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BiggerPockets Money Podcast
Finance Friday: Can I Still Reach FI by 45 If I Quit My Job?
00:54:29
Alex Preziosi wants to reach financial independence by the age of forty-five, and with several hundred thousand dollars in retirement accounts, brokerage accounts, and savings, she’s on pace to do just that. But now, she’s thinking about quitting her W2 job. Can she still hit her FI goal? Today’s guest has good problems, but problems, nonetheless! Welcome back to the BiggerPockets Money podcast! Since we last spoke with Alex, she has made two major leaps on her journey to financial independence. First, she has taken up house hacking, which pays for most of her mortgage in an expensive area of the US. But that’s not all. She has also grown her side hustle as a real estate agent into a full-fledged business, where she now earns more than she does at her W2 job! These moves have only widened the gap between her income and her expenses, and, as a result, she’s sitting on an even bigger pile of cash. Now, Alex finds herself at yet another crossroads. Is her W2 holding her back? Should...
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- [00:00]
Mindy Jensen
Today's Finance Friday guest is a repeat. She is returning to the show. Last year, Alex joined us on episode 395. She was at a fork in the road whether she should invest her large cash savings into real estate or the stock market. In today's episode, we'll hear an update on her financial position and how she's now reached a new crossroads and might finally be able to leave her W2 and 5 before 45. Let's find out today. Hello, hello, hello and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me as always is my blueberry loving co host, Scott Trench.
- [00:38]
Scott Trench
Thanks, Mindy. Great to be here and really excited to jam out with you. Right, That's a good intro. Related intro right there. 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 anyone, no matter when or where you're starting or whether you're deciding to invest in stock or real estate. All right, today we are going to discuss Alex's new FI number and how she should adjust her portfolio allocation to avoid the messy middle. And we're going to discuss diversification of her current portfolio. Alex, welcome back to the BiggerPockets Money podcast.
- [01:12]
Alexandra Preziosi
Thank you guys for having me back. Excited.
- [01:14]
Mindy Jensen
Alex, for our audience who didn't yet listen to episode 395, can you share a little bit about your money background?
- [01:22]
Alexandra Preziosi
So my money story begins when I grew up raised by a single mom and a retired grandmother. And money was always kind of tight for us. I was always very aware and conscious of us not having a lot of excess money. We always had what we needed, but not, we didn't take, say, vacations every year. We went down to the Jersey shore. We kept things kind of within our budget. And the conversation around money was always more of a scarcity mindset. So that's kind of how I feel. I was conditioned growing up. And as I approached college and after college, I graduated College with about $25,000 in student loans. And then that same year I also got a new car. So that rounded me out for that year after College with about 40,000 between student loans and a car loan. And after those years I was trying to be as diligent as possible. Paying off that debt, that was really my main priority. And I lived at home for a few years and, and got that taken care of, thankfully. So now as my income has grown and my net worth and My savings and investing has grown. I just continue to find myself in a position where I have, I guess, somewhat of a good problem in having a lot of cash on hand, but also having investing go and real estate goals and just trying to kind of, you know, allocate where as best as possible.
- [03:00]
Mindy Jensen
Okay, and when we last spoke, you had a large cash position and you were considering putting it into the stock market or putting it into real estate. What did you end up doing?
- [03:12]
Alexandra Preziosi
Yeah, so the last time I was on the show, I believe I was speaking about wanting to have a house property in the town that I live in. And gratefully, we were able to purchase a property here. It's a house hack. I'm sitting in one of the offices in my house now. And we were able to renovate this home. Found it off market, I think I had also mentioned that I was doing direct mailers and those sort of things to try and find things off market, as well as keeping my eye on the market while being a realtor. And thankfully, someone reached out to me on one of my direct mailers and I was able to, you know, make it work. So we renovated it. We have a tenant downstairs. It's been a really interesting kind of intro to real estate investing and also definitely reducing our monthly expenses for housing significantly relative to the apartment that we were living at, which was, you know, they call it a luxury apartment, but it was okay. But it was definitely overpriced. So that's been. That's been fun and exciting. So that's definitely where a lot of that. A lot of that money went last year.
- [04:26]
Scott Trench
Awesome. Can you. Can you give us all the details on this house act? How much did you pay for it? How did you finance it?
- [04:32]
Alexandra Preziosi
Sure. So we've purchased it for 480,000. We finance it with a conventional loan with 15% down. Um, because that was allowed for the primary residence, I thought. I honestly thought it was. I wanted to put less down, but that was the minimum at the time. Now I know it's different, but that. All good. And. Yeah, so that was our. Our financing situation. And our monthly payment is about 3,600amonth with taxes and insurance. The taxes in New Jersey, as I'm sure you're aware, are quite high. So my taxes, my annual taxes are about 10,000 a year, and our insurance is about 1500 a year, so that rounds us out at about 3600. And then we get rent downstairs for a two bed, one bath in the multifamily for 2,700amonth.
- [05:26]
Scott Trench
Okay, so it is a duplex up down. Duplex.
- [05:29]
Alexandra Preziosi
Yes. It's a two unit. Yep.
- [05:30]
Scott Trench
That's awesome. 2700 for the downstairs unit is awesome. What's the upstairs unit like how many beds and baths and what would you get for rent on that part?
- [05:39]
Alexandra Preziosi
Sure. So we live in the, the upstairs unit and it's a two bed, one bath. And with this office, the one, the space that I'm working in is like a additional office space and we would probably get, we have an unfinished attic as well. We plan to finish it, we would like to. So that would probably increase it but for simplicity sake we would probably get about like 28, 100 I would say for this unit as it is, maybe more.
- [06:08]
Scott Trench
Sorry, that was 2800, is that what you said?
- [06:10]
Alexandra Preziosi
Yeah.
- [06:11]
Scott Trench
That's awesome. That's a 50. If I'm doing the math right, that's $5,600 a year. 55. $500 a month. Sorry. On a 3. 600. Pity. You probably should be able to make that work. When you account for property management, Capex, maintenance, utility, all that kind of good stuff. That's a great cash flowing rental property in New Jersey. It sounds like in 2023, in the face of a higher interest rate environment, I thought that was impossible, you know.
- [06:35]
Alexandra Preziosi
I mean few and far between. I don't ever promise it to my clients, you know.
- [06:43]
Scott Trench
So what do you think it's worth today?
- [06:45]
Alexandra Preziosi
Well, we actually, we took out a HELOC recently. So I had it appraised and it came in at 730,000 and I think that's pretty accurate between 730,000 and 750,000 is probably the current worth.
- [07:02]
Mindy Jensen
Okay, and you bought it for 480. How much did you put into the rehab?
- [07:07]
Alexandra Preziosi
A fair amount. We did a lot up front. But then the past few months we did the roof, we got two new boilers, we got a water heater. So we're rounded out at about like 160 ish thousand that we put in.
- [07:20]
Scott Trench
And that's been a theme that I've, I've seen across a couple of deals that I've heard about recently is that they're there flipping maybe back to a certain extent in a lot of these markets. And folks that are cash strapped don't necessarily want to put in $160,000 into a property. And so there's opportunity there for folks who are willing to put in the work there. And you'll get, you could you still have an opportunity to get a good chunk of the benefit of the Gain here tax free. I don't think you'll be able to get 100% of it because you're treating half of it as a rental property. But you can get half of a couple hundred thousand dollars gain, it sounds like, or maybe $150,000 gain tax free. So this is an awesome, awesome buy it sounds like for you guys. And congratulations.
- [08:00]
Alexandra Preziosi
Thank you. Appreciate it.
- [08:02]
Mindy Jensen
Okay, let's look into these numbers. Current numbers. I have income, which I just love. Actually, let's go into investments first. We have 120 ish in cash, 100 in a Roth, 401k, 25 in a Roth IRA, 36 in a SEP IRA, 306,000 in an after tax brokerage account. Scott, she is not going to hit onto that middle class trap, not with all of her money being in Roth, Roth and after tax brokerage. So I love that. I'm going to come back and talk about this 120 in cash you have sitting around. Treasury note of 5,000. That's interesting. I've never seen that before. A HELOC balance and about 367,000 in home equity. Your income. I love this. 68,000 at your full time job, 96,000 at your 1099 and additional 20,000 in bonuses for a whopping $184,000. Nice. Let's look at those expenses. Scott. I'm not even going to read them off because her total expenses are $4,000 a month on $184,000 salary. I'm sorry, $184,000 income. Part of this is W2 salary and part of this is real estate commissions, which everybody knows can be a little unpredictable.
- [09:30]
Scott Trench
All right, we need to take a quick break, but we're going to hear more from Alex when we're back. And we're going to find out if Alex can or should drop her W2 today.
- [09:39]
Mindy Jensen
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- [09:41]
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Mindy Jensen
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- [09:58]
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- [10:42]
Mindy Jensen
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- [10:46]
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- [11:25]
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- [11:55]
Scott Trench
Let me ask a question here because I just want to make sure we're not being, we're not misleading ourselves with this because, Alex, you're declaring your income as between you and your partner, I believe. And I'm seeing on the expenses, you're half of the mortgage payment and those types of things. So is this half? Are we looking at income on a household basis and expenses on a personal basis or some accommodation there?
- [12:19]
Alexandra Preziosi
The income is just my income and then the expenses are just my expenses. Yeah.
- [12:25]
Scott Trench
Okay, got it. So you have a full time job and a 1099 and that's what we're looking at here to add these both up. Okay, got it.
- [12:30]
Alexandra Preziosi
Yep.
- [12:31]
Mindy Jensen
Okay. So back to what I was saying. 184,000 coming in, 49 going out. I don't care about your expenses because you're doing okay. You're doing better than okay.
- [12:42]
Scott Trench
And the reason you're doing that well is because your housing cost is 500 bucks. The mortgage in New York. So, okay, you're spending 3,500 everywhere else. If we were talking about, if we were adding in 3,000, $3,700 a month in rent. We're talking about expenses a lot here. But that's the beauty of the house hack is now we don't have to talk about expenses. Like that's just not you. You can spend as much as you want in some of these other categories. It probably feels luxurious despite the fact that you're only spending 50k a year. I don't know. Is that, is that right?
- [13:11]
Alexandra Preziosi
I'm. I don't know. Maybe. Definitely not. Not living in luxury, that's for sure. But you know, well, and you could.
- [13:20]
Mindy Jensen
Afford to spend a little more if you chose to because you're not even spending all of your W2.
- [13:26]
Alexandra Preziosi
Yeah. And I think a lot of that actually is going to change this coming year with what I would like to talk to you guys about too, and increasing my real estate business because even recently, just this month, I've kind of invested a fair amount of money into, you know, more systems and lead gen things. So I think that that's also a great thing about being able to say, live in, you know, have less expenses it and having it allowing it to be allocated towards say, a business, you know, opportunity.
- [14:04]
Mindy Jensen
Yeah. Well, let's go back and look at your cash for a second. You have 120,000 in cash and you have expenses of 49,000, let's call it 50,000. So you have two, almost two and a half years of current spending just sitting there in cash. So now could be a great time to strike out on your own and try to be more focused on your real estate agent career. However, I keep hearing how the market's about to crash. What would happen if you quit your job and then all of a sudden, I don't know. Interest rates went to 1970s levels, 17% and nobody's buying a house. What are you going to do?
- [14:47]
Alexandra Preziosi
I guess I have two years. Right. So I guess I could wait it out two years. But I think alternatively, I think around here, especially in northern New Jersey, the market is less even about the interest rate, unlike a lot of other parts of the country where I guess I've heard a lot about the market slowing down because the interest rate was increasing. That really wasn't the experience around here. Just because the inventory here is very limited and they can't build a lot. So here, not to say that it's impossible, but it's very unlikely, I feel that home prices around here are going to significantly decrease and the market would all of a sudden be at a huge surplus unless some catastrophic event occurred. And now all of these homes are on the market because even in real, even in New Jersey, the foreclosure process is also two years.
- [15:52]
Mindy Jensen
Right.
- [15:52]
Alexandra Preziosi
So it's a very long extended process to kind of have some kind of incentive for, for more homes to go on the market to indicate some kind of a crash. That'd be my opinion.
- [16:05]
Scott Trench
Of course, I saw a stat as well with the real estate settlement, Mindy, that before the settlement was announced, average buyer agent commissions were 2.65% of total purchase price value, 2.65%. And since then they've decreased all the way down to 2.59%.
- [16:23]
Mindy Jensen
Oh, okay.
- [16:24]
Scott Trench
Which is nothing, like it's a joke. It has not impacted the actual commissions for buy side agents like all this doom and gloom was talking about for that. So I think that there's one argument, one school thought that now is potentially a great time to enter into the agent business. And if you're asking, I think you're asking Alex. Hey, do Scott and Mindy, do you guys think I should go in and lean into this agent business or my full time and leave my full time job? Is that, is that the question you're gearing up to ask here?
- [16:52]
Alexandra Preziosi
Yeah, pretty much. Just kind of overall thoughts?
- [16:57]
Scott Trench
Well, I, I have two questions and I'll, I'll not even bother shying away from it, but I think the answer is almost certainly yes. But let's couch that with a couple of other questions around this. First one is what is the likelihood of your $68,000 per year salary increasing dramatically at your current job?
- [17:15]
Alexandra Preziosi
I do get a 10% raise every year, so I don't know that that's necessarily dramatic. But yeah, it's likely that it will be going up. But at the same time, I think it's more about the time for me even then the money, it's more about the flexibility and you know, not spending any more time commuting and those sort of things over money. Like, I don't, I think I could kind of whip up $68,000 maybe if I needed to. So for me, I think it's a lot more having to do with my own like, fears and of course, personal choices and loyalty to my employer type of things, which of course, isn't something that I expect you resolve, but at the same time I also want to think through, you know, what that life looks like as, as a full time agent and, and those sort of things. Of course, considering the income, but.
- [18:20]
Scott Trench
So you, you work full time at this job? 40 hours a week plus commute.
- [18:24]
Alexandra Preziosi
Yes. So I work for my broker. He has a construction management company, but it's down the shore. So it's. I know down the shore is a Jersey term. Sorry. It's, it's like an hour down and then another like two to two and a half up. So. And I go three days a week.
- [18:43]
Mindy Jensen
Quit. Quit last year.
- [18:46]
Scott Trench
And you generated $96,000 in brokerage and agent commissions on the side while working 40 hours a week, 24 of which were in person in this office. And on top of that there's another, what is that, seven, eight hours of commuting time and you still generated $96,000 on the side.
- [19:09]
Alexandra Preziosi
Yeah, I guess that's true.
- [19:10]
Scott Trench
So, so the big risk is if you talk to like, how long have you been getting agent commissions again? How many, how many years of tax returns show commissions from your agent? Professional?
- [19:20]
Alexandra Preziosi
I want to say five or four or five. I want to say this was definitely by far my highest commission year. It's been more an average of say like 50 to 60. And yeah, this has been definitely a lot more.
- [19:37]
Scott Trench
So we've had a couple of employees here at Biggerpockets who have, you know, gotten licensed and then go on to a situation like this. Like one of his examples, Craig Curlop, right, He came in and did finances for us. And one day he came in, he's like, Scott, I sold like 30 houses last year on the side here. And it's like, Craig, you graduated, he went on to start the FI team. And that's wonderful. It's a success story. You can't be the job here. Somebody else needs that job for $68,000 a year to go and work there. And you need to go and make your $250,000 a year as an agent, which is just waiting there. And you're leaving on the table in this situation. And it's time to graduate, I think, from, from this job. And I think that's a celebration. And not a broker is not going to be upset about that. Like he's going to be, or she, whoever this person is going to be super thrilled for your success on this front and wish you well. Almost certainly if they're a successful agent and are thinking about that. This is Ridiculously good outcome for a side hustle here. And you, you. It's time to thrive.
- [20:49]
Alexandra Preziosi
I think I appreciate the perspective very much. Yeah. That maybe it's a good opportunity for somebody else who's maybe more local.
- [20:58]
Scott Trench
And it's going to be like you're going to present your job too, because it's like you're making, you're going to make half of what you're making from an agent business on the side. And you're like, what am I doing driving down here? So that's going to make. That's going to. Also you have a risk of. I don't know if this is happening. I'm sure it's not. But you have a risk in the next year becoming a problem for your employer in this type of situation. I wonder. So is that, is that at all.
- [21:21]
Alexandra Preziosi
Yeah, you're right.
- [21:22]
Mindy Jensen
Is there anything you can do remotely for this job that would allow you to kind of have a safety net to test out this full time real estate agent thing, or is it. Do you really need to be there three days a week?
- [21:39]
Alexandra Preziosi
Yeah, it's a good question, Mindy, because it's something I've been thinking about a lot recently that I do plan to present, which is exactly that I do a lot of like numbers, bookkeeping, admin type of things and certain things. Yeah, sure, I do have to be there, but it would be, say if it was once or twice a week, at least for the time being, then I think that that should be a doable ask. So I'm hoping that that would be, you know, agreeable, essentially. So.
- [22:12]
Mindy Jensen
So when you're working as a real estate agent, you are essentially working nights and weekends. Every once in a while there's a daytime thing. I mean, closings are always during the day, but it's mostly nights and weekends. So you could give yourself more financial security by presenting this to your boss. Hey, I don't want to drive down the shore anymore because I'm spending 12 hours in my car every week and that's not fun. So here's what I propose. And then if he says no, well, then you have a different question to ask yourself. But how easily would it be for you to generate $50,000 in commissions in your pocket after your splits, after your taxes, after everything? I'm estimating that's like selling six, seven, eight houses.
- [23:01]
Alexandra Preziosi
Yeah, it'd be about like five or six, I would say.
- [23:04]
Mindy Jensen
Yeah. So how easy would that be for you to do?
- [23:06]
Alexandra Preziosi
It's definitely doable. I think I have enough people in My book, like even right now, that should convert.
- [23:13]
Mindy Jensen
Okay, so that's all you need to do. That's your minimum. So let's say you need to sell six houses, start in January. How long does it take me to sell six houses? Oh, look, I did it in January. Okay, you don't need that job anymore.
- [23:30]
Scott Trench
But I think it's chicken or egg. I mean, Alex, do you mind asking how old you are?
- [23:35]
Alexandra Preziosi
I'm 31.
- [23:36]
Scott Trench
I mean this like, like you got it right here. This is like you're so. You've got so much right here in this situation. Like you're gonna have all the energy in the world to go after this. You've got how much cash? Where is it? Yeah, $119,000 in cash. You got 300 grand in your after tax brokerage account, which is more liquidity around there. Your expenses are low. I mean this is in your current income is going nowhere relative to this. This thing is taken off like a rocket ship. It's 100 grand and you're doing it in part time. You can double. Like there's every reason to believe on paper you could double or even triple that income stream if this becomes your full time profession within two years. And that ain't going to happen at your job in this particular situation. And your risk is so low because of the cash position and your expense profile and the upside of. Or the worst case scenario I think is that you quit the job and you get another one like it a year or two that's closer to, like closer to home on it. Like you're already going into the office. Like a lot of, a lot of like it's hard to hire people that go into the office on a regular basis. You do that somewhere closer to where you are, you probably be able to get a job that's just as high if not higher paying if you just switch jobs today. I mean, I don't know, you seem like you're nodding along with that. Like that's true. I don't know if that's true, but that, that's what it smells like to me. From, from over here in Denver.
- [24:56]
Alexandra Preziosi
Yeah, I think from over here in Jersey. I think you're picking it up.
- [25:00]
Mindy Jensen
Okay, I changed my mind, quit.
- [25:03]
Scott Trench
I think you're there from what I'm reading here and yeah, you can definitely lose. You could come back next year and say, scott, I didn't sell any houses. That was, you know, that ended up terribly. But I mean there's, there's bets, there's outcomes and there's you know, separating the two. You know, the quality of the bet, the quality of execution and the outcome. I mean, this is just absolutely screaming to me, quit, quit the job and move forward. It'd be totally different if this was all in 401ks, if you didn't have a cash position, if you're spending $65,000 a year on there. And maybe I would be thinking about it differently, but this is screaming to me. You're ready for entrepreneurship in every respect in this situation.
- [25:41]
Alexandra Preziosi
I appreciate it.
- [25:42]
Mindy Jensen
Stay tuned. After our final ad break, I'm curious.
- [25:46]
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Mindy Jensen
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- [29:27]
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- [30:12]
Mindy Jensen
Only caveat I will give is on your financial goals, you want to acquire two to three more rental properties over the next two to three years. It's more difficult to get a loan if you have self employment income instead of W2 income. So I would pick your favorite lender and reach out to them and say, you know, here's my financial situation, can I get a loan? Does your partner have the ability to get a loan?
- [30:43]
Alexandra Preziosi
Yes, but he's also a self employed entrepreneur. So I think that's been like the parlay a little bit. But I think it's possible.
- [30:52]
Scott Trench
You know what I'd rather have than a better loan? Another $150,000 in income. To me, to me it's like, I agree with Mindy. Go talk to three lenders and talk about it and get prequalified. Go get pre qualified for a loan for the next property. Right now there's no reason not to do that. You are an agent, you should have those connections around there, talk to them about it. But you have. That's why I asked earlier about your history as an agent. You have five years of tax return history for that and agents are able to get loans on houses. So this is not, you're not going to be solving a brand new problem. If you had one year of history, then I might be. That was why I asked that. I might be asking you different questions here because you wouldn't have that, that history to lend against. But I, I would bet. Tell me I'm wrong and please email me if this is the case. But I will bet you that you're going to be able to get pre qualified more than you think on the next one. And what's going to be better than that is you have a year of rental history now on your tax return and that is going to also help you qualify for the next load because you'll have a, you'll have tax return, you'll have rental income on your tax return in addition to your agent history. So I bet you your ability to borrow has increased dramatically or will increase dramatically once you file your tax return for 2024 and 2025. So that's actually the order of operations. I would talk to a lender now and confirm those things and then get pre qualified. If I'm right, once you have filed your tax return in 2025 and you might want to delay like that, this might Be a year for your consideration, if that answer is hazy, to file your return in January or March or February, like right away. So you have that available to take to the lender and get that information. But that's the one question mark. In your situation, I think you're going to find it's not going to be an issue for you from a lending perspective. In fact, in fact, in your situation, if you're trying to buy more rental properties, when you go full time as an agent, you're going to get real estate professional status and you're going to be able to use the depreciation on the next rental property you buy to offset your agent income to a large degree. So you're going to have a field day with this. It all comes together for me and I'm expressing much more confidence than I usually do where I'm weighing a lot of options because I think it's, I think it's pointing in this direction for me very clearly.
- [33:09]
Alexandra Preziosi
I appreciate the passion very much. Scott.
- [33:12]
Mindy Jensen
I'm the one that gets worked up, not Scott. So for Scott to get excited about this, that's great.
- [33:17]
Alexandra Preziosi
No, I really appreciate it. And I didn't even think about the income from the house either. I really was kind of missing that. I will say, not that it makes that much of a difference, but in terms of my, how I laid it out in income, that's 68,000, that's after tax. So that's kind of like what I see. I guess it's like a ninety thousand dollar base, but once again it's kind of like picking. So it's not really makes that much of a difference in terms of my decisions. But yeah, you bring up a lot of great points and I think that that's definitely a lot of why, Similar to what Mindy suggested initially, why I, I want to reduce the time because I think I would feel even more confident in making that leap when I feel like I have a little bit more time and I'm allowing myself to optimize my earning potential in real estate prior to going full time. Full time. But. So that's like my first step. And then, But I agree with you, Scott. I think it's, you know, kind of time overall.
- [34:28]
Scott Trench
So your boss is an agent, right?
- [34:30]
Alexandra Preziosi
Yeah.
- [34:31]
Scott Trench
Maybe you just like in the context of it say, hey, I, I just made like. Does he know that you made.
- [34:38]
Alexandra Preziosi
I don't think so. Honestly.
- [34:40]
Scott Trench
What, what brokerage are you with where you hang your license?
- [34:42]
Alexandra Preziosi
Oh, it's a small, it's a small brokerage. Like A small local brokerage you might.
- [34:47]
Scott Trench
Even like, like there's even possibly a way where your employers like good grief. Yeah, come join my brokerage. Hang your license here, we'll hook you up with all the systems that you need to sell property and we'll take a cut of the commissions like any other brokerage up to a certain amount for it.
- [35:03]
Alexandra Preziosi
Oh, I understand. I understand your question now Scott. Sorry to interrupt you. So I have my license with my broker. So he, he has my license.
- [35:13]
Scott Trench
So he still work for your broker.
- [35:16]
Alexandra Preziosi
Right. Either way, basically I'm not running away anywhere.
- [35:21]
Scott Trench
So that's a different, that's, there's a different here.
- [35:24]
Alexandra Preziosi
It's kind of funny though because it's like that almost makes me feel a little bit stranger at times because, because of, I guess the dynamic is a lot to explain for like a short podcast. But. But yeah, it kind of is also a funny thing because I would be essentially, I guess I could be framing it better. I could be framing it as I'm going to be allocating more times towards the brokerage as opposed to the building company.
- [35:53]
Scott Trench
I mean you get a pad this guy's stats and make him look like a hero by just stopping doing whatever the heck you're doing at your full time job right now and selling houses. Because he like, he, what he want is he want to be like our firm sold $100 million in real estate last year. 250. And you're. And if he just unleashes you, you're going to be a superstar for him. Like probably not a lot of agents in that business are going to do $100,000 in GCI this year gross commission income for the non real estate listening nerds here. And you're going to be able to up that dramatically next year and increase the sales volum for the brokerage to a certain degree. So you're not. We don't have to talk about quitting necessarily. Which is going to make your case for the lender even better going into next year. I think that he would way rather have you selling houses than at this rate than doing the other functions that you're doing.
- [36:38]
Alexandra Preziosi
You're probably right, Alex.
- [36:39]
Mindy Jensen
You have a gap between your income and your spending of $134,000 a year. Ish. Where are you putting that money?
- [36:48]
Alexandra Preziosi
So as you can see a lot of it is in cash. But other than that I put it in my, my brokerage account. I put a lot of it in my brokerage account. I max out my Roth ira, my jersey came out like really heavy right there.
- [37:06]
Scott Trench
But it comes and goes in a wonderful way.
- [37:10]
Alexandra Preziosi
Yeah, it's like certain words, you should just throw some words at me and I'll say with them however you want. So then I'll, I'll max out the SAP up to whatever my CPA tells me I'm allowed to. And what else? I don't have a traditional 401k at my company, so that's kind of why I do rely on the brokerage account pretty heavily and just kind of know that I'll have enough cash to maximize the Roth and the SEP when the time comes. But I think the one predicament I did point out for you guys to hopefully help me with a little bit is kind of taking advantage of more tax advantaged accounts because unless I'm wrong with this, the Roth ira, I might not qualify to like contribute to a Roth IRA anymore because of my income. I guess it depends on how my taxes are going to be filed at the end of the day. But it looks like the cap is at 145 and I'm making a lot more than that. So that kind of takes away that other tax advantaged account. So I just wanted to see if you guys had any other suggestions for something like that where it would, you know, I, I'm just going to be relying on my brokerage account basically otherwise, which I'm fine with.
- [38:26]
Scott Trench
Can you do the backdoor Roth as a self employed in self employment, Mindy?
- [38:31]
Mindy Jensen
Oh that. I'm going to let you do that while I talk about the self employment amazingness of the self directed solo 401k. If you have self employment income and you do not have any employees that work for you more than a thousand hours a year outside of your spouse, you can open up a self directed solo 401k. You can put the 2024 contribution limits are $23,000. So you, Alex, can put $23,000 in and then your company can match your contributions up to 25% of your salary capped at 52 or $54,000.
- [39:10]
Scott Trench
Mindy, I looked this up while you were, you were doing this as well. And I think Alex, you're going to be able to contribute up to 25% like when you're saying of your self employment income, which I think will be your brokerage dollars there to the solo 401k. And then you should research the mega backdoor roth solo 401k. Mega backdoor roth solo 401k. What a handful. Go Google that term and discuss that and Maybe bring in your accountant and a CPA just to make sure that you are following all the rules. But that'll be an option for you. And if things go well, there is a reasonable path here where you start doing this full time. You're going to have a lot of income and you're going to need to shelter that income from taxes because you spend nothing and you don't need to realize much income to sustain your lifestyle. You can invest huge chunks of it. And I think if you were to generate $300,000 in gross commissions, for example, in a year, you could shelter $69,000 and potentially put it into a backdoor Roth. Now, the Roth will eliminate some of your tax advantages, but you could do a solo 401k and shelter it, which might be an option for you in some of these higher income years. And then do the backdoor Roth in other years when your income is lower, for example. That would be one option. And the second thing you can do with the rest of that cash is to buy real estate and depreciate it. Cost, do cost segregations and then you'll be able to reduce your AGI even further based on those depreciation. Especially in the high in higher income years, which I think you are likely to have in 2025, if you follow the sign of thinking or you have a reasonable shot at least. And those are those two super powerful tax strategies for you. You could pop up in three, four years with a lot of income earned and very little in the way of taxes paid and some interesting options in your life at that point.
- [41:03]
Alexandra Preziosi
Okay, cool. Yeah, I'll definitely look into those. I appreciate it. Mega backdoor Roth, solo 401K.
- [41:10]
Scott Trench
That's it.
- [41:10]
Alexandra Preziosi
Okay.
- [41:11]
Mindy Jensen
Do you have a high deductible health care plan?
- [41:14]
Alexandra Preziosi
I do.
- [41:15]
Mindy Jensen
Okay. Are you maxing out your HSA contributions?
- [41:19]
Alexandra Preziosi
So I know that was one that. Yeah, definitely.
- [41:22]
Mindy Jensen
So the way that the HSA works is it's only, it's an account. The health savings account is only for people who have a high deductible health care plan. You put up to 4150 if you're single and 8300 for a family into an account. You pay no taxes on that money that goes in, it grows tax free. You withdraw it for qualified medical purchases, tax free. So what I do is I contribute. I have a family of four, so I contribute the max of 8,300 this year. I cash flow all of my expenses, which is something you can do because you have so much, I hate to say Extra cash, because there's no such thing as extra cash. It is left over outside of your spending. A surplus, if you will. You have a surplus so you can cash flow all of your expenses and then save the receipts. And down the road, maybe next year when. Well, next year is going to be a little too soon. But you know, let's say in 10 years you have a very down year. You want to go to Jamaica for six months out of the year, you're not going to sell any houses. You can start cashing in these receipts. $20 for this, $100 for that, $500 for this. And you can take that money and put it right into your pocket because you've already paid those expenses. You're just reimbursing yourself. So that's a great. It doesn't grow super fast, but it's a great account to be contributing to.
- [42:55]
Scott Trench
Alex, you had another question here about cash that I think is really important for us to talk about here. You have $119,000 in cash, which is two and a half years of spending. And I want to encourage you to not do anything with the cash. Leave it there. Don't invest it in this particular situation because you were thinking about going out on your own. And I believe that the returns going out on your own are going to be out far outpace the returns you get. Even if we have a great year in the market next year, I'm around that and I think you should see how things are going come July or August of next year. And if you sold a ton of real estate and that cash position is growing, plow it into a rental property investment or start putting that into the market at that point and your confidence will be there. And if you haven't sold anything, it'll have dwindled to 60 to $75,000 and you might go get your resume ready or something like that and it'll feel a lot better at that point would be. That would be my advice to you in terms of the cash position in your situation rather than putting it into the market at this point. Mindy, what do you think?
- [43:55]
Mindy Jensen
I agree. I. If you're going to leave your job, then you have a two and a half year emergency fund and that emergency fund is going to be funding your life while you are ramping up your agent business. I asked you earlier how easy would it be to replace the amount of money that you're spending with real estate sales and you think it would be pretty easy to do so? I don't. If you can just cover the 50,000 that you spend every year. You won't have to dip into this or you dip into it a little bit and then replenish it as soon as you get a commission. But I think that that emergency fund of cash should stay in cash, should be as liquid as possible. Don't put it in the stock market, don't put it into another real estate property, or keep your eyes out right now on real estate properties while you still have a job. If something pops up that's really amazing, maybe you push back your quit date a little bit while you are waiting to, you know, replenish your, your cash fund because again, you've got that surplus of 134,000. You'll be able to replenish that pretty quickly. I mean, overall, you've got like six different really great options to choose from.
- [45:11]
Scott Trench
It's all because you spend so little, you house hack and you accumulate a lot of cash and wealth outside of your retirement account. So you didn't buy a house. If you bought a house, if you bought a regular house last year around this time for $600,000, you'd have less cash, you wouldn't be producing cash on a monthly basis, your expenses would be a lot higher and you wouldn't have these options. So that's how powerful that single decision is, I think, in making all of this so easy for me to be confident in your chances as an entrepreneur. Yes, you can fail and you can also get fired in three months for some other reason from your job or that company can have there. But I just think the positioning you have, your positioning couldn't be better to go after the career as an agent here.
- [46:01]
Alexandra Preziosi
Yeah, I appreciate that a lot and I think I've been thinking similarly. So I appreciate the validation very much as well.
- [46:10]
Scott Trench
Yeah. Will you come back on the show in like a year and a half to two years when you have so much income that you have to play all these games like the mega backdoor solo roth401k and you have to use depreciation from rental properties to offset your $300,000 in commissions and those types of things or it doesn't go that way. Tell us that too. But I would love to hear how those advanced strategies actually play out if that's what you end up pursuing, which I think is odds on. You can again put the caveat that there's certainly things that could go the other way.
- [46:41]
Alexandra Preziosi
Yeah, I mean, maybe I will replace the Google tool and I will have to just come on as an expert in mega backdoor Roth solo 401k. And that's, I think, I think the.
- [46:52]
Scott Trench
Homework that I would definitely get you going, going with is first I talk to your boss or I figure out how to, I think about how to float around to your boss, like, hey, I, maybe the best thing I could do for the company is to make a lot more money as an agent here. That conversation I think, you know, thought through appropriately is going to go fairly well. Second, I would talk to multiple lenders and ask them about what your borrowing, your capability to borrow is going to look like in March or April or May of next year once you file that tax return. And I think you're going to find really good news on that front if you don't let me know because that'll be surprised to me around there. And I think the mega back door, the solo, whatever, whatever the phrase was.
- [47:43]
Alexandra Preziosi
For this Roth thing needs an acronym.
- [47:45]
Scott Trench
Yeah, you probably can do it this year. You may have to do it this year if you want to do it. But I would talk to a CPA or really get really self educated a lot on that because I think you'll only be able to do that with 25% of the $96,000 in commissions that you estimate you're going to earn this year. So I think, but that could be wrong. There could be more nuance to how the other W2 income is there. But I would, I would think those would be the three homework assignments that I would, I would suggest you, you, you go off with and then everything else. All of that is subordinate to how do you get the agent business to continue to take off? Which is obviously the main focus, I.
- [48:27]
Mindy Jensen
Think, focusing on the agent business. Now that we've looked at all the different numbers, I think that's the right play here because you've got such a strong cash position, somebody else who calls in and they're like, hey, I have no cash, I have no savings, I have no investments, I'm going to quit my job and become a real estate agent. While I've never done it before and I'm facing headwinds, I have not had any drop in my real estate agent business. But I think you and I are fairly anomalistic. We're anomalies. And I'm hearing from so many people, my age of business is down, I'm thinking about quitting and going, getting a job, blah, blah, blah. So if you don't have the exact same set of scenario that Alex does, then don't take the same steps. She's going to take to grow her agent business. Grow your agent business on the side while you're still doing your W2. But Alex has two and a half years of cash. She has five years of real estate agent business. She thinks that it is very easy for her to at least make the money that she is spending over the course of the year in next year as an agent. So that's kind of a go ahead. I don't want to say no brainer, but it's kind of a an easy answer to come to.
- [49:45]
Scott Trench
I think in 10 years you'd regret not taking the chance way more than if it blew up in your face. The year you lose of the year of $68,000 in income, you lose. Congratulations on the wonderful progress and great options that you have here. Please do let us know what you end up deciding and how it goes.
- [50:02]
Alexandra Preziosi
I appreciate it. I definitely will.
- [50:04]
Scott Trench
Alex, before we go, we would love to give your agent business a boost here. Could you tell us what you do, how people can find you and if someone's looking to repeat your house hacking success, how can they call you and find you as an agent?
- [50:18]
Alexandra Preziosi
Oh, sure. Okay. So I'm based, my full name is Alexandra Preziosi. So you can Google that. I'm very active on LinkedIn and Instagram. I think my Instagram is alexpreziosi_ real estate. But I'm based in northern New Jersey. I work in Bergen County, Essex County, Morris County, Saint county, basically anywhere. But those are my focuses and you could also find me on bigger pockets. Alexandra Preziosi. And yeah, if you're looking for a house hack or looking to sell or buy, I'd definitely be more than happy to help.
- [51:00]
Scott Trench
Awesome. Yeah. And Alex has got a one of our featured agents. You can find her if you're looking for an investor friendly agent under agents biggerpox.com agents you can find her in those parts of New Jersey. So go check her out there and on her Instagram on her social handles. We'll link to all those in the show notes. Alex, hopefully that helps you do a couple more deals next year.
- [51:20]
Alexandra Preziosi
Yeah, thank you guys. Appreciate that very much. Very, very much.
- [51:23]
Scott Trench
Well, thank you so much. Congratulations on the success so far. Amazing progress in one year. Really appreciate it and can't wait to hear where things go in the next year or two. Please come back on and tell us. Give us an update.
- [51:35]
Alexandra Preziosi
Will do. Thank you both very much.
- [51:37]
Mindy Jensen
Thank you, Alex. And we'll talk to you soon.
- [51:39]
Alexandra Preziosi
Bye bye.
- [51:40]
Mindy Jensen
All right, Scott, that was Alex and that was a fun problem to have. I liked her story because she has been so conscious of where her money's going and conscious of what she's spending on. And I don't think that I would give the same advice to many people, but she's really set herself up for life, Scott.
- [52:04]
Scott Trench
Yeah, she certainly set a really good foundation. This is, I mean, this is, this is like you could tell how excited I was getting as we were getting into the conversation here because her foundation is so wonderful for entrepreneurship. Self employment, the opportunity to go after big income. There's so many reasons to believe in her financial situation, her story, her current net worth and current income that there's going to be a really made really significant future income stream that she can go after that there's so much downside protection because of the little amount that she spends in the cash that she generates and that there's such great investment opportunities that go along with that because of the tax advantages of self employment and you know, self employment in her case and the real estate professional status piece like that's a really good foundation to go after some serious wealth building. There's certainly risk associated with it, but again, that risk is mitigated with a $50,000 a year annual expense and $120,000 in the bank. So I love it. And that's a situation where you can really make some big plays. And I wish, I wish, I hope that biggerpockets money is helping more people build financial situations that look a little bit more like that because that's what really unlocks human potential in a different way. And that's, that's what we're all about here. That's what that, that, you know, Alex is going to take over the world here. And that's what we want. We want as many people as possible to do that.
- [53:29]
Mindy Jensen
Yeah, absolutely. I think she has. You use the word potential, Scott. I think that's great. She has so much potential and she's staying at her W2 is almost going to hold her back.
- [53:43]
Scott Trench
Yeah, I mean there's been, there's been like three or four times on the Bigger Pockets Money podcast where we've had a situation where the job is so obviously the problem in the situation of. In just the sense that it's irrelevant. It's just such. So has so little meaning in the context of the future, the ability to build wealth going into the future. This is maybe one of those three or four times. So this is not typically the advice that we give, go, quit your job now and get going. But this is one of those situations where I think that that's really, really clear.
- [54:13]
Mindy Jensen
All right, Scott, should we get out of here?
- [54:15]
Scott Trench
Let's do it.
- [54:15]
Mindy Jensen
That wraps up this awesome episode of the Biggerpockets Money podcast. He is Scott Trench, and I am Indie Jensen, saying cheerio, dingo.