My Brother-in-Law Wants to Buy a Rental in Mexico. Good Idea?

Summary

Afford Anything Podcast: "My Brother-in-Law Wants to Buy a Rental in Mexico. Good Idea?"

Host: Paula Pant
Guest: Joe Salcicci (formerly Salce, but often pronounced Sal-see-hai)
Date: February 24, 2026
Network: Cumulus Podcast Network

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Episode Overview

In this Q&A-packed episode, Paula Pant and Joe Salcicci tackle three listener questions that span real estate investing abroad, retirement asset management, and legal protection for retirement accounts. The central (and most in-depth) discussion explores whether buying a rental property in Mexico is a smart move—especially for a novice investor influenced by personal motivations. Along the way, the duo dives into decision-making frameworks, critical thinking about money, and, of course, the intricacies of family relationships when offering financial advice.

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Key Topics and Discussion Points

1. Buying a Rental Property in Mexico: "Should My Brother-in-Law Do It?"

[02:06–29:15]

Background

• “Ron” (listener alias, named after Ron Weasley in a light, Harry Potter-themed moment) calls in, concerned about his brother-in-law who, after falling in love with an Airbnb in Mexico, wants to sell everything and move there to buy that same property as both his home and an investment (multi-unit, with him living in one and renting out the others).
• Neither he nor his friend investor have any prior landlord experience.

Relationship Dynamics First

Joe emphasizes caution when offering unsolicited advice to family:

• “It isn’t going to be about what you say. It’s about how do you put the right velvet on your hammer.” — Joe, [06:30]
• Warns of the “meddling brother-in-law” perception; stresses only to offer direct opinions if asked. Instead, offer helpful resources or introductions.

Investment Analysis and Red Flags

Paula immediately zeros in on the investment mechanics and risks:

• Conflating Personal Preference vs. Investment Criteria:
  • “People will conflate personal preference with investment choice...as an investment, it is a spreadsheet-based decision.” — Paula, [10:05]
• Size of the Investment:
  • The property is 11.5 million pesos (~$660,000 USD); not a trivial sum for a first deal.
• Essential Due Diligence Steps:
  • Analyze cap rate: Start with gross potential rent, then subtract vacancy, maintenance, repairs, major capital expenditures, and management (even if self-managing).
  • Understand true net operating income before considering leverage.
  • Research local market variables: rental demand, regulatory climate, taxes, transaction costs (including if 1031 exchanges or equivalents exist), property rights, and the cost/difficulty of renovations in Mexico.
  • “You want to understand the strength of the underlying asset before you start borrowing money for it.” — Paula, [14:51]

International Nuances and Risks

• Deeply research landlord/tenant law, property rights, inheritance/estate regulations, tax regimes, and construction/maintenance costs.
• “You don’t want to hold a $700,000 asset in a country in which you don’t even know how inheritance works, how estate planning works.” — Paula, [25:09]
• Use a U.S. domestic property as a “batna” (Best Alternative To Negotiated Agreement) comparison: what could $670k buy you in a triplex in, say, Cincinnati, and how do returns/risk compare?

Relationship-Behavioral Overlay

• Joe notes people with “big ideas” often move on when the excitement and research fade; guiding someone into due diligence can itself serve as a test.
• Paula: “Often, success hinges on your willingness to be bored for incredibly long periods of time.” [20:47]

Takeaways

• Don’t let personal excitement about a location or lifestyle substitute for prudent investment analysis.
• Encourage thorough, hands-on research.
• Use supportive, resource-sharing conversation to help without alienating.
• The ultimate test: Compare the Mexico deal (risk, reward, hassles) straight against a stateside alternative.

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2. My IRA Has Doubled—What Now?

[32:56–42:21]

Marianne’s Scenario

• Retired at 66; living off Social Security and portfolio interest/dividends.
• IRA has “doubled within the last year and a half.” She’s unsure whether to sell her ETFs and hold cash, reinvest elsewhere, or something else.

Analysis and Guidance

• Joe: “Should I sell this position and move to cash ... The reason you have so much cash is because you were in an investment that at least kept up with inflation. ... If you move it to cash, you will lose your ability to keep up with inflation.”
  • Don’t sell everything to cash unless you have far more than you need AND don’t care about future purchasing power
• Paula: The real question is about asset allocation. What are you invested in? Is your portfolio overconcentrated in one asset or sector?
• Joe: “For your long-term money, capital appreciation is generally the way you will make money faster, but you need long periods.” [37:39]
• Timeline-based Planning: Allocate for immediate needs with safer, income-producing investments, longer-term needs with growth assets.
• The Unknown: Retirement health and aging costs are unpredictable, but modeling scenarios helps you prepare.
  • “None of us have any idea what our expenses are going to be 15 years from now, but ... if they double, I’m in trouble. What do I do today to make that easier?” — Joe, [41:40]

Takeaways

• Don’t react to windfall gains by going all to cash.
• Build an asset allocation plan that matches income needs to investment type and risk; match asset classes to time horizons.
• Model “what if” scenarios for later-in-life expenses even if exact numbers remain unknown.

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3. Are Old 401(k) Rollovers to IRAs a Mistake Due to Lawsuit Protection Differences?

[44:29–54:16]

Brandon’s Questions

• Heard in a prior episode that 401(k)s offer stronger federal protection from lawsuits than IRAs, which depend on state law.
• Wonders if he made a mistake rolling over two previous 401(k)s into IRAs, and whether to leave a current 401(k) alone for asset-protection reasons.

Core Legal & Planning Insights

• Paula: “Money that’s rolled from a 401(k) into an IRA maintains the protections of ERISA. Rollover IRAs maintain the same protection that a 401(k) has.” — [48:00]
  • Rollover IRA = retains federal lawsuit-exemption of original 401(k).
  • Caveat: Don’t commingle rollover IRA funds with regular IRA contributions so records remain clear in the event of legal dispute.
• Joe: “The takeaway...was to have umbrella liability coverage. ... Moving money from a 401(k) to an IRA, even without the protections, is by far the thing that you want to do...I usually see leaving money in your 401(k) at an employer after you leave that employer as a mistake.” — [48:25]
  • Points out practical/behavioral issues: old 401(k)s get neglected, choices may become more limited or expensive over time.
  • Consolidating accounts in a single IRA at a large provider (Vanguard, Fidelity, Schwab) reduces hassle and improves oversight.
• Pro Tips:
  • Having separate accounts at one institution is fine (rollover IRA, traditional IRA, Roth IRA), that’s not “commingling.”

Takeaways

• Rollover IRAs maintain strong federal protection if not mixed with regular IRAs.
• Rolling over old 401(k)s is still typically the best move for both practical tracking and investment freedom.
• Consider umbrella insurance as a primary “first line of defense” for liability risk.

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Notable Quotes & Memorable Moments

• “It isn’t going to be about what you say. It’s about how do you put the right velvet on your hammer.” — Joe, [06:30]
• “People will conflate personal preference with investment choice...as an investment, it is a spreadsheet-based decision.” — Paula, [10:05]
• “You want to understand the strength of the underlying asset before you start borrowing money for it.” — Paula, [14:51]
• “Often, success hinges on your willingness to be bored for incredibly long periods of time.” — Paula, [20:47]
• “You don’t want to hold a $700,000 asset in a country in which you don’t even know how inheritance works, how estate planning works.” — Paula, [25:09]
• “Should I sell this position and move to cash? ... If you move it to cash, you will lose your ability to keep up with inflation.” — Joe, [36:09]
• “The reason you have so much cash is because you were in an investment that at least kept up with inflation.” — Joe
• “Money that’s rolled from a 401(k) into an IRA maintains the protections of ERISA.” — Paula, [48:00]
• “I would never vote against rolling money to an IRA from a 401(k), even if Paula had answered the question differently than she did.” — Joe, [52:20]

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Timestamps by Segment

• [02:06–29:15] — The Mexico Rental Property Question
• [32:56–42:21] — IRA Doubled, Now What?
• [44:29–54:16] — Lawsuit Protection: 401(k) vs. IRA

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Episode Tone & Style

Friendly, conversational, and informative—with plenty of genuine laughs (and Harry Potter references!). Paula stays grounded in analytical rigor, while Joe brings seasoned experience, empathy, and a focus on behavioral and relational realities.

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Summary Takeaways

• Family Advice: Tread carefully; be supportive, focus on sharing information and resources.
• Real Estate Abroad: Do research as if for any serious investment—don’t let a lifestyle fantasy overshadow sound due diligence.
• Asset Management in Retirement: Avoid knee-jerk reactions to gains. Allocate by matching investment risk/reward to time horizons and anticipated needs.
• Legal Protections: Rollover IRAs retain robust federal lawsuit protection—just keep them clean and don’t commingle with other IRA money. Use umbrella insurance for added peace of mind.

For more frameworks and expert interviews on money, psychology, and decision making, subscribe to Afford Anything or visit affordanything.com.

Transcript

[Paula Pant]

Joe, we're covering a lot of ground today.

[Joe Salce]

Of course we are.

[Paula Pant]

We are going all the way to Mexico to talk about purchasing a rental property. Well, we're not.

[Joe Salce]

Margaritas on the beach.

[Paula Pant]

Yes. Pour the tequila. We're going to Mexico. After that, we're talking to someone who is 66, whose IRA has grown tremendously.

[Joe Salce]

Ooh, nice.

[Paula Pant]

I mean, if you think about how much equities have grown in the last five years, imagine you're 61 years old. You have a sense of how much money you have going into retirement, going into your 60s, and then, boom, the market goes bonkers, and you have all of this growth. And so at 66, you're looking at the last five years, and you're going, wow, I've got even more money in retirement than I planned for.

[Joe Salce]

I could go to Mexico a lot.

[Paula Pant]

Right. So we're gonna address that today. And we're also gonna talk about legal liability, how to protect yourself and your retirement accounts in the event of a

[Joe Salce]

lawsuit, all in one episode.

[Paula Pant]

Welcome to the Afford Anything podcast, the show that knows you can afford anything. Not everything. The show covers five pillars. Financial psychology, increasing your income, investing, real estate, and entrepreneurship. The acronym FIRE with two eyes. Double I Fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode, ish. I answer questions that come from you, and I do so with my buddy, the former financial planner Joe Salsihai. What's up, Joe?

[Joe Salce]

I help Paula put the ish in every other episode ish.

[Paula Pant]

You know, I like to leave some room for flexibility. So normally you are our Tuesday episodes. These listener Q and A is our typical Tuesday episode. But, you know, every now and again, someone. Someone goes to a conference or someone goes on vacation or gets sick. And so we will put in an interview on a Tuesday.

[Joe Salce]

Plus, you gotta keep them guessing.

[Paula Pant]

Yeah, exactly, Exact. But the bulk of the Tuesdays, it's with you, Jo. We love Tuesdays. And speaking of Tuesday, that's a terrible segue, but I don't know how else to segue that. Our first question comes from Anonymous.

[Joe Salce]

Hey, Paula.

[Anonymous Caller (Ron)]

Hey, Joe. Thank you for everything you guys do. I've learned so much from you guys. Really love this show and I've used it to better the lives of everybody in my family. My wife and I are well on our way to fire and love the idea of using our flexible time to spend with our two young kids and help others around our community. I've got the world's best brother in law, but he's going through some tough times right now. He has a history of big ideas that are tough to follow through on. In the past he has hopped from one big idea to the next. He recently split from his about to be ex wife, went on a beautiful vacation to Mexico with some friends, stayed in a gorgeous Airbnb, loved the trip. But he's come back with a plan. He is now near certain that he's going to sell everything here, move to Mexico, buy this Airbnb for 11.5 million pesos of course, and live in one of the units while renting out the other two. He's never owned or managed a rental unit before, much less a three unit place where he's also living in. And Mexico also has an offer from a friend to put up $50,000 with him who has also never done rentals before. I've got so many questions, so many concerns and so little time for it. I do want to be the best and most supportive brother in law that can be, but I also don't want to watch him jump in over his head. Hoping you guys can help. I know you guys can help. When looking at a rental in Mexico versus the what sort of things need to be considered differently borrowing money. I would assume he would have to become a citizen there if he's living there full time, working remotely for a US company out of Mexico. Please. I don't want to worry as much as I am and I want to turn it all into support. I know you guys can help. So thanks so much.

[Paula Pant]

Anonymous thank you for the question. You are the world's best brother in law. The kindness in your voice, the genuine concern, the love. I mean you have a very expressive voice. I can hear all of that. So your brother in law is very lucky to have family like you.

[Joe Salce]

We have to give him a name though. Paula, we can't talk too. Anonymous I'm trying to think.

[Paula Pant]

Are there any famous brother in law celebrities or brother in law movie characters or or book characters? All right, I'm about to say something that's going to be a Harry Potter spoiler so for people who have not gotten to the end of Harry Potter, please cover your ears. At the end of Harry Potter, Ron's sister Ginny marries Harry, which means Ron and Harry become brother in laws. And Ron of course is so you know, Ron and Harry are just like best buddies and and Hermione of course, best buddies all throughout their time and they really support each other and they mutually get each other out of binds constantly. And so in honor of being such a great brother in law, I'd like to name you Ron for Ron Weasley.

[Brandon]

All right.

[Paula Pant]

Okay, Harry Potter, spoiler over. You can uncover your ears now. For those of you who have not

[Joe Salce]

yet had the joy, I think this is dangerous territory. Paula, it is wonderful to be worried about your brother in law. It's great to not want to see him fail, but you also can't live his life. I wonder what your relationship is. If you're seen as a trusted advisor, then being able to give him advice on this could go a long way. If you're not seen as a trusted advisor and are instead seen as the meddling brother in law, this could hurt your relationship. I think you have to really tread lightly the advice, and this is just from all my years in the advice industry that you really want to be a little bit on eggshells here about how you handle this. It isn't going to be about what you say. It's about how do you put the right velvet on your hammer. Clearly it sounds to me this could be conjecture, but it sounds to me like you're against this move and he's failed at this type of thing many times. And again, I'm putting words into your mouth because you didn't say that. You said he has big ideas and he goes from one big idea to another. So I interpret that as he's failed at different big ideas. You see, this is just the next one. You think it's crazy. You think you shouldn't do it. That's what I got from your note. So I think that if you have trusted advisor relationship and he asks you, should I do it? I would air all that if he directly asks you. But if he hasn't asked you for anything and you take that to him, you could very well get a completely different reaction from him and not what you're hoping for.

[Paula Pant]

Wow, Joe, that was not where I thought your answer was going to go. Wow. This is why I'm glad we both answer these questions. Because you went straight to the relationship component. My brain went straight to the real estate component.

[Joe Salce]

Which is funny because even before we started recording, we were just talking about a different relationship in our lives and talking about the relationship. But I think for you that's the most important thing. He's going to be your brother in law whether he succeeds or fails at this point. Right. So to me, if I've got to be at Thanksgiving dinner and I want to be friends with him, then giving advice where it's asked and then being supportive when it's not asked, but being supportive and being duplicitous are two different things. I don't think you have to say, I'm all for this if you're not. I also think that you can be supportive in a way. Like as an example, here's what I was thinking, Paula. I was thinking, assuming that he hasn't been asked for any of this advice, finding good people at Airbnbs and turning them on to those things, those people, those brains who are good at doing Airbnb and going, oh my God, it's so exciting that you're doing Airbnb. You know, I really like this person. You could even give them the book. You could go, man, congratulations, I wanted to do this. Airbnb. Here's a great book that I know because I listened to financial podcast and this person rocks at it. Helping him find resources. Paula.

[Paula Pant]

Well, here's My brain can't even get to the relationship part. I just want to dive straight into the actual scenario. Let me get the scenario off my chest and then maybe I'll. I can think through the relationship piece later. But the scenario, I see so many red flags. First of all, it's very common that people will conflate personal preference with investment choice. It sounds like that's exactly what the brother in law is doing here. He personally likes Mexico. He wants to live there. That's great. Love that. For him, where it becomes problematic is the conflation of personal preference with investment decision. Because those are two completely separate buckets. Your personal preferences are your personal preferences, whatever they may be, and your investment choices need to be the best risk adjusted return vehicles that are organized in some type of an asset allocation that fits your timeline and fits your goals. And those two are completely disparate buckets. And what often happens, particularly in real estate, is that people conflate the two. Because you look at a unit of matter which is a home, and you conflate the dual purposes of the home. Right? Because a home at the personal level has the purpose of personal consumption, but at the investment level has the purpose of being a commodity that you invest. Or depending on how you handle it, it's either. If it's a long term rental, it's more like a commodity. If it's a short term rental, it's hospitality. So whether you see it in the commodity sector or the hospitality sector is dependent on how you handle it. But regardless of how you might attribute it to sector, as an investment, it is a spreadsheet based decision. And as a personal preference, it's a personal preference. And where people really get into trouble is when they mix the two. Logically, if the goal is to have adequate money such that that money could support brother in law's lifestyle in Mexico, logically it makes sense to buy whatever property in. In a completely geography agnostic manner. Buy whatever property is going to provide the best risk adjusted return and then use that money to support his life in Mexico. I mean that's the whole point of money is that it's fungible. It doesn't need to be geographically co located with where you are. Right. I looked up 11.5 million pesos and as of the day that we're recording this, I know currency conversion can vary, but as of the day that we're recording this, that's equivalent to $659,000 US dollars. US$659,456. All right, so we're talking about Roundup $660,000. That is not a small amount of money. If this had been like 50 grand, 100 grand, I recognize that is also a lot of money. But if this had been a relatively smaller amount in the context of what a person in the US might pay for housing. Cool. Go, go try your 50 grand flyer. No problem.

[Joe Salce]

Well, this is my problem because I hadn't done the conversion and you did the second that you said the conversion. The very first thing I thought about is if this is two units or

[Paula Pant]

three units, I think I just look

[Joe Salce]

at what the rent's going to be.

[Paula Pant]

Right.

[Joe Salce]

Can you rent those units for enough money in any even touristy destination to cover what the mortgage cost would be on that type of a property?

[Paula Pant]

Well, it's not just the mortgage cost, it's maintenance, repairs, major capital expenditures, vacancies.

[Joe Salce]

But even without all that, Paula, the very first thing I thought was mortgage on nearly $700,000, two or three units, how. And then we've got all the capex stuff, right?

[Paula Pant]

Exactly. There are a couple of things that your brother in law or that any real estate investor would need to understand before they buy their first rental property. Because that's, that's what this is. It's a house hack rental property with the added complexity of it being in a foreign international location. The first thing that they need to understand is how to calculate the cap rate. Stated very simply, the cap rate, first you start with the total amount of revenue that that property can collect. So rent plus pet fees if there's on site, washer dryer if there's parking, if there's storage, start with the total amount of money that the property could theoretically collect if it had 100% occupancy. You start with that number. Then once you have that number established, you subtract out a reasonable estimate for vacancies, maintenance, repairs, major capital expenditures. We're talking roofs, windows, flooring. In order to really do those numbers, to run those numbers, you need to know how long do those components last in the location that you want to buy in? Because that's going to be very location dependent. The average length of time that a a roof lasts in Mongolia is going to be very different from the average amount of time that a roof lasts in the Philippines because they're subject to very different weather conditions. And the roofing materials are often built from very different base material. Right. They're probably not both going to be asphalt shingle roofs. What is the depreciation schedule on every single one of these components? Major capex components. How quickly did it do they depreciate? What is the replacement cost? Right. And how do you calendar all of that out so that you know exactly the schedule of roof, window, flooring, siding, water heater, AC unit. So to go back to capex, so you subtract out vacancies, maintenance, repairs, capex, you should subtract out some amount of money for management. Even though he plans on managing it himself, he should still subtract that out so that he can pay himself for his efforts. That way, if he ever decides to move on, which it sounds like he has a history of coming up with the next big idea, like when he wants to pursue the next big idea, if he decides to move on, he has the flexibility to do so. And the numbers stay the same. Right. So then you subtract out the management costs as well. And what you're left with at the end is a number that's called your net operating income. And that net operating income divided by the total acquisition cost of the property, that translated into a percentage that is your cap rate. And then that cap rate plus some reasonable appreciation estimate is your unleveraged total return. And that's the first number that you. Anyone, I don't care where you're buying a property, whether it's Kansas City or Mongolia or the Philippines or Mexico, no matter where you buy that property, that is the very, very first number that you need to calculate that will tell you what that unleveraged total return. Unleveraged, meaning the return that you get without financing, getting involved. Because you want to understand the strength of the underlying asset before you start borrowing money for it. Because if the Underlying asset is a sucky investment. You don't want to borrow money in order to justify buying an investment. That sucks. Right? And that's unfortunately what a lot of real estate. The, the quote unquote gurus who just harp on cash on cash return all day long. When you're over fixated on cash on cash return, which is a formula that calculates the return that you get relative to the cash that you yourself put into the deal. That's a formula that can often lead to borrowing money to justify a bad underlying asset. That's why I take the kind of contrarian philosophy of always starting with cap rate. So you want to start with that equation, figure out what the cap rate is on the property. And then when it comes to Mexico specifically a couple of things I'd be looking at. What are the landlord tenant laws in that area? How easy is it to evict somebody for non payment? What are the financing arrangements in that area? Will a US financial institution even lend on a project like that? Do you need a bank account in Mexico? Will you have to get financing from there? What are their requirements? What are their interest rates? What are the property protection laws? You know, what are your property rights? What are the legal rights that you are entitled to or not entitled to and how are they similar to or different from owning property in the United States? I don't know the answers to any of that. Those are all things that you're going to have to find out. And who knows, maybe you'll do the research and you'll come back and say guess what? Property rights in Mexico are way better. I don't know, maybe that's the answer. But at a minimum that is something that is an answer that you will need to find or that the person who you know, your brother in law will need to find. Same thing with, you know, landlord tenant laws in the US vary based on state. So landlord tenant laws are not national, they're state based. So much of this might also depend on the specific location in Mexico and what the laws are in that particular geographic locality. Okay, we talked financing, we talked legal issues related both to property protection and to landlord tenant dispute. And then depreciation is major capex depreciation and replacement costs, that's the other major variable because the cost of everything, you know, in the US we know roughly we can estimate the cost of drywall and lumber and asphalt shingle and, and copper. We have a pretty good idea of what those prices are here locally. But those prices vary country by country. To really get a good understanding of what your renovation costs, your maintenance, repair, capex costs are going to be, you're going to have to deep dive into what those costs are over there, as well as labor costs, of course. So it's going to require a lot of upfront research to math all of that out to be able to come up with a really good estimated cap rate.

[Joe Salce]

And I think this is where the two of us meet. Paula. Right here. No, because I think if he's able to get his brother in law excited about the research angle and about that area, then a, if he follows through on the research, then he's going to either lead to this is a good investment or it's not a good investment, but he'll have a depth of knowledge behind him and it will be easier for him to be supportive of that decision. The thing that always strikes me about people with big ideas who move from one thing to another to another, and this is a gross generalization, but I've seen it enough that I think it applies it is when it's a big idea that it's sensational and fantastic. And once I have to get down to the minutia and I have to get down to the boring piece, which is where you actually make money, that's when this big idea often goes away because of the fact that you know what this is. Like any other idea, it's going to take some work. But getting excited about the research to do this the right way on a big investment, I mean, that could be positioned as a lot of fun. And if it was meant to be, then brother in law is going to get behind it and will be excited. If it's not meant to be, you'll see, you know him quickly get bored and move on to the next thing.

[Paula Pant]

Yeah. Often success hinges on your willingness to be bored for incredibly long periods of time.

[Joe Salce]

Yeah.

[Paula Pant]

Be bored and focused for excruciatingly long periods of time.

[Joe Salce]

I mean, there's a big moat. You look at most successful entrepreneurs, they had to swim a big moat. And often that moat was filled with all these unenviable things that most people won't do. Success would be more frequently found if there weren't so many obstacles in the way.

[Paula Pant]

I just realized I didn't even mention taxes because in my head I was thinking, all right, if he sells the property, what are the transaction costs going to be right. In the US generally when you sell a property, there's about a 6% transaction cost in addition to closing costs. What is that in Mexico? I don't know. But in the US you can also use a 1031 exchange in order to defer capital gains tax. Does Mexico have an equivalent? I don't know. Maybe, maybe not. And then of course, what kind of taxes will he have to pay on the property during the time that he's holding it? In the US when you're collecting money on a rental property, that money is considered a passive gain. I know the phrase passive income is controversial. It's an incendiary term when it's used colloquially. But when I am using the term passive right now, I'm using it in the IRS context. The IRS considers rental income to be passive income. And so rental income is what the IRS refers to as a passive gain. And what that means is the only passive losses can be deducted from passive gains. So if he has losses in other areas, those losses will not offset passive gains. And so that's something to consider when you're thinking about the tax implications of, you know, what are the taxes going to be on the revenue? What is the depreciation schedule? Like? I talked about the actual in real life depreciation of every major component. Separate from that, there's also the tax depreciation on every major component. And sometimes, often the tax depreciation and the actual real life depreciation are nowhere near the same.

[Joe Salce]

Vastly different.

[Paula Pant]

Yeah, sometimes you get lucky and they're close. Most of the time they're nowhere near the same. In order to calculate Capex, you want the actual real life reality depreciation. But in order to understand the tax consequences, you're also going to want to know what the tax depreciation schedule is. And the reason that that matters kind of to zoom out is because everything that we're talking about is how you build wealth through a piece of real estate. You build that wealth through a combination of forced appreciation, market based appreciation, tax advantages. Holding real estate confers certain tax advantages that you don't get with other asset classes. Then there's the cash flow from the property itself. Right. And when you combine all of those, you come up with this particular asset that behaves in a manner and that produces wealth in a manner that is characteristically very different from index funds. A well diversified portfolio, in my view, has a combination of index funds and rental properties, largely because rental properties have all of these characteristics that make them unique from index funds. And so by virtue of having both, you have better portfolio diversification. Now the question then becomes how do those attributes change when the governance changes? Because what are we talking about when we talk about going to Mexico for. We're talking about a change in governance, which implies a change around a set of policies that influence the way that that asset is treated. I've dealt with this own thing with members of my family who've said, oh, you know, I'd love to have some kind of an investment in Nepal. Well, Nepal, I don't know if they still do, but for many years, they had these rules around inheritance in which, if you were a US Citizen, your heirs could not inherit your property.

[Joe Salce]

Wow.

[Paula Pant]

Because they don't want property. You know, they want to keep that property. In the Nepalese citizenry, there were actually investors. Nepal has some of the greatest hydroelectric potential in the world because we have these big, big mountains, which means we have big waterfalls. And when you have big waterfalls, you have huge hydroelectric potential. And Joe's laughing at me.

[Joe Salce]

You know what they say? Big waterfalls, big hydro potential, if you know what I mean.

[Paula Pant]

And so you have all of these investors who are like, they want to develop energy, but they can't own a majority stake in that company because the government's position. I don't know if this is still the case, but at least at the time, the government's position was you can hold a stake, but your heirs cannot inherit it. And that, of course, was enough to scare investors away and thus leave much of Nepal's hydroelectric potential untapped. Because there is this set of policies that no rational person would agree to in a world in which capital can flow freely to wherever it is most invited. What are the inheritance laws in Mexico? I don't know. I mean, that's also going to be part of the due diligence, right. You don't want to hold a $700,000 asset in a country in which you don't even know how inheritance works, how estate planning works. Again, I'm not saying that it's a bad idea. I'm saying it's a. I don't know. I don't know how estate planning works there. I don't know how taxes work there. I don't know the cost of roofing and drywall and flooring and subfloor concrete. I don't know what the permitting process is like. I don't know what landlord tenant laws are like. I don't know how much building has happened in the specific. This is more location specific. But in that specific location, is there oversupply? Is there under supply? Is there a lot of building? Is there not a lot of building? How many new permits have been pulled for new construction? Or how many renovations Permits have been pulled. Is it the type of place where there is a relatively transparent and straightforward permitting process or do you need to know someone who knows someone in order to get a permit approved in a timely manner? Again, that doesn't mean it's a bad idea. That means these are all questions that would need to be answered before a decision can be made. The good news is it might be the case that you or your brother in law does due diligence into every single one of these factors. And, and the conclusion is that this is actually a fantastic idea, which is great. Yeah, that's entirely on the table.

[Joe Salce]

It's wonderful. I would love to see that.

[Paula Pant]

Yeah, just be cautious that it's not confirmation bias. In fact, in order to keep it from being confirmation bias, I would compare it to, you know, in negotiation, there's this concept called batna. Your best alternative to a negotiated agreement. Kind of a fancy way of saying your second best choice. I would compare this to some second best choice. So let's say that second best was taking that same amount of money, $670,000, and buying a triplex in some location in the United States. I would not aim for a high cost of living area. There are many locations across the US that are mid tier cities with middle cost of living. What would it look like to take that same $670,000 and buy a triplex in Cincinnati? And then how would those two compare? Because when you're making an investment choice, you're comparing these different options. And if the Cincinnati option is the better choice, financially speaking, if it produces better returns, then again, money is fungible. He can use that money and use the wealth that's built from that investment to live wherever he wants. But the relationship part, that's all you, Joe. I don't know how to deal with that. I can talk to you about the real estate, not the relationships.

[Joe Salce]

Good teamwork.

[Paula Pant]

Thank you, Ron, for asking that question. And thank you for being such a good brother in law. We're going to take a moment to hear from the sponsors who make this show possible. And when we come back, we're going to hear from Marianne, age 66, whose IRA has exploded in value. And now she has the wonderful question of what next? I remember when I was in college, I had no credit. Wasn't bad, wasn't good. I just had no credit history. When I went to apply for an apartment for the first time, that was a problem. I was 19 years old going, oh man, I need to develop some kind of a credit history. And I didn't know anything about it at the time. AVA is a credit building app that's designed to work fast and help your credit score where it really matters. So your credit score can start climbing with almost zero effort. Just pay your monthly subscriptions like usual with the AVA credit Builder card and AVA reports your on time payments to all major credit bureaus. AVA can now report your rent, utility and phone bills automatically, even up to 24 months of past payments. So your everyday payments can help build credit faster. AVA members have improved their scores by an average of 30 points in 30 days. AVA has over 2 million downloads and is the highest rated credit building app on trustpilot with the most five star reviews. Take control of your credit today. Download the AVA app a V A and when you join using my promo code Paula, you'll get 20% off your first year, monthly or annual. Your choice. Again, grab the AVA app and use my promo code Paula so they know you heard it from me and you'll get 20% off any plan for up to a year. That's promo code Paula. Thanks to Ava. Now go get yourself good credit. Most of us, we get into small business because there's some purpose behind it. There's a service or a product that we really want to get out into the world. And to be able to do that effectively and at scale, we need a team, we need people, and that requires a lot of administration. We're talking tax forms, onboarding documents. Well, Gusto handles all of that so that you can spend your time on the parts of your business that you love. Gusto is online payroll and benefits software built for small businesses. It's all in one remote, friendly and incredibly easy to use so you can pay, hire onboard and support your team from anywhere. We're talking automatic payroll, tax filing, simple direct deposits, health benefits, commuter benefits, workers comp 401k, you name it. You can get direct access to certified HR experts. It's quick and simple to switch. Just transfer your existing data and you don't pay a cent until you run your first payroll. I've been using them since 2016 or 2017, which is when I hired my first employee. I've been using them the entire time. Try gusto [e-mail] Paula and get three months free when you run your first payroll. That's three months of free [e-mail] Paula One more time. Gusto G-U-S-T-O.com Paula P A U L A so good, so good, so good.

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[Paula Pant]

How did I not know Rack has Adidas?

[Brandon]

Cause there's always something new.

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[Paula Pant]

Welcome back. Our next question comes from Marianne Foreign.

[Marianne]

My name is Marianne. I am retired, 66 years old, living off of Social Security and at my investments. I haven't touched any of my investments. I only live off of the dividends and the interest. I have an IRA that has grown substantially. It's doubled within the last year and a half. Should I sell those ETFs that I have and either leave it in cash and live off of interest or should I reinvest into other ETFs? I just don't know how to deal with this massive gross of income.

[Paula Pant]

Thank you.

[Joe Salce]

These are my favorite questions, Paula. Yeah, I'm making so much money, I don't know what to do.

[Paula Pant]

Yeah, yeah, exactly. What a wonderful problem to have.

[Joe Salce]

This is great, Marianne.

[Paula Pant]

The first question that comes to my mind is what are you invested in? Because if it is doubled in a year and a half, that means it has certainly outpaced the s and P500. It's outpaced all major broad market indices. What is that investment in? And the reason that I ask that is because I want to know how much concentration you have in any given asset class. What's on my mind right now is asset allocation, which is a fancy way of saying how is the pie split up between all of these different asset classes?

[Joe Salce]

Well, what I think about, Paula, is if we're talking about taking income from a position and it has grown that quickly, I think about volatility. Is this something that's appropriate if we're going to try to skim money off it every month? And generally high return, something that doubles that quickly will not be an asset class that is appropriate for a consistent income strategy. And the reason is, is because even though it's growing, great. Now if it goes through a trough, which volatility is a two way street, you're going to end up with a situation where you're taking money from an asset class that later on is down as well. And we do, we want to prevent against that as much as we possibly can too.

[Paula Pant]

Yeah, well. And if this growth has happened in the last year and a half, I'm at a loss to think of any etf.

[Joe Salce]

I can think of one like, I

[Paula Pant]

can imagine that kind of growth happening in an individual stock. Or I should say that kind of growth does happen in individual stocks. I am at a loss to think of any ETF that would see that kind of growth gld,

[Joe Salce]

but I don't think that's what it would be. But it's interesting. I mean, we can speculate, but here's the big thing. You know, just to generally answer the question, we clearly, Marianne, need more information, but we can answer this, which is, should I sell this position and move it to cash and live off the interest? And the answer is, the reason you have so much cash is because of the fact that you were in an investment that at least kept up with inflation.

[Paula Pant]

Right?

[Joe Salce]

It did way better than that, but it at least kept up with inflation if you move the money to cash. It's much like that old parable about the person with the golden goose. What's the thing you don't want to do with the golden goose?

[Paula Pant]

Slay it.

[Joe Salce]

You don't want to kill.

[Paula Pant]

Yeah, yeah.

[Joe Salce]

You don't want to kill the golden goose. That parable's so old, right? So we've known this forever and ever and ever and ever. And yet when you see people make the mistake, they make the mistake over and over and over. They slay the golden goose. And the golden goose is your ability to keep up with inflation. If you move it to cash, you will lose your ability to keep up with inflation. So I would not do that unless you're comfortable that you have enough money, that even with a loss of buying power, you have more than enough for you. And you want freedom from worry about anything. And you're comfortable with the fact that you'll lose buying power for the rest of your life. And your financial plan says, that's fine, then do it. But that's not most people. Most people need at least to try to keep up with inflation. So the one thing I wouldn't do would be to sell it to cash.

[Paula Pant]

I think where we need to start is we need to start with an asset allocation plan for her entire portfolio. How much do you want to have invested in?

[Joe Salce]

And I think that the way that play starts is, Marianne, how much money do you need your portfolio to generate? What do you need for it to generate now, and what do you need it to generate later? There's many different ways to make money, right? Specifically three.

[Paula Pant]

But you're talking. There's asset appreciation, there's dividends and interest,

[Joe Salce]

and there's interest, which is only definitionally different than dividends. So a lot of people say there's two, but interest and dividends being really different things, there's three. So for your long term money, capital appreciation is generally the way that you will make money faster, but you need long periods of time historically for that to occur. So for money that you don't need for the next 15 years, for 10 years, it's going to be better to chase capital appreciation, which would mean leave the fund in an appropriately invested thing for money you need 10 years from now. If not, if you need the money sooner, then move it to something where you can reliably have it return you money through dividends. But I think that whole argument, Paula, starts with when do you need the money? Which is why it's very difficult for us to be more specific.

[Paula Pant]

Right. I'm thinking about, you know, we had Cullen Roche on the podcast recently and he talked about how most people think about their portfolio with regard to purely to asset classes. But he echoed you, Joe, that people really need to think about their portfolio with regard to timeline. And then very much like you often say, you just match the investment to the timeline. What's challenging about that in retirement is that you don't necessarily know what expenses you're planning for because you don't know what the costs of aging will be necessarily. There will be expenses that come up in your 80s that you will not have in your 60s as a result of health related limitations, but it's difficult to say what those expenses are going to be, when they'll kick in, how drastic they'll be. I think that's the challenge of planning for those later, particularly the 80s and beyond, because that's when things can change very rapidly. And that's when increases in spending are not discretionary. In your 60s, many of your expenses beyond a certain baseline are discretionary. You want to take a trip, you want to buy some nice items. There are a lot of discretionary purchases that you can make and so you have a greater degree of control over your budget. Whereas in your 80s, if you come to a point where you shouldn't be driving anymore, for example, and you therefore have to rely on Uber or Lyft to take you everywhere, that is a particular type of expense that needs to be accounted for. But that is hard to plan for. So then the question becomes how do you match the investment to the timeline when you just don't know what your expenses are going to be 15 years from now?

[Joe Salce]

Which is funny because back when I was a Financial planner. This was an excuse people would use for not planning. I don't know what my expenses are going to be, so why would I make a plan? It's just going to change anyway. Which is why I think planning works so well, is if you look at either things continuing or prices going up or my lifestyle inflating and you do these what ifs, it helps you chart that course of what's possible so that as things change, you know how to respond if your lifestyle goes above X. I know that my portfolio just can't sustain that, so I can't. I, I got to figure out what to cut in other cases. If I find out that my portfolio is more, more durable, I have more money than I thought that I have, then I can do more things than I thought. But I know what that limit is. You know, I kind of know what my budget constraints could be. And if I want to change my budget, then I have some idea of what to input and how to look at different opportunities that come around, which is pretty fun. It's really fun. The whole what if thing around financial planning is great. Yeah. None of us have any idea what our expenses are going to be 15 years from now, but going through and looking at, wow, but if they double, I'm in trouble. So what do I do today to make that easier is a pretty powerful place to be. So it always struck me when people would say that I don't know what it is, so I'm not going to plan. Wouldn't you want to plan more so you know how to take advantage of what comes along between now and 15 years from now?

[Paula Pant]

Right. So, Marianne, I hope this gives you a structure of an answer. I know we haven't directly said do XYZ and we can't give an answer that is that specific or that prescriptive because we don't have all the information. We don't know your life, your goals, your other investments. We don't have the full picture, but I hope this gives you a framework around how to think about this. And also, congratulations on having such a great problem. Yeah, it is great. We're going to take one final moment to hear from the sponsors who make the show possible. And when we return, we're going to hear from Brandon, who has a question about protection from lawsuits for assets that are in a 401k versus in an IRA. That's up next.

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[Paula Pant]

Welcome back. Our final question today comes from Brandon

[Brandon]

hi Paula and Joe. In a recent episode discussing umbrella insurance and liability, you mentioned that 401ks are generally protected, while IRAs offer less protection in the event of a lawsuit. You used a hypothetical example of being sued after a car accident to illustrate this. So given this information, is there a case to be made for never rolling over old 401ks into IRAs? I believe the exact phrase you used was IRAs are protected to a lesser extent. So I've rolled over two 401s in the past. Was that a mistake? And then I've also recently left the job after six years. I have that 401 sitting at a 500 fidelity invested in low cost index funds. After hearing your episode, I'm hesitant to roll that one into an aira. Curious for your thoughts and appreciate all that you do.

[Paula Pant]

Brandon, I have some great news for you. You did not make a mistake. Let me kind of explain the landscape and then talk to you about why your rollover was the right thing to do. 401ks are protected by federal law. IRAs are protected mostly by state law. There's a patchwork of protections for IRAs that's going to be highly, highly, highly dependent on what state you live in. There are some states that will exempt IRAs from creditor claims. Other states will not. Some states have a test to see whether or not an IRA is, what they call, quote, reasonably necessary for retirement. Some states consider that, some states don't. And so what that means is that two people who are the same age and have the same IRA balance, but who live in different states might have completely different IRA exposure. IRA risk exposure, I should say ira lawsuit exposure. Now 401ks by contrast, totally different 401ks are federally covered. They're covered by this law that's called erisa, which is the Employee Retirement Income Security act that gives 401k assets virtually unlimited protection from creditors. So if you're in a car accident, if you're sued for a car accident, if somebody files a personal lawsuit against you, if you're in a business dispute, if you are sued for malpractice, the money that's inside of your 401k is generally off limits. And that is regardless of the balance. There's no dollar cap. It's federal protection. So it doesn't matter where you live. There are a couple of exceptions. So one exception is divorce. Money that's inside of your 401k can be split up in the event of a divorce. Another is if you owe money to the IRS. The IRS can come after your 401k money. There are very, very, very limited cases where 401k money can be pulled for child support. That's rare, but it has happened outside of a couple of cases on the margin, the Money in your 401k is, has the strongest level of protection, and that protection is federal. So 401k is basically from an, from an asset protection point of view, from a liability point of view, 401k is definitely a lot stronger. But, Brandon, to your question, which is did you make a mistake when you rolled over your 401k into a rollover Iraq? We have good news. Money that's rolled from a 401k into an IRA maintains the protections of ERISA. Rollover IRAs maintain the same protection that a 401k has. It maintains the federal ERISA protection. So you did not make a mistake.

[Joe Salce]

And I'm hoping, and I can't speak on behalf of Paula, Brandon, but I'm also hoping the takeaway from that discussion was not maybe don't roll over your 401k. It was to have umbrella liability coverage. It's a usually incredibly inexpensive coverage for an event which rarely, rarely, rarely happens, but when it does, can have this serious magnitude that it makes it a great choice for a wide swath of our audience. You know, moving money from a 401k to an IRA, even without the protections is by far the thing that you want to do, not, not want to do. And I usually see leaving Money in your 401k at an employer after you leave that employer as a mistake. And from a few perspectives. First of all, we'll deal with the easy one. Behaviorally, the number of times people forget to continue to allocate that money, to count that money, to make sure it's doing what it should do. It happens so often. It happens a lot. I prefer a more simplified dashboard where as I leave employers, that money rolls over to an IRA where I can see the money all in one spot. Makes it far easier to have a good allocation that way. But the second thing is this. Whenever an employer becomes more generous than they used to be, it's such a big deal, Paula, that it makes the news. They have a big PR event about how this company did something incredibly. And that doesn't mean companies aren't generous. But generally companies begin generous and then over the course of time either maintain or cut. If they go the other way and go, hey, guess what, we're going to double your time off for everybody, that's like a huge event. Everybody knows about it, right? And the reason is, is scarcity just doesn't happen that much. The thing that I've seen over my career has been that Even if your 401k has phenomenal choices today, and they're low cost choices today, it's very easy for a bean counter one year, three years, five years, eight years into the future to go. You know what, we could go to an annuity based plan and we could pass all those expenses on to Paula instead of us, Pam, ourselves. Or we could go from a plan that has 20 funds down to one that has five funds. And not that less isn't, you know, is worse. Sometimes less can be really, really good. Look at the TSP that federal employees use. There's not a lot of choices, but they're really good ones. But often it does come with not just limited choice, but limited choices and higher fees inside of it. So 401ks, even if they're great now, they can get ugly in the future. And if it's not a part of our main dashboard, we might not even see that until six months a year, two years, five years later. So I really, really, really prefer that you move your money to an IRA with a major company like a Vanguard, Fidelity Schwab, where I have nearly unlimited choice of what I can do. And then when I leave the next job, I have just this master IRA. So I have two positions. I've got the 401k where I'm at and I've got the IRA of all the other places where I've worked in the past always rolled over and now I have a very, very simple dashboard where I work now and everything else. Easier to manage, easier to see when things Change. Much more flexibility, easier to understand how to move from point A to point B. In terms of I want to move out of one investment to another investment. So much more simple and so much better. I would never vote against rolling money to an IRA from a 401k, even if Paula had answered the question differently than she did.

[Paula Pant]

Well, I do want to add one other caveat. When you roll money from a 401k into a rollover IRA, don't commingle that with other IRA assets. Keep it clean, the money that's in your 401k, roll it over into a rollover Iraq, and then that's it. End of story. But don't commingle other regular IRA contributions with that. That way, in the event of a lawsuit, you don't have a bunch of commingled funds. And by the way, that's true for any bucket of money. For example, if you have multiple rental properties and you have a separate LLC per rental property, you want to keep each one clean and don't co mingle, you know, expenses for one rental for your Illinois rental, with the expenses for your Indiana rental, with the expenses for your Iowa rental. Right. You just, you keep up all of them separate.

[Joe Salce]

And I can see people, Paula, having difficulty with what you just said. You can have a rollover IRA and a regular IRA and a Roth IRA all at Fidelity.

[Paula Pant]

Right.

[Joe Salce]

By commingling, she doesn't mean don't have all the accounts at Fidelity. I would have them at one place, Vanguard, Fidelity, whatever, Schwab. Because you get used to the research tools. I don't want to learn three different ways to research my stuff. I want one. I want to know how to buy stuff. I want to know how to sell stuff. I want to be able to do that very easily. So I want to learn one thing. So decide where it's going to be. But you can have multiple accounts at one place. If you're new to this, that's not commingling. I've seen people that have accounts at five different places, Paula, because they don't want to commingle. And that's not the same thing.

[Paula Pant]

Thank you for the question, Brandon, and thank you for drawing attention to the importance of asset protection. I think so often on these shows we talk a lot about growing your wealth and not enough about protecting it. Protection is such a big part of the practice of financial planning, but because it's not as exciting as the growth part, it often gets overlooked. You know, there's an optimism bias, too. A lot of people are like, well, That'll never happen to me. But it's so important to realize things happen. And there but for the grace of God, go I. Joe, we did it again.

[Joe Salce]

I can't believe it. And you're right. We were all over the place. Mexico. Retirement planning, asset allocation, asset protection. Holy cow.

[Paula Pant]

Yeah, we covered the map and relationships between Harry Potter and Ron Weasley

[Joe Salce]

and you spoiled it.

[Paula Pant]

I know so many people spoiled Harry Potter. Well, Joe, when people don't want Harry Potter spoiled, where can they find you?

[Joe Salce]

Well, if you're looking for a very relaxed variety show with a you can do this air much more like morning drive radio or late night tv. The Stacking Benjamin Show I appear on every Monday, Wednesday, Friday. Paula appears there as well on Friday episodes. We do a variety of things. It's a variety show for a reason. We'll have interesting guests for Valentine's Day week. Douglas and Heather Bonaparte, our mutual friend Paula coming back. We had them on when their book launched. But you know what? It's so much about relationships and and Valentine's Day is relationship week. So we talked to Heather and Douglas about relationships again. And not just relationships with other people, but relationships with your money, relationships with your job, relationships, you know, and different relationships, your accountability buddies, but whoever it might be. So we're talking relationships, but not just that. We do a Tik tok minute where we shine a light on some of the ridiculousness that happens on TikTok and we talk about a headline in the news. So very relaxed morning drive radio kind of show. Stacking Benjamin every Monday, Wednesday, Friday.

[Paula Pant]

Nice. Doug and Heather are great.

[Joe Salce]

They are super. It's so fun. And of course because Doug's going to be there, we might laugh a little bit. So watch out.

[Paula Pant]

Awesome. Well, thanks to all of you for being afforders. If you enjoyed today's episode, please do three things. First, subscribe to our newsletter afford anything.com Newsletter it is completely free and Joe, in your words, completely free and worth every penny.

[Joe Salce]

Worth every penny.

[Paula Pant]

I love that. I'm gonna use that all the time. It's so good.

[Joe Salce]

As you know, I've used it on Stacking Benjamin's for a while and I yet have to get a laugh so you can try it too.

[Paula Pant]

It is. That is a hundred percent. I have ripped that from Joe. Totally free. Worth every penny. Afford anything.com/newsletter. So that's number one. Number two, please open your favorite podcast playing app, leave us up to a five star review and while you're there, please write a few words, write a couple sentences Tell us what you enjoy about the show. These reviews are incredibly helpful for allowing us to grow the show to bring in new guests. These are amazing. So thanks to all of you who have left us a review. If you have not done so or if you did so a long time ago and you want to update yours, please, please do so. I would love to to read your reviews. And most importantly, share this with the people in your life. Share it with friends, family, neighbors, colleagues. Share it with Harry Potter and Ron Weasley. Share it with your.

[Joe Salce]

I'm sorry, like, wait, what? Oh, yeah. Share it with your building manager in

[Paula Pant]

Mexico and your Mexico based real estate agent, insurance broker, accountant, estate planner, contractors. Share it with all of those people. And don't forget to share it with

[Joe Salce]

your Schwab rep when you're rolling over your 401k. Oh, because you can do that.

[Paula Pant]

Your umbrella, insurance salesperson. And share it with your veterinarian. Not that we referenced them in this episode. I just. I like veterinarians.

[Joe Salce]

Here's to veterinarians.

[Paula Pant]

Here's to veterinarian. I'm looking at this photo right now.

[Marianne]

This is.

[Paula Pant]

Yeah, Tazzy.

[Joe Salce]

My buddy Cooper's getting ready to go to hit the veterinarian again. And our veterinarian, Lisa, is amazing.

[Paula Pant]

Cooper is 15 and a half.

[Joe Salce]

15 and a half. Yeah.

[Paula Pant]

Wow.

[Joe Salce]

He's an old little bit grumpy dude. A little bit grumpy.

[Paula Pant]

Oh, well, here's to five more years with him at least.

[Joe Salce]

Amen.

[Paula Pant]

Well, thanks to all of you for tuning in. I'm Paula Pant.

[Joe Salce]

I'm Joe Salce.

[Brandon]

Hi.

[Paula Pant]

And we'll meet you in the next episode.