FI by 34 After Making “Calculated” Bets that 99% of Us Would NOT Take

Summary

BiggerPockets Money Podcast: FI by 34 After Making “Calculated” Bets that 99% of Us Would NOT Take

Release Date: November 22, 2024

In this compelling episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench engage with Andrew, a financial maverick on track to achieve financial independence (FI) by the age of 34. Andrew's journey is a testament to the power of strategic risk-taking, frugality, and intelligent investing—principles that resonate deeply with the podcast's mission to help listeners earn more, keep more, spend smarter, and grow their wealth.

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1. Early Financial Struggles and Debt Management

Andrew's financial path began with familiar challenges faced by many middle-class individuals. Growing up in a single-income household, he was acutely aware of how debt can constrain financial flexibility and life choices.

Key Insights:

• Accumulation of Debt: After graduating college in 2013, Andrew found himself burdened with nearly $100,000 in student loans and car debt. Reflecting on this period, he shares:

  “[01:50] Andrew: [...] I decided, screw it, I'm going to buy a brand new truck. You know, I deserve it. I have a good job. So got up to like $100,000 in debt probably there.”

• Debt Snowball Method: Realizing that higher income didn't equate to greater savings, Andrew aggressively paid off his debts using Dave Ramsey's debt snowball approach. He states:

  “[06:01] Andrew: I started to try these little one month things of no restaurants this month or no new hunting gear or camping gear this month and try to figure out, can I, like, suffer through one month of mini deprivation in one category to save another 50 bucks or a hundred bucks?”

Notable Quote:

“[07:03] Scott Trench: How long did it take you to. So you graduated College in what, 2013? 2012, yep.

[07:08] Andrew: 13.”

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2. Discovering the FIRE Movement and House Hacking

Andrew's pivotal moment came in 2016 when he observed a coworker's success in real estate investment, which ignited his interest in the Financial Independence, Retire Early (FIRE) movement.

Key Insights:

• Influence of a Coworker: Working at a large refinery in Minnesota, Andrew witnessed a colleague systematically acquiring duplexes, which provided substantial rental income. He recounts:

  “[05:41] Andrew: [...] this gentleman was like, well, if you want, I can put the higher contractors and put it on the company credit card [...] The other option is today is my last day because I don't need this job anymore. It's just to buy me more rentals, and I can live off my rental income just fine.”

• Transition to Real Estate: Motivated by his coworker's example, Andrew began house hacking—purchasing properties that generate rental income to cover mortgage expenses. In 2018, he bought his first duplex, setting the foundation for his FI journey.

Notable Quote:

“[06:01] Andrew: I definitely wanted to pour some gas on the fire there. I don't enjoy being in debt at all.”

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3. Strategic Frugality and Saving Techniques

A cornerstone of Andrew's success is his disciplined approach to frugality and incremental saving.

Key Insights:

• Gamifying Savings: Andrew employed creative strategies to save money, such as limiting spending in specific categories for a month to accumulate savings. He explains:

  “[10:39] Mindy Jensen: I want to go back to that Gamifying your savings and trying. Okay, how can I deprive [...] And let me see if I can save an extra 50 or 100 bucks.”

• Debt Snowball and Investment Balance: Initially, Andrew focused on eliminating smaller debts before directing his savings toward real estate investments. This method not only reduced his debt burden but also allowed him to invest in properties that would generate passive income.

Notable Quote:

“[07:17] Scott Trench: And then did your, how. What was your income situation like during this time period?”

“[07:32] Andrew: [...] I was making about 75 to 85,000 at this time.”

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4. Calculated Risk-Taking: Investing in a Sixplex

Andrew's decision to purchase a sixplex was a pivotal move that exemplifies his willingness to take calculated risks for greater rewards.

Key Insights:

• Opportunity Identification: In 2019, Andrew's realtor presented an undervalued sixplex. Recognizing the potential, he assessed the financial feasibility, balancing the risks associated with credit card debt against the lucrative prospect of cash-flowing rental properties.

  “[13:03] Andrew: [...] I thought long term I'd be really grateful for buying it. And I thought short term I could handle the risk of my credit card.”

• Execution and Outcome: By choosing to invest in the sixplex, Andrew not only increased his rental income but also significantly boosted his overall equity. He reflects:

  “[24:31] Andrew: Yeah, I have my duplex and sixplex which are both cash flowing well. The rent is probably $50 more than the mortgage.”

Notable Quote:

“[16:57] Mindy Jensen: [...] I have a right physically speaking, I have to, I mean, you could not see everything, but you could have a metric to know if you're, if you're going to have, like, 83% of your net worth, like 90% of it in the 401k. So that would be that would probably be the scenario where you could say, okay, you're doing well.”

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5. Balancing Investment and Risk Management

Andrew's approach underscores the importance of balancing aggressive investment strategies with robust risk management.

Key Insights:

• Emergency Funds: Despite his aggressive investment tactics, Andrew maintains a substantial emergency fund, providing a safety net in case of unforeseen circumstances.

  “[26:27] Scott Trench: That really de-risked your situation, Andrew, is how little you spent. [...] That one variable that's ultra conservative that nobody else or very few people will replicate and the options it's going to provide you are just going to be incredible.”

• Diversification: Andrew invests his savings in the S&P 500 alongside real estate, ensuring a diversified portfolio that mitigates risks associated with any single investment class.

Notable Quote:

“[32:05] Scott Trench: [...] but your expenses got so low or can get so low, then you can responsibly take a risk like what you're talking about.”

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6. Current Financial Status and Future Aspirations

With two cash-flowing rental properties and a diversified investment portfolio, Andrew is nearing his FI goal but remains focused on further growth and entrepreneurial ventures.

Key Insights:

• Financial Position: Andrew currently generates $6,000 a month from his rentals while maintaining modest living expenses of $4,500, positioning him comfortably towards FI.

  “[24:30] Andrew: [...] So I could maybe do an option to pay off everything and then start a business and save a thousand dollars a month whilst doing that.”

• Entrepreneurial Goals: Beyond real estate, Andrew is passionate about building an online business, exploring avenues like YouTube channels and digital marketing agencies to create scalable income streams.

  “[38:32] Andrew: [...] I want to get a YouTube channel with 5, 10, 15, 20 hours a week, probably less than 40. But right now that, that startup phase is a little more learning.”

Notable Quote:

“[37:05] Andrew: [...] I just don't want to work for someone else anymore, and I want a scalable career.”

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7. Insights and Advice from Hosts

Mindy and Scott complement Andrew's narrative with valuable insights, emphasizing the importance of seizing opportunities and maintaining low expenses to enable strategic risk-taking.

Key Insights:

• Taking Action: The hosts highlight that proactive decision-making and willingness to act on opportunities can dramatically accelerate one's path to financial independence.

  “[53:02] Mindy Jensen: [...] when you have an opportunity taking action is what separates people being retired at 34 and being retired at 64.”

• Quality of Bets: Scott underscores the significance of making high-quality investment bets and executing them well, acknowledging the role of timing and operational excellence in Andrew's success.

  “[51:20] Scott Trench: [...] Andrew made good bets, executed them well, and the outcome was great. It was very possible that if you follow that playbook at random intervals over the last 30, 40 years, that you're executing that playbook in 2006 or 2007.”

Notable Quote:

“[52:45] Mindy Jensen: [...] but it's still a calculated risk, but I knew the risk and I thought the math would work out and. Yeah.”

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8. Conclusion: The Power of Strategic Risk and Frugality

Andrew's journey encapsulates the essence of intelligent financial planning—balancing frugality with strategic investments and embracing calculated risks. His story serves as an inspiration for listeners aiming to achieve financial independence through disciplined saving, smart investing, and the courage to seize unique opportunities.

Final Thoughts:

• Calculated Risks Pay Off: Andrew's success is a blend of meticulous planning, aggressive debt repayment, and the willingness to invest in undervalued opportunities.
• Sustained Frugality: Maintaining low living expenses has been crucial in enabling Andrew to save and invest a significant portion of his income.
• Continuous Learning and Adaptation: Andrew remains open to new opportunities and is actively seeking ways to diversify his income streams through entrepreneurial ventures.

Closing Quote:

“[49:40] Andrew: [...] I'm just kind of in my mind. I'm like the best day to start a business is today, not five years in the future.”

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This episode of the BiggerPockets Money Podcast not only chronicles Andrew's remarkable financial journey but also offers actionable insights and inspiration for anyone striving to transform their financial destiny through strategic decisions and unwavering discipline.

Transcript

[Mindy Jensen]

Have you ever wondered what your life would look like if debt didn't hold you back? Or if you could actually live mortgage free? Today's guest has a financial background that began with the familiar middle class money challenges many of us know all too well. Growing up in a single income household, he saw early on how debt and limited financial flexibility shaped life's choices. After racking up nearly $100,000 in debt in student loans and car debt right after college, he quickly realized that earning more didn't always mean having more. Now he's saving almost all of his income, living off rental cash flow and on Track to hit 5 by age 34. Andrew's journey highlights the power of keeping your expenses low, investing wisely, taking advantage of opportunities that are presented, and allowing yourself to be okay with a bit of risk. All the things we keep talking about here at Biggerpockets Money. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me, as always, is my also 5 before 34 co host, Scott Trench.

[Scott Trench]

Thanks, Mindy. Great to be here as always. That intro is a great kindling for an awesome money discussion that's coming up here. BiggerPockets has a goal of creating 1 million millionaires. You're in the right place if you want to get your financial house in order. Because we truly believe financial freedom is attainable for everyone. No matter when or where you're starting. We'll give you the spark. This episode is brought to you by Connect Invest Real Estate investing simplified and within your reach. Now let's get into the show. Thanks so much for joining us today, Andrew.

[Andrew]

Yeah, thanks for having me. Been a longtime follower of this podcast and both your journeys in the public space and BiggerPockets. So thanks for all, all the help that you guys do.

[Mindy Jensen]

Woohoo. I just want to say, Scott, I saw what you did there right at the beginning. Um, and now to Andrew. Where does your journey with money begin?

[Andrew]

So thanks, Mindy. So I would say my money journey leads back to start in middle school. My dad encouraged me to get lawn mowing jobs. When I graduated college, I had probably about 70 grand in student loan debt and a reliably unreliable car. And so that thing finally broke down on me like a month or two post graduation and I decided, screw it, I'm going to buy a brand new truck. You know, I deserve it. I have a good job. So got up to like $100,000 in debt probably there. And that's when I was kind of scratching my Head comparing myself to some of my peers and like, wow, I've got a boat anchor behind me to catch up to them. Some of them that just had parents pay for school, stuff like that. And so I started researching, investing, started aggressively paying off debt, googling how to pay off debt, how to save money, how to reduce debt. Stumbled into Dave Ramsey's program, as many listeners have probably been through that, and thankfully followed that. And it's, you know, it's relatively straightforward and it works. And so I was able to pay off most of my debt there.

[Scott Trench]

How long did it take you to. So you graduated College in what, 2013? 2012, yep.

[Andrew]

13.

[Scott Trench]

Okay. That was the same year as me. Great year. And you accumulate $100,000 in debt in the first year in 2013 and 2014, is that right?

[Andrew]

Yeah, my student loans throughout college, plus my truck, added up to about 100 grand in debt that I was at 2014. Ish. Yep.

[Scott Trench]

Awesome. And when did you discover Dave Ramsey?

[Andrew]

I couldn't tell you the exact year, but it was within that first year or two of college.

[Scott Trench]

Okay, and then how long did it take you to pay off your debt?

[Andrew]

It was probably like six years total. Um. Cause I got, I would say, 80% of the way there. Before I started house hacking. I wanted to kind of do things one step at a time. And so I was like, I'm going to pay off my loans before, start saving up for a house. And then once I got my truck debt and student loans down to five to $10,000 each, probably, then I started saving up for a house and bought a duplex to start house hacking.

[Mindy Jensen]

And what year was this?

[Andrew]

So I bought the duplex in 2018 after somewhat learning about the fire movement and rental real estate.

[Mindy Jensen]

And how did you discover the financial independence movement?

[Andrew]

I used to work at a large refinery in Minnesota, and I had a coworker there who bought one duplex, moved into it, waited for the neighbor to move out, move next door, remodeled it, bought another duplex, another duplex. And he started in his early 20s, and I think by his early 30s, he had half a dozen duplexes. And we'd work these large shutdowns at the refinery. They were one to two months long. You'd work seven days a week, 13 hours a day. And I remember one of those, the bosses were coming around like, hey, Bob, you're going to do this. Jim, you're going to do that. Susie, you're going to do this. And this gentleman was like, oh, actually, I'm going to sit this one Out. And they're like, oh, it's not really. That's. It wasn't a question. It was a statement that you're going to do this. And he was like, well, if you want, I can put the higher contractors and put it on the company credit card. I'm sure you're not going to go for that, but it is an option to you. The other option is today is my last day because I don't need this job anymore. It's just to buy me more rentals, and I can live off my rental income just fine. Our third option is I can work 40 hours a week and I'm just not showing up on the weekend so I can do this remodel. And his boss was mid-50s, 60s, years old, and this guy's 32 years old. And it was just like, you know, jaw dropping for me to sit back in the peanut gallery and watch this. So I was like, there's something going on with these duplexes. I got to dig into this more.

[Scott Trench]

That's awesome. And what year was that conversation? When did that happen?

[Andrew]

That would have likely been 20, 15, 2016.

[Scott Trench]

Okay, so that, that was what kicked the fire and fire to go after, you know, paying off the rentals. Did that change the aggression or the pace or the way that you accumulated capital or conducted your financial life in any way?

[Andrew]

It made me lean into it more. I definitely wanted to pour some gas on the fire there. And I was relatively frugal. Some of my friends or family members could definitely speak to Andrew being frugal in his young 20s. But some of my peers, you know, didn't care if they paid off their student loans by 40 or 50. I wanted those things gone as soon as possible. I personally don't enjoy being in debt at all. Then I was like, okay, I start early, like Paula Pants. Afford anything. You can afford anything, but not everything. And so I was like, I'm gonna try these little one month things of no restaurants this month or no new hunting gear or camping gear this month and try to figure out, can I, like, suffer through one month of mini deprivation in. In one category to save another 50 bucks or a hundred bucks? Because what I found is I can nickel and dime myself to being poor in a month or to giving away all my money. So I could also nickel and dime myself to paying off student loan debt or nickel and dime myself to saving up a housing down payment. I don't. I don't always save 1,000 bucks at a time. Sometimes I save 50 bucks, 20 bucks, 150 bucks. And over time it adds up.

[Scott Trench]

And then did your, how. What was your income situation like during this time period? Um, and, and I presume that with 13 weeks of 80 hour weeks and you're full time on this job, that there's overtime pay or something like that? No.

[Andrew]

Kind of. But it's relatively disappointing. So they sold you on. It was good experience for your resume. So we were salary, we'd get $0 an hour overtime and then assuming 0 of the 2,000 contractors on site had safety incidents, you'd get $1,000 per week pre tax bonus. So after this seven week shutdown, I did the math in front of my boss. I got like a just under a $3,500 bonus and I worked just over 350 hours of overtime and I was like, I'm pretty sure I'm making less than minimum wage. So with all due respect, I have my experience full on my resume and I'm good on this.

[Mindy Jensen]

Wow, this is good resume experience working for free. I'm sorry, a thousand dollars pre tax.

[Andrew]

To answer your first question, I was making about 75 to 85,000. At this time.

[Mindy Jensen]

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[Scott Trench]

Welcome back to the show.

[Mindy Jensen]

I want to go back to that Gamifying your savings and trying. Okay, how can I deprive, for lack of a better word, how can I deprive myself in this one category to see if I can save an extra 50 or 100 bucks? Did you take that extra 50 or 100 bucks and put it into your debt or into your savings?

[Andrew]

So really Mindy, the answer is both. At first I followed the debt snowball method. So on my student loans, you know, I had multiple student loans, as many of the listeners probably do, that I didn't refinance all mine into consolidation. So I was, I was just trying to, you know, pay off the smallest lump sum student loan there. So I was just trying to cross those off one at a time and that was a definitely a big win for me every time I paid off one of those and then once they were sub $10,000 I was really interested in getting a duplex. So I started to not put all my extra savings towards student loans. Then I started just putting into a house down payment fund afterwards after I bought that duplex to remodel it, I had no more money and it was smoked in, hadn't been updated in 50 years. Pretty rough shape. So I got a zero percent credit card for 18 months and I put 25 grand on it. So it was relatively risky. And so I Did the math. I was like, well, if I take my old rent payment, my old student loan payment, my old truck payment, and I'm extra frugal, another 100 or $200 for 18 months, I can save 1500 dollars a month or whatever to pay off 25 grand in 18 months. So. And I got it done with like one month to spare.

[Mindy Jensen]

So I'm hearing a story of intentionality. You weren't intentional necessarily with your collecting your student loans and then you decided to make it an even hundred K by throwing another car on top or a truck on top of that. But then after that I heard, I'm hearing you say I don't like debt. I wanted to get this done as soon as possible. I'm playing games, like mental games with myself to save this extra money to throw up my debt. I am then taking those same mental games and the extra savings that I'm not paying towards my student loans in my truck anymore. And I'm paying, I'm putting that into fixing up my duplex, which is now a cash flowing asset. Is that, was it a cash flowing asset? I guess I didn't ask.

[Andrew]

I mean my, the rent is probably $50 more than the mortgage. So yeah, I would say it's cash flowing. And if I were to move out, it would, it would cashflow pretty well.

[Mindy Jensen]

Wait, the rent from the half of it is $50 more than your mortgage?

[Andrew]

Yeah.

[Mindy Jensen]

And you're living for free then, correct?

[Andrew]

Yeah.

[Mindy Jensen]

Yeah. Okay. I say that's cashflow.

[Andrew]

Yeah, I would say so. So that's been pretty nice. And even to gamify it a little more and add more risk to the fire, so I took out that 18 month credit card. I started saving up in a brokerage account. I can handle a little bit of risk. So I didn't actually pay off any of the credit card. I put it all in the S&P 500, which I would also probably not recommend on an 18 month timeline with a 20% interest risk if I lose at the back end. So I started saving up a year later, my realtor called me one day and he's like, hey, I found this sixplex for sale. I think it's really poorly marketed and it's probably listed for two thirds of what it should be listed for. Do you want it? Do you have 50 grand? And I was like, yeah, I have 50 grand. And I was like, yeah, let's go look at it. I was like, should I pay off the credit card or should I go buy another rental property? So I looked at it. And that cash flowed right off the get go like a thousand or something. So I was like, okay, yeah, sure, let's do that. So I went and toured it and made an offer that day, got it. And then I was like, great. So I, and I had probably $2,000 less than what I needed for a down payment. So I was like, okay, I'll be super frugal for the next month, you know, Dave Ramsey's beans and rice. But I can save up two grand by closing date. So yeah, we'll be good.

[Scott Trench]

I would react to a couple of things here because when I, you know, like, like there's the like, what's the right way to buy real estate? How should you be capitalized? Well, you know, we, we've gone back and forth on this. The right answer, I think looks something like this. You have the down payment, you have all of the projected repairs that you know are going to come up immediately that are baked into that. You have a emergency reserve of, let's call it 10 to $15,000 for the property or maybe three to six months expenses, you know, whatever is greater among those two things for it. And that's what you do. Your credit and your DTI all work and you're good to go on that. And yet very few people seem to meet all of those requirements when they buy their first property for this. Right? Like I certainly didn't meet that requirement when I bought my first property, my first duplex house act. You, you didn't come close by a long shot. Mindy, how did you do? Did you meet those requirements when you bought your first property?

[Mindy Jensen]

No, I borrowed my down payment from my parents.

[Scott Trench]

Yeah. So what's the right answer to like how much did you have for buying your property? Well, there it is. I gave you the technical right answer. And the reality is not many people meet that actual set of criteria. And when you're getting started, you know, it's an all in bet. In your case it was two all in bets. You put all of it on into the middle of the table and get going. And that's why real estate is so hard to break into, is because for so many people it's either that all in bet or it's you'll wait, you're delaying that purchase by years to get into that, well, capitalized state, I think. For what, for the record, all three of us did it the wrong way. So kind of conundrum about what's responsible or not. So is that, does that ring true with the other people? You know, in real estate investing, Andrew?

[Andrew]

Yeah. I'm fairly involved in the Montana real estate investor meetup groups and I would say that's, that's more normal. That, that's the rule. It's not the, the exception is a well capitalized investor and even some large land developers that I know, they seem to, they're not betting with 5% of their net worth by any means.

[Mindy Jensen]

I am having heart palpitations listening to your story because that is, I mean it, it turned out great in the end. Spoiler alert. Turned out great for you in the end. But like, were you having a hard time sleeping? I mean, you stopped contributing to your Roth ira. You took the money that you had set aside for your credit card payment and you put it in the stock market and then you bought a sixplex instead of paying off that credit card, incurring more debt and you had a whopping $500 net worth. That's not how you do it.

[Andrew]

Yeah, I mean, was I probably anxious or nervous? I'm not a doctor, so I can't diagnose myself. But do I have significantly less stress with an emergency fund and no credit card debt? Absolutely, by a lot. And it's hard to articulate that until you've been on both sides of the coin there. But yeah, it was in intimidating and very committing. I, I was well aware of that. I wasn't like naive of that. It was a calculated risk, but I knew the risk and I thought the math would work out and. Yeah.

[Scott Trench]

All right, we got to take one final break and then we'll be back with Andrew.

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[Andrew]

Yeah, it was all rented out and it was cash flowing like a thousand dollars. And the rents were relatively low. So I was able to increase the rents immediately, get it to cash flowing. Fifteen hundred dollars a month. So I, I thought long term I'd be really grateful for buying it. And I thought short term I could handle the risk of my credit card. I still calculated out that I could pay off the credit card before I paid any interest. And I knew that worst case I would have to take $10,000 out of my 401k which had 50 to 100 grand in it at the time. So I was like, I can take out 20 grand out of my 401k. That's not optimal, but it's not catastrophic. And if I were to even need another 20 grand to pull out of my 401k to use as a down payment to buy this sixplex, I thought it would be worth it because I thought that the appreciation and the cash flow from that sixplex would be well worth the. The 20 grand, plus taxes and fees.

[Mindy Jensen]

Do you still own this sixplex?

[Andrew]

Yeah, I do.

[Mindy Jensen]

And the duplex?

[Andrew]

Yep.

[Scott Trench]

How they going?

[Andrew]

They're going great. I mean, I've had, knock on wood, no terrible property management stories. I've had great renters throughout Covid, and I've got. I've remodeled, I mean, most of the units by now. And so, I mean, they've probably tripled in value. I don't know, maybe. Yeah, maybe more than that, but probably 300% of what I bought them for.

[Scott Trench]

So you've 20x'd your money?

[Andrew]

Probably, yeah.

[Scott Trench]

You could have paid the credit card interest.

[Andrew]

So I've probably put 100 grand into real estate and probably have, yeah, I don't know, a million in equity or something.

[Mindy Jensen]

Oh, well, that's a nice trade off.

[Andrew]

Was it risky? Yeah, but it was still calculated risk. I wasn't naive to what I was doing, But I calculated out, like, oh, what happens if the stock market goes down 30%? Then I need to take out seven grand for my 401k. I was like, okay, I can do that if I need to.

[Scott Trench]

You know, the next couple of years are not going to be like that. But that's the beauty of real estate investing over a long time horizon. I've put way more money into the stock market in terms of dollars invested than I have into real estate. And the portfolios are about the same size in equity value. And like, that's, that's a remarkable power of that.

[Andrew]

Right.

[Scott Trench]

I put more into real estate than you did, but not a ton more. And, you know, and that's again, 50% of my portfolio. It's amazing how, how much that appreciation in the last couple of years is powered returns in here.

[Mindy Jensen]

Okay, I want to jump in here really quickly and say to anybody listening, thinking, oh, I'm going to buy a sixplex with the money that I had saved up for my credit card payment in 18 months. Andrew had other places that he could find money to pay off that credit card should something happen to the stock market where he was keeping his credit card. Money. Don't keep your credit card money in the stock market. But it worked out for Andrew. I can't say it's going to work out for you, but the other thing.

[Scott Trench]

That really de risked your situation, Andrew, is how little you spent. There was a huge gap between your income from your salary and the amount you spent on your life. And so that's what, like 30 grand a year, 40 grand a year?

[Andrew]

So I looked this up. I have my budgets back. I could tell you how much I spent on groceries in April of 2017. So my annual spend in 18 was 10,000. 19 was 10,000. 2020. I lived it up 17 grand. 2118 grand. I've since increased my expenses a lot back then, but I remember I have old graphs for when I'm going to become financially independent once I make $833 a month in dividends.

[Scott Trench]

Wow, you got there with one sixplex that like, that's the real. That's the real item here, right? Like, I think that if that's your situation, you make 75 or 80 grand a year and you spend 800amonth, then you can responsibly take a risk like what you took, what you took there. What would be totally inappropriate and probably not even possible for many folks because they wouldn't have had these other options, is if you spent 70 grand and made 85 to be able to do what you just did there.

[Andrew]

Because at that time, I was saving four or $5,000 a month. So $25,000 is a lot of money to myself or somebody that's making 75 grand a year. But I also figured out, I was like, okay, let's say I refuse to take money out of my 401k. I'll pay this off in four or five months. I was like, yeah, I'll deal with that. That's fine. So even a 20% interest rate, when you're paying it off over four months, it reduces the severity or your interest there. So I think one of the ultimate superpowers of house hacking or even getting into real estate is your expenses get so low or can get so low. And assuming you don't do lifestyle creep with your rental income creep, then you can save so much money. And I have so many peers who save 52 bucks a month, 100amonth, 250. And with most people can obviously afford a rent payment, student loan payment, car payment when they're recently graduating college. But once you pay off those debts and you house hacking, you no longer have a rent payment, then just that simple Math, that's like $2,000 a month, that's easy to save. And so I think if you house hack, a lot of people can start saving 2, 3, $4,000 a month even on a median salary. And then you're saving 50 grand a year, 70 $500,000 a year, and then your stock portfolio, which is where I put all those savings, sounds like similar to you, Scott, then that can start growing very, very fast.

[Scott Trench]

That's the magic of this, right? Is, is if you can keep your expenses low on a median or upper middle class salary, like really low, where you're saving 60, 70, 80% of that income, all these options rack up really rapidly because cash is accumulating. You don't need the job. At that point, you are able to take risks like what you're talking about. The next house hack feels like a luxury and a huge lifestyle upgrade. When you go from the $800 a month house hack to the slightly, the nicer one there, like, it's just an incredible, I think, like amplifier of this. Right. And a great analogy here is if you're saving 250 bucks a month on that 75, $80,000 salary, let's call it, let's call it 10% of your income, you're saving 7,500 to 8,500 a year. You're saving one year of expenses every nine years. Right. If you're doing that math, you were saving what, four years of expenses every year?

[Andrew]

Yeah, probably 80% for four or five years.

[Scott Trench]

So when you think about it, it's not 10 times, it's not twice as fast or three times as fast. It is 40 times as fast. Right? Or something 30 to 40 times as fast. The amount of relative wealth you were accumulating and options that you were accumulating and that just produced these opportunities. And probably, you know, I'd love to hear more of the story, but I bet you the opportunities have continued to explode for you since making those two investments and will continue to explode for the rest of your life if you can sustain this path.

[Andrew]

Yeah, I think house hacking or side hustles, there's many ways to skin the cap. I think it's such an asymmetric bet where if you're extra frugal or you live, live less cool than your peers for three to five years, you'll have 30 to 50 years of abundance or however you want to define it. Like I recently went to fincon and hung out with Mindy and some other folks and that's probably the most expensive vacation I've ever been on, but, you know, it's just not. And I've recently started a YouTube channel and trying to start an online business, but the ability to buy some camera equipment, lights, mics, all that, go fly to Atlanta to try to learn something, it's just, it's crazy. Where now I can. I can make these five $10,000 bets of Honest or YouTube channel, spend 10 grand on equipment, see if it works, and if not, then I'll try the next thing. But I think that's just so powerful. And I really like what you say, Scott, all the time about starting a business. If 10% odds of success, try 10 times, you have a hundred percent odds of success by the end of it. And obviously it's more complex than that.

[Scott Trench]

I actually have to do the math there for the probabilities. Now, I'm curious, what is, what is 10? Yeah, there's a, some, there's some compounding geometric thing that makes it. You're getting very high probability by the 10th bet. But I. Yeah, so.

[Andrew]

And I've been. I don't have any other, like, big opportunities that I'm currently working on, but I'm definitely close to financial independence. And I'm trying to figure out what is that next step? Because I don't feel called necessarily to just have a corporate 9 to 5 job anymore. But I have a good job. I do. I'm good at it. It pays relatively good. And so I'm like, oh, do I just keep saving? Very aggressive. I can more or less save my entire salary if I want to. Spending Money on this YouTube equipment and trips takes out of that a little, but it's like, do I do that or try business ideas and because I don't want to just sit on the beach drinking margaritas for the rest of my life or sit on the couch. Like, that's not a way to live.

[Scott Trench]

So what did your life look like? What did you do for fun when you're spending 10 or $17,000 a year? And what does it look like now?

[Andrew]

I still live in western Montana, so there's ample outdoor activities. Hiking, hunting, skiing, rock climbing. Very popular out here, as they likely are down in Colorado. A lot of those activities are relatively cheap at those times when I wasn't doing like a remodel project on the weekends, I was rock climbing, skiing. So a lot of Those thousand to $2,000 in equipment to get into them, and then it's more or less free, unlimited. Times you go maybe, maybe not skiing. I would get a season Pass stuff like that. But I was noticeably frugal probably. And I still have that same truck from 2013. So I was just house hacking. But a lot of my peers were renting. Some of them definitely bought nicer single family homes. So I don't live in the coolest house by any means of any of my peers. But I, you know, I drive a 2013 truck with 200,000 miles on it and you know, hunt and hike as much as the next guy in Montana.

[Mindy Jensen]

So yeah. And you have the coolest bank balance of all of the people that you know?

[Andrew]

Maybe, yeah, probably.

[Scott Trench]

Do you just own those two rentals like you bought these two ones pretty quick and then you've been allowing.

[Andrew]

So.

[Scott Trench]

So you have. What you have today, it sounds like, is a lightly levered real estate portfolio. And I imagine a lot of cash has piled up over the last couple of years. What have you done with all that other cash?

[Andrew]

It's just all in The S&P 500. I really haven't. I've just been investing in that since 2019 when I bought the sixplex. I've been wanting to buy a house, but mentally I'm still in 2018 prices to some extent. So I haven't wanted to buy a $600,000 house because today starter homes are probably 400 to 500. So I could definitely sell my duplex and get a starter home. But to me, a starter home is not that much cooler than a single family starter home. So a nice house is 6, 7, 800. And I just don't want to get a four or five thousand dollar mortgage. And I don't. I'll probably sell the duplex just to for capital gains taxes. But I'm also just kind of just hanging out and saving cash and figuring out what the next step is. I kind of want to. I'm trying to debate do I sell? Do I buy a new family house and then quit my job and then have higher overhead and then try to start a business to dedicate 40 hours a week for that? Or do I stay living in my duplex with rock bottom overhead, arguably financially independent, and then keep my job so that I have access to a mortgage easily get a business off the ground, wait till it makes a dollar a month or a thousand dollars a month, then quit my job so I can lay the gas pedal down and give it 40 hours a week? Or do I just quit my job? I have a got a cool camper this year to because I was like I want to live it up a little bit. So I'm going to buy a used camper and road trip to west during the summer and work remote and do some of that. So I was like, do I rent out the duplex and just road trip the west for a while, Hit all the national parks for example and just live off rental income? I could totally do that. Or do I just quit my job and lose the mortgage access, have to do creative financing and then get a business off the ground and maybe just pay cash for a house next?

[Mindy Jensen]

How much time would you be spending getting the business off the ground? Because I can see if we're talking about a YouTube channel. I can see once you figure out what you're going to talk about and you get all of your editing processes down, I can see that being a pretty low hourly lift. So then you've got all this extra time. I love the W2 for the ability to get you a mortgage. Do you like what you do or are you still working those 13 hour days for an extra $50?

[Andrew]

No, I don't work a lot of overtime anymore but, but I don't love my job. It's fairly corporate and I just feel more called to be like an entrepreneur. So that's what I, that's what I want to do long term. And one of my questions is let's just say I'm 80% FI is let's if I save up for another year or five years and I'm 110% FI or 150% FI at that date, I'm still want to go and start my business. I'm not going to want to just sit on the couch and, and be fine and twiddle my thumbs for the rest of my life. So I'm just kind of in my mind. I'm like the best day to buy it to start house hacking was five years ago or today and not five years in the future. So it's like the best time to start a business is today, not five years in the future. And when I look back on buying real estate, it's not like oh, thankfully I waited till 2018. I'm like oh, I wish I would have started in 2014.

[Mindy Jensen]

So starting a business you will either succeed or fail. Let's succeed quickly or let's fail quickly so you can move on to the next thing. So start your business now.

[Andrew]

And that's what I'm trying to do on the side. And I totally agree that once all your systems are in place, I think you can have a YouTube channel with 5, 10, 15, 20 hours a week, probably less than 40. But right now that, that startup phase is a little more learning, so that takes a little more time. And so I'm commonly working on Saturdays and maybe one or two evenings to get a video out and I don't want to. So let's just say for made up numbers, it takes a thousand hours to get a business off the ground. Maybe it's a YouTube channel, maybe it's a digital marketing agency. I've got a couple ideas, but I can either do 10 hours a week for a hundred weeks or work every Saturday for two years or I can do that in six months or three months working full time at it and then, you know, fail quickly and then onto the next thing. Or also just like the compounding of the skill development and the learning versus waiting a week to refigure out how to make a thumbnail or something.

[Scott Trench]

I would bet on the full time effort for a word, all day, every time.

[Andrew]

Right.

[Scott Trench]

The reason, the reason that most people can't do that is because they need to spend 60, $70,000 a year to maintain their lifestyle. And the job is a requirement in order to make that work. And so the other effort has to be done the side. But I mean there's no, almost no world. It is possible, but it is so unlikely that someone in your situation will get richer faster by staying at a job. So unless you intend to buy another rental property like you said, like that's the, that that's the rub here is, is if your expenses are still in that 20, $30,000 range and you have the cash piled up for a couple years, like the entrepreneurial route makes so much more sense than trying to, to compete entrepreneurially in your free time on the side, I think. What do you think, Mindy?

[Mindy Jensen]

I really like creating a business like this where you can do it part time, you can do it a couple nights and on the weekends. And then if your friend calls you up and is like hey let's I have this really awesome experience available, you could be like, I'm just going to do that instead. I like starting that with the safety net of a job underneath you. So if it doesn't pan out and 9 out of 10 won't, then you can, you're still generating income. The rentals throw a bit of a monkey wrench into it. Are you, are you actively looking for new rentals or are you just if something comes up that is intriguing.

[Andrew]

I would say I'm inactively looking. I'm still open to buying but. And I have A couple hundred grand in my taxable account. So it's in my mind I'm like I have likely years and years of living expenses assuming no rental income. Or I could probably live off my rental income just fine and take nothing out of my savings. So I hear what you're saying and clearly it seems like I'm willing to take on more risk than the average bear. But in my mind it's like I would argue I'll get a business off the ground faster, obviously doing it full time and I can do it Saturdays and evenings. But it also like I'm, I'm not energetic and creative at 8pm on a Thursday after work and you know, Monday through Thursday, same with even Saturday morning.

[Scott Trench]

What's your annual spending now?

[Andrew]

It's probably now I donate to my church a lot more, so I probably spend $4,500 a month.

[Scott Trench]

So 50 grand a year.

[Andrew]

50 grand a year, yeah.

[Scott Trench]

Still like that's like you keep saying I have a higher risk tolerance. You did not have a higher risk tolerance. You're so conservative on the spending front that you can, that these other plays that are more long term focused from an investment perspective that don't require liquidity in the near term or don't require income generation are very reasonable. If you have 400 grand in a taxable brokerage account or whatever and you spend 50k a year, even if the market crashes, you got four years of living. Crashes 50%, you got four years of living expenses. So I think that that's the whole trump card, like everything else in your strategy that you've pursued here is reasonable because of that, that one variable that's ultra conservative that nobody else or very few people will, will replicate and the options it's going to provide you are just going to be incredible.

[Andrew]

Another option is I have enough in my taxable to pay off my sixplex and I'd have 50 grand left owed on my duplex. So I could either go frugal for another 6 months or just take 50 out of my 401k. I'm not arguing that's optimized perfectly. But I could just then pay off my sixplex duplex and probably cash flow, I don't know, $6,000 a month and I need 4,500 to live off of. So that's another option is pay off everything and then start a business and save a thousand dollars a month whilst doing that. It's like not a bad option. I don't know. I like having cash because I've been broke. So Many times before. I'm kind of like over that. So I kind of don't even want to pay off the sixplex and just keep the cash. And if I need to pull a thousand or two out here and there, then so be it.

[Mindy Jensen]

Andrew, if you did decide to leave your job, there's a couple of things that you're going to have to consider. Let's say you quit. Your last day is today. And then tomorrow your agent calls you up and says, I've got this amazing property that's going to cash flow just like your sixplex. It's so fantastic, but you got to jump on it right now. How would you fund that?

[Andrew]

I know of Creative Financing strategies, but I don't have a private money lender. I don't know the easy button there. Obviously you can get pre qualified, but you have to verify employment commonly at closing. So really the answer is I don't know how I would do that. I have enough in my taxable plus my retirement to likely pay cash for a nice family house. So I could maybe play a game there. But I don't want to liquidate my 401k to buy a house and then pay taxes and fees and then refinance. That sounds like I'd lose a lot in taxes. So that's kind of why I'm still working. Because I, I'm not comfortable with creative financial strategies. I know they exist, but I don't know how to do them.

[Mindy Jensen]

And they do exist, but yeah, I have the ability to get a mortgage, so I don't, I haven't dived into creative strategies. I would encourage also go into the bigger pockets forums, biggerpockets.com forums where there is a creative financing forum and lots of discussion about creative financing simply because we find ourselves in this kind of unpleasant interest rate environment right now. So there's, there's definitely opportunities and now is a really great time to start looking for those. So when your agent calls you the day after you quit your job and says, I've got this awesome property, you're not starting your creative financing education then and trying to like cram it all in. Another thing that pops up frequently is health insurance. So how are you paying for your health insurance if you don't have a job?

[Andrew]

Yeah, I'd have to buy it on the open market. I've shopped around a little bit. In my mind it's not crazy, unaffordable. It's like 500 to 750 for an individual. So I think I could stomach that in my Experience.

[Mindy Jensen]

It is not unaffordable to buy on the health care exchange through the aca. I would encourage you and anybody who is listening to reach out to an insurance broker in your state who can give you more information. They did not make the ACA easy to understand. In fact, I think they made it difficult to understand on purpose because it's a government thing and that's what they do. But it was, it was very difficult. I consider myself to be rather knowledgeable about health insurance in general. And I went onto the exchange and I was like, I do not understand any part of this. And I had a really great chat with a broker and it was kind of life changing because I didn't need nearly as much as I thought I would need for my health insurance. So I'm glad you have already thought of that as well. Scott, what are some other things people talk about when they are early retired? Oh, I'm going to be bored. That's not it with you. I mean, you're, you're there financially. It isn't a question of, oh, can I do it? Can I not do it? I think you're, you're doing really well. You've got your income or your expenses covered by your rental. I would maybe stay a couple more months and get a, a fatter emergency reserve just because you won't have another bucket to pull from, the income bucket to pull from. But other than that, at fincon, I.

[Andrew]

Was asking, you know, how much would be an appropriate emergency fund in, you know, per se timeline. And people were telling me six to 12 months. But so if I have five years, is six years better than five years?

[Mindy Jensen]

No, six years.

[Andrew]

Like it's the same. It's like. And I'm literally transitioning into trying to start a business with the intention of making income. I'm not transitioning into sipping margaritas on the beach. So I'm like, I think I will become bored if I'm doing something that's so unproductive. After 12 months straight, after 2000 hours of it, I'll transition. And I'm like, within a thousand days, I can make a dollar. Or I'll just start my middle school lawn mowing. Lawn mowing business again. Or, you know, crazy idea, go back to engineering.

[Mindy Jensen]

Exactly. There's, there's always a demand for engineers.

[Andrew]

And that's kind of why I'm leaning towards starting an agency instead of a YouTube channel. Like, learn the skills and then do video editing and hire and lead a company doing that or audio editing or making YouTube videos for realtors and posting all the short stuff like that. So then it's. It's likely a faster timeline to generating income because really, I love working. I enjoy it. I just don't want to work for others anymore, and I want a scalable career. So it's like if I want to raise, I don't want to ask my boss for a raise. I just want to work harder, and then I want to get a raise.

[Mindy Jensen]

Okay, that right there is the answer. I like working. I just don't want to work for somebody else anymore.

[Andrew]

We'll see. Yeah, we'll see what next year brings. It's like one more Roth, a little more savings, another camera, and let's play ball.

[Mindy Jensen]

Okay, Andrew, I am super excited for what next year holds, and I demand that you check back in with us and let us know what you decided and how your. How you came to that decision. So we'll circle back in three to six months and see exactly what's going on with your story, see how many of those 10 businesses you've started so far.

[Andrew]

Sounds good. Yeah. Really appreciate all your encouragement, Mindy and Scott, and all the education you've done to Tevren over the years, and you've definitely helped me and many others become millionaires through bigger pockets. So it's a. It's a great, great tool. Great forum and, yeah, huge. Thanks. So keep up the good work.

[Scott Trench]

Thanks for the kind words. Congratulations on all your success. Before we go, what is the name of your YouTube channel if people want to check it out?

[Andrew]

Yeah, it's Andrew Jacks. J A X C K S. J.

[Mindy Jensen]

A C K S. Okay. And we will include those links in our show notes. And Andrew, thank you so much for your time today. This has been super fun, and I'm not kidding. Three to six months, I want you to send me a note.

[Andrew]

Yeah, I'll do that. And if I'm pulling my camper through Denver, Long Monterey, I'll. I'll hit you guys up and buy a coffee or a beer. So thanks.

[Mindy Jensen]

I've got an awesome place to sleep if your camper, you want to take a break from the camper.

[Andrew]

Sounds good, thanks.

[Mindy Jensen]

Okay. Andrew, thank you so much for your time and we will talk to you soon.

[Andrew]

Yeah, looking forward to it.

[Mindy Jensen]

Okay, Scott, that was a fun set of circumstances that Andrew finds himself in. And I like when we're talking to somebody and they're like, well, which one of these options would work? You know what, you've got a lot of really great choices, but I do think we need to address the elephant in the room. Andrew bought his rental properties at a different time. He bought them in 2018 and 2019 when interest rates were lower. So that part of his story I don't think is going to be so repeatable right now. However, we are still able to take advantage of keeping your expenses low, investing wisely in other ways, taking advantage of opportunities that are presented. There are still real estate opportunities available right now, just not for a 2% interest rate or whatever ridiculous rate he has, and allowing yourself to be okay with a little bit of risk. I think those are all points that people need to keep in mind when they are exploring their own financial journey and trying to take advantage of the opportunities that are presented. I mean, that right there, anybody can be presented with an opportunity. Opportunity. But how many people are going to say yes to it? You, Scott, had a good job at a corporate company, and you left to go take advantage of an opportunity that presented itself. This little Internet startup, How'd that work out for you, Scott?

[Scott Trench]

It's been a fun ride here for that, But I think. I think it comes down to the quality of a bet. Your execution of it and separating that from the outcome. And Andrew made good bets, executed them well, and the outcome was great. It was very possible that if you follow that playbook at random intervals over the last 30, 40 years, that you're executing that playbook in 2006 or 2007. Right. And seeing that portfolio crash and it taking a year or a decade to unwind the pain, or 100 grand, more specifically, to unwind the pain of buying those properties at the wrong time, on average, his set of bets is probably going to win, and it's probably going to result really well. The timing of a 2018 purchase and really going all in at that point in time was particularly fortunate for him. So we want to be respectful of the role that luck plays and acknowledge that that bet, on average, is a good one. Especially the way that he put it together with, in the context of an extremely frugal lifestyle and the ability to accumulate a lot of cash even if he had bought in a 2006, 2007, you know, kind of at that peak, right before a crash timing, I think that he would have been fine because he would have been able to cash flow and frugal his way through that transition, but it obviously would have been very painful for him as well.

[Mindy Jensen]

Yeah, absolutely. I think that's a good point. Timing. And I just. I want to hammer home the point when you have an opportunity taking action is what separates people being retired at 34 and being retired at 64. All right, Scott, should we get out of here?

[Scott Trench]

Let's do it.

[Mindy Jensen]

That wraps up this episode of the Bigger Pockets Money podcast. He is the Scott Trench, and I am Mindy Jensen. Saying off we go, leopard gecko.