Finance Friday: House Hacking, Side Hustles, and the Path to FI by 45

Mindy:
Welcome to the BiggerPockets Money Podcast Finance Friday edition where we interview Alex and talk about real estating and entrepreneurship.

Alex:
It’s zooming out and saying, okay, do I want two or three house hacks and portfolios? Do I want a stock portfolio? Do I want a business? Just thinking through that at a really high level and saying, “Here’s where I want to be in three to five years and are the actions I’m taking conducive to getting me there or am I just continuing to throw a lot of cash onto this pile?” Which is great, but it’s not a strategy. It’s not as effective as putting together a thoughtful plan that you’re backing into.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my real estate super nerd, co-host Scott Trench.

Scott:
Thanks Mindy, but I don’t think that one really was able to land. All right. Mindy and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe that financial freedom is attainable for everyone no matter when or where you’re starting.

Mindy:
That’s right. 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 reach your financial goals and get money out of the way so you can launch yourself towards your dreams. I can’t believe you took my spot, Scott. You stinker.

Scott:
That’s not all. Mindy. We have a new segment of the show called The Money Moments where we share a money hack tip or trick to help you on your financial journey. And today’s Money Moment is, want to save money and help the planet switch to LEDD light bulbs. You can cut the amount of energy used by up to 90% using LEDs and they also last 25 times longer than regular light bulbs. I think a lot of people skip these because they’re slightly more expensive than regular light bulbs. That’s because they use a lot less energy and last 25 times longer. Swap out all of your light bulbs with LED ones and you’re going to save yourself a lot of money and a lot of time over the long run.
If you have a money tip for us, email [email protected] and Mindy will likely read 90% of them.

Mindy:
I can’t believe you, totally. It’s not even April Fool’s day. All right, now we’re back to our regularly scheduled slots. I’m going to say the contents of this podcast are informational in nature and neither Scott nor I nor BiggerPockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors including lawyers and accountants before-

Scott:
For any financial decisions you contemplate.

Mindy:
Yes, for any financial decisions you contemplate. I’ve got to work on my memorization, man. That wasn’t that good.
All right, so Scott, I am excited to talk to Alex today. She is a newly highly paid employee and she’s a real estate agent. She has a little bit of variable income but also some pretty rock solid income and nice expenses. She’s doing pretty well and I’m excited to give her a bit of our own perspectives.

Scott:
Yeah, I mean this is the result of a lot of work, a lot of intentionality, probably a lot of self-education in personal finance and real estate and really just hard work. And the culmination of that is a really strong positive life cash flow.
And a lot of people, it seems like we’ve talked to a number of people now on the Finance Fridays who have come into this position after a good amount of time. And it’s almost like you pop up and you’re like, “Wow, I accumulated tens of thousands of dollars in cash in the last 12 months, last year, two, three, and I’m going to accumulate $50 to a $100 thousand dollars in cash in the next year,” or some large amount relative to that. “Wow, what do I from here? I’ve got so many options, it’s overwhelming.”
It’s a really good problem and that’s where I think it comes down to what is the plan that you’re going to back into three, four, five, seven years from now and how do you begin making decisions that move you towards that? Because you do have a lot of good problems, but you still have a problem when you have a lot of cash to deploy and you’ve got to be intentional about it to maximize the opportunity and the abundance in your life.

Mindy:
Yeah, absolutely. She has a lot of great options and opportunities and now it’s just deciding and narrowing down and I think really focusing on which one she wants to pursue first.
Before we bring in Alex, let’s take a quick break.
And we are back. Alex is a real estate agent who left corporate America to pursue a job she liked much better. Kids are in the future and she’s pursuing FI, so Scott and I are here to take a peek at where she’s at and give suggestions for how she can get to financial independence.
First we’re going to take a look at her finances. I have a salary of $53,000. Extra money of $1,800. Real estate commissions of $55,000. Project commissions of $27,000 for a total of approximately $138,000 or $11,500 a month.
She has savings and investments of $37,000 in a Vanguard brokerage account. A Roth IRA of $6,000. $6,800 in a 401k. $5,000 in treasury bonds. $20,000 in savings, and $100 thousand in a high yield savings account. We’re going to talk about that a little bit more.
Her expenses total around $4,000 a month and I’m not seeing really anything egregious. Household rent is $1,400. Car is almost $900. That’s the one thing I do want to talk about. Medical $121, phone $75, dining out $180. Groceries $160, subscriptions $55. Business expenses, $410. We’re going to talk about this at the end of the episode. Travel and vacation $167. A grand total of $4,000 with an income of $11,500. I think she’s doing pretty good on the spend.

Scott:
Yeah, she’s crushing it.

Mindy:
Alex, welcome to the BiggerPockets Money podcast. I’m so excited to talk to you today.

Alex:
Excited to talk to you guys too. Thank you for having me, I appreciate it.

Mindy:
Let’s look at your money story. What does your history with money look like?

Scott:
Sure, so I grew up with a single mother and a retired grandmother. We were very middle class. We got by but we didn’t really dine out every week. We ate at home. I was telling Mindy before that I didn’t even really ever know that people ordered appetizers until I was in my twenties or I started dating my boyfriend. I always looked at the numbers on the menu and I made sure that I was keeping it under budget.
I grew up with that scarcity mindset growing up. I think that’s a very common theme with a lot of people who grew up in that situation. And as I went on, I went to college, I graduated college with about $25,000 worth of student loan debt and then that same year I thought it was a great idea to buy a new car. I mean I didn’t need a new car but it was new. I did no negotiating and I ended up with another $15,000 in debt. That rounded me out the first year out of college with $40,000 in debt.
I got a corporate job. Was fine. It was paying my little to no bills and all that, but I was really not fulfilled in that work and that’s when I started to explore other options for my career as well as income, just extra income, getting different side gigs, and one being real estate. I became a real estate agent part time while I worked my corporate job. And I thank BiggerPockets for that as well. I stumbled upon BiggerPockets and that really helped me network with a lot of people in my area and I really fell in love with real estate and real estate sales.
Eventually being in that job I’ve tried to create what Scott usually refers to as a financial runway to take a risk, take a new career risk, whether that be going out on my own. Or what I ended up doing, which is my broker also has a construction management company for new development homes down in Long Beach Island, New Jersey and he’s also my broker. I was able to be a full-time agent and also work with him on that company full-time as my full-time career now. And in the process, I was able to pay off that $40,000 worth of debt and about five years out of college.
And that I guess brings me fast-forward to now where I’m really looking to concentrate on, of course growing my wealth and all of that. And also kind of taking more entrepreneurial risk and feeling more comfortable with that, with the consideration of me wanting to be essentially coast FI by about 45. Those are the two things that I’m balancing and along the way wanting to have a house purchase and all of that good stuff. I appreciate all of your input on those items.

Mindy:
Okay. Well let’s focus on what you’re doing, right, income and spending. $11,500 in income with $4,000 spend leads you with a giant chunk left over to save for a down payment for your house or save for a down payment for an investment property if that’s what you’re into. And if it’s not, that’s fine. You can start investing in your after tax brokerage, which you actually already do.
I don’t think your problem is spending. And I mean everybody can tighten up everything. You can eat rice and beans. You can have no cell phone. You can live with your parents. You could have a totally miserable life and save way more money, but you’re doing really good right there. I don’t think that’s your problem and I don’t think income is your problem either. I wonder if focus might be needing to be tweaked a little bit. Where are you focusing your extra $7,500 on?

Alex:
I mainly contribute to my after tax brokerage. My take home pay every month is about $4,400, a little bit more than that, maybe $4.400 to $4,500 a month. That pretty much covers a lot of my expenses. The extra, between my commissions and all that, which isn’t exactly a monthly thing. It may be an every other month. Maybe one month I have a lot in commissions and another month I don’t have any.
Usually I try and split. My focus is okay, every month I’ll have the $4,400 to cover all my expenses and then when I get commissions that’s where I put aside 30% for taxes and then after that I put about 60% into my after tax brokerage and then the other 40% I put in cash. I’m pretty cash heavy. I know that. A lot of that is due to wanting to diversify with say a house hack, multi-family property and all that. And I want to have that as a cushion for the down payment as well as any repairs that come up. That’s how I’m allocating that money currently as it comes in.

Scott:
I think it’s great. I think it’s really well thought through and I think you have an outstanding allocation here. Zooming back out, you paid off $40,000 in five years. I’m guessing that the current level of income is a relatively new state of affairs, is that correct?

Alex:
Yes. That’s really the last year. Prior to that I wrote it out, I averaged about $88,000 a year, maybe a little bit under that prior to that.

Scott:
Awesome. So your income has jumped $50,000 in the last 12 months over what you’re used to seeing and now the money is starting to roll in. And you’re like, “Okay, what do I do now with this excellent problem?” Is that a good way of framing what we want to accomplish today?

Alex:
Definitely.

Scott:
Awesome. Well congratulations. That’s great.

Alex:
Thank you.

Scott:
And the reason you’re doing that is because you’re working essentially two jobs here and you’ve done it really creatively. I think that’s really good inspiration for someone listening. If I’m looking to leave my job here, how do I go into real estate as an agent but then maybe also take on a gig that can give me full time, but acknowledges that license? There’s probably a lot of opportunities there, property management, construction, working for a flipper. The list could go on there and that could be really exciting for folks.
Okay, so you have right now $20,000 in cash, is that correct?

Alex:
I guess that’s my main checking account, I have about $20,000. But my high investment savings account or high yield savings account is about another $96,000, call it $100 thousand. I have about $120,000 in cash.

Scott:
Well, I missed that, so we’re in really good shape here. And you’re going to accumulate about $60,000 a year. I’m guessing at that because there’s a lot of variable puts and takes here with that. You have to set aside 30% of the income from your real estate commissions for taxes, all that kind of stuff. But is that a good guess? $60,000 a year in cash accumulation is very achievable for you in the next 12 months?

Alex:
Yes.

Scott:
Awesome. We have $180,000 at the end of this year. And your goal is to get into real estate. You want to make a real estate investment?

Alex:
Yes, initially of course I want to have a house hack property. Being here in northern New Jersey, it’s very expensive to live here. My rent, I mean I know Mindy said it was relatively good, which it is for the area, but that is also half of it. My boyfriend pays the other half and it also doesn’t include parking. That parking is technically part of my rent. It’s not really separate.

Scott:
Yeah. How much do you pay for a paved piece of land? What’s going into that $900 car payment?

Alex:
The car payment is gas, E-ZPass, just maintenance that I’ve done the past year or so, I averaged it out. That’s all and oil changes all that. But I go very frequently. My commute down to Long Beach Island is about two hours rounded each way and I go three times a week, so it’s pretty expensive for gas and tolls and all of that. And I try and have regular maintenance on my car so it will last me forever, ideally. That’s really where that $900 comes in.

Scott:
Okay. Walk me through an investment you would make in real estate. What are some of the options you’re considering for a house hack or similar?

Alex:
Sure. In this market, of course being a realtor definitely helps me understand what’s available, what’s realistic, what the rents and the numbers look like, realistically. What I want them to look like is definitely different. But on the market I think that I could probably find a property that’s a good deal for about $600,000, maybe both units bring in $2,500 a unit.
I know that’s not exactly the 1% rule, but the idea being maybe we live in it, we have a lower cost of living of course, and with the mentality of holding for appreciation and appreciating rents in the long term. I think that that’s the most realistic. I shouldn’t say most realistic, but of course I would love to find a better deal than that, but I guess from what I see on the market. I’ve been doing a lot of off market marketing as well. But just for example, like a $600,000 to $650,000 two family in this northern New Jersey area is a little bit on the lower side even. I think that’s attainable, but yeah, that’s what we’re looking at as a potential investment.

Scott:
Awesome. One thing. How would you finance it? Would you put 25% down?

Alex:
I would put 20% down.

Scott:
And then you’d use a conventional loan?

Alex:
Yep.

Scott:
I think this is really good. You are perfect use case for someone I think who should be exploring creative finance. If you can assume an FHA mortgage or a VA mortgage, you have the cash or will by the end of the year have the cash to bridge that gap.
What am I talking about here? If someone has a VA or FHA loan, you can take on their mortgage payment. Goodness, it’s an consumable mortgage. You can essentially use their 3.5%, probably 4%, maybe even lower payment. That changes the math on this investment dramatically. The gotcha, the big gotcha is that you have to bring cash because their loan balance is not going to be 20% of the property value. It’s going to be, I’m sorry, 80%. It’s going to be 65% or 63.2% or whatever it is. You need to be able to bring cash to bridge the gap between whatever your purchase price is and the amount of the loan balance that they’ve got.
You’ve got $120 grand so well on your way there. You may need some other source of financing, maybe friend, family or even a hard money loan to some extent to bridge the extra $40, $50, $60, whatever the random amount that you’re going to need in order to close on a property would be. Or you can just wait a little bit longer and you’re going to sock away $60 grand in cash. Have you considered this angle as part of your purchase criteria?

Alex:
No, I guess I haven’t. With a FHA being an assumable loan, I guess that would be, of course the seller would have purchased it with an FHA loan and then I’m bringing that to pay them out. But I guess it would be finding that. I guess that would be my one question on how to go about finding something like that.

Mindy:
I think as agents start to learn about this FHA being assumable and VA loans are assumable too, even by people who aren’t eligible for a VA loan normally. I think as agents find out about this and people start to put their house on the market, agents are going to start asking, “Do you have an FHA loan?” “Yes I do.” “Holy cow, I’m going to advertise that.”
This is an assumable FHA loan. Like Scott said, you could only assume the balance. Let’s say they paid $80,000 for it. They got an FHA loan for $75,000 and they’ve paid off $3,000. Now they’re at $72,000 and you’re coming in and you’re going to buy it for $100,000. You have to bring $27,000, $28,000 to closing in order to cover the difference. But you get the bulk of your purchase financed at their lower rate, presumably lower rate. It doesn’t really work if they bought it last month than their rate’s 7%. You don’t care.

Scott:
Yes. But this is a challenge. Your unique position is that you have a $100,000 in cash and you’re in a really strong financial position so you can pull this off. But the issue is a first time house hacker who is looking to do this, they don’t have $150,000, $200,000 or a reasonable way to getting there very quickly in order to bridge that gap. You have a really good advantage in that capacity.
Surely somebody is going to come up with a solution to this from a technology standpoint. If anyone knows that, please send me an email at [email protected] or ping us in the Facebook group at facebook.com/groups/bpmoney.
But if in the absence of a technology product that I’m readily aware of to find this kind of financing, I’d encourage you to just simply ask. You’re a broker, so you’re just literally contact listing agent and ask them in a simple email, does this come with FHA or VA financing? Does it come with an assumable loan? And the seller will be willing to entertain that. And that’s going to allow you to purchase a lot more. And the math changes dramatically when you’re using a 3.5% interest rate mortgage versus a-

Alex:
Yeah, I think I got quoted, 6.8% recently.

Mindy:
Do you have a search set up in the MLS?

Alex:
Yes, I have my own search and then pairing that with letters and postcards recently. I got a couple of calls. They didn’t really turn out to be anything but something.

Mindy:
The way that I set up my search and when I was looking for a property, I would write letters. I would write them by hand and I would say, “Even though I’m an agent, I’m not looking to list your house, I’m looking to purchase it myself.” Some agents will try to get in like that and then flip the switch on them. “Oh yeah, I just really want to list it.” I just wanted to be upfront with them.
I’m saving you commission because I’m not taking the commission for either side. I’m going direct. I am going to give you the fees that would equate whatever you’re paying for an attorney so you are represented so that you don’t feel like there’s a power imbalance or anything. I really wanted to put them at ease because getting the property is more important than saving a $1,000 or $10,000. To get in is really key.
I do want to say that New Jersey laws are really strict and lean toward tenant. If you’re house hacking, I think it’s different, but if you’re an agent, I think it’s now not different. Just that’s a bit of a homework assignment for you is just to look into. The thing that I dislike the most about New Jersey landlord tenant laws is that you technically, not technically, you can’t non-renew a lease except for cause. If they haven’t paid their rent, of course you can evict them, but if they’re just incredibly disruptive, you’re living next door to them. They have parties all night long, they are stomping and just they live above you and they’re very, very loud. They have brick shoes or something. You can’t non-renew a lease except for cause. Which on the one hand is good for the tenants. On the other hand, you can’t get rid of a bad fit. Something to be aware of.

Scott:
One last point on this assumable finance piece. One other thing you can consider, doing depending on the seller of course, and the seller has to get comfortable with this and I think that they will start doing it because it’s really just some paperwork at the end of the day.
But imagine you have a $650,000 duplex that you’re looking at. You’re going to bring $120,000 down. The loan balance remaining is $350,000. What are we at right now? $470,000 minus $650,000. We need $180,000 to come up with. Perhaps, and this might be too big of a balance, but perhaps you could say, “Would you be willing to sell or finance that amount and then I will pay it back over a three, four year period at this interest rate.” That could even be higher.
You might want to get closer in an example like that. Maybe the balance is $450,000 and you’re only asking for a $50,000 seller financing. But the more cash you stack up, the more attractive an option that will be to a prospective seller if it means an extra $10,000, $15,000 in the purchase price for them. Just make you more competitive. And I think this is the year of creative finance for a lot of folks that are in your position. Any feedback or thoughts on that? Is that helpful?

Alex:
Oh yeah, that’s very helpful. I appreciate it. Yeah, even in past episodes I had been thinking about the seller financing only recently because yeah, you guys had brought it up before and it definitely makes sense for creative financing.

Scott:
What’s another area that we can look into today? Or do you want us to keep going deeper on real estate?

Alex:
I think that’s been great. I know I mentioned to Mindy too, a lot of that is just a lot of my own analysis paralysis. I really appreciate the feedback and reframing things in a more creative way to open up some opportunities and some options for me.
Other than that, I think that another area is really balancing wanting to take more entrepreneurial risks with my goal to also still be in a coast FI type of position by about 45 is where I put it at. Where maybe I have children and I want to spend more time with them, have more flexibility.
But also the position that I have right now is great. I consider myself to be a full-time realtor and I’m also of course working with my broker on his construction business, which is a small, essentially a startup, small business, private business. And I know that I would like to do something on my own at some point. I guess for me, a little bit of fears come up with taking that leap similar to how I did before, but with less of a consistent income and foundation. Just also balancing those two wants essentially.

Mindy:
What sort of entrepreneurial endeavors are you looking to get into?

Alex:
Yeah, so I guess ironically I would love to get into financial coaching. I think that even though I don’t know everything of course, I think that I know enough of the basics and I’ve learned enough of the basics of how to save and invest. And I feel like I can coach people through that effectively and get to a position similar to mine. Not that it’s all star, but it’s okay I think for where I’m at. And I would love to pursue something like that. I really feel like I can contribute and help people with that piece. And of course pairing real estate with it, just that’s a big financial component for people and I feel like I could use that knowledge along the way as well. That’s mostly what I would love to pursue.

Scott:
Do you by chance have a master’s degree?

Alex:
I don’t.

Scott:
That could help you if you wanted to apply for a CPA license for example, as part of that. Okay, so the goal is to become a financial coach and explore that as a potential business opportunity, a services based business. You’d charge hourly, I presume?

Alex:
Yeah, I would say or have a program and have a fixed cost program. That’s another area where I thought might be better?

Scott:
Well, the best way to do it is to sell whole life insurance.

Alex:
Oh, you think?

Scott:
We won’t teach you how to do that one? I’m sorry. No, no. Well that’s great. Okay, so we want to start this business. You are in a great position if you want to explore entrepreneurship. You have a ton of cash and you bring in a lot more than you spend. You only need one of your two jobs in order to cover your costs right now. And you could divert all of the time you dedicate to either being an agent or to the construction work, to your side business.
And if you didn’t make any income for a year, and for example, if you were to leave your construction job. With your current situation, you could survive for two and a half years prior to needing to go back to work in order to burn that. You are in position to take a great shot right now.
Obviously that changes a little bit. If you do a house hack and use up all the cash, now all of a sudden your runway is diminished a little bit, but you also will probably have lower expense profile. There’s good trade-offs there. But I think you’re in position to do that. The next question would be how to go about making that transition if that’s what you want to do and how soon can you do it?

Alex:
Yeah, I think that that’s a lot of my own questions as well. I definitely plan to. This year is where I did want to start picking that up as a part-time endeavor, just finding the time to do it of course, working essentially two jobs. Mindy, I’m sure you understand even the weekend is showing houses and all of that. It’s definitely been a challenge there. Not to say that I can’t make the time for it. I don’t ever want to use that sort of thing as an excuse, but that’s the biggest, I guess, barrier and just the steps to take to begin something like that is really my next step on how to approach it.

Mindy:
The first thing I thought of when you said financial coaching was The She-Wolf of Wall Street, Amanda Wolf. She is theshewolfofwallstreet on all social and she’s particularly active on Instagram. She makes videos. And videos, you can make a video with your phone. I mean the iPhone cameras from iPhone seven up and the Pixel cameras from Pixel three up are so high quality that you can record a video and upload it to YouTube in 20 minutes.
If you want to start doing financial coaching, how are you going to get clients? You get clients by showing your expertise. How do you show your expertise by splashing it all over the internet. We were actually just talking. The way that we ended up recording the episodes, their episode is releasing on Monday after this one releases on Friday, but we recorded it already. Next Monday, listen to that episode and you’ll hear how she got started on her business essentially with no money.
There’s a very small amount of money that you need for website hosting. She didn’t even have a website at first, she just had an Instagram account. I believe there is plenty of room in this space because everybody’s voice is different. You are going to be able to speak to people that I can’t speak to, that Scott can’t speak to.
What is it that you have to offer? You could be the financial real estate agent or whatever, the East Coast finance girl, or whatever it is that you specialize in or have a big passion about. Start thinking about what your angle is. And I hate the word angle because I don’t mean it like skeezy, but what is your angle? What do you have that I don’t? What do you have that Scott doesn’t? What do you have that the She Wolf of Wall Street doesn’t have? Because there are things that you have that they don’t. That people will listen to Alex versus Mindy.
Start making a list of the topics you want to talk about. Start making videos. It’s really hard. You should see some of my first videos, you’d be like, “Oh my God, that was awful.” Cringe. So cringe. It takes a lot of time to get comfortable in front of the camera. And then as you gain a presence online, people start reaching out, “Hey, I really like what you have to say. You really make me feel comfortable.” Or, “You’ve really kicked my butt into gear and now I’m ready to take charge and can you help me?” Or you offer it up. But go check out what Amanda’s doing. She’s really doing some amazing things.

Scott:
What does a successful coaching business look like to you in three, four or five years?

Mindy:
Oh, That’s a good question.

Alex:
That’s a good question. It would be of course, in terms of an income, I would be earning about the same I would say. I don’t think that I really feel like, and hopefully this isn’t my scarcity mindset creeping in, but I don’t feel like I need a large income to be able to save the way I want, invest the way I want. Really if I would be able to say in three years have a coaching business that earns a $100,000 to $150,000 a year, that would be incredible.
And more real, what I would like to do being helping people. I don’t know what that looks like in terms of the quantity of people, but I would love to have coached over a 100 people in three years, a three-year period of time. And be able to impact them in some way.and help them either get out of debt or help them invest a little bit better and maybe make more money.
Maybe even like you were saying, Scott, help them figure out a way to have that financial runway to take a quasi entrepreneurial risk before they maybe want to jump into something entrepreneurial themselves. That’s I guess a short summary of what I see it looking like.

Scott:
Awesome. Yeah, we just talked to someone recently who is basically a physical therapist and there’s a lot of similarity. I mean, it’s the same type of business. It’s a services based business. You’re charging likely per session, per client.
To back into what you just said, if you wanted to work 1,000 hours, which is 20 hours a week over the course of a year. In this business in three years, you’d need basically a 1,000 hours billed at $150 an hour rate, which would be very reasonable for those services.
You’d have to establish credentials, expertise to do that. There are ways to do that. One of them that I think is very, very hard from starting from scratch, but not impossible and probably you should do is what Mindy said, building a social media presence, videos, content, those other types of things. Another way to go about that would be in this field to go and get your certified financial planning designation, CFP designation, which you can take a test, it’s a rigorous test, it’ll take you some time, it’ll require a lot of study. It’ll probably be about the same level of commitment from a financial perspective as getting your real estate license, but perhaps much more intensive from a study perspective. That could be something you would do.
You’ll immediately get recruited or you risk for getting recruited after getting that designation by the Edward Jones and other institutions that charge assets under management and whole life insurance policies. And again, we’re not big fans of those types of policies and that type of financial planning. But that is how you make the big bucks is you get a lot of assets under management and you charge 1% of the fees. That’s what attracts most people to this space. That’d be how you back into something like that.
And yeah, you could start sooner and see if there’s a plan there, but I think it’d come down to your value proposition. I’m a real estate friendly financial planner in northern New Jersey and Western Pennsylvania or whatever it is that helps people that are looking to become financially independent with a couple of properties do this. I specialize in 1031 exchange, tax preparation, tax strategy and planning, financial planning. Building out the very specific niche might be very impactful. And getting clients from there. First you have to set up the business and then make sure you can deliver on that value proposition.

Alex:
Yeah. I think getting in front of the camera would probably be the hardest thing for me. This is good practice I guess.

Scott:
You don’t need to do that necessarily. There’s a whole bunch of guys on BiggerPockets, for example, who haven’t really been on the camera, don’t get on there. But they post one, two, three, four times a day about those related topics and they become experts. They already are or they become experts in all of these different niches in the finance world and that’s how they get clients for services like what you’re talking about.

Alex:
Cool. Thank you.

Mindy:
I do want to bring up, I looked up how do you get the CFP certification. “The experience requirement prepares you to provide personal financial planning to the public as a CFP professional. There are many ways to satisfy this requirement. Ultimately, you must complete 6,000 hours of professional experience related to the financial planning process or 4,000 hours of apprenticeship experience that meets additional requirements.”
CFP, it’s a bigger undertaking. Which is it’s a better undertaking than just being online, “Hey, I could do this.” But it’s harder. Harder is not the right word that I want to use. It’s more of an-

Alex:
Commitment.

Mindy:
Commitment. I was going to say obligation. Commitment is the word I was looking for. It’s a much deeper commitment. Whereas you could start making videos and be like, “Oh, I love this and want to be a CFP,” Or, “Oh, I hate this and I want to figure out something different.” Just Scott and I are here to give you different perspectives. If we were the same person, there wouldn’t be no need for both of us.

Scott:
Absolutely. And one way to go about that, I will admit I had forgotten about the several thous- … It’s the same thing with the CFA as well, which is what we want from an investment perspective. But one way to go about that might be to say, okay, the construction job is great, but maybe I could get a job more locally with an accounting firm or something like that and learn the ins and outs of tax preparation for real estate investors for a firm here. Probably a similar salary that’s direct experience there working you towards your goal of being a financial coach with a legitimate designation that will mean something in this space.
That might be a very powerful way. Okay, I’m going to do that for a year. Then the next year I’m going to work for a CFP and be bookkeeper, tax prepared, whatever that is to some degree that will help me do that. And these are probably all jobs that would offer potentially an opportunity to pay at a similar level.
And if you can bring real estate expertise to that, there’s value add in addition to the skillset that you’re providing. Those would be all things to think about. If that’s what you want to back into, in three years, you could be a CFP with a very credible set of experiences in tax preparation, estate planning and other ins and outs, for example, for real estate investors.

Alex:
Yeah, that’s cool.

Mindy:
And one of the things you wanted coaching on was not having a 401k. What other accounts do you have access to? Do you have a 403B or a 457 or anything like that?

Alex:
Not at my current job. We don’t have any account through that. But I have just a Roth IRA on my own. I have a SEP IRA for when I do my real estate commissions and all that. At the end of the year I contribute to that. And then I just opened an HSA. I haven’t contributed yet, but that was last month. Other than that, that’s really the extent of it.

Mindy:
I love the HSA account. You’ll hear next week on Monday, you’ll hear how much Amanda Wolf loves the HSA account and also how much Kyle Mass loves the HSA account because it’s such a great account. You don’t pay taxes on the money that goes in. It grows tax free and then you pull it out tax free.
And some people are using that as a way to fund their current medical expenses. But if you can cash flow your medical expenses, what you can do is save your receipts and let’s say, I mean there’s a lot of things that qualify for HSA funds like contact solution, band aids. There’s like 5,000, 20,000 things. It’s a giant list of stuff. Including all of your prescriptions and your copays and all of that stuff. You pay it with your current cash, you save the receipts and you keep putting money into your HSA, you max it out as much as you can. You allow it to grow tax free.
Down the road, you decide, “Okay, now I’m going to cash in.” I’ve got all of these receipts. Now I can pull that money out. When you’ve got $3,000 in there and $1,000 dollars worth of bills, you just took a third of your balance away. A third of your balance can’t grow, but you’ve got $3,000 in there every single year. I think it’s $3,800 this year. Every single year you’re growing this giant balance. And then you’ve got a thousand dollars, you pull out $1,000 when the balance is $40,000, it’s not such a big hit. That’s a $1,000 tax free dollars. And you can do this as long as you have an HSA, as long as you have a high deductible plan, you can cash role your expenses and then save those receipts-

Alex:
Cool.

Mindy:
… for pulling out at the end. And then if you don’t use all of the funds that are in there, I think it’s 59 and a half, you can start taking that money out.

Alex:
That’s really cool.

Mindy:
But eventually you’re going to need that for I think for regular medical expenses even though you don’t have an HSA plan anymore. But that’s such a great program. As long as you have the opportunity to do it, I would recommend doing that.

Alex:
Cool. Thank you.

Scott:
I really, overall like the decisions you’ve made and how you set yourself up with portfolio at this point. I probably wouldn’t have changed a thing. At this point, you now need to do something with $120,000 in cash that’s sitting there, not earning a return.
That could be buying a house hack. It could be using it as runway to start to fund your business. But there’s no sense in accumulating additional cash at this point unless you have a clear cut plan to use it outside of your retirement accounts. I would think about how do I max out down this stack? You’re in a privileged position where you have this option. And I think that, yeah, prioritizing taking an employer match if your day job offers that is a good one. I like the HSA next. I like the Roth IRA after that. I like your SEP and 401k options following those. I think that’s right. And if you don’t have a plan to deploy the cash, I’d just start dumping it all into those at this point because you already have $100,000. There’s no-

Alex:
Yeah.

Scott:
I love the flexibility it offers you. Use it or start piling up the tax deferred wealth.

Alex:
Yeah, I know. I feel like I’m always very cash heavy, just I like the buffer. But I guess to your point, it’s definitely I think enough of a buffer even putting 20% down if that be the case, the way to go and all of that.

Mindy:
Another thing to think about is you just said you like having the cash buffer. How would you feel if the ideal property came up tomorrow and you needed to use $120,000 for your down payment? Is that going to make you so nervous to not have any cash buffer? And if it is, and it would make me nervous as well, then don’t put a $120,000 down.
What is the minimum cash buffer that you can comfortably live with? And you don’t need to answer me. You don’t need to have that answer right at the top of your head, but start thinking about that so that when you are looking for a property, the perfect one pops up, but it’s going to take every dime of your cash that’s going to give you so much nervousness that you’re not even going to be able to sleep. That makes it not worth it.

Alex:
Yeah, absolutely. I agree.

Scott:
I think the biggest single takeaway here though is you are fresh on this new world of earning $140,000 a year, give or take, and having tons and tons of extra cash coming in. And it seems like you’ve just been stockpiling for several years in your savings account. Now it’s time to pop up and say, “Okay, if I keep this up for the next five, 10 years, I have a path to a million dollar net worth.” And I talk about this a lot, but it’s zooming out and saying, “Okay, what does that position look like in five years? I easily will have $600,000 to $750,000 even if I don’t generate a return on my wealth at that point. I have a path to potentially getting into that ballpark.”
What do I actually want that portfolio to look like? This much in a house hack. Do I want two or three house hacks and portfolios? Do I want a stock portfolio? Do I want a business? When do I want them by? How do I sequence that and get to a place that makes sense and begin acting at the highest level on that? And that will mean big moves.
And will also mean evaluating the value of your time, which is dramatically higher now than it was a few years ago. And it will be if you keep doing it, keep this up, higher still in a few years than it is now. That means you have to stop doing certain things or outsource them and whatever.
And so just thinking through that at a really high level and saying, “Here’s what I want to beat in three to five years and are the actions I’m taking conducive to getting me there or am I just continuing to throw a lot of cash onto this pile?” Which is great, but it’s not a strategy. It’s clearly going to work in building wealth, but it’s not as effective as putting together a thoughtful plan that you’re backing into.

Alex:
Yeah, I appreciate it. It’s true.

Mindy:
Awesome. Well Alex, thank you so much for your time today. This was a lot of fun. I like talking real estate, I like talking real estate agent stuff and I am excited for what lies ahead. I would love to hear what you do with your house hack search. Please let us know when you find a property.

Alex:
Thank you so much. I appreciate your time you guys.

Mindy:
Thank you Alex. We’ll talk to you soon.

Scott:
Thank you.

Alex:
Bye.

Mindy:
All right Scott. That was Alex. And that was a really good set of problems to have. Which bucket do I put my money in and which goal do I focus on?
I think focus is the key here. Which goal do I focus on or which goals do I focus on? It can be hard when you’re in this position of you’ve paid off your debt, you have a lot of income, where should it go? Sitting down and figuring out what you want can be really key.

Scott:
Absolutely. She’s doing fantastic. She’s got all these things that are going to make her super successful over the long run. It’s backing into a plan there and making intentional choices to move towards it.
And I think that she’s still in the, I have all these options phase instead of here’s my plan and three logical choices are A, B, or C. And I’m going to go with A, because that’s the one that has the most direct impact, whatever. If she can get there, everything’s going to be going to start falling into place for her and we can begin backing into that.
The three big takeaways though that I have for today are in addition to first having that plan, second thinking through the house hack decision in the context of creative finance. Creative finance requires you to come up with something either super creative, like I’m going to assume alone and I’m going to do seller financing and I’m going to bring a little bit of cash or to have a lot of cash. And she’s in that privileged position of having a lot of cash, which makes this really accessible to her in a way that it may not be for many of her competitors in today’s market. She’s in a unique position for a house hacker of having both cash and the willingness to move into a property that makes assumable financing like FHA and VA really available to her in a way it wouldn’t be for me as an investor or it wouldn’t have been for me as a first time house hacker eight, nine years ago because I didn’t have $120,000 in cash to bridge that gap. That’s number two.
And then number three, I think it’s this entrepreneurial bend in understanding, okay, when is it time to pull the trigger and how do I set myself up for success in that endeavor so it’s a smooth transition from my current state to the future state of being an entrepreneur or business owner in this. And I think that in her case, she had some opportunities to think through education, certifications, brand building, and then just generally rounding out her expertise. I wouldn’t be surprised if there’s a job change coming up in the next year or two that aligns better with her goal of entrepreneurship in the financial coaching space.

Mindy:
That would be very interesting. I hope she checks back in with us. All right, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
That wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, “Shake, shake rattlesnake.”
BiggerPockets money was created by Mindy Jensen and Scott Trench, produced by Caitlin Bennett. Editing by Exodus Media. Copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.