Q&A: Pre-IPO Investing, Real Numbers Behind House Hacking, & Tax Refunds

Summary

Rich Habits Podcast: Q&A – Pre-IPO Investing, Real Numbers Behind House Hacking, & Tax Refunds

Release Date: April 17, 2025

In this engaging episode of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak delve into a diverse array of listener questions, providing actionable financial advice and deep insights into topics such as house hacking, backdoor Roth IRAs, retirement planning, investment strategies for tax refunds, tax loss harvesting, and financial planning for new parents. Below is a comprehensive summary of the key discussions and conclusions reached during the episode.

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1. House Hacking: Leveraging Debt and Real Estate Numbers

Question from Nathan P. ([04:16]):
Nathan seeks an in-depth analysis of house hacking using a Fannie Mae 5% down loan, with a focus on leveraging debt to generate profit and understanding the real numbers involved.

Discussion and Insights:

Austin and Robert break down a real-world example to illustrate house hacking. They consider a $650,000 four-plex in Knoxville, Tennessee. With a 5% down payment ($32,500) and a 7% interest rate, the monthly mortgage payment totals approximately $4,200. By renting out the three additional units at $1,400 each, Nathan could cover the entire mortgage, effectively allowing him to "live for free." Even if rents are $1,100-$1,200, Nathan would only need to pay around $600 monthly, while simultaneously building equity and benefiting from tax advantages.

Notable Quotes:

• Austin ([04:16]):
  "Nathan, if you're like a doctor or something and you're making $200,000 a year and you went out and bought this and you bonus depreciated $300,000 against that 200,000, you would essentially get a tax refund that equates to all the federal income tax that you had paid in for that whole first year."

• Robert ([06:29]):
  "House hacking is one of the greatest ways to build wealth early. And it's just a year of living in this property."

Conclusion:
House hacking not only reduces living expenses but also serves as a powerful wealth-building strategy through property appreciation, equity growth, and tax benefits. Austin and Robert emphasize starting with smaller multi-unit properties and scaling up over time to maximize financial gains.

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2. Backdoor Roth IRA Strategy for High-Income Earners

Question from John S. ([06:57]):
John, a high-income earner with a $138,000 salary and a $25,000 bonus, is inquiring about utilizing a backdoor Roth IRA due to his income exceeding the direct contribution limits. He seeks guidance on executing this strategy effectively.

Discussion and Insights:

Austin and Robert provide a step-by-step guide to executing a backdoor Roth IRA through Fidelity:

1. Confirm Eligibility: Ensure no pre-tax funds exist in any traditional IRA to avoid complicating taxes with the IRS pro-rata rule.
2. Open Accounts: Establish both traditional and Roth IRA accounts.
3. Contribute to Traditional IRA: Transfer the desired amount (e.g., $7,000 for 2025) to the traditional IRA.
4. Convert to Roth IRA: Transfer the funds from the traditional IRA to the Roth IRA without tax withholding, given it's a non-deductible contribution.
5. Invest Appropriately: Place the converted funds into growth-oriented investments like index funds and ETFs.

Notable Quotes:

• Robert ([10:14]):
  "The Roth IRA is something we want you to build forever and not take out until you are ready to retire."

• Austin ([15:01]):
  "Everyone submit a question where it's very, very financially driven for an amount and you need math done, always include your age because it helps us better serve you."

Conclusion:
The backdoor Roth IRA is a viable strategy for high-income earners to bypass direct contribution limits, enabling substantial tax-advantaged growth. Proper execution involves careful planning and timely investment in growth assets to maximize returns.

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3. Balancing House Savings and Roth IRA Contributions

Question from Bradley W. ([17:02]):
Bradley, a 19-year-old with $25,000 in savings and $3,000 in a Roth IRA, is debating whether to continue saving for a house or allocate some funds to his Roth IRA. He also inquires about the optimal timing for contributions.

Discussion and Insights:

Robert cautions against holding excessive cash and recommends diversifying investments to ensure funds are working effectively. He advises Bradley to prioritize building an emergency fund and investing surplus cash rather than overloading his Roth IRA, which is intended for long-term retirement savings.

Austin encourages Bradley to maximize his Roth IRA contributions early to leverage compound interest, suggesting that even modest annual investments can grow significantly over time. They highlight the importance of balancing immediate savings goals with long-term investment growth.

Notable Quotes:

• Robert ([17:45]):
  "The Roth IRA is something we want you to build forever and not take out until you are ready to retire."

• Austin ([18:35]):
  "The best time to invest was 20 years ago. The second best time is today."

Conclusion:
Both hosts advocate for a balanced approach, emphasizing the importance of early and consistent Roth IRA contributions to harness compound growth while maintaining sufficient savings for immediate financial goals like home purchases.

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4. Retirement Planning to Achieve $3 Million in Assets

Question from Solomon ([23:12]):
Solomon, a novice investor with $260,000 in assets, aims to retire with $3 million by age 70. He seeks advice on whether to focus on dividend ETFs or diversify into other investment vehicles.

Discussion and Insights:

Assuming Solomon is around 40 years old with a 30-year investment horizon, Austin and Robert project that investing the $260,000 at an average annual return of 8% could grow to approximately $2.85 million. By adding an additional $500 monthly investment, this figure could surpass $3.5 million. They recommend sticking to diversified, growth-oriented investments like S&P 500 ETFs and highlight the potential of adding dividend-focused ETFs like SCHD for income generation.

Notable Quotes:

• Robert ([23:12]):
  "If you don't do anything and just invest that money for 30 years or more and generate that 8% annual return, you would be able to get up to about that $2.85 million or so in retirement."

• Austin ([24:29]):
  "If you're 60 years old, you only have 10 years to invest versus 30 years to invest. So we're rooting for you."

Conclusion:
A disciplined investment strategy focusing on diversified index funds and ETFs, complemented by regular contributions, can effectively position Solomon to achieve his retirement goals. Consistent investing and leveraging compound interest are key to reaching the $3 million milestone.

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5. Investment Strategy for a $10,000 Tax Refund

Question from Elizabeth H. ([34:58]):
Elizabeth and her husband received a $10,000 tax refund and are seeking advice on the most prudent way to invest these funds, considering options like the S&P 500, high-yield savings, bonds, and high dividend stocks.

Discussion and Insights:

Robert suggests allocating funds across various investment vehicles to ensure diversification:

• $4,000 into the S&P 500 via ETFs like VOO.
• $4,000 into a high-yield savings account, such as Public’s High Yield Cash Account.
• $2,000 into bonds offering around a 7% return.

Austin adds that investing in established entities like Berkshire Hathaway and real estate-focused ETFs (e.g., VNQ) can further diversify the portfolio. He also recommends maximizing contributions to Roth IRAs before allocating additional funds to other investments.

Notable Quotes:

• Robert ([35:37]):
  "Based on Elizabeth's word of prudent investment strategy, I think there is a lot of good information in that answer between both of us to help them figure out what to do with that additional money."

• Austin ([36:39]):
  "Maybe buy some public bond account stuff, high yield cash account. I'm here for all that."

Conclusion:
A diversified investment approach, balancing exposure to growth stocks, fixed-income securities, and high-yield savings, is recommended to optimize the $10,000 tax refund. This strategy mitigates risk while ensuring the funds are actively working towards financial growth.

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6. Understanding and Implementing Tax Loss Harvesting

Question from Diego M. ([42:34]):
Diego is curious about tax loss harvesting, especially in the context of recent drops in the S&P 500 and NASDAQ. He seeks clarity on how to effectively utilize this strategy, particularly concerning ETFs like VOO and VTI.

Discussion and Insights:

Robert introduces the concept by illustrating a scenario where an investor sells a losing investment (e.g., Ethereum) to realize a tax loss, which can offset gains from other investments (e.g., Bitcoin). He explains that while tax loss harvesting can be straightforward with cryptocurrencies, it is more complex with ETFs and stocks due to IRS wash sale rules, which disallow repurchasing substantially identical securities within a 61-day window surrounding the sale date.

Austin emphasizes the importance of understanding these rules to avoid potential tax complications and recommends using specialized platforms like FreC for managing complex tax strategies.

Notable Quotes:

• Robert ([42:34]):
  "Tax loss harvesting works easily with cryptocurrency. It's much more difficult when it comes to single stocks and ETFs."

• Austin ([43:40]):
  "Don't make the mistake of just putting 7,000 a year into this account and just saving money that way. You want to invest the money."

Conclusion:
Tax loss harvesting is a valuable strategy for offsetting capital gains, but it requires careful consideration of IRS rules, especially with ETFs and stocks. Investors should educate themselves thoroughly or consult financial professionals to implement this strategy effectively and compliantly.

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7. Financial Planning for New Parents: Balancing Purchases and Savings

Question from AG ([44:52]):
AG and his wife, expecting their first child, are contemplating whether to purchase major items like strollers and cribs now to avoid potential price increases due to tariffs or wait until closer to the due date. They also consider steering gift contributions towards a 529 account instead of physical gifts.

Discussion and Insights:

Robert advises evaluating the actual anticipated price increases, suggesting that potential savings may be minimal. He cautions against asking for monetary contributions for a 529 plan, as it might not resonate well with friends and family during baby showers. Instead, he recommends sticking to traditional gift-giving while continuing to contribute to the 529 plan.

Austin adds the importance of maintaining a robust emergency fund to cover unexpected expenses related to childbirth and early parenthood, emphasizing financial flexibility over speculative savings on baby items.

Notable Quotes:

• Robert ([44:52]):
  "Maybe a couple hundred dollars and I'd really rather see you stick to the plan, be more traditional because as much as I love the idea of the 529 plan in lieu of gifts, I just think it might rub people the wrong way."

• Austin ([46:15]):
  "Some things happen in delivery, things happen along the way that might cause a large unexpected medical bill or something else. So I just want to always encourage people whenever they are expecting, sit on a fortress of cash."

Conclusion:
AG is encouraged to maintain traditional gift expectations while continuing to build his 529 savings plan. Prioritizing a strong emergency fund ensures financial security amidst the unpredictable costs of parenting, rather than speculative savings on baby item purchases based on tariff concerns.

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Final Thoughts and Takeaways

Throughout the episode, Austin and Robert emphasize the importance of diversification, proactive financial planning, and leveraging tax-advantaged accounts to build and protect wealth. They advocate for early and consistent investing, understanding complex financial strategies, and balancing immediate financial goals with long-term growth.

Key Takeaways:

• House Hacking: An effective strategy for reducing living expenses and building equity through multi-unit real estate investments.
• Backdoor Roth IRA: A valuable method for high-income earners to contribute to Roth IRAs and benefit from tax-free growth.
• Investment Diversification: Balancing investments across various asset classes to mitigate risk and enhance returns.
• Tax Strategies: Utilizing tax loss harvesting and other strategies to optimize tax liabilities and maximize after-tax returns.
• Financial Planning for Life Events: Maintaining flexibility and a robust emergency fund to navigate significant life changes and unexpected expenses.

Austin and Robert conclude the episode by expressing their gratitude towards their listeners and encouraging further engagement through the Rich Hab Network, offering resources like video coursework and live Q&A sessions to deepen financial literacy and investment acumen.

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This summary captures the essence of the Rich Habits Podcast episode, providing listeners with a thorough understanding of the discussed financial strategies and actionable advice to implement in their own financial journeys.

Transcript

[Austin]

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[Robert]

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[Austin]

I need right now with my biz plan. Get our best price as low as $25 a line. Visit verizon.com business to get started today. Price per month with five plus lines includes auto pay and paper free billing and special intro offer discounts, taxes, fees, economic adjustment charge and terms apply. Offers end June 10, 2025. Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition. These are our Thursday episodes where we take your question [e-mail] Instagram dms@rich habits Podcast on Instagram and even the questions posted inside of the Rich Habits Network and answer them live right off the dome. We don't really prep too much for these. We want to give you the raw, authentic reaction to some of these questions. And we love these episodes. We have a lot of fun with them.

[Robert]

Yeah, it's crazy to think over the years now how much these episodes have grown and how many people just really love them. It's a lot of fun for us to record these and it's also just so rewarding. Rewarding because we're digging into all of the different things that you guys are concerned with and giving you our best sauce on what to do with those situations. So I love these episodes.

[Austin]

And quick, shout out to Robert. He's looking exceptionally tan. I look like a ghost right now on this screen compared to this guy. He's got a Porsche convertible and he said he was riding around in it in Florida over the weekend and dude, you got to pick me up or something. I gotta, I gotta get a tan.

[Robert]

I hear you. Yeah, I had meetings this weekend. I'm like, you know what? I haven't driven the Porsche in a few weeks. It's sunny, it's beautiful out. I'm glad to be back in South Florida. So yeah, this is what you get when the top is down and, and you're cruising around. So yeah, it was a good weekend.

[Austin]

So a couple quick call outs before we jump into the episode. Our friend John Hu, who is the co founder and CEO of Stan Stan for Creators. Stan Store is their URL landing page there. They're essentially the shopify for content creators. They are hiring for a bunch of open roles right now. Head of Product, Product Manager, Head of Creator, Events and Programming, Lead Product Marketing Manager, Data Scientist, Video Editors, Product Designer, engineers like they are all over the place. So if you're someone who's a top 1% human being who's ready to go jump into the startup world and work your face off and go build equity in a cool company, there'll be a link in the show notes below to learn more about how to apply for some of these jobs at Stan.

[Robert]

Yes, Austin and I both love Stan. We both use Stan Store for creators and we're investors. So it is a really, really cool platform. We've used it now. I think I've been using it for three years and I think Austin, you've been in it for five or six years or something like that. So really cool company. They're hiring. Definitely go check it out.

[Austin]

Now before we jump into our first question, I need to remind everyone, if you're looking for an online broker that was actually built during this century, you need to give public.com a try. Because on Public you can invest in almost anything. Stocks, bonds, crypto options and more. And if you're like us and you like to keep an emergency fund, you can take advantage of their 4.1% APY offer by their High Yield Cash account.

[Robert]

Discover why Nerd Wallet gave Public five stars for its ease of use and investment selection. Fund your account in five minutes or less and earn up to $10,000 when you transfer your investments to public. And for a limited time, Public is offering a 1% match on all IRA contributions. So if you're finally investing towards a Roth IRA this year, do it on public and earn a free 1% match on all contributions paid for by Public Investing. Full disclosures in the podcast description all.

[Austin]

Right, Robert, let's now jump into our first question. This was sent to us via email atrich habits podcastmail.com and this is from Nathan P. Nathan says hi Austin and Robert. My name is Nathan and I preach this podcast to my family. I love the different perspectives y'all offer with personal finance and it's been truly the foundation for my finances moving forward. All right, so here's my question. I've heard a lot of information about house hacking with the Fannie Mae, 5% down loan, living inside of it for a year, etc. Etc. But I was wondering if y'all could just go more in depth on how to leverage this debt, how to make a profit, explaining how the numbers work. I mean, it sounds really simple, but I know it's going to be much more complicated once I get started. Robert and I thought this was a great opportunity for us to go find a real example and share with you what the real numbers would look like if you did this for yourself. Nathan. So I graduated from the University of Tennessee. Go Vols. And that is in Knoxville, Tennessee. So I went on to Zillow, I typed in multifamily in Knoxville, and Robert and I found one for $650,000. It's a four plex, right? So four different units are inside of this according to the Fannie Mae, 5% down. You could put again, 5% down on this $650,000 property, which would be $32,500. You could borrow the rest at about a 7% interest rate, which would make your all in monthly payment about $4,200 when you include insurance and taxes and things like that as well. So your goal here, again is to live for free. But even if you're living at like a major discount, that' to. So of course you want to aim to rent out the three other units for $1,400 a month, which would pay for the entire $4,200 a month mortgage. But, you know, we're talking about one bedroom, one bathrooms here. Maybe you can get 1100 or $1200 a month in rent instead, which means you're now only paying about 600 bucks a month, which is the difference there, which I think is a really, really great way to be living, right? You're living super, super cheaply. You're building appreciation in some awesome real estate, not to mention all the tax benefits that come with that. So, Robert, why Don, beyond just the numbers, why do people want to be house hacking? What are some cool ways that they can leverage the debt to go do other things or maybe, you know, positively impact their taxes, things like that?

[Robert]

Yeah, I love this strategy, and this is a great question, and I'm so happy that we get to break down the numbers, because a lot of times the numbers just don't add up. But in this instance, they add up really, really well. I don't know what the comps are for one bedroom, one baths in that area, but assuming they could be 1000, 11, 1200 dollars, like you alluded to. It just really makes the math great, because even at those prices, and let's say Nathan then is paying $600 a month for his unit. That is substantially discounted. And on top of that, he gets the tax benefits of the depreciation of the property. He gets the appreciation of the property. So he's building equity into this property, let's say, let's call it in Knoxville, maybe it's 4, 5, 6% a year. So over time, this is a great way to build wealth and to follow along and adhere to the loan rules, the mortgage rules. He only has to live there for one year. So I tell people all the time, find a duplex, triplex, or quadplex, live in it for a year, build some equity, then do it again and again and again, because then it's an easy way to get up to that 10, 12, 14, 16 doors that you own, then go buy the primary home. I think people start out thinking, because we've been brought up to think, that you should own a primary home as your first property. But in my opinion, house hacking is one of the greatest ways to build wealth early. And it's just a year of living in this property. You have to owner occupy it to be able to qualify for the Fannie Mae 5% down mortgage. So let me break that down just real quickly. The Fannie Mae 5% down mortgage is exactly that, 5% of the purchase price. But you can buy up to four doors because that's still considered residential. Anything over four doors is commercial. And then you can buy up to $1.3 million. I believe we'll have to check that. But you can buy up to $1.3 million. So it is a great, great hack to use for someone that's just getting started in the real estate market.

[Austin]

And just a double click. Now, you mentioned, like, the depreciation that comes with things like that. So how I understand it is if Nathan wanted to, he could go out and do a cost segr analysis on this $650,000 purchase of this 4 plex. It doesn't include the land. So let's say about 550,000 of the 650 is actually the 4 plex itself. And I believe what normally shakes out to be the numbers is about 60% of that purchase price can be bonus depreciated in the first year of owning the property. So about $300,000 is the depreciation that Nathan is able to write off against his ordinary income.

[Robert]

That's right.

[Austin]

So let me be super clear about that. Nathan. If you're like a doctor or something and you're making $200,000 a year and you went out and bought this and you bonus depreciated $300,000 against that 200,000, you would essentially get a tax refund that equates to all the federal income tax that you had paid in for that whole first year and even the next six months of the next year. Right. Like owning real estate is not just about the cash flow and the appreciation, but it's also about as a tax strategy to offset your earned income via these cost segregation analysis studies and other ways that real estate investors are just like rolling in it. It's such a cool way to build wealth.

[Robert]

Yeah, 100%. Something that I say all the time and people are probably tired of me saying it. It's not what you make, it's what you keep. And Austin and I had an awesome conversation just while prepping for this episode about all the different ways you can use the tax codes to your advantage. And the cost segregation study is something everyone should review and understand. And make sure you talk to your accountant or someone, whoever does your stuff so you get it right, because there are a lot of stipulations. But it is a great way to help you write down against your ordinary income these properties if you're to buy them. So you're getting it from all directions. You're only putting 5% down, so you're keeping all of your hard earned cash making money somewhere else. You're being able to get this really low cost per month for you to live for. Now that one year of occupying this property, you could stay longer if you wanted, which I love, because then you own the property, the tenants are paying most of the mortgage, and you get all the benefits. So that's just the way to look at it. That's why I'm always preaching house hacking. And I love this question from Nathan.

[Austin]

So our next question comes from Farhan S on rich habits podcastmail.com Farhan S says, hi, Austin and Robert. My name is John. Oh, okay. All right. I guess it's John now. Coming from John. Hey, Austin, Robert. My name's John, a big fan of the podcast. I've been learning so much since I started listening earlier this year. Thank you all for the knowledge and advice. It's been super helpful in getting my finances in order. I'm 31. I make $138,000 a year with a typical bonus of about $25,000. I file taxes as a single person. So my individual income lim too high to contribute to a Roth IRA. I currently have $95,000 in my 401k and my employer matches 5%. I have 10,000 in a high yield savings account and another 10,000 in a taxable brokerage account. I know the typical waterfall that you guys talk about is match beats Roth, beats taxable. So I'm wondering, is this still the case? In my scenario, should I look at opening a traditional IRA and then contributing to the Roth IRA via a backdoor scenario? If so, would I just convert my traditional IR additional funds to the Roth annually? Do I do it monthly? Like, how do I go about this? So we've had a lot of questions about the backdoor Roth ira. Especially now is like, you know, we're recording this on April 14, tax day is tomorrow. People are trying to figure out I want to max out 2024, I want to do 2025, but I make too much like what's going on. So let me just break down the backdoor Roth IRA real quick. Robert. The backdoor Roth IRA is a strategy for high income earners to contribute to a Roth IRA with those after tax dollars and have that tax free profit in when their income exceeds the IRS limits for those Roth contributions, which if you're a single filer here like John, that's 165,000 a year or 246,000 if you're married and you're filing jointly in 2025. So we thought it would be a good idea to provide you guys like the step by step instructions on how to actually execute a backdoor Roth ira. And we try to come up with a broker that would make it easy as possible. So we just did Fidelity here in this instance. So the first thing when it comes to doing a backdoor Roth IRA on Fidelity is confirm your eligibility. You need to ensure you do not have any pre tax funds already sitting in a traditional IRA across all other institutions as these can trigger the IRS pro rata rule and make your taxes very complicated. So want to make sure that's either parked in a 401k somewhere else or just moved around. You don't want any traditional IRA funds sitting around. So next step is to make sure you open up the right account. So you want to open up a traditional ira. So you just log into Fidelity, hit open account retirement IRAs, open traditional IRA also, same thing with the Roth IRA. You got to have both accounts if you're going to do the conversion. Next you want to fund the traditional ira so you want to log into Fidelity, navigate to hit that traditional IRA you just opened, click Contribute or transfer and contribute $7,000. The full $7,000amount for 2025. Next, you want to convert the traditional ira with the $7,000 inside of it into a Roth IRA. So you want to go to accounts, you want to hit transfers, you want to transfer cash or shares between Fidelity accounts, choose that traditional IRA account, transfer it to the Roth IRA as the new destination. That full amount is now going to be transferred. You're not going to withhold any taxes as non deductible contributions aren't taxable unless they are gains. And we're not having any gains here with our cash just yet. Once the transfer is complete, you now literally went from 7000 in a traditional Iraq to 7000 in a Roth IRA. It'll take a day or two. And now you got to go invest the $7000. Don't make the mistake of just putting 7000 a year into this account and just saving money that way. You want to invest the money into the Voos, the QQQs, the VTIs, the VGTs of the world, the big blue chip index funds and ETFs that we talk about. So that's the play by play for you, John, and everyone else that's trying to figure out how the heck do I do a backdoor roth IRA in 2025?

[Robert]

That was awesome. And that was a lot. So please take notes and take action. One of the things that I want to just kind of briefly touch on is make sure you invest the money. I am shocked at how many people come to me and say, here's my Roth IRA. I have $27,000 into it. I'm like, that is awesome. What are you invested in within? What have you been doing in the account? They're like, what do you mean I invested in the Roth ira? I'm like, no, no, no, no, know. So let's everyone understand this. The Roth IRA is the component. It is the vehicle you're investing through to get these tax benefits for life, for retirement. It is not the actual investment. So make sure you understand. That's why we always tell everyone, once you get the Roth up and running, and I think everyone should have a Roth ira, then you have to still invest the money in Those low cost ETFs that we talk about every single day of our lives to make sure you guys are making that steady income for years and decades to come.

[Austin]

So our next question comes from Bradley W. Bradley says, hey, Robert Noston, I'm 19 years old and have $25,000 in my bank account and 3,000 in my Roth IRA. I'm saving up for a house with that $25,000, would it be best to just continue saving for a house or maybe take some of the money and invest it into my Roth ira? And if I should keep investing it, is it best to put the remaining $4,500 for the year in all at once or spread it out? So want to make sure we're on the same page here, Bradley, you can only contribute 7,000, doll, unless something changed that I don't know about into the Roth IRA for 2025. So want to make sure you said you got 3,000 in your Roth IRA. Assuming all 3,000 of that is cash contributed, you can only contribute another 4,000. Maybe you contributed 2,500, it grew to 3,000, whatever. But just make sure that you're not contributing more than that $7,000 a year because that is a big no. No. The IRS will take a 6% penalty per year that you over contribute to your Roth ira. So be very careful about that. That. Now, Robert, how do you want to answer this question?

[Robert]

Yeah, I think this is a good question. In the first glaring, you know, red flag that I see, and it's a good red flag to have, is too much cash. You're 19 years old. I don't know why you're sitting on $25,000 in cash. I know why the end result, you want to buy a home with it. But right now you need to be thinking about should I have some of this money in a high yield cash account on public.com that we talk about all the time, what should I be doing with this money to keep it liquid but also get it working? Because you don't know when you're going to buy this house. And so for me, that would be the number one thing is lower down the amount of cash that's sitting, get some in a high yield cash account. I would maybe consider opening just a traditional brokerage account instead of the Roth ira because then you could put it in some safe investments like we talk about, to use the money and try to grow the money while you're waiting to buy the home. But I definitely just think you should don't overload the Roth if you're going to need it right back out. Because you have to remember the Roth component, the Roth IRA is something we want you to build forever and not take out until you are ready to retire. If you're going to have money that you're saving for a house or, you know, maybe down the road you're going to get married and have kids. That's why we talk about having the bridge account, so that money is fully accessible. There's no penalties, there's no worries, there's no concerns. And yes, you can get your money out of the Roth Roth. Any principle you put in, you can take out whenever you want. But that's just not the habit. The mindset we want you to use when thinking about the Roth component, that would be my take.

[Austin]

I like that perspective, Robert. The only thing I would add is I want to see Bradley maxing out his Roth IRA at such a young age. I think, you know, every dollar that Bradley puts into this account and invests into The S&P 500, the Dow Jones, the NASDAQ and all the other index funds and ETFs we talk about turns into 20, $30 in retirement. Right. We just had that episode with Chris Camillo talking about what compounding does and how much it helps your money grow over a long period of time. So I want to see Bradley contributing and maxing out his Roth IRA every single year. And the other thing I'd want to call out for Bradley is like, don't get me wrong, I loved being able to buy a house at, I think it was 24 or 25 years old. I put three and a half percent down and my mortgage rate was like 3%, 3.2%. The mortgage on that house is $1300. Right. It's a no brainer, but I don't think that exists right now, at least at these 7% interest rates and at 19 years old, sure, you could only put down that three and a half percent, which is, I think, what you're trying to figure out and do for yourself here, Bradley. But if I were you, I would really want to get my base built first. I would really want to get fifty thousand, a hundred thousand. Somewhere in that range that would be a hundred grand. Right. It takes longer to do that. I think it's eight years on average to get your first a hundred thousand invested. But before I put a bunch of money into, you know, a single family home, I would want to see 50,000, 60,000, $70,000 invested into these index funds and ETFs that we talk about because again, that money will double on average every seven years or so. And by doing that at 19, 20, 21, 22, you're going to have hundreds of thousands of dollars. By the age of 30, I turned 30, not this year, but Next year. And if I could go back and tell my 19 year old self to do something, I would say, say, yo, go invest more. Because now I look at it, I wish I had more. Right. I think that's everyone's kind of gripe with investing is, what's the slogan there, Robert? The best time to invest was 20 years ago. The second best time is today. So what we want you to be doing, Bradley, is fast forward 20 years. You're not kicking yourself saying, dang it, I wish I had invested a couple more thousand or tens of thousands more into my retirement accounts and my bridge account, knowing that compound interest is going to work for me over the coming decades and throughout my life time.

[Robert]

Yeah, I love it. And I agree. I do like the concept of having the Roth maxed out early, you know, and letting compounding do its magic over time, you know. But I also agree with you that I just wish more people wouldn't be in a rush to buy a primary home. There is absolutely nothing wrong with renting for a few years. You know, some people say, oh, you're throwing away money renting. Well, guess what, somewhat you're overextending yourself by buying a primary home. Because it is proven right now, especially in this market, that renting is more cost effective monthly. And if you can arbitrage that difference, say between owning a home, even a starter home, versus renting, you can save 600amonth. Maybe it's more that money going into your investment accounts is going to just grow and grow and grow over time. So I love how you broke that down in a way to get people to understand we always want to see that base built first.

[Austin]

You're completely right, Robert. The statistic is the Median rent in 2024 in America was $1,850, where the median cost to buy a house monthly cost is $2,700. It's a thousand dollars a month gap. And that $2,700 also includes a down payment that's normally tens of thousands of dollars down.

[Robert]

Yep.

[Austin]

So I totally agree. Right. I'm not mad at people that rent. I'm really not. If you're someone that is still building your base, you're not ready to go out and just sink tens of thousands of dollars into a single family home. Because remember, you know, rich dad, poor dad, right. This property isn't producing cash flow for you. It's just a place for you to live at the moment.

[Robert]

Right.

[Austin]

And I think that's what Bradley's trying to sort of navigate right now. So, Bradley, we're wishing you the best of luck, my friend. So our next question comes from Solomon. Solomon says, greetings. My name is Solomon and the nature of this inquiry is to get further advice as to what direction I should go in order to retire with 3 million doll assets by 70 years old. Currently I have an annuity getting ready to mature. I'd like to know, should I build a portfolio of ETFs with dividends or should I expand it into other things? I'm a novice with just currently $260,000 to my name and I want to grow it fairly quickly. Robert, you want to kick this one off?

[Robert]

Yeah, I mean, Solomon, everyone wants to grow quickly. So we appreciate the question. And without knowing your age, we're just going to make some assumptions that with this $260,000, we're going to say that you're 40 years old for the sake of some easy math and you have a 30 year time horizon to continue investing until you're 70. So if you don't do anything and just invest that money for 30 years or more and generate that 8% annual return, you would be able to get up to about that $2.85 million or so in retirement. Here's the kicker. If you took that same money money, but added 500amonth to this amount that you're investing, that would turn your retirement money into roughly $3.5 million during the same period of time. So this assumes you're investing in The S P 500, the NASDAQ 100 and other blue chip index funds and ETFs that we talk about that generally return 8 to 12% a year over the long period of time. So keep that in mind. Mind, we'd love to know your age next time. So anyone submitting a question where it's very, very financially driven for an amount and you need math done, always include your age because it helps us better serve you when answering the question.

[Austin]

100%. Yeah. 260,000 parked in. You know, some of these index funds and ETFs growing at 8% per year for 30 years, that's going to be 2.85 million in retirement. Just like what Robert said. And to your point about this annuity. Yeah. Once that annuity matures and you have access to that money and you're not contributing to it or like whatever's going on there, park an extra 500 bucks a month into whatever the investment account this $260,000 is sitting in and you'll have three and a half million by 70. I mean, the numbers work in this situation, but that's again, assuming you're 40 and not 60. Everything changes. If you're 60 years old, you only have 10 years to invest versus 30 years to invest. So we're rooting for you, man. I wish we had more information to answer this question, Robert, but Solomon, I think that there's a lot to get excited about in your situation. Specifically to answer your question about, like, what should I be investing into? It's the index funds and ETFs we talk about. If you want to have some dividends and you want to buy a dividend etf, SCHD is a great one. But yeah, you just want to buy these index funds and ETFs. Don't overcomplicate it. Get this money working for you and growing over a long period of time.

[Robert]

Definitely 100%. Love the question.

[Austin]

So our next question comes from Raphael W. Raphael says, hey guys, my wife and I are in our early 40s. We both have Roth IRAs of 26,000 and 24,000, which we max out yearly. These are all invested into the ETFs that you guys talk about. We have an investment account of $600,000 that's managed by a financial advisor. We contribute $1,000 a month to it. It's currently broken out between 26% in ETFs and mutual funds, 20% in treasuries money markets, 33 in individual stocks and 10 in private market funds. Thanks to you all, we started another account with public that has $40,000 invested into it and it's invested into the index funds and ETFs that you guys preach, as well as a couple individual stocks. We have less than 1% of our money in crypto and we fund this account with the interest earned from another130,000 we have in a high yield savings account. We also have a Coinbase account, but it's sitting at about $1,500. So here's the thing. The 130,000 that we have in our high yield savings I look at as both our emergency fund and our when and if we need a home remodel or maybe a cool investment opportunity comes about. I'm being offered right now the opportunity to invest into a SPAC startup. It's going to require $50,000. Doing this will somewhat deplete my overloaded emergency fund, which will lower my weekly contributions to this public account. Potential upside may be well worth it within a year or two. So my question is, in your opinion Am I financially ready to take on that kind of risk or should I continue the course of building up and diversifying my public account by adding more into crypto, precious metals, things of that nature? Am I ready to take this leap? Any other suggestions or strategies would be welcomed. So Robert, let me just answer his question of am I ready? The answer is yes, you are ready. You have hundreds of thousands of dollars invested. You guys are very prudent. You're doing an incredible job of getting money, invest it into the markets and growing your wealth for you. In my experience, when it comes to investing into high risk privately held companies and startups, I want to allocate mid to low single digits of my investable capital, right, My net worth essentially into these types of deals. So in your situation, you guys are sitting on about, let's call it $800,000, which means, you know, low to mid single digits of net worth on that is about 40,000 on the 5% range and as low as, you know, 8 to 12,000 on the 1 to 2% range there. If there was an opportunity where, if I were in your shoes and I saw a wonderful high risk, high reward investment opportunity that was out there, I would say, yes, I'm ready to take this leap and I'm willing to invest between 8 and maybe 30 or $40,000 into to it, knowing that it very well could go to zero. So what I would not do is invest all of that 5% allocation into one deal. I would invest 8 to 10,000 in about three or four deals over the course of, you know, let's call it 12 or 18 months, spreading out my risk a little bit further. Robert, I'm gonna let you talk more about what this opportunity is and some takeaways from your perspective. But I did want to just quickly answer. You are ready theoretically to take these leaps, but you need to do it the right way. Way.

[Robert]

Yeah, I'm going to unpack, I think the most important part of what you said and that is are they ready and are they ready for this type of investment? I'm going to go the other side of the fence on this and say, yes, you're ready, but I wouldn't do this particular deal. And here's why I've been doing this. Let's call it investing in these pre IPO startups, SPACs. Just so everyone understands, you know, a SPAC is a special purpose acquisition company. So what that means is they raise money to go out and buy other smaller companies where they roll them up into this fund. So keep that in mind, not saying it's good, I'm not saying it's bad, but here's kind of the modus operandi that I operate from now and I didn't 10, 15 years ago. And just like Austin alluded to, I like to buy more deals at smaller amounts rather than one big shot. Because if that big shot, the 50k you're talking about, goes to zero, and that represents almost 5% of your total net worth or maybe more, then that's a problem because it just sets you back so far. So when I look at like 50 grand, if you were setting that aside, I'd rather see you do three or four deals at $15,000 a piece and then have three shots at three different opportunities to really make that money work. Because when you're investing in these higher risk asset classes like pre IPOs and SPACs, you want to kind of look at it that if you do 10 investments, you're probably going to have five, go to zero. Two or three are going to make a little bit of money with your goal being that one or two are going to give you that 20, 30, 50, 100x. That is how I look at it. It has worked very well for me over the years. But I personally, at this point and juncture in your financial career, I would not invest the whole $50,000 dollars into one deal of that nature.

[Austin]

So for added context, right, for the last half decade my business partner Christian and I have been investing into privately held companies and tech startups and everything of that nature. Specifically tech startups, right? Venture backed tech startups. And I would say total capital outlay has been about 350,000 ish that we've invested across 25, 30 different companies. I think by now I'd want to say 7 to 12 of those companies have, have just like ceased to exist, right? They couldn't find product market fit, they couldn't go raise another round. I mean like, and that money's just gone, right? So it's not like I'm getting any capital back. I think there's been three companies now that have returned capital to me in the sense of, hey, we're shutting down, but we still have 20% of your original investment, so we can give it back to you. And to your point, there's three companies of the 25 that have, I mean, I just told you the other day, one of those companies just experienced a 16x markup. So our $75,000 investment is now worth like.2 million or something. So just that one company and that Markup paid for everything else, and now everything. You know, these other two opportunities that are going to be great markups as well are just gravy. So that's how you want to be thinking about this, Rafael, is like, how do I take 10 to 15 swings over the course of two to four years across a multitude of different, you know, sectors in the privately held tech startup space or whatever? And the easiest way to do this is to be an LP or a limited partner on someone's fund. So, for example, I'm an LP with a fund. I don't want to name any names, but that fund has just absolutely crushed it. They've invested into some of the most, like, names that I'm sure you guys listening at home are like, whoa, that's cool. I've heard of that company. Like, they've got some really cool opportunity. Like, I would never have that opportunity, but because it's what they do for a living and they, you know, I give them my $10,000, they're able to deploy my money in these deals as well. And so, Rafael, if I were you, the first place I would start would I would be a LP in an existing fund, right? Investing alongside all these other people who have done this for decades and a long time. And then if you really wanted to get more risky about it and you wanted to start investing into, like, specific deals, as you guys know, inside the Rich Habits Network, Robert and I get incredible pre IPO deals all the time that are sent to us that we share with you all. We've actually shared seven deals since the inception of the Rich Habits Network last August. And hundreds of thousands, if not millions of dollars has been invested into each of these deals since that period of time. If you are interested, Rafael, and like, really getting into some of these, like, pre IPO ideas and other, like, investments and like, privately held companies. Join the Rich Habits Network. Learn more about the different opportunities that we're sharing over there. Because, like, you know, Robert, just the other day, we both invested into Mr. Beast. Mr. Beast had a around recently. If you guys know the YouTuber, he's got the feastables, he's got his toy, he's got Lunch Lee, he's all these other cool things he's doing. He's coming out with a skincare brand pretty soon. So it's like all these things are happening through him and we have the opportunity to deploy some capital into what his, like, holding company is. And so we get those opportunities all the time. And if we say, hey, let's participate in it we then share it with the Rich Habits network if we're obviously able to because it's not always up to us. It's up to the people who are offering it to us. And that's nine times out of ten the case. And so I want to reiterate what Rob Robert said. Take multiple swings. Do not just go a big lump sum 50k into one deal because if that one deal goes sour, you're now out $50,000.

[Robert]

Yeah, it's all about the at bats and take more risk with more opportunities so you don't take the one big shot. I learned the hard way, you know, back in the day I would have a million dollars to deploy and I would do two $250,001 $500,000 investment and I just don't write checks that big enough anymore because I'd rather have more shots. I hope this helps you guys.

[Austin]

So our next question comes from Elizabeth H. Elizabeth says, Dear Robert and Austin, my husband and I are avid viewers of your show and we're writing to request your financial expertise. We recently received a ten thousand dollar tax refund and we're seeking guidance on the most prudent investment strategy. We're currently considering several options. One, investing in the S&P 500 two, placing the funds in a high yield savings account account. Three, purchasing bonds through public 7% return bond account or four, investing into some high dividend paying stocks. We would be really grateful for any insights that you could offer to help us make a more informed decision. Thank you for your time and consideration. Robert. I'll let you kick this one off.

[Robert]

Okay, so we don't have all the information here, but I'll take a shot at it based on what's listed. If I was getting $10,000 I would probably do $4,000 into the S P 500 so Voorhees O and then I would probably do $4,001 into a high yield savings account like you mentioned. You could do the high yield cash account on public and then I would do the remaining $2,000 into that 7% yield with the bonds on a public account right now. And then the only thing I would do different to add in some additional high dividend stocks is maybe look at lowering the S and P the v down to 2000 and doing 2000 into spyi, which is a NEOS fund that we really love and we really like the strategy of the NEOS funds as well. So that's what I would do. Based on the information you provided in the wish list, I think you're spot on. And that would be the weighting that I would recommend in this situation.

[Austin]

Hell yeah. All right, let me take a stab at it. I would throw 2,500, maybe up to even 5,000 of it into Berkshire Hathaway. I think Uncle Warren is a good person to bet on. Berkshire Hathaway is up 17% year to date. So I think I would, I would get some Berkshire Hathaway in there. I've got a big position myself. Maybe even put some of this money into real estate via fundrise or vnq, maybe Vici or ticker symbol O or even the IYRI ETF by NEOs. I think I'd also want to get some of this money maybe into Bitcoin if you don't already have some, maybe two or $3,000. And I also want to make Elizabeth, you are only doing this after you've maxed out your Roth IRA for the year. We always want to make sure we are maxing out a Roth IRA and contributing to these tax advantaged tax free retirement accounts as we continue to build wealth over time. But yeah, maybe buy some public bond account stuff, high yield cash account. I'm here for all that. Robert. I love it.

[Robert]

Yeah, I mean that's why we do this show is having two different thought processes and two different ways to look at it. And, and then that is also why we speak diversity so much because if you're diversifying, you're always going to have your bases covered. And based on Elizabeth's word of prudent investment strategy, I think there is a lot of good information in that answer between both of us to help them figure out what to do with that additional money.

[Austin]

100%. So our next question comes from Diego M. Diego says, I've heard you guys mention tax loss harvesting a couple times and with the current drops in The S&P 500 and the NASDAQ, I've seen a lot of content text suggesting that this is a good opportunity to tax loss harvest when thinking about the ETFs you guys talk about. For example, one suggestion that I've seen is to sell off your shares of VOO and then replace them with shares of VTI since they're not identical but very similar. I realize that this stuff can get really confusing and complex for investors like myself that maybe are not as experienced and maybe don't understand all the rules and involved. But can you explain what is tax loss harvesting and how I could take advantage of it for myself? So Robert, I'll kick this one off Good question. Diego. Thanks so much for listening to the show, my friend. Tax loss harvesting is exactly what it sounds like. You're harvesting your losses for taxes, right? So like, let's walk through that. Let's say actually I just did this. I invested like a idiot $75,000 into Ethereum Ethereum at the pico top back at like $3,500 of coin. I don't know how many months ago. It's now down to like 1800 or 2000. And so I lost about $40,000 on paper on that investment. So what I did, I sold my ethereum for that $40,000 loss. I booked the loss of $40,000 on my tax form and then I used that same amount of money. So in this case it was just about 35 ish thousand dollars to go back and buy the Ethereum back. So I still have all the same Ethereum that I had whenever I first invested it at that $75,000 price tag. But I've realized a $40,000 loss along the way. Now remember, you can use any capital loss in your portfolio to offset any capital gain elsewhere in your portfolio. So on the flip side, I've been taking profits on Bitcoin most of this year. I think I've taken profits on like 50 or $60,000. And those are profits, like I'm talking like 20, 30, 40, 50,000 of profits on my Bitcoin. So theoretically here I made $40,000 on my Bitcoin investment over the last two and a half years, and now I've lost 40,000 in the short term on my Ethereum investment over the last couple months. So essentially I have all the same Ethereum that I bought back at, you know, let's call it earlier last year year. And I've taken profits on this 40,000 of Bitcoin that I've begun to sell off. And I've used the sort of losses to offset those gains elsewhere in my portfolio, which is this bitcoin. So what that means is I don't have to pay taxes a dime in taxes on up to that $40,000 of profits that I've realized on this Bitcoin because I've already taken the loss elsewhere. Now let's talk where this doesn't make sense and how it begins to unravel in the example that you gave us. Unfortunately, this wash sale rul doesn't apply to ETFs in stocks at the moment. It only applies to cryptocurrency because in the eyes of the irs, cryptocurrency is property. It could very well change in the future. I have no idea what the IRS is going to do. I'm surprised it even works today. But it does in the instance that you shared. These are the rules. If you sell your VOO and you cash in on some short term capital losses and you then go take that amount of money to go buy something like VTI the same day day, not only are you buying something very identical to the original investment, which negates the whole thing first off there, but you are doing it within a 61 day period of time. So here's how this works, right? You sell your VOO, let's say for example, on April 1st of 2025 for a $10,000 loss. You repurchase VTI or VOO on May 2nd, which is, you know, 31 days later. Later. But the IRS wash rule sale applies if you buy the same or substantially identical security within 30 days before or after, which is a 61 day window of the sale. So long story short, tax loss harvesting works easily with cryptocurrency. It's much more difficult when it comes to single stocks and ETFs, which is why we use Fre C for our tax loss harvesting.

[Robert]

Yeah, that was a great breakdown and it's something that more people really need to study, you know. So instead of these late nights where you're up doom scrolling and spending your time on, you know, Netflix, read up on some of these things that we talk about, the 1031 exchange tax loss harvesting. Really make yourself an expert in some of these because it will save you tens of thousands, if not hundreds of thousands of dollars dollars over your lifetime by understanding how to take advantage of all of these tax strategies that are right in front of you and easy to implement into your daily lives. So before we jump into our next question, let's hear from this episode sponsor. Listen up folks. Time could be running out to lock in that 6% or higher yield. At public.com you can lock in a 6% or higher yield with a bond account. But remember, your yield is not locked in until the time of purchase purchase. So please act fast. Lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.comforward/rich habits.

[Austin]

Again, that is public.comforward/rich habits and get up to $10,000 in a bonus depending on how much of your money you move over from your old portfolio on Fidelity or Schwab or Vanguard into public. And they have that 1% match right now on that IRA. So go check that out as well. Public.comrich habits now our final question comes from Ag a G says good morning Austin and Robert. My wife and I are expecting our first child this year. Congratulations. That's really exciting. We are pretty early on and the baby isn't due until November. I've been trying to plan ahead as much as I possibly can. So I went and I created a 529 account. I've also been thinking about other expenses and how tariffs could possibly affect them. I feel like a doomsday prepper even asking this, but should I just bite the bullet and buy most of our larger dollar items now, like a stroll, a crib and a car seat before costs potentially increase because of tariffs, or do I just ride it out until closer to November? I know we have a baby shower and I want to just ask people instead of buying us cribs and strollers and car seats to contribute to the baby's 529 instead. But any input is greatly appreciated. Robert, you want to kick this one off?

[Robert]

Yes. I love this question and AG I'm going to give it my best shot here. I personally feel feel that you have to look at it. How much of the price is really going to increase in the next four or five months? I don't think it's going to be that much, but you also have to look at it that are people going to be uncomfortable if you tell them in this exchange for the baby shower? We don't want gifts, we want money put into this account. I think it could backfire and people could look at it the wrong way. I think it's very smart and it depends on your audience and your friends and your family group. I personally would stick with the plan. Keep putting the money into the 520. Buy the items you want and need as you get closer to the baby rather than getting ahead of it. Because if it was a major purchase, I could totally get it. I could go on and on about a story we had about a lumber package for a building that we were building and we were told you better buy it now because with tariffs and everything happening and price increases during COVID you're going to pay a lot more money and it ended up costing us like $75,000 more because we didn't do it at the the time. But in this instance I don't think it's going to make much of a difference for you. Maybe a couple hundred dollars and I'd really rather see you stick to the plan, be more traditional because as much as I love the idea of the 529 plan in lieu of gifts, I just think it might rub people the wrong way and you might find yourself not really getting what you would expect out of that thought process.

[Austin]

And the only piece of advice that I could give you AG is stack up some cash. Obviously we are praying for a happy, healthy baby, but some things happen in delivery, things happen along the way that might cause a large unexpected medical bill or something else. So I just want to always encourage people whenever they are expecting, sit on a fortress of cash because the last thing you want to do is only have, you know, 10 or $15,000 sitting in a high yield savings account for your emergency fund and then something terrible happens and you now have to cash out a 401k or cash out a retirement account at a penalty and the taxes associated with that to pay for whatever this, you know, catastrophe turned into. So I 100% would say just stick to the plan, pile up some cash along the way and give your wife everything she needs because bearing children is incredibly hard.

[Robert]

What a great take and just incredible questions in this episode. A lot of really deep thought out items for us to break down. So what a great episode. I love it and just really appreciate how many questions we get submitted a week. So it's much fun.

[Austin]

Everyone, thank you so much for joining us for this week's episode of the Rich Habits podcast. I really, really enjoyed this one, Robert. I felt like we answered a bunch of different questions from a bunch of different, you know, perspectives and walks of life. And I just, I love being able to come back every single week, take the questions in from our audience and, you know, share our perspectives.

[Robert]

Yeah, for sure. I am overjoyed with appreciation of feeling abundance in our lives because we get to do this every single week. We don't have to do it, we to do it and just building this audience and building this base of people that we get to voice our opinions and try to help and provide value to every week is one of the most meaningful things I've ever done in my life and I just really, really love doing it every single week.

[Austin]

You're totally right. We get to. We have been afforded the opportunity by our hundreds of thousands of listeners to come back every week and share our perspectives and we are super grateful that you guys continue to come back and support the show. If you want more from Robert and I consider joining the Rich Hab Network. We're running a seven day free trial right now. This includes eight hours of video coursework as well as a two hour weekly live stream. It's like a zoom call. Robert and I hop in there, we answer your questions, it's him and I just zooming with you for two hours. It's a lot of fun. People love it, and there's just a ton of stuff that we talk about in those calls. Don't forget to also sign up for the Rich Habits newsletter. That's completely free, and join 52,000 other investors that come back every Thursday to read the newsletter and understand what's going on in the markets because of it. Thanks everyone and have a great rest of your week.