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Rich Habits Podcast
Q&A: Feeling Squeezed, Gambling on Canadian Real Estate, & Off-Market Deals
00:43:11
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- [00:00]
A
I'm NFL linebacker TJ Watt and this is my personal best. YPB by Abercrombie is the activewear I'm always wearing. That's why I reached out to co design their latest drop. I worked with designers to create high performance activewear that holds up to my toughest workouts. Shop YPB by Abercrombie in store, online and in the app because your personal best is greater than any when did making plans get this complicated? It's time to streamline with WhatsApp, the secure messaging app that brings the whole group together. Use polls to settle dinner plans, send event invites and pin messages so no one forgets mom 60th and never miss a meme or milestone. All protected with end to end encryption. It's time for WhatsApp message privately with everyone.
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B
Learn more@WhatsApp.com hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition brought to you by public.com these are our Thursday episodes where we answer your questions as if we were in your shoes going through whatever you are going through right now. We've got seven awesome questions teed up for this episode. If you want to ask us a question like the seven people did for this episode, you can email us at rich habits podcastmail.com or you can send us a DM on Instagram @ Rich Habits Podcast now before we get started, I think it's really important that we all understand this reality. Investing toward your financial future is the only way you'll ever be able to retire. Period. So if you want to stop trading time for Money in your 9 to 5 or your hourly job, you need a nest egg that is growing for you over time.
- [01:44]
A
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B
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A
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B
So our first question is coming via email from John H. John H. Says Good morning Austin and Robert, I hope this finds you well. I just have a quick question I like to run by you. I'm not working a 9 to 5 job at the moment and I'm not really making any good money. However, I'd want to start doing some side hustles to make extra money. It couldn't hurts and I'd be happier to have more money. So I'm actually an accountant. I try to be flexible in terms of what I'm willing to do with side hustle wise. So I thought that bookkeeping would be one of them, but I haven't found much demand for that, unfortunately only about 10 hours a week. Do you have any suggestions as to what may be feasible when it comes to being a bookkeeper? I'd prefer something I can do remotely. If you could please let me know your thoughts on this matter, I would really appreciate it. Thank you very much and have a nice weekend. That's a good question, Robert. So it seems like John over here, he's not working a 9 to 5, but he does want to make some side hustle money, which I'm totally cool with. But here's the deal. I want to make sure we're all on the same page about this reality that I feel like sometimes people forget. Sometimes people forget that, okay, I want to go start a side hustle to earn more money. Therefore I have to invest all this extra, call it 10, 15, 20 hours of research, of laying the foundation of learning how to do bookkeeping or starting an llc of like doing all these things that literally take you 10, 15, sometimes 20 hours just to get started before you see any money. So they make the mistake of thinking they have to do that to start a side hustle. When in actuality you can just download Uber, download doordash, download any of these instacart and you can make your first $15 literally in the next 20 minutes on one of these apps without having to start an llc, without having to go learn how to code, learn how to make a website, learn how to do bookkeeping, learn how to do Facebook ads, learn how you don't have to learn, you don't have to start a business to do a side hustle. Sometimes people confuse, oh side hustle. That means I gotta go start a not always right side hustles can mean earning money by working for 15 to $20 an hour and sometimes even a side hustle quote Unquote, can be moonlighting, which just means getting another job that you're doing from, let's call it 8pm to midnight, which could mean delivering pizza for Papa John's or bartending at your local pub. Right. Like a side hustle isn't always this sexy entrepreneurial thing that you've got to go learn how to be a multibillionaire business owner to do. Like you can go earn money by doing some of the simplest things and you can do it today having to invest all these hours where you're not getting paid to, to learn or anything like that. So I'll pause there and I'll let Robert chime in.
- [05:06]
A
Yeah, I think that's a great breakdown and very important for people to understand. Just get started. Go out and get the money first, then figure out how to structure it afterwards. You don't have to go spend all this time, like Austin said, setting everything up. And John's actually in a tremendous position because he's an accountant. I can tell you this, John, you could go into Facebook groups, spend $5 a day on next door ads, and I promise you, you could find 20 clients that need help with their bookkeeping because we go through it all the time. Because I have so many small businesses around the country. So get out there, spend a little time figuring it out. Maybe go to some meetups for real estate, go to some of the Facebook groups for small businesses in your area or next door groups and find a way to get those first two, three, four clients and you'll be all set. Because you have a skill that everyone needs and that is help with their books and help with their money, of their businesses, whether they have a big business or a small business. So I love where you're at. I love your thinking. You just got to get out there and get eyeballs to get those first clients.
- [06:11]
B
Yeah. Tactically speaking, join your city's Facebook group. Right. I'm in my, my neighborhood Facebook group. I'm in a next door group. I'm also in the Franklin, Tennessee Facebook group. Despite living not exactly in Franklin, but like I'm in all these groups. I want to see what other people are doing, what they're talking about, and like how I can get involved. And so, John, if I were in your shoes, I would join as many of these groups as you can. And not to say, hey, give me money. Right. Not advertising yourself, but just looking and seeing where you can provide value. Maybe someone mentions, hey, I'm looking for a bookkeeper. Hey, I just started this lawn care business. Hey, I just like, oh, cool. Congrats on the lawn care business. I'm really excited for you. Do you have a bookkeeper yet? How much are you doing in monthly revenue? 7,000. Can I please help you? I'd love to be a bookkeeper making $50 an hour on your behalf with a minim of, you know, 10 hours a month or whatever that might turn into. Right, so like, that's how you do this. It's not always a give me money. Come look at me, I'm John. I've got this bookkeeping business. You got to provide value. Right. It's not as transactional as you might think.
- [07:11]
A
Yeah, it's just all about getting out there and getting eyeballs. Get in the groups, get the eyeballs. The work is out there, I promise.
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B
Our next question comes from a G. AG says Austin and Robert. I love the podcast. It's my favorite to listen to when I ripped through some spreadsheets at work. My question is, why do I still feel squeezed for context? My wife and I are 28. We make $140,000 together and have no debt other than our mortgage at three and a half percent interest. For the past year or two, we've been doing everything you guys talk about. We have built a healthy savings account of three to six months of expenses. We contribute to the match in our 401ks, we max out our Roth IRAs, and we invest every single month. I feel like we live comfortably without overspending, but we still feel squeezed when it comes to the things we want. Overall, I feel like we can't move because of our interest rate. I don't want to look for a new job because the job market kind of sucks. I feel like I can't upgrade the car because I'd rather invest than have a car payment. So is this just lifestyle creep talking? And if so, how do you combat this feeling of being stuck? And if not, then what is it? Your insight is always appreciated. Thank you for all you do, AG really excited for you. Congrats on making so much money with your wife. You guys are crushing it. I think you guys are crushing it a little too much, which is why you might feel squeezed. So let's say, you know, you're making 140,000 a year pre tax. I'm assuming. So this 140,000 a year post tax between you and your wife is about 105,000 a year. Okay, now. Now let's say you and your wife both max out your Roth IRA. That's $7,000 a year. Times two, that's $14,000 a year divided by 105,000. 13% of what you're taking home is already getting invested. Right. That is really close to the 15 to 20% that we encourage people to do. Right? So you're already right there. And then when you throw on the match of the 401k and the invest every month, you're probably investing 25, maybe up to 30% of your take home pay, which like, don't get me wrong, that's incredible. You guys are going to be multimillionaires at that pace. But give yourself some GR. Maybe it's not investing this extra $600 a month because for whatever reason we want to, you know, whatever, maybe that $600 a month goes toward the new car fund that you're going to buy in two years. Maybe it goes toward the vacation that your wife very much deserves. Or maybe it goes toward, you know, I'm saying it's like, you don't have to be so black and white and like, oh, I have to do this and I have to do that. And I have to do that at the expense of my comfortability in my mental health because I feel like I'm being squeezed so bad. So I guess what I'm trying to say is you're already doing so well, right? You're probably investing to 30% of your take home pay. Consider dialing that back maybe to just the match and the, the Roth IRA. That's probably close to 16, 17, 18, 20% as is. Right. Because think about it, let's say you're making 140, your match is at 3%. That's $4,000 right there. And that's just in the match. Right? So you guys are investing probably close to $20,000 a year in your 20s. You guys are crushing it. So consider dialing it back a little bit, being a little bit more intentional with where you're putting this money for the future. And I promise I do not think you'll feel squeezed after that.
- [10:06]
A
Yeah, I love this takeaway, but I'm going to go bit of a route on the kind of delayed gratification and lifestyle creep. I think lifestyle creep is always looked at by people as, oh, they're living beyond their means by buying the new car and buying the new really expensive thing, maybe upgrading the house or whatever it may be. And I think lifestyle creep eats people alive in a different way. And I challenge everyone listening this episode, go open the cabinet door in your kitchen and if you have 13 Stanley mugs in there of every different color for every season and every release, that's lifestyle creep. Go to your closet, and if you have 14 pair of Nike running shoes, but you haven't run a marathon or even a 5k in the last two years, that's lifestyle creep. A lot of people drain their bank accounts month in and month out by the little things, and little leaks sink ships. I don't care what other financial people say and educators say that don't worry about the coffee and the Nikes and those things. That's bullcrap. Because at the end of the day, when you're spending all of that money constantly because of boredom or whatever, I consider that lifestyle creep as well. So if you do what Austin says and then also be very intentional with your spending and not buy all of these things over and over again, I feel like that squeeze will go away because you guys are crushing it. It. You've already figured out the hardest part. You know how to make money. You know how to invest money. Now you just need to learn how to not waste money. And I think you guys are going to keep crushing it.
- [11:44]
B
Yeah. The only thing that I'd want to add beyond that, too, now is, and I'm not saying go get a car payment. I'm not saying go do these things, like, whatever, but just remember that it's okay to spend money, right? It is okay to spend money. It is okay. Like, sometimes it's like a muscle. Some people have to exercise. Sometimes people save and invest. And that. That's the muscle that they. Which is a hard muscle to train. Right? But that's the muscle they really train. And, like, they're like, yeah, I've got all these millions of dollars, and my. My investing rate on the monthly basis is 39. Like, I'm gonna be like, that's great. Heck, yeah. I hope that makes you so happy. But also, it's like life is more than just numbers on a computer screen going up. Also, remember that we are investing and we're living and we're doing these things and intentionally, you know, trying to build wealth so that later on we can really enjoy our lives. If that means driving our dream car, if that means having a boat, having the lake house, going to the beach three times a year, whatever that thing is that you just absolutely love to do, like, that's what all this is for. And so, Ag, if you feel like, you know, you're only 28, like, you guys probably are doing incredibly better than you think you're doing. But also remember, like, you're doing this so that later you can really, really enjoy what's going on. And sometimes, depending on how much you've accomplished at a young age, that later can come sooner than you think. So our next question comes from. PL says we bought a pre construction home during the pandemic for 1.3 million in 2020. The home was completed in 2023. After all costs and fees, we paid $1.37 million. We live in Toronto, Canada and the housing market has declined since 2023. At this point, we could probably get about 1.3 million for the home. So after realtor fees, we would probably end up losing about $100,000 on this. To give you a little bit of backgr. Been empty since 2023 because our current home is in a better location for our kids. The reason we didn't bother with renters is because we've heard too many horror stories of tenants and squatters. Now you might be wondering why we even bought the home in the first place. Well, the plan was to move into it, but for some reason we chose not to. And we always thought we could sell it since the market has always been so hot here in Canada. I don't like to think it was speculation, but maybe there was a little bit of speculation. The cost to keep the new home empty is $20,000 a year. And as far as our financial situation goes, we do not have a mortgage on e warehouse or the new spec house here of $1.3 million. Our family home is worth about 2.4 million. It's. I could probably sell it right now for 1.7 in the current markets. We have half a million dollars invested. These are invested into the ETFs you guys talk about. I'm 50, my husband's 52. We have two kids that are in university. And so my question is, do we keep this $1.3 million house that we paid cash for, hoping that it appreciates over time? Do we sell the $1.3 million house and invest the proceeds where they can grow? Or maybe you guys have a different idea. I really appreciate your perspective on what we should do. The realtor is obviously trying to convince us to take the loss and invest where our money can grow. Thank you so much. You guys rock. Robert, this is a really tricky situation for pl. I feel terrible that they're going through this, but I'll let you kick us off.
- [14:53]
A
Yeah, I think you have to sell the house. I look at it this way. When I break down the numbers, if you can sell it for 1.3 million. Yes, you're going to lose some money, a little bit of money. But you also have to look at it from this perspective. If you invest that money, even if it's a million dollars, after everything, closing costs, whatever you have to do, that million dollars a year at 10% is going to make you $100,000 a year. Plus you lose the carry cost of the $20,000 a year that you have by holding the house. And on top of that, I don't know what the capital appreciation is in that market, but if we assume it's pretty standard, 4, 5, 6% a year, there just isn't enough appreciation in that market for you to sit and wait and play catch up in this situation. So for me, I'd sell it, I'd move on. I would look at it as a learning experience, not as a loss and keep doing what you're doing. You guys are in great shape financially, but you have to make your money work as hard for you as you work to get it. And by holding onto it, hoping it's going to appreciate you're not doing that.
- [15:57]
B
Couldn't agree more. You guys are worth well over $4 million. You can take a hundred thousand dollar hit it. It's not going to be detrimental to your financial well being. It's not going to, you know, push you guys off of retirement. And I think you only mentioned you have $500,000 invested and you're 1552 now. That's going to be millions of dollars in retirement, don't get me wrong. But having an extra 1.3 million, or even call it, I don't know, 1.1 million invested plus this 500, now you guys have 1.6, 1.7. That's really going to be able to turbocharge your retirement goals. You guys are going to be just fine. Fine. So sell the house. I'm sorry it didn't work out. Everyone makes mistakes. Don't feel bad about it. This is a learning opportunity like what Robert said. Maybe the only piece of advice that I could give you and Robert, maybe you can chime in on this as well, is to shop. Real estate agents, shop some of these fees. Maybe, you know, you mentioned 5% fee on this. Maybe someone wants to charge you 3, maybe someone's going to charge you 4. Whatever you can do here to save a little bit of money here and there to kind of offset that 20,000 a year that you're paying.
- [17:00]
A
Yeah, I definitely agree with you, Austin. Find a good agent, see what you can do. Because on A more expensive home, 1 or 2% in agent fees adds up to a lot of money and you're already losing money. Or go to the agent you have and say, hey, you're quoting us retail prices. Is there any way you could come down 1 or 2% to help us out here? We're really trying to work with you because there is someone out there that will do it at a discounted rate and guess what? They're going to try and make you feel bad. I have friends that do it. Every single time I buy a property I'm like, look, look, do you want to sell this property and make money or do you want to sit on the sidelines? So I love what Austin brought up about that because you have to figure out what is the best way for you to get the most money out of this as you can because you're already taking a haircut.
- [17:46]
B
So our next question comes from Amy V. Amy says hi Austin and Robert, I've gone through all your episodes and I can't find anything about investing in the stock market. For those of us who are fully self employed, both husband and wife life. So can you please give us an overview for those of us who don't have access to the traditional employer options for investing? I'd love to. Amy. Very simple, three things. First one, you've got the Roth IRA or the traditional IRA depending on your age. We always encourage people to check out the Roth ira. It is a after tax, your money grows tax free. You don't have to worry about what the tax rates are going to be like in 10, 15, 20, 30, 40 years. You can go to public.com and you can fund your Roth IRA very easily up to $7,000 a year. You can contribute, both you and your husband can contribute that much. And then after you contribute the money, make sure you actually invest it. You've got Vooqq, Vti, Moat, Spyi. There's a ton of incredible ETFs out there that we always recommend. The second thing to check out is the Solo 401K. Since you both are self employed and I'm assuming you're an employee of your company, like not just like the owner, but you're an actual employee on payroll as is might your husband be or vice versa. You can absol absolutely do a solo 401k. We recommend using Carrie.com. that's what I use. That's what Robert uses. Very simple. I do the mega backdoor roth solo 401k which means I can turbocharge my retirement investing up to $70,000 a year, which is insane. So definitely go check that one out. Yes, there's fees, but there's no AUM and management fees. It's just a flat annual fee that you pay to have access to the brokerage. I think it's super reasonable for what they do. And the last thing you got, your bridge account. Go to public.com, open up a normal taxable brokerage account, put some money in there, put it in some index funds and ETFs and let that grow over a long period of time. Robert, do you have anything to add?
- [19:37]
A
Yeah, I would add join the Rich Habits Network. We have a seven day free trial. So I'm going to do a selfless plug here because in the network we cover all of this each and every week for our hundreds of private members. And I think you guys would learn so much on what stocks, how to diversify, what platforms to use like Austin just alluded to. But I think that would be the best move because you don't have an employee program like a 401k. But that doesn't mean you can't utilize the same types of tools and even better tools like Austin mentioned, like the Roth IRA, the Solo 401K. Maybe it's a SEP IRA for you. So that's what I would do because you need to be diversified, you need to be protected and you need to be thinking ahead for retirement. So listen up folks. You can lock in a 6% or higher yield with a bond account on public right now. But remember, your yield isn't locked in until the time of purchase. So you might want to act fast. Lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds. Only@public.com rich habits.
- [20:47]
B
All right, so our next question is coming from Miguel on Instagram. Miguel says, I found an off market deal in Metro Detroit. It would be my first multifamily property. Property. It's a four unit fully stabilized for $350,000. Each unit is bringing in $1,000 a month in rent. The property is well maintained and wouldn't need any improvement on day one. I've been hunting for deals for a while and spent a heck of a time trying to score anything in this market. It's going to take $77,000 to get this deal done. I've got $90,000 in cash and another $70,000 in my retirement investments. I currently work for General Motors and I'm definitely looking to escape the rat race. My ultimate question Is is my money better served in this investing in the index funds that we love. I have a passion for real estate, but I'm kind of on the fence about this one. Let me know what you guys think. Robert, I love this deal and we talked about this beforehand. We ran some numbers and here's why we like it. So we did all the math right, $1,000 per unit. It's got four units, so it's $4,000 that you're going to be collecting in rent. Of that 4,000, you're going to pay about $2,200 a month on the mortgage. With this information you shared, it was like a 7 or 8% interest rate on a DCR financing. Very cool. So now you've got $1,800 of. So let's say 600 of that goes to expenses and all the other fun stuff that come with being a landlord. Now you've got twelve hundred dollars a month in cash flow pre tax. You multiply that by 12, that's $14,400 a year. Now how to figure out if a deal is a good idea or a bad idea is to figure out the cash on cash returns because that's what really matters here. So the cash you're spending to earn $14,400 a year is $77,000. So 14,400 divided by 77 is a cash on cash return of 18.7%. So you are getting an 18.7% yield on your $77,000 per year, which means after five years you will recoup all of your $77,000 initial cash outlay, which means everything on top of that's going to truly be gravy. Now the cool thing about this is this 18.7% is just the cash on cash returns. Now you think about the tax savings you'll get by doing some depreciation, maybe some R offs, maybe some other different things that you can creatively figure out with some tax professionals. And that 18.7% yield starts to increase to 20, 22, 25% depending on what you can figure out there. So yeah, getting a 20 or 25% return on an investment, is that a good idea? Abso freaking lutely. The s and P500 does about 8 and a half to 10 and a half percent depending on inflation on any given year. That's the long term average there. So you're going to be pretty much doing twice as good as the market does. Plus I love how you've already got some money invested, right? You've got this $70,000 invested in your retirement account. You're going to have about the same amount invested in real estate. I think that's totally fine. You're pretty much close to that a hundred thousand dollar base that we talk about. This deal just seems to be a really good one and I'm here for it. Now the real question is, and I want Robert to answer this, what should he do with his $14,400 a year of free cash flow?
- [23:57]
A
Yeah, you covered the numbers incredibly well. So everyone please make sure you're. I just want to add a couple things to that. Before you sign on the dotted line, make sure that you understand that the rental process, you need to use the right apps. You need to make sure that you do proper screening. Don't just take the word for it of, of anybody that's out there in your area that's going to help you and just really like use Turbo Tenant or one of the apps that does a really good job screening the applications for your new multifamily. I think this is really, really important. Important, but also prior to buying, I want to make sure that you don't take the word of whoever's selling this to you because their job is to be a salesperson. So they're going to tell you it's all stabilized. It's awesome. Here's the numbers. Do some comps, see what the area rents for stuff similar to that, similar type units to make sure it is a thousand dollars a month per unit and it's not 850 or something that completely throws the numbers out the window. Window, that's another one. And then third, make sure you get and pay for an inspection and take someone along that knows what they're doing. Maybe a general contractor. Maybe you have a friend that does this for a living. Maybe you have somebody that does a ton of properties and they know what to look for. Take them along and make sure you do that walkthrough before you buy the deal. So now that that's done, assuming that all checks out, out, Austin did the breakdown of the numbers. So you know what you're doing. Now let's talk about what to do with the money. First and foremost, if you don't have the Roth ira, this is our favorite tool. I want to see you take some money and max that out every month. $583 a month can come from this income. Get it in the Roth, get it invested in a, in a basket of those funds we talk about all the time like voo, qqq, aiq maybe I don't know your age, but get that handled first and foremost. And then the rest of the money, maybe that goes into a traditional brokerage account or something like that because you want to make sure that this money is getting invested immediately because the more automation you have, the better off you're going to be long term. But congratulations on finding the deal. I hope this breakdown helps. And for anyone looking at properties, follow all of these steps. Because when it's your first property property, you're always excited to close the deal. But guess what? The at bats are just as important as buying the first deal. Because with every at bat, every time you go through the process, you learn more and more about yourself, your buy box and how to buy it like a pro, like someone like me. And that is just as important as the selection of the first property.
- [26:44]
B
I couldn't agree more. I appreciate that breakdown and it's really exciting to know that there are still deals out there. You just have to find them. And unfortunately this was an off market deal. So you know, what does that mean for people listening right now? Right? Go out and network in your community. Go find those people who are doing this right. Robert, what advice do you have for people that are trying to find off market deals or just get better at this real estate investing stuff without having to pay so much in fees or all the stuff that comes with, you know, traditional real estate investing.
- [27:13]
A
You have to do the work. It's like anything else we educate about, you have to put in the work. I feel I'm one of the best door knockers on earth. Most of my best real estate deals, both in residential and commercial came from me having an idea, driving an area, driving a neighborhood, finding the property. Go look it up. You can go on. Like in Ohio, where I'm at today, you can go to the Aries website and you can look up who the owner of the property is, what is the status of the property, are they current on their taxes, all of those things. But it's also all about eyeballs. Get entrenched in your local network work of real estate people. You know, I don't know where, where you live, but anyone listening, go to the meetups, just get to know people so you can say, hey, I'm a buyer, I'm really looking to get in the market. If you have any deals that fit my buy box, really, if you could let me see it and let me take a look. Because if you can get ahead of the market before something hits the mls, you're going to be in a lot better shape because at the end of the day, by the time it meets the MLS mess and sits for a while, you probably missed out because no one else took it either. And it's probably not a great deal. I just passed on a deal the other day. I love the neighborhood, I love the property. We were able to paper it at a really substantial discount, but I couldn't make the money to buy it. Makes sense similar to this situation. So I ended up passing on the property for now and who knows, it might be available for less money in 60 more days.
- [28:43]
B
So our next question comes from any SK on Instagram. SK says I have over $1 million in equity in our home. Actually it's close to 1.2 million in equity as interest rates drop. Should we get a HELOC to unlock the equity? I was thinking of investing that money into SPYI and QQQI and use the dividend they pay every month to pay the HELOC payment and then invest the remainder in our bridge account. For example, if I took out $600,000 via a HELOC, I could put 300,000 in QQQY and 300,000 in Spyi, earning a yield that is $72,000 a year. I will get paid. If I get a 5% interest rate on my HELOC, the payment would be $30,000 a year, which means I would net 42,000 in my bridge account. Robert, this is, we get this question all the time, right? People are like hey, why don't I just go borrow at 4 or 5%, invest it at 12 and go make a ton of money. I love where your head's at. That is exactly what arbitrage is, right? Figuring out how to make more money than what you pay for it. The thing is, is just like we had no idea that Donald Trump would create the Trump tariff tantrum that was April, causing the markets to fall exactly 18 and a half percent and a six week period of time, which means Spyi fell from $52 a share down to $42 a share. So 10 bucks a share there of a, of a decrease decline. You know what also fell by that that 18, 20% was the monthly distribution. The monthly distribution for these neos funds is 1% yield, but it's 1% of whatever the price is at. And because that these funds move up and down with the underlying indices that they track, like the S&P 500, like the NASDAQ 100 things of that nature, you will also see fluctuations in the distribution. Theoretically could this Work theoretically, yes. Right. Anything could work theoretically when you have numbers like this. Here's why I wouldn't do it. What happens if instead of a Trump tariff tantrum, we have a trump something else tantrum that causes the markets next year to fall by 30%? And now you can't make your monthly HELOC payment with your Neos distributions. And now you're having to go into credit card debt because you got to now put the groceries on your credit card because you're going to use that cash now for the HELOC payment. And now you missed nine HELOC payments, now they're going to take your home. Like, I don't, I don't have know worst case scenario, a lot of crazy stuff could happen, but I personally don't like to have $600,000 of debt sitting over my head. And two, knowing that monthly payment on that 600,000 is tied to something I can't control at all, which is the stock market. In my humble opinion, I wouldn't do this. If you wanted to tap into the equity in your home, I guess you could consider selling your home and, and maybe using, you know, renting or. I don't know. Right. There's a bunch of different things to figure out there, but I would not go take out a $600,000 HELOC to try and finesse this. The other thing you mentioned that does not make sense is you have a 5% interest on this $600,000 HELOC, which is $30,000 of interest per year. That is true, but don't you also have to pay back the principal? Maybe you get an interest only heloc? Like, I don't know, maybe there's some specific ones like that. But I'd imagine there's also some sort of principal repayment that happens. And you know, again, the 300 and the 300. So 600 totals invested. Like what if it goes down a little bit? There's just a lot of variables that do not make me happy. This sounds like a get rich quick scheme, Robert. I feel like I'm, I'm, I'm scheming right now. I don't like to scheme. I like to be disciplined. I like to be normal. I like to just get rich slow. And that's my, that's my strategy.
- [32:19]
A
I am all about arbitrage, using your equity, getting it into the markets, using it to buy another property. All of that sounds great, but I have to agree with Austin. You just have to be careful because none of this is guaranteed. And first and foremost, I don't know of any HELOCs below 7%. So if you're finding a HELOC at 5%, I don't know where you're getting it. Please tell me and give me that contact because right now in the mortgage world they're much higher than that. So that's going to skew your numbers and your predictions and you just have to look at it this way. Could you pull some of this money out? Could it work out? Absolutely. Bitcoin has had tremendous returns for the past three years. So is gold. So has some other investments we talk about. So there is that risk reward where you're arbitraging the money to your favor. But in this instance, I would just be careful because I would get an actual quote on your situation on what the HELOC interest rate's going to be. Then I would find out do they have an initial draw period that's interest only because like Austin alluded to to, you still have the payment and you have the interest. So you have to take the payment into consideration when you're trying to calculate your true net on doing this move and if it makes sense. So just make sure the numbers math and then go from there. But just really get a real quote from whoever you're working with on this heloc because I don't believe there's a world you're going to get 5% right now.
- [33:47]
B
So our final question comes from E on Instagram. E says, hey Austin and Robert, I've been a fan of the podcast for two years now. I appreciate the work you do. I hope you can answer my question. However, I'd like to stay anonymous. I'm 47 years old. I'm a single mom with a kid in college. I've spent my entire adult life as an entrepreneur owning various businesses, including a couple restaurants. Thanks to your podcast, I began investing $150,000 with a financial advisor two years ago. Currently I have 1.5 million in a brokerage account, 200,000 in a SEP IRA, 210,000 in a high yield savings and 150,000 in my checking. I also own $6 million in real estate, including my primary home, a vacation rental, a couple of fourplexes. My only Debt is a 1.8 million dollar 30 year fixed mortgage with a 2.8% interest rate and I'm living on $16,000 of monthly rental income. I'm retiring this October after selling my business, which will bring in another 1.2 million. How should I invest this money? Do I Put some of it in my brokerage account to lower my fees. I don't want to buy an annuity or another business. Thank you for your guidance. First up off E, congratulations. 47, single mom kid in college. You are. I can't even explain how proud I am. Like, this is unbelievable. You've been an entrepreneur your whole life. You've got millions of dollars to 6 million in real estate. You've got 1.5 million in a brokerage account. You're going to sell your business for another 1.2. Like, you're probably going to have $10 million somehow, some way in your stratosphere here by the end of the decade, if not more, right? You're all, you're going to have so much money over the next five years if you get this invested correct. Here's what I would do in your situation. Something I've had to learn for myself as more and more zeros enter into my net worth in my bank account is that if you can focus on keeping things proportional and in percentages, that is the way to succeed. So what I mean by that is, in the beginning, when all I had was $7,000 invested in my Roth IRA, cool. Like, that's great. And then I got a little bit of real estate. Like, in the beginning, it feels kind of easy to invest because the numbers relatively feel kind of small. But then once you see a million, 2 million, 6 million, 10 million, right? You see these zeros stack up in your accounts and you're like, oh my gosh, like, I'm getting really stressed out. I'm now managing millions of dollars. Like, what if I do something wrong? The biggest piece of advice I can give you is to not focus on the dollar amount, but instead focus on the percentage of your portfolio that dollar amount reflects. So for example, let's just have round numbers here of 10 million do dollars of a net worth. You've got 6 million of real estate. That's 60%. I think that's great if you want to keep a 60% ratio of real estate to your 10 million net worth. Rock and roll. Now let's have the other $4 million of this, which, let's just call it is invested into the stock market, right? So of that 4 million, think about what we always talk about, the core satellite portfolio. 65 to 85% of this $4 million needs to be invested into the index funds and ETFs that we about talked talk about. These are well diversified funds of the S&P 500, the NASDAQ 100 VTI, maybe some dividend focused stuff, maybe some NEOS funds like. But 65 to 85% of the 4 million is invested into these well diversified, tried and true index funds and ETFs. The other 15 to 35% can be diversified into precious metals. Maybe some cryptocurrency, maybe some speculative thematic ETFs that have to do with AI. Like what I'm saying is it doesn't matter if it's 4 million, if it's 400,000 or if it's 40,000. The same 65 to 85% core portfolio and 15 to 35% satellite portfolio division there remains the same. Right. So just think about percentages and ratios. Don't think so much about the dollar amount because the dollar amount for you is only going to get bigger. I mean you're 47, you're probably going to retire with anywhere between 25 to $50 million in your 60s, which is absolute. So please work with a advisor when you feel like you need to like all these things, like do the right thing there. If you can just focus on the ratios and the percentages, you're going to be just fine.
- [38:03]
A
Yeah, I love this breakdown and I'm going to give a couple more thoughts for anyone listening and e here of what I would do. You mentioned that you started two years ago with a financial advisor. If you're putting more and more money with this financial advisor advisor, I want to make sure that you negotiate with them where their fee breaks are. Because many financial advisory firms, let's say you start with $250,000 and they charge 1.25% and then at a million dollars it goes down to 1% and then at 2 million it goes down to 0.8%. Make sure you understand and negotiate these price breaks as your wealth grows because it might not automatically change and you just want to make sure you're getting a fair shake but also always get a second op. Make sure. And that's why you're here today asking this question that you're well diversified. I don't see anywhere in this scenario where you have cryptocurrency a little bit into precious metals like gold and silver, adding more into your traditional account like Austin mentioned, to buy more of a diversified basket of these funds. So make sure you're diversified and that you are checking to make sure. Sure this financial advisor is putting you in the right buckets because you're right. At the end of the question you state that you don't want to buy an annuity or Another business. I totally agree. You are crushing it right now. I would definitely not put money and park it into an annuity. And I don't see a reason you need to buy another business. I like the idea of getting you diversified, getting your money fully dialed in because you're going to have a ton more in the coming years. Years. Especially at your young age. So that's what I would do. I would really make sure I'm fully diversified. Make sure the fee structure is right if you're using one financial advisor. And make sure you're setting yourself up for retirement because it's not what you make, it's what you keep. So make sure you have all of your structures in place properly. For the real estate. I don't know if you have individual LLCs for each property. I would do that because you might have them in your personal, personal name. I would make sure to have a holding company. I would make sure on top of that I have a revocable trust to make sure you're fully covered and you don't have the liability personally because you have too much wealth to risk. That's where I would start.
- [40:24]
B
Yeah. And tactically speaking, right. So you have 1.5 million in a brokerage account. Amazing. Make sure that's invested into the core satellite sort of breakdown I just gave you there. 200000 in a SEP IRA. Personally I like to make sure 90 to 100% of my specific retirement focused accounts are invested into ET. My Roth IRA is not speculative at all. It's all the S and P and the NASDAQ and things like that. So maybe all 200k of that SEP IRA goes into index funds and ETFs. You have 210,000 in high yield savings which I'm assuming is only so high because of your businesses and because of your real estate and all the unknown expenses that can come with that. That's cool. Assuming it shakes out just fine. The more money you have, the more money you need to set aside for emergency. Any of the 6 million of real estate could need something. I get that. So I'm not going to have any, any perspective on that. And I'm also assuming the 150,000 in your checking has to do with maybe your business has that in the checking account. And some just make sure that you're not sitting on too much cash I guess is what I'm trying to say. But I don't know the specifics on this. Call it 210 in your high yield and 150 in your checking. If it's truly your emergency fund and your checking account, drain that down to three to six months of expenses for the high yield savings and maybe two to three months of expenses for the checking account. Everything else can get added to your taxable bridge account, your brokerage account there that you were alluding to, invested in that same 6585 core 1535 satellite strategy. That's my advice. I'm standing on it. And congratulations on just probably going to become here 25 $50 million net worth in your lifetime. You've done an incredible job, E. And we cannot be more proud of you. And thank you for listening to the podcast. It just, it means a lot that people like you that are worth so much money derive value from the things that Robert and I share. So thank you so much and we're excited for you.
- [42:13]
A
Definitely. What episode? So many cool questions from all walks of life. That's what makes the Rich Habits podcast so special to me every day that we get to do this but, but just for people because we always say personal finance is personal and it really is because everyone's life and everyone's journey is different. And we want to make sure that every person listening understands that and doesn't fall victim to comparing yourself to everyone else. Do what makes you happy. Happy and build the life that makes you happy for your journey, not someone else's.
- [42:45]
B
We are so grateful that tens of thousands of you come back every single week to listen to the show. We love providing value for you all, answering your questions and just like being there for you. It's, it's so fun. We really, really enjoy this. And if there's anything we can do to add more value to these episodes, please leave us a comment down below here on Spotify. Be sure to vote in this episode's podcast poll and don't forget to check out the Rich Habits newsletter as well as the Rich Habits Network. Inside the Rich Habits Network, we are always doing some really fun stuff. There's eight hours of video coursework, two hour weekly live streams with Robert and myself where you just ask us questions like you would hear and we answer them live. We also share our market updates. We share with you investments that come across our desk and all the fun stuff that Robert and I are always working on. So if that's interesting to you, be sure to give the Rich Habits Network a seven day free trial. Go check it out. There's no strings attached. It's a little. You like it. You don't. If you don't, no problem. We'll see you next time. With that being said, we'll see you tomorrow for this week's episode of the Rich Habits radar.
- [44:07]
A
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B
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A
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