Mindy:
Welcome to the BiggerPockets Money podcast show number 336, Finance Friday Edition, where we interview Travis and talk about conservatively investing in cash flowing real estate.
There’s nothing wrong with the 10 million dollar net worth, but those numbers do seem like you just grabbed them out of thin air. So I would encourage you to look into the reasoning behind those numbers or create some reasoning behind the numbers, and maybe those numbers would change because if you wait 10 years to get your 10 million dollar portfolio and then you’re like, “Oh, I could have retired five years ago with a five million dollar portfolio or a two million dollar portfolio and I would’ve been just as happy,” then you’ve spent a lot of extra time working when you didn’t need to.
Hello, hello, hello. My name is Mindy Jensen, and with me as always is my money savvy cohost, Scott Trench.

Scott:
With me as always is my minty, amazing minting new introductions about money cohost, Mindy Jensen.

Mindy:
That’s awful. Scott and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story because we truly believe that financial freedom is attainable for everyone no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or figure out what to do once you’ve won with money, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I think that this is my favorite episode that we have ever done that didn’t feature Kyle Mast as a host or as a guest. He is so good. Travis has a fabulous portfolio. He’s a little light on his Roth IRA contributions, I will say that, but he is in such a fabulous financial position. I love him so much. This was a fantastic episode, and I think anybody listening, anybody who is interested in investing in real estate the right way needs to listen to this episode.

Scott:
Yeah. I think that this guy is just fantastic. 30 years old, he’s done. He’s financially independent, way overshot financial independence at this point in time, so humble and so hardworking and down to earth about his position that he didn’t even realize it really until we talked about it today, “Oh, yeah. I guess I am financially dependent,” by a lot. You can say that that was the revelation-

Mindy:
Three times over.

Scott:
It’s just fun because he’s got all the fundamentals so perfectly dialed in with such low expenses, such low cost of living, such a high work ethic that after this five-year grind that he’s executed, he can look up now and be like, “Whoa, I have incredible options here.” One of the biggest callouts I’ll have from this episode is the job is irrelevant. This is going to be a rare outcome. Not many people are going to experience this, but it’s just interesting in his position, his real estate portfolio generates so much more income than his job does today that it makes his job very low relevancy to his position. It’s almost like a must to become an entrepreneur or start your own business when you’re in a position like Travis’, which we’ll find out as we discuss today.

Mindy:
I can’t think of one mistake he’s making right now other than the Roth contribution that I already commented on, which isn’t even a mistake. It’s just choosing to allocate his money in different ways.

Scott:
Yeah. His fundamentals are so strong that it would outweigh any mistakes that he’s making because his cash flow generation, his expenses are so low. He self-manages, and he does a lot of work himself. I mean, it’s just he’s so conservative in his outlook that it just dwarfs any day-to-day mistakes he might be making.

Mindy:
Which are few and far between. Okay. Should we bring him in?

Scott:
Let’s bring him in.

Mindy:
My attorney makes me tell you that the contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I, nor BiggerPockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal, tax, and financial implications of any financial decision you contemplate. All right. Let’s talk to Travis.
Our guest today is Travis. Travis is 30 years old and has a large rental portfolio. He has 33 units across 17 properties. His rentals generate a lot of income, which he currently keeps in the business to fund repairs and new acquisitions. He’d like to retire FatFI level with 10 million dollars in net worth and $30,000 in monthly income. He’s got his spending under control at about $2,000 a month, but he’s single with no kids right now, something he’d like to change in the future. Travis reached out to us to get a reality check on his portfolio. He is super heavy into real estate with very little traditional retirement savings.
Travis, welcome to the BiggerPockets Money podcast.

Travis:
Thanks, guys. So excited to be here.

Mindy:
I’m so excited to talk to you. I really love your numbers mainly because you have your spending super tight. Let’s look at what’s coming in and where it’s going. You’ve got a salary after tax of approximately $5,000 with additional random income of about $375 a month. There is additional $15,000 in business income. I’m not going to comment on that for the purposes of your personal statement because that stays in the business, which I want to say hurray for you because it is very important to keep your business expenses and your personal expenses separate because, otherwise, you’re not going to know what’s a business expense, what’s a personal expense.
As far as your personal expenses, I love this, you’re, like, “I spend $500 a week. As long as I’m under $500 a week, I’m good,” and that’s a great. You don’t have to go super granular if you don’t want to, granular if you don’t want to. You’ve got $600 for food, $450 for gas, 350 for restaurants, 200 for entertainment, 80 for subscriptions. You included $2,000 debt pay down in your expenses, which I am pulling back out because that’s a business expense, church donations of $440 for a grand total that you gave me of 4120, I’m going to go with 2120 because that $2,000, I would like Scott’s opinion on this, how do we calculate that when he is personally paying down additional mortgage payment from his personal expense when it’s a business expense? So that’s something we’ll talk about in a minute.

Scott:
I think voluntary debt service is a form of savings or an investing wealth building debt reduction, whatever you want to call it. So yeah, I think you exclude it from your personal spending and you call it an investment.

Mindy:
Okay. Investment. Perfect. As far as investments go outside of the real estate holdings, you are making $3,000 in annual Roth contributions, which is great. You are making $0 in traditional IRA contributions and $0 in 401(k) contributions. I’m a fan of the stock market. I’m going to say, “Hey, I’d like to see those go up a little bit,” but we’ll get into those numbers a little bit later. Your current 401(k) balance is approximately $8,750. Your traditional IRA balance is $13,000. Your Roth IRA balance is about $15,000, but here’s the good part. Your rental portfolio value is 1.7 million dollars with about $900,000 in mortgages for approximately $800,000 in equity, which is okay or really, really, really great.

Travis:
You can see where the focus has been.

Mindy:
Yeah, on that Roth IRA. Cash savings and liquid investments, you have about $40,000. Personal investments, you have about $50,000. Your investment grand total is 1.83 million dollars if I am counting the full value of the real estate. If I’m only counting equity, it is $941,000. There are random debts, credit cards, and things like that that are $13,000 that I would love to see you get rid of just because I don’t like credit card debt. Your mortgages total, this is the part that gives me the heebie-jeebies, $896,000. So if you look at that mortgage line of almost $900,000, just looking at that, that’s a lot of money in mortgages. However, you have 1.7 million dollars in total value assets, real estate assets, and what is your mortgage payment every month,

Travis:
Approximately $5,000.

Mindy:
Okay. So you’re bringing in $20,000 and you’re paying out $5,000. I like those numbers a lot. So that makes that 800,000 a little bit less squidgy. Could you … Let’s see. What was your monthly income again? So your monthly income is right at what your mortgage payments are, but what are the odds that all 33 rentals aren’t going to pay their rent at the same time? It’s pretty low. I think this is … When you just look at the numbers, it sounds crazy, but when you look a little bit deeper, I like what I’m seeing.

Travis:
Thank you, yeah, and it’s something a lot of times it does make me nervous looking at just the debt side of things. Being raised a little debt averse, that’s a big number.

Mindy:
It is a big number, but you also have good income to cover it. So perfect Travis, why are you calling us? What can we do for you today?

Travis:
So I’m curious if I am too much of a one-trick pony, if I am too heavy into real estate while neglecting the other asset classes.

Mindy:
Yes. Thank you for joining.

Scott:
I actually disagree. I think I got to hear more about this, but my first read is you’ve got a winning formula here. Something’s going right. You’ve got a tremendous amount of cash … Surely, you have a significant amount of cash flow in this portfolio, although I like to dive into that, and you’ve got a formula that’s winning here. You want to go from one million in net worth today to 10 million in net worth in some future time period. You can’t diversify your way to 10 million dollars in wealth with your income right now. You have to concentrate and figure it out. So that’s my instinct in response to your are you a one-trick pony. I like it.

Travis:
Correct, because I’ve been two years now out of my 401(k) and my traditional Roth. I mean, I invested into the Roth and my traditional IRA. The last two years has been nothing. I’ve just been focusing all in one thing right now.

Scott:
I like it instinctively. We’ll see.

Travis:
Okay.

Mindy:
I hear what Scott’s saying. I agree with his words, but right now, you are, what did I say? You’re 30 years old?

Travis:
Correct.

Mindy:
You have a lot of income coming your way. I’m assuming that you are going to continue to get raises every year. You are. Scott, does rental income count against your Roth IRA contributions if you keep it in the business?

Scott:
I don’t know the answer to that. I think that, well, it depends. If he’s a real estate professional, then yes, but I don’t know the answer if he’s not a real estate professional. Are you a real estate professional, Travis?

Travis:
I am, yeah, recently as of this past year.

Mindy:
So real estate professional means that you’re working in your real estate properties more than any other job.

Travis:
Which is true.

Scott:
… or his job is related into real estate.

Travis:
Yes. Yeah, yeah, well, I work more in the real estate than I do my W-2.

Scott:
That’s good. What is your W-2?

Travis:
So I’m in construction, and I do hardscape, landscape, and actually outdoor water features.

Scott:
Awesome.

Travis:
Yeah. So I like the job, actually. It’s very fun.

Scott:
Can you give us a little bit of a background of your money story, maybe three to five minutes, so we can understand how your position came to be here?

Travis:
Absolutely. So I was raised very debt averse, like I said, went to college and it was one of the most stressful times in my life, actually, because I’d seen money going out in loans, but not money coming in in income. So that was a stressful time in my life. Got out and went immediately to work and trying to pay off my dad’s. I had a vehicle loan, I had college debt. I went to school for civil engineering. I was in that field, and I didn’t end up enjoying it as much as I thought I would. I was good with numbers and management, but it was a lot of night shift, a lot of workload, and stress, and all this other thing. I’ve seen the guys that were older in my industry and I’m like, “Oh, they weren’t …” I didn’t see that that’s what I wanted to be when I was that age.
So I started looking into investments, and then stumbled upon BiggerPockets podcast, started looking around. Real estate, to me, made the most sense with my construction background. Started investing in 2018, and that got us to where we’re at today. Still debt averse, though, and I’m still trying to pay down those. I would love to have a free and clear portfolio someday.

Scott:
Could you give us a little bit of a snapshot as to how someone who is currently making $60,000 a year from your job? How did you accumulate a million dollars in five years when you started investing?

Travis:
Very slowly, one round a lot of time. I was able to basically use the BRRRR strategy.

Scott:
Not that slowly.

Travis:
Yeah. Basically able to push value as in just buy value add properties, put that value back in there to bring it back up to market level, pull that equity back out and cross-collateralize one property into two, into three, into four, and that kind of thing.

Scott:
So you somehow managed to I want to call this conservatively BRRRR your way to a million dollars in net worth. You’ve been buying heavy value add properties, pulling out some of the equity, but only about 50%, and now have a very balanced debt equity ratio across 33 units at a million dollar.

Travis:
The properties that I have are paid off. I’m able to actually leverage them multiple times. So when I BRRRR the money back out, I don’t actually pull that out, cash out refinance, I cross-collateralize it. So the bank is able to put a mortgage on that property again until the next one reaches the threshold 20% and I take that mortgage back off and I’m able to recycle that.

Scott:
Awesome. So you’re generating a tremendous amount of cash flow, which allows you to on average pay down debt, but you’re continuing to buy new properties with the equity in your existing portfolio. Is that a good summary?

Travis:
Correct. Yeah. So any point in time, I’m not really sitting cash heavy because the new cash coming in is either going to old debt, pay down or it’s either going to new acquisitions. So I am … What do you call the expression? Asset rich, cash poor, that’s my life.

Scott:
If you chose not to prepay any debt and you chose to start taking distributions out of the business, what do you think your monthly cash flow could be right now if you just started harvesting your profit

Travis:
With kicking some back for maintenance and repairs and vacancies, I would say-

Scott:
Love that.

Travis:
… healthy 10, 10,000. Yeah.

Scott:
10,000? You could pull out 10,000 a month from your business right now?

Travis:
Correct. As it says, yes.

Scott:
How much do you account for vacancy, repairs, and maintenance across your 33 units? Is that 5,000 a month?

Travis:
10% each, yeah, 10% each usually.

Mindy:
Yes, yes, yes, yes.

Travis:
Just because I’ve sat on empty units for four months just waiting for whatever it is, if you have supply chain issues or this and that, and then I’d rather err on the more conservative side instead of, yeah, 5%. Now, some of them don’t sit vacant at all, but the ones that do sit long enough that I’d say on average 10 is safe.

Mindy:
Okay. So you just said some of them don’t sit vacant at all, but on average there is some. If you plan for 10% and you don’t get any vacancy, you win. If you plan for no vacancy and you get a vacancy, you lose. So don’t lose. Plan for these vacancies. You have to run these numbers with vacancy and capex and property management and all these other things, which we didn’t even talk about yet. Do you manage these properties yourself?

Travis:
I do and working full-time. So that gives me my real estate professional status.

Scott:
So let me ask you this. Well, your goal is to get 10 million dollars in net worth, right?

Travis:
Yes.

Scott:
We’re certain of that. Why are you working this job? What’s the advantage you’re getting from your job?

Travis:
That’s a good question. It could be a mindset thing at the end of the day, but healthcare, that kind of thing. I have the extra time managing these, wouldn’t take up 100% of my time. I mean, I’d say 20 hours a week on this kind of thing. I enjoy the work that I do.

Scott:
What do you do at your day job? Your construction, but what does that actually look like?

Travis:
So we build outdoor features for residential clients, so retaining walls. We do decorative ponds, koi fish ponds, waterfalls, stuff like that, more of an artistic flavor to it.

Scott:
What would be the, hopefully you consider this is going, if you stopped that job tomorrow and started working and you were able to flip three houses per year in this area, what kind of income would that look like for you?

Travis:
Fairly similar. Three houses a year, margin on a flip here, maybe would be a healthy 20K, sometimes more, sometimes less.

Scott:
How many would you be able to do?

Travis:
Probably three to four, depending with the guys that I have now, the teams that I have now. Now, if I was doing that full-time though, I could scale that a little bit more.

Mindy:
Okay. I want to jump in here and say, how are you going to purchase these properties if you don’t have a W-2? One of the things that I see a lot of people posting in the BiggerPockets forums is, “I just quit my job. I can’t wait to start investing in real estate,” and I’m like, “Go get your job back because you’re never going to get a loan.”

Travis:
That’s another big reason. I’m very loanable right now as it is with the job, and I’d be nervous if there would be a slow down period where I wouldn’t be loanable for a little while until I had a track record back up again.

Mindy:
That is, yeah, so it sounds like you use the same lender, well, actually, it doesn’t sound like that. I should ask you.

Travis:
Yeah, I do.

Mindy:
Do you use the same lender? I would talk to them now while you still have a job and say, “Hey, this is what I’m thinking about. I would like to continue to do this real estate. You can see my portfolio. I’m super amazing at everything. I don’t even need Scott and Mindy’s help, but I also am considering leaving my W-2 job, which makes me unloanable. What are my options?”
They can say, “Hey, we would never give you a loan,” in which case you know not to quit your job or they would say, “Hey, we’ve got 47 different products here. Here’s all of them,” and that could help guide you because when one of the questions you had was, “When should I leave my W-2?” Whenever you want because you are there. You have the income from the business to cover your expenses, which are nothing, plus cover all of the business expenses and still have money left over for more acquisitions.

Travis:
Correct. Correct.

Scott:
My instincts are screaming here. There’s four levers, spend less, earn more, invest or create, right? From everything about your situation is saying, “Why are you working this job?” That’s the immediate thing that comes in because you’re making way more money. You’re making twice as much money in a more tax advantaged way from your rental property portfolio as you do from your day job. So your lender, you’re almost certainly beyond conventional loans at this point. Is that right?

Travis:
Oh, yeah. That was a few years back.

Scott:
Great. So your lender is, if they’re smart, is not going to care about your personal income the same way they’re going to care about your business income. You have what we can see is, from my seat, is a very well-capitalized, conservatively run portfolio with a tremendous amount of prospects here. You’re going to make more in your first year after leaving your job doing your own thing entrepreneurially by a lot probably, and your second, third, fourth, fifth year, you’re going to earn way more when you figure this thing out.
So I think the instant thing that’s popping out to me about your situation is stockpile some cash. So stop paying down debt for three to six months and build a reserve of 50K plus because you’re going to want whenever you do decide to do something entrepreneurial full time. You can look for other work, but it sounds like if you’re making … I imagine you’re not working a job that you could be making 20% more if you went down the street for the next thing. I think you’re probably maxed.

Travis:
No. It would have to be something I enjoy.

Scott:
Yeah. So I think you’re going to have to do something. I think that from an income perspective, if you want to get to 10 million dollars, it’s entrepreneurship. This real estate thing seems like it’s working pretty well. So there’s an opportunity for value add there. I would think about how I can set myself up for that situation, “How do I get enough cash to feel really conservative? Hey, I can live for a year easily on this, and I’ve got plenty to play with for that first or second construction project even if things go unplanned,” but you’re-

Travis:
Absolutely, which was always the goal, yeah, which was always the goal, and then I got there and it’s like, “Quitting your job sounds good on paper,” then it’s like, “Ooh, I don’t know if I want that.” It’s a big jump. It seems like a big jump, I guess. I don’t know.

Scott:
Well, it’s a big jump if you have $15,000 in cash, right? I think you said you have 45,000 liquid cash, but you don’t really have 45,000 liquid in cash. You only have 15,000 in cash because a lot of that is in stocks and other different types of things and across a bunch of bank accounts.

Travis:
Correct. I’m actually very illiquid.

Scott:
Yeah, but you can remedy that in three to six months easy, four months. You could have 50K in cash if you don’t have any capex items there. You’re going to have plenty stockpiled there. Set aside what you need for your business. Figure out your personal situation and the risk profile of leaving the job is going to look very different on the other side of $50,000. For you, that’s a year of personal expense. That’s two years of personal expenses.

Travis:
Yeah, no, especially I’ve been very averse to lifestyle creep. One of the things I pride myself on because, I mean, get made fun of it a lot of times, but, hey, it works.

Scott:
When you leave your job and start your business and make bank in the next couple of years, people won’t be laughing anymore.

Travis:
Exactly.

Mindy:
Yeah. They’re going to ask you, “How’d you do it?” You’re like, “Well, remember all that stuff you teased me about?” Okay. When we were talking before we hit record, you said that you are on the East Coast, and with East Coast properties comes old properties. East Coast investing is older properties. What is the state of the properties that you own right now? You have 33 properties. I’m sorry. You have 17 properties, 33 units. Have you done all the big old capex deferred maintenance?

Travis:
So I’m working through that right now. I’m putting roofs on. I’m trying to get these things to where they’re at a point where they’re going to last me the next 30 years and no surprises in 10. So that’s one of the reasons I’m so cash light now is I’d rather do the projects now when my expenses are low and I’m not used to spending that money. So I’m trying to do the roofs and the gutters and the walls and just “bulletproof” it while I can and I have the energy.

Mindy:
Yeah. So with regards to when should you leave your W-2, I would maybe encourage you to, because you like it, stay there while you are finishing up these big capex projects just in cases like you open up a wall and all of a sudden you’re like, “Oh, that’s where that smell was coming from,” and now you’ve got a $50,000 project instead of the $500 project you thought you had, but how long do you think it would take to get all of the properties up to your “I’m done with all of my deferred maintenance and capex”?

Travis:
Probably one more year of hitting it like I’ve been hitting it, yeah. Just one more year of intense capitalization into just the capex stuff, the roof, the walls, the drainage systems, all that kind of thing.

Scott:
How much of the $15,000 that we talked about in potential income is going towards debt repayment versus investing in capex right now?

Travis:
Probably 75% of it.

Scott:
75? So most of that is going towards-

Travis:
Most of that is going toward, yeah, yeah.

Scott:
What’s the blended interest rate on your debt?

Travis:
Oh, you would average about five because I was getting loans with someone that was cheaper, now they’re a little more. So it’s about five, five and a quarter.

Scott:
When you are getting a new loan, what’s your rate?

Travis:
Oh, it’s six. The last one I just got was six, 6%. Yeah.

Scott:
Are you paying down the higher interest rate stuff first with this or-

Travis:
I’m actually paying down the properties that are higher equity first because that gives me more of a lever to pull in the future. So I’m prioritizing the ones that have more equity room and have bigger value add. So on an interest standpoint, doesn’t really make sense.

Scott:
Yeah. So I think we’re starting to ask the right question at a strategic level, which is, how soon can we leave the job and begin the full-time entrepreneurial thing? I would definitely recommend or I would highly encourage you to stop repaying the debt early right now or if you do pay down the debt early, finish off one property if you want to just check it off the box, but stop after that and focus only on the higher interest rate stuff or consider stockpiling cash because what you’re doing, if you do the other way, is you’re arbitraging your low interest rate debt for higher interest rate debt on the next property. You don’t need to be doing that, right?

Travis:
Correct.

Scott:
The cash, not only that, but the cash in your bank account is actually going to give you more flexibility. It’s going to make you feel better about the breakup with your current employer. You’re going to be able to finance those projects without taking a lot of line of credit on it. So I think right now is a really good time to stockpile cash. I don’t know how much. Something in me has telling me 50,000 is a really good amount because I’ll probably-

Travis:
That sounds like a good number to me. Yeah.

Scott:
That will really cover a lot of repairs, but I would be thinking about, “Okay. I’m not going to pay off any more debt here,” because your portfolio already cash flows so strong if you’re not doing that and you can just buy the next place all in cash.

Travis:
True.

Scott:
That’s your plan, anyways. Why would you trade lower interest for higher interest at this point in time?

Travis:
True. Yeah. I guess I never really thought about it that way.

Mindy:
Scott, I really like that comment. Scott and I both are of the don’t pay down your mortgage any sooner than you have to camp, but I can understand when you come from growing up debt averse and don’t want to have any debt, I can understand why you would want to pay that off. If you are, like Scott said, if you are going to pay it off, pay off the high stuff first, but I really like his comment. Pay your minimum mortgage payment, and then throw all of your money into a big cash pile, and pull from that for your repairs. That’s really great advice, Scott.
Then in one year, I would reevaluate what is the condition of my properties, what is the condition of my bank account, what is the condition of my cash reserves, what is the condition of my mental state every time I have to go to work. It sounds like you don’t hate your job. You like what you do.

Travis:
Yeah, I like it.

Mindy:
Then there’s no need to or there’s no … How do I say this? There’s no reason to quit now and put yourself … You’re not going to be in a squidgy financial position. You’ve got the best position of anybody we’ve talked to in a long time. You’re doing it right, but there’s no need to make it any tighter than you have to be.

Scott:
I agree with Mindy’s sentiment. There’s no need to do it, but the thing is your goal is to get to be at 10 million dollars in net worth. I imagine that that 10 million in net worth is a very lightly leveraged or no leverage position is your end state goal on that.

Travis:
Correct.

Scott:
You’re not going to get there making $60,000 a year doing outdoor things unless you own the business.

Travis:
I’m comfortable with the portfolio around 50% to 60% leverage. I’m comfortable with that. Higher than that, maybe I’ll feel too it’s high, lower than that, I feel like I’m not utilizing enough.

Scott:
Perfect. So you have to generate several million dollars probably in the next five to 10 years because I imagine your goal isn’t do that at 60, it’s to get there in the next 10, 15 years. Is that right if you can?

Travis:
Yes. Absolutely.

Scott:
Great. So your job, that’s great that you like your job. Your job is irrelevant already. It’s not a major factor in that and it’s slowing you down. You could be making multiple times the amount doing more of the real estate business or if you really love that work, you can go into business for yourself-

Travis:
Correct.

Scott:
… and within a few years be earning much more than you are as a laborer for your firm right now.

Travis:
Correct. Right.

Mindy:
That’s a good point too. I would like to point out that Scott is very logical and I’m very emotional and the whole, “Should I pay off my debt?” is more of an emotional concept than a logical concept.

Scott:
If you wanted to move into that position tomorrow or next month, you could just pull out 100K from your property with your lender, and that resolves our situation from a cash perspective and you’re ready to run with plenty of cash in a conservative position.

Travis:
Correct.

Scott:
That may not feel right, emotionally.

Travis:
Not really, yeah.

Scott:
So if you don’t want to do that, then instead you can spend a few months just stopping the debt paid out and building up the cash position and that will feel more responsible.

Travis:
No, I like that plan. Absolutely. I like that plan a lot. That sounds logical to me.

Mindy:
Can you go to your lender and get, you said cross-collateralizing and that’s a term that I’m barely familiar with? Can you get all of your properties in one loan?

Travis:
I can. What’s hard about that is that limits my options. When I do that, I can’t collateral one out and do and scale like I’ve been scaling if I were to do that. If I was done building, that would be a great way to sail off into the sunset, get all one loan, simplify that, simplify the interest, all that kind of thing, but it ties them down and makes them hard to use individual properties again.

Scott:
It’s really hard to get an investment property HELOC right now. So it’s probably almost going to be impossible for him to get the equivalent of a HELOC or a line of credit on that portfolio entirely, which is silly, but that’s the reality of real estate investing right now. If someone has a HELOC, investment property HELOC lender, please let us know. We will try to make them famous for everybody else.

Travis:
Yeah. They’re not HELOCs. I’m just collateralizing the equity. So they’re holding one while I find the next one, and when I get that one up and going, then they let it go, but yeah, it would be nice to get a HELOC.

Mindy:
Yeah, it would. If you know of a HELOC, it’s [email protected] or [email protected] and we will-

Scott:
Investment property HELOC, yup.

Mindy:
Yeah, investment property. I can get them all day long on primary residences. That doesn’t help when you’ve got investment properties. Okay. So I would give you a bit of research to do in that you should talk to your lender and just give him your whole picture and say, “Are there any creative solutions? Is there something that I’m missing? Does your bank offer anything? Can you do anything within your own portfolio? Do you have a portfolio loan that I could use against these?” and I’m making stuff up right now, but what’s it called when you … a wrap loan over all of your properties so that you can purchase another one and get it up to snuff and then transfer out of that, refi out of that into a regular loan and pay off this other thing. A local lender is going to have a lot more options available.

Travis:
Absolutely. I think they’ve seen my strategy so far and they’re familiar with it now. I have used the same bank now for going on four years. So I think that, I mean, I have a bit of a track record there. So I think that would be a good conversation to have, definitely.

Scott:
I’d be very skeptical that you’re going to have a serious issue upon leaving your job of getting continued access to some form of financing at this point with the conservative responsible way you’ve leveraged your portfolio and really tend to pay it off over time even while you’re acquiring more properties, it seems or at least improve your debt-to-equity position, I’ll be more precise-

Travis:
Definitely.

Scott:
… while you buy more properties. So surely, your lender is not going to say, “Oh, the loss in 20% of your income over here is going to prevent you from getting access to future financing.”

Travis:
Correct. Correct.

Scott:
I’d hope.

Mindy:
I brought that up more for other people who are listening, Scott.

Scott:
Oh, absolutely. I’m not saying any of that. I’m just excited because I feel like-

Travis:
No, that’s great, yeah. I’m definitely going to have that conversation with a lender here soon.

Mindy:
Yeah. I would absolutely talk to them about, “What are the most creative yet legal things that we can do with this portfolio? I mean, maybe they’ll suggest, “Hey, let’s take three of them and put them together.” That’s different than all of them putting them together. I mean, I’m not a lender. I don’t know what the options are, but when it’s your own portfolio loan, the rules really open up.

Travis:
It’s just a small local bank. So usually, they’re a lot more flexible.

Mindy:
I used to be all about searching for the best rate and that was it. Now, I am more into the local banks. What’s 0.125% difference on a loan when they’re going to lend me more money than somebody else because they know me and they trust me?

Travis:
100%.

Mindy:
Okay. So some of your questions were, “When to leave my W-2?” we covered. “When should I start pulling profits from the real estate portfolio?” When do you want to? You could do it now.

Travis:
It’s true. I feel like once that bridge is crossed, then you can’t go back.

Mindy:
No. You could put them back.

Travis:
That’s true.

Mindy:
You could stop taking them in the future. If you quit your job, you will need to take some profit from the portfolio because you’re going to have to live on something.

Travis:
Absolutely.

Mindy:
So what does that look like? That looks like about $2,000, I mean, if you don’t need to save anything because everything’s being saved within the company.

Travis:
Yeah, and it is almost minuscule at this point. The effects would be low from the cash flow standpoint.

Mindy:
Should I diversify out of real estate and move into retirement accounts or the stock market? I really, really, really love a good Roth IRA just because it grows tax-free.

Travis:
Same, and I feel like I’m missing some of these good years when I’m young putting it in now and I’m getting that FOMO like, “Am I missing out on some of the real-”

Scott:
Instead, you’re building a million dollar rental property portfolio that can pay for your life right now.

Travis:
That’s true. Yeah. Every time I go to put money in the stock market, I’m like, “Oh, I could do more over here with that. I don’t know.”

Mindy:
So you’re doing 3,000 in annual Roth contributions. Why are you not doing six?

Travis:
I should be. I should be doing six.

Mindy:
You should be. So that sounds like an easy win. That’s $500 a month, which is nothing to you. It’s just one more week of spending. So if I was in your position, I would do that for the tax-free growth. I’m not going to harp on you on the 401(k) because your rental portfolio is so amazing, but the Roth IRA, when we talked to Kyle Mast on episode 200 he said, “We’ve been writing a lot of checks lately as the government. I can see the Roth IRA stopping.”
So they’re not proposing that yet, but who knows what’s going to happen? I would say as long as you can, contribute to your Roth IRA because it grows tax-free, and that’s a little bit of diversification in your portfolio while you continue, and it’s not. I hate to throw these numbers around like they’re nothing because $6,000 is still $6,000. If anybody has any extra, send it to me, [email protected], 3344 Walnut Street, but it’s only $500 a month that you would be putting into this, and that in the grand scheme of your net worth, that is very little.

Travis:
One other thing I was looking at too is transferring my traditional IRA into a SEP IRA when I do leave the job and then funneling some of the business income into that, one for tax shelter and two to be a little more diversified.

Scott:
Love that, I think that’s, again, comes down to we got to stop putting all of that 10, 15 thousand dollars in excess cash flow each month into the property debt because what you’re doing is you’re arbitraging these opportunities in the Roth IRA or the SEP IRA for paying down 3% interest debt right now, which again, I don’t think that’s a good use of your cash compared to these other alternatives. By the way, you can still do that and in two or three months be maxing out these retirement accounts and then spend the rest of the year paying down the debt if you do want to do that.
Then secondarily, I would get you in the habit at some point in the next year or two of drawing from the portfolio. The reason you invest, you built this portfolio is to produce income for yourself and your life with that. Start pulling out a thousand dollars a month and say, “No, that’s my dividend. I’ve earned it at this point. That’s coming out of this property.” If you want, just put the money from your job back into the property. It’s silly, but I think that might be a helpful mental exercise for you to get used to pulling cash out of the business and having it paid for things that you want.

Travis:
No, I agree, and I think I have been averse of that while scaling just so the business was off the ground. Now, it’s off the ground and I have that opportunity.

Scott:
Yeah. Well, you’re going to have to scale it in the next couple of years while it’s distributing income.

Travis:
True. True.

Scott:
At some point, if you want to get to 10 million.

Travis:
Absolutely. Absolutely.

Mindy:
One last question you had was a review on your portfolio as it sits today. We’ve already talked about your real estate. Yay, you’re doing great. Your retirement accounts, personal investments, and cash total, $127,000. So I would review that as a little light and encourage you to increase that mostly in the Roth.

Travis:
Definitely.

Mindy:
I really do like the Roth for as long as you can have it. A review of your goals for the future, I had a question about your goal. You want to retire with a 10 million dollar net worth. Okay. That is a lot, but how did you come up with that number?

Travis:
That’s a good question. Nothing specific. I think I just picked out a number out of the air.

Mindy:
Okay. So that means you could spend $400,000 a year.

Travis:
Correct.

Mindy:
You’re spending $24,000 a year. I would encourage, there’s nothing wrong with the 10 million dollar net worth, but I would encourage you to understand why that’s the number. I mean, it just sounds great, great. Then if that’s really what you want, that’s … I would have a very hard time spending $400,000 a year, not on real estate, on regular stuff, and yeah, I think-

Scott:
You’re not going to generate $400,000 a year. You’re going to generate a million dollars a year on that portfolio if you continue building this portfolio the way you’re building it.

Travis:
To the way it is, yes, yes.

Mindy:
Well, the 400,000 is that I’m doing the 4% rule math, Scott, and that is where my flaw is in my thinking because I’m thinking of the 4% rule. You’re doing a 10 million portfolio, yeah, and you said you wanted $30,000 in monthly income. That leaves you with $28,000 left over every month.

Travis:
Yeah, I know, I know. We’ll be looking up in the spending habits some time in the future.

Mindy:
I mean, if you’re planning on having getting married and having kids, that 2,000 isn’t going to go very far, but those numbers, I’m trying to be diplomatic, but those numbers do seem like you just grabbed them out of thin air. So I would encourage you to look into the reasoning behind those numbers or create some reasoning behind the numbers, and maybe those numbers would change.

Travis:
Definitely.

Mindy:
Because if you wait 10 years to get your 10 million dollar portfolio and then you’re like, “Oh, I could have retired five years ago with a five million dollar portfolio or a two million dollar portfolio and I would’ve been just as happy,” then you’ve spent a lot of extra time working when you didn’t need to.

Travis:
That’s true. That is true. Then long term, when I get to family and all that kind of stuff, I do want to let way off the gas and have that time that I bought back for myself.

Scott:
You do all the work yourself right now, but let’s compute the dollar per hour value of your time. You said your net cash flow from the portfolio would be about $10,000 per month?

Travis:
Yes.

Scott:
$10,000 a month is $120,000 per year, and you’re also earning $60,000 a year at your day job, right?

Travis:
Right.

Scott:
So that puts your time value of your time at $90 an hour. Have you competed it that way before?

Travis:
No.

Scott:
Okay. So that’s good, and that’s going to accelerate if you continue doing what you’re doing. So when you do work like property management, 50 to 90 dollars an hour is a good ballpark. That’s probably the book ends of the how expensive that would be to hire out or do yourself, but you’re going to have to start making those types of decisions as you get into more entrepreneurial stuff as well pretty shortly here, and stuff that makes sense to do at $30 an hour, which is the rate you get paid at your job, is not going to make sense day one with your business because of your unusual situation and how much more valuable that business is in your day job at this point.

Travis:
Absolutely, and I do want to start offloading the management. That part of it I don’t necessarily enjoy, and there are companies out there that do it. I’m sure they do it way better than me. So that is definitely one to go.

Scott:
Yeah. So you’re going to find yourself in an interesting position very shortly, where if you offload management, you’re going to be like, “Oh, I generate $8,000 a month in cash flow after management expenses, and I could do nothing forever and spend $8,000.” You could go to Bermuda next week or what’s a better island, Aruba, next month-

Travis:
Yeah, Hawaii.

Scott:
… and spend four months chilling in the beach and easily pay for most of your expenses there based on what you currently got. So something to think about there. To Mindy’s point, 10 million dollars is great, but you can do whatever you want right now if you so chose to do that, and that’s a powerful feeling-

Travis:
It is, yeah.

Scott:
… sitting down and saying, “What do I want my life to look like? What do I want my day-to-day?”

Travis:
To be honest, I don’t spend a lot of time thinking about that. I just had the head down worker mentality.

Mindy:
Think about it.

Travis:
I know I need to.

Mindy:
Just the same advice we give for different reasons to many people, but I would go some place fun, warm, with a good view. Take your notepad or whatever and just say, “Three years from today, what does my life look like?” It could be anything, right? You have a really good shot at going from 8,000 a month in passive cash flow, passive cash flow, that is managed by a property manager, discounting for the property management when I say 8,000, because 10% of 20,000 is two. Okay.
So you take that and you say, “Okay. I can easily make that 10 or 12 or 15.” You have your playbook to doing that, and a 50/50 debt-to-equity real estate portfolio is pretty conservative compared to what a lot of people invest in. I like that a lot better than the exact same amount of wealth in the stock market, for example, because from a conservative point of view, “Wait. What I want my life to look like?” Go somewhere warm or with a view and think about that. Get out of your house, get out of your environment, just sit down, relax for a day, and do it on a set day two or three of your little trip. I think that’d be really powerful for you, and maybe some things change about those long-term goals because you got the whole world open to you right now.

Travis:
This was actually the end of my five-year plan as far as goal wise. Now, I’m at a pivot point and I’m like, “Ah.” I think I’m taking that, the deer in the headlights look.

Scott:
I think it’s a pretty fun position to be in. You should be really excited and proud of what you built because-

Travis:
Thank you.

Scott:
… you got a lot of good stuff. I think it’s a pretty enviable position to be in.

Travis:
Appreciate it.

Mindy:
Yeah. You’re doing very well. I am giving you a lot of hassle about not having anything in your Roth IRA or you’re a 401(k), but I mean, it’s not like you have nothing. You have it just in a different place.

Travis:
Correct.

Mindy:
I’m a stock market fan too.

Travis:
I do too. I like it. It’s just from a dollar-to-dollar average I’ve noticed way better returns in real estate.

Mindy:
You are in an area where you can get good returns on real estate. I’m in an area where it’s a lot, it’s a lot more difficult to get good returns, and you’ve got construction knowledge, you’ve got a team in place. I think you’ve got some things to think about now and just, like Scott said, write it down, what does it look like and how do you want to get there.

Travis:
No, absolutely, definitely. Definitely going to take that advice. Thank you, guys.

Scott:
Anything else we can help you with today?

Travis:
I think you hit the nail on the head there, for sure. Definitely gave me some stuff to ponder.

Scott:
Awesome. Well, I hope it’s fun. I think it’s really exciting for you. Congratulations on what you built, and I don’t have a problem with your real … I think, yeah, you should just consider whether, “I’m going to arbitrage …” I think the big takeaways are figure out what that next chapter looks like. If you want 10 million, you’re going to get 10 million if that’s what you want, but maybe you don’t want that. Maybe you can have something else in the meantime that’s even better right than that if you think about it and write it out because you’ve won the game.
Then I would say from a tactical perspective, just understand that you’re arbitraging low interest rate debt pay down for other opportunities like stock market investments, like stockpiling cash, starting your own business, those types of things. I would seriously consider slowing that or stopping it to some degree to build up a more flexible cash position first and then consider some of these other asset classes or stockpiling cash for that next real estate investment.

Travis:
So I like the idea of stockpiling cash, especially because I’m so illiquid now and like I just said, asset rich, cash poor, so just having that buffer there even though I may not necessarily use it or do whatever. It would be nice to have, nice to see.

Scott:
You know what? Actually, I would say stockpile 25, 30 thousand dollars in cash and then go on your trip. I think that will help. I think that will help a little bit more.

Travis:
Deal.

Scott:
I think that will help, “Oh, I could literally sit for a year not making any money for my portfolio.” I think that will help clarify your thinking a little bit on that front too. So I think that’s a big key is that. Then third, understanding the opportunity cost of your time. You can like your job all you want, but you’re doing them a huge favor at your employer when you could be doing something else, the same thing for more money long term in creating your own business because you’re in position to do whatever you want with that.

Travis:
Yeah, and I would love to branch out into some of the other stuff. I mean, maybe wholesale some of the leads I don’t chase or, like you said, flip, different stuff like that. So there’s opportunities there that I’m not maximizing, for sure.

Scott:
Great, and I think everyone listening should be like, “How do I implement Travis’ five-year plan that he just finished?” That’s the set of problems at the end of-

Travis:
Some long weeks, some long weeks in there.

Mindy:
Yeah. Yeah. We glossed over that part. Travis, this was so much fun. Thank you so much for talking to us today. I really appreciate your time.

Travis:
No, thank you, guys. It’s really been exciting being on the BiggerPockets Podcast and the money group and talking to you guys and making me see things in a different light that I haven’t quite thought about it that way. So definitely going to take your advice. Thank you.

Mindy:
Awesome. Okay. We’ll talk to you soon.
Oh, Scott, I love Travis. I love him so much. I love his story. I love everything about his conservative approach to investing in real estate, and to anybody who is saying, “Oh, well, all that money sitting there is just wasted. You should buy more real estate,” I want to say that Travis is doing it right, and you can invest conservatively in real estate and still come out a winner. Clearly, he’s a winner. The only thing, like I said before, I’d like to see is Roth IRA contributions more just because of the tax-free growth because he’s so young, because there is the possibility that the Roth will go away. Other than that, Travis is perfect and walks on water.
I do want to highlight something we mentioned about 20 minutes in. He was considering leaving his job. What? He is. He’s so good. It’s like, “What are you talking that for?” Okay. Sorry. I want to highlight he was considering leaving his job, and I brought up the whole W-2 job income will help you qualify for loans, more for other people who might be listening who might be considering leaving their job who aren’t as lendable as Travis is.
Your lender wants you to have income and they will look at your net worth and be like, “Yeah, that’s cute. Do you have any income? You don’t have any income. I’m not giving you a loan.” So if you don’t have a huge, amazing track record like Travis, you need to speak to your lender about ways to get loans before you quit your job not after. That’s why I brought that up, Scott

Scott:
100%, yeah. He is an unusual situation because he’s really overshot financial independence to the point where his business generates a lot more income than his job. This has only happened I think with one other guest. I forget his name, but it was one of the first Finance Fridays we did. If you recall, the guy who had all those properties in New Jersey.

Mindy:
Wayne Loux.

Scott:
Wayne Lou, yeah, thank you. You’re really good with that, but yeah, that was one of the only other situations where we’ve run into this phenomena of like, “What are you doing at this job? It’s really the biggest drag in your financial position at this point.” So I think it’s really cool. I have a friend, he’s a CEO friend, and he has four criteria he looks for when he hires people. It’s happy, honest, humble, hungry, the four H rule. I think to echo Mindy’s gushing over Travis, I think Travis is definitely a four H guy. What a phenomenal human being on there?
I will call out, though, one quick point that I want to just reemphasize from the discussion. Travis was buying properties, fixing them up, and then cash out refinancing a property here and there in order to fund his next acquisitions, and that is absolutely a phenomenal approach. One of the reasons, a tailwind behind the growth that he had for the last five years to build this position because every time he’s refinancing, he’s doing so at the same or perhaps even lower interest rates on average from 2017 to the present.
However, that’s changing in 2022 with rising interest rates. So that approach no longer, well, it can still work, it can still work, but there are disadvantages to it, which in his situation and perhaps many of our listeners’ situation here, I think you’re better off potentially stockpiling cash or paying off the most recent debt first if you are going to do that approach rather than your old debt. Keep that low interest rate debt, in my opinion, and forego getting new high interest rate debt by stockpiling cash and using that to purchase the property instead.
So important nuance there that a change in interest rate dynamics do require a change in strategy and how we think about that. Much better to not pay off your debt and stockpile cash than to pay off the debt and then issue new debt like he was doing.

Mindy:
Yes. I agree with that. I think that’s a really important thing to bring up. I’m glad you brought that up because I can see his point of view, “Oh, I’m just going to pay off my debt.” Well, okay, great, but yeah, if you’re paying off the low interest rate debt, don’t do that, pay off the high interest rate debt or I love the suggestion even more just so stockpile the cash because then you can, I mean, if you’ve got a big pile of cash and no place to put it, throw it at the debt later.

Scott:
If you’re going to keep acquiring properties, it does not make sense to pay off low interest rate debt and take new higher interest rate debt out to buy the new property. Do something else. Either pay off the debt or buy a property cash.

Mindy:
Exactly. Okay. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 336, the best episode ever of the BiggerPockets Money podcast, he is Scott trench and I am Mindy Jensen saying, “Every new beginning comes from some other beginning’s end.” I wrote that myself.

Scott:
Closing Time, yes, there it is.

Mindy:
Every new beginning comes from some other beginning’s end. Goodbye.