kristi: It’s a little over $1,000.

Mindy: You’re making 1500-ish a month just from your rental properties and what are your expenses every month, just your regular living expenses?

Kristi: They’re right around $2,500 okay.

Mindy: You just have to have a job that pays you $1,000 a month to live. Are you working now?

Kristi: Yeah. I currently work with a home staging company here and I dealt with a lot of investors, so it was pretty interesting that I got to see the investing. I get to see both sides of it. I get to see, go in all of these flipped houses. I can see my competition if you want to call it that.

Mindy: That’s awesome. What is your husband doing?

Kristi: My husband is still in that same corporate job that he hates. He works for a sports memorabilia company. I guess that’s what you had called it.

Scott: What are you able to accumulate now on a monthly basis?

Kristi: We save probably $3,000 a month.

Scott: Wonderful. Do you still max out your IRAs?

Kristi: Yes. My husband actually didn’t start maxing out his IRA until last year, two years ago. This is the second year and then I’ve continued to do that. He’s continued to keep up with his 401(k). I don’t have any of those vehicles besides the IRA.

Scott: Perfect. You contribute to these things, and then, everything else, do you pile up in the bank account waiting for the next rental property purchase? Is that more or less the-

Kristi: Yeah. Earlier this year, we actually bought a house cash. How I said I wasn’t planning on touching that settlement, he did bring some of it out to buy this property that we are going to BRRRR and hopefully continue to increase our cashflow.

Scott: That is an outstanding use I think of that money that you set aside. Now you know what you’re doing, you’ve got to get probability. How could you have a better probability bet than that after the experience, the story that you hear? I like it. All right. I hope you’re enjoying the show. We’ll be right back after a word from today’s show sponsor.

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Mindy: Well, now, I want to jump in and have Kristi clarify. You said you’re going to BRRRR this property and not everybody who listens to this show is familiar with that term. Can you explain that please?

Kristi: We bought it cash. We’re in the process of rehabbing it now. It’s a lot longer process than we expected because we have run into some issues with it. Then, we are going to rent it out hopefully in the next couple of months. Once we do that, we’ll refinance it and get some of our cash back. We’re not planning on taking it all out.

Mindy: BRRRR stands for buy, rehab, rent, refinance and then the last one is repeat. Do you have plans to repeat?

Kristi: We do. To jump ahead a little bit, as of Christmas Eve, we actually went under contract on a little cabin in the mountains of North Georgia. If all goes as planned, we are planning on quitting our jobs and moving up there for a couple of months and rehabbing that property. Then, we are going to rent that out on Airbnb and go from there.

Mindy: You would move up there for a couple of months to rehab it and then where would you go? Come back home.

Kristi: Good question. We honestly don’t know. While we’re up there, we plan on renting our primary house out here. That will be another income that we have. Even once we move out there, our expenses are going to go down because the mortgage will be cheaper. We won’t be eating out as much and those things mainly because we’ll be in the middle of nowhere. After that, we’re hoping to make a fully funded lifestyle change where we can figure out what we really want to do because we just want to be happy. My husband hasn’t been very happy at his corporate job. He knows that that’s not for him and he’s always wanted to own his own business. We’re going to try to figure that out for a while.

Scott: Great. You guys graduated in 2015 and you might point out or think that you made a number of mistakes along the way.

Mindy: You’re wrong.

Scott: I think you’ve really done a pretty impressive overall job here at managing your portfolio, your life and your personal finances. You are sitting in a position where you are seriously capable of firing this year in 2020 within the next couple of months here and maybe achieving that state semi-permanently and your worst-case scenario is you go back to one of these jobs that you don’t like downstream, which is one of Mindy’s favorite quotes but is Joel from FI180, “My worst-case scenario is everybody else’s everyday life,” but yeah, [inaudible 00:45:28]. It’s just an awesome, awesome situation. It’s just the power of getting the stuff more or less right in college and in the years following graduation which you guys did.

Kristi: That’s what we’ve said. Like I said, we want to give ourselves a few months to figure it out. I told my husband, I was like, “if we end up moving back to Jacksonville,” he knows that he could go get another job like he has right now and it wouldn’t be an issue.

Mindy: Well, when most of your expenses are paid or all of your expenses are paid, the $300 at the one property cashflows, that’s after mortgage, after taxes, after all the expenses, that’s just extra money that comes into your pocket. After all of your expenses are paid, you could literally work at McDonald’s or Starbucks. I think actually Starbucks gives their employees healthcare and Costco is a great place to work. There’s a lot of things you can do that don’t have these pressures that then you can go and live the best life you want.

Kristi: That’s what we’re shooting for.

Mindy: With just five short years after graduation. Five years after my graduation, I was not doing this.

Kristi: I don’t really know how to fit this in, so I’m going to go back a little bit. My husband actually wasn’t really focused on paying off his student loans. He’s like, “Oh, it’s not a lot. I’ll get there when I get there,” because like I said he’s minimum payment was $50 a month. Since we found FIRE, it’s funny when you look at his personal capital account, you can literally see the drop off on his student loans because he’s like, “Dutt-dutt-dutt-dutt. Boom.” He’s made that a priority. He’s done with that. I want to add another little snippet. I talked about my financial advisors earlier.

Kristi: Just the older I got and the more that I learned about personal finance because I was never a math person or a numbers person. I just didn’t care about that. I would get my monthly or my quarterly statements and I would just hand them over to my husband because I’m like, “You’re the finance. Your degree is in that. I don’t care about it. Just look at it.” He would be like, “Oh, yeah, okay.” I honestly don’t even know if he looked at my stuff, but after we found FIRE, I just dove head in and I was like, “This is awesome,” because before we didn’t really have a plan.

Kristi: We knew we had made some smart decisions, but we just didn’t know what for. Once we found that, it just all made sense. I was listening to one of the ChooseFI episodes about the fees of the financial advisor and all of that. We sat down and started looking at it. We got mad at ourselves honestly because we were like, “Why have we let this go on for this long?” I actually ended up firing my advisors around this time last year and that it’s going to save me, who knows how much money, over the course of the rest of my life.

Scott: Well, let me ask you this because I think that a nonfiduciary, nonfee-only financial advisors, the folks who make money by selling you financial products, I think they’re a dying breed and that industry is gone. I think that hopefully shows like this one and other ones are going to contribute to that decline. Perhaps in your case, they actually were helpful to some extent.

Kristi: I totally agree with that.

Scott: Because they might have helped influence you away from that money in a way that might not have been very productive.

Kristi: I 1,000% agree with that. It was exactly what I needed in my life at that time. It was just the older that I got and learned more about it that I realized that I had grown from that.

Mindy: Well, I think that’s a good lesson. Lesson is not the right word. That’s a good tip for people who are listening now. If you have had your money in an actively managed fund with a commission-based financial planner, now’s the time to look at what you’re paying for. Are you getting value out of what you’re paying them? We had Kyle Mast on episode 41 maybe and he was saying that actively managed funds pay commission. Some of these investment vehicles pay a commission to the financial advisor and they’re not always acting in your best interest. They could be acting in your best interest and also they get paid for it.

Mindy: I think Kyle didn’t say this. This is my own quote. The worst performing it is, the more money the commission pays. I don’t know, I don’t have any commission-based assets anymore, I don’t think. If you are not with a fee-only financial advisor, then look at what you’re paying for it and see how you can get more value out of that.

Kristi: My fee was like 1.25% of all assets under management.

Mindy: That’s not the best, but it prevented you from blowing it when you were 16 or 18 or 21 or whatever. Again, your mistakes, I don’t consider mistakes.

Kristi: I totally agree with that. Like I said, I think it was exactly what I needed at the time. It was just the older I got and the financial advisor, he’s always like, I hear him he has a podcast. I always hear him like, “Oh, The Millionaire Next Door is my favorite book. I read it when I was 18,” and I’m like, “Hello? I was your youngest client at 18. When did you not tell me to read that? We could have avoided so much. I probably would have got a freaking jacked-up truck.”

Mindy: I love it. I love it. Still 1.25% is not a bad price to pay for the advice that you got at the time. Look how much you’ve put in your Roth IRA. It is now time for the famous four. These are the same four questions we ask of all of our guests. Kristi, are you ready?

Kristi: I am.

Mindy: What is your favorite finance book?

Kristi: Since I just touched on it, I’m going to say The Millionaire Next Door.

Scott: Great choice.

Kristi: Really, I should cut it a little bit to Rich Dad, Poor Dad because I bought it at a yard sale three years before we found FIRE. Then, I didn’t read it until after that. Once I read it, I was like, “Wow,” but once I’ve read The Millionaire Next Door, it just all clicked. I was like, “This is what we want. This is how we’ve already been living. We just need to continue that.” I told my husband, Scott, that I would give you a shout out as well because I asked him this question last night and he was like, “Set For Life.”

Scott: All right.

Kristi: I was like, “I knew you’re going to say that,” because as soon as he read Set For Life, he finished it on a Tuesday night and Wednesday morning, he woke up and he’s like, “I need a mental health day. Let’s go for a hike.” We lived a day of FIRE after he finished that book.

Scott: I love it. Well, great. Thank you for the plug. All right. What was your biggest money mistake? What do you consider of the things you discussed today?

Kristi: I wouldn’t necessarily call it a mistake. I would call it a regret. Our biggest financial work regret is not buying a duplex when we were in college and house hacking.

Mindy: I get that. I wish I would have purchased real estate way back. Well, I started early. I kept selling.

Kristi: We even looked at it. Why didn’t we do it?

Scott: Well, I think that the house hack, duplex, triplex, quadplex, even just single family with extra units, the ROI, the kickstart, it can give your financial journey is just so unbelievable, especially in this couple of years out of college where you’re not going to miss the lifestyle component very much. It’s just the biggest cheat code I think in this whole journey for most people working full-time jobs.

Kristi: I totally agree. We’re not totally exploding house hacking yet. It might be hard to go back to a duplex after we’ve lived in single family for so long, but I’m not writing it out just yet.

Mindy: Awesome.

Scott: On the flip side of that though, once you have a sizeable nest egg, the advantage of house hacking can become diluted because you’ve already got rental income and you’ve got a larger amount of assets now that you can deploy in something. Investing $12,000, $15,000 at a 5% down on a duplex isn’t that meaningful to your overall financial position now that you spent several years making great choices and are on the verge of FIRE. It’s an interesting tradeoff where it’s really the most effective in kickstarting you early. You can always be effective, but utility diminishes as your net worth grows.

Mindy: On the other hand, if you buy a duplex and you live in one half for a year, you get the lower owner occupant mortgage rate. When you move out, you don’t have to refinance. You can keep that lower owner occupant mortgage rate. Just a tip. What is your best piece of advice for people who are just starting out?

Kristi: If I could just go back and tell my college self, I would say to not focus so much on what other people think. Your cars, your clothes, none of them matters. Even if your family and friends think you’re crazy, just do whatever makes you happy and start early.

Scott: Great.

Mindy: I love it. I love it.

Scott: All right. Most difficult question of the famous four. What is your favorite joke to tell at parties?

Kristi: This was difficult. I had to pull the interwebs for this. How did the butcher introduce his wife?

Mindy: Ooh, I don’t know this one.

Scott: Bit by bit? I don’t know.

Kristi: [crosstalk 00:55:23]

Scott: Sorry.

Kristi: Meat Pattie.

Mindy: That’s a way better than your answer, Scott.

Scott: Much better.

Mindy: Oh, my goodness. Totally weaving that in. If you have a note for Scott about how inappropriate that just was, you can reach him at [email protected]

Scott: All right, Kristi, where can people find out more about you?

Kristi: You can find me, I’m pretty active in the ChooseFI group, but we also just started Instagram where we’re hoping to post more about our little cabin and redoing our properties. We are going to be over @dreamstostreams on Instagram.

Mindy: Is that dreams, the number two?

Kristi: T-O.

Mindy: Dreamstostreams on Instagram. Awesome. I’m super excited to see what you do with this little cabin and I’m starting an Airbnb this summer, so I’m very excited about that and I want to hear how yours goes so I can learn from your successes and any missteps, but hopefully successes.

Kristi: I’m excited. Our friends just bought a place up there too, so we’re going to do it together.

Mindy: Oh, nice.

Kristi: Well, they’re a couple of miles away, but we’re going to learn it all together.

Mindy: Perfect. Well, that’s awesome. Well, Kristi, thank you so much for your time today. This was a lot of fun.

Kristi: Thank you for having me.

Mindy: Starting early, making small incremental steps towards successful financial management is going to put you at super early retirement. How old are you now? 24?

Kristi: 27.

Mindy: 27. Well, still, you wish, listen, 27 and no job and all this money coming in from all your rental properties, you’re in a good place.

Kristi: Thank you.

Mindy: From episode 108 of the BiggerPockets Money Podcast, this is Kristi Tanner Smith and Scott Trench and Mindy Jensen and we are out.