finance
For those who have money… or want more of it! Join Mindy Jensen and Scott Trench (from BiggerPocketsMoney.com) weekly for the BiggerPockets Money Podcast. Each week, financial experts Mindy and Scott interview unique and powerful thought leaders about how to earn more, keep more, spend smarter, and reach financial independence.
Alex Preziosi, previously featured on the BiggerPockets Money podcast, has successfully transitioned from her W2 job to working full-time as a real estate agent. This move has led to a doubling of her income, and she is now on track to earn $200,000 in commissions this year.
Alex Preziosi, who previously aimed to reach financial independence (FI) by age 45, has seen her perspective on FI evolve. She now focuses less on a specific dollar amount and more on the flexibility and freedom that financial independence provides.
Alex Preziosi has entered into a contract to purchase a three-family house hack in her town. The property was acquired off-market and is described as a project, indicating potential for further investment and value addition.
The hosts of the BiggerPockets Money podcast cautioned listeners against quitting their jobs to become real estate agents without careful consideration. They highlighted that while real estate can be lucrative, the market has slowed, and success requires significant effort and existing client networks.
Alex Preziosi reported that her real estate agent commissions are on track to reach at least $200,000 for the current year. This projection is based on her earnings so far in September and expected closings in the coming months.
Alex Smirzlock of Franyzie explains that franchise costs can range dramatically, from low-cost options like commercial cleaning services starting at $10,000 to large swim schools or indoor play parks costing up to $5 million. He suggests that $50,000 to $150,000 is typically sufficient to enter many income-replacing or empire-building franchise concepts.
Alex Smirzlock highlights franchising as a 'de-risked' path for aspiring entrepreneurs who have saved capital but lack a specific business idea. He notes that franchising provides a proven playbook, a network of peers, and a higher success rate compared to starting an independent business from scratch.
Alex Smirzlock identifies three primary types of franchise buyers: 'side hustlers' seeking supplemental income, 'corporate warriors' looking for a career change and more control, and 'serial entrepreneurs' diversifying their investments. The 'corporate warrior' segment, often dual-income households, is a significant demographic.
Alex Smirzlock contrasts the success rates of franchised businesses with independent startups, stating that franchised businesses have a five-year success rate of 85%, significantly higher than the 50% rate for independent businesses. He attributes this difference to the proven playbooks and support systems provided by franchisors.
Scott Trench poses that many individuals desire to be business owners but hesitate due to not knowing where to begin. Alex Smirzlock agrees, noting that franchising offers a structured approach for those with transferable skills from corporate careers who want to own a business without the extreme risk of a startup.
Alex Smirzlock clarifies that purchasing a franchise is not a passive investment and generally requires a full-time commitment, particularly in the first few years. He likens it to starting an independent business in that it demands significant time for hiring, sales, and operations, unless one has substantial capital to hire an operating partner.
Alex Sarnack of Franzi explains that the cost to enter a franchise business varies widely, from low-cost options like commercial cleaning ($10K-$20K) to large ventures like swim schools ($4M-$6M). However, he notes that $50,000 to $150,000 is often sufficient to access franchises capable of replacing a corporate income or enabling empire building.
Alex Sarnack highlights a significant gap between Americans' desire for business ownership and actual action, citing a Gallop survey where 68% expressed interest but only 12% pursued it. He suggests that franchising offers a de-risked path for these individuals by providing a proven playbook and support system, allowing them to bypass the initial steps of entrepreneurship.
Alex Sarnack categorizes potential franchise buyers into three main groups. The 'side hustler' seeks a low-commitment franchise for supplemental income, the 'corporate warrior' is an unhappy professional looking for a full income replacement, and the 'serial entrepreneur' views franchising as another investment for diversification.
Alex Sarnack argues that franchising is a de-risked entrepreneurial path, citing an 85% success rate over five years for franchises compared to 50% for independent businesses. He explains that this is because franchisors have a vested interest in franchisee success, providing a proven system and support structure.
For a $500,000 franchise investment, the typical cash requirement is 10-20%, translating to $50,000-$100,000. The remaining 80-90% can be financed using sources like SBA loans, ROBS (Roll Over for Business Startups), home equity, or seller financing. A $400,000 SBA loan over 10 years at 8% interest would result in a monthly payment of approximately $5,000.
Alex Sarnack outlines the franchise buying process, starting with self-assessment of interests, skills, and finances. This is followed by researching concepts, contacting franchisors, reviewing the Franchise Disclosure Document (FDD), conducting validation calls with existing franchisees, signing the agreement, and finally, undergoing training and onboarding.
When evaluating a franchise, Alex Sarnack advises looking for red flags in the Franchise Disclosure Document (FDD), particularly Item 20 which lists current and former franchisees, noting a high number of former franchisees could signal dissatisfaction. During validation calls, listen for consistent concerns, hesitancy in answering questions about profitability, and the franchisor's responsiveness.
Alex Sarnack emphasizes the importance of territory size in achieving income replacement goals through franchising. For location-based franchises, a single territory may suffice, but service-oriented businesses might require multiple territories, significantly increasing the initial investment. Understanding revenue potential per territory is key to financial planning.
Alex Sarnack identifies key mistakes made by aspiring franchise buyers, including insufficient due diligence, such as skipping FDD review or validation calls, and underestimating the required time and effort. He stresses that franchising is not passive income and requires dedication, with buyers sometimes focusing too much on glamour over operational realities.
Rising interest rates make franchise financing more expensive, potentially requiring larger down payments or increasing loan payments. Conversely, increased costs for goods and services have boosted demand for certain franchises, like home services. Franchisors face higher operating costs, but the demand for franchising as a de-risked entrepreneurship path remains strong.
Nick Morales shared that he built a $50 million real estate portfolio by age 29, operating three businesses in the real estate sector. Despite the large numbers, he revealed that the reality is not as glamorous as it sounds, as he currently lives in a manager's unit on one of his buildings in Sumter, South Carolina, sleeping in a bunk bed from Monday to Thursday.
Nick Morales detailed his early real estate investment strategy, which involved using 'other people's money' (OPM) to fund his first flip at age 24. He secured a hard money loan at 10% interest and two points, covering 100% of the purchase price and rehab costs for a $130,000 property.
Despite admitting to making mistakes on his first real estate flip, Nick Morales reported an $80,000 profit. The deal involved a 1,000 square foot, two-bedroom, one-bath property that took seven months to renovate.
Nick Morales stated that his net worth equity in real estate is approximately $5.5 million, based on his stake in a $50 million portfolio. He clarified that this equity is not easily liquidatable due to debt, which he estimates at 60-66% of the asset base. Morales also mentioned he operates a 'fee-less platform' for his deals.
Nick Morales discussed balancing his real estate ventures with other professional roles, including sales for Bigger Pockets. He has been with Bigger Pockets for about two and a half years and previously worked in sales for the NFL, selling tickets for the Dolphins, Raiders, and Niners.
Nick Morales clarified that his real estate platform is 'fee-less,' meaning he doesn't charge asset management or acquisition fees, only standard property management fees. This structure allows for a 50/50 split with his Limited Partners (LPs), who typically receive their capital back within 12 to 18 months after asset stabilization.
Nick Morales provided an update on his real estate portfolio, stating that approximately $20 million is currently fully performing, while the remaining $30 million is in various stages of renovation or stabilization. He also mentioned that he is not currently seeking additional loans for these assets.
Scott Trench explains his family's approach to financial goal setting, which involves creating a one-page vision statement written in the present tense. Virginia Trench adds that a "household equity check" is a valuable tool to prevent resentment in financial discussions between partners.
Scott Trench reflects on his career trajectory, attributing his success to early opportunities at BiggerPockets. He emphasizes that his path is not necessarily realistic or repeatable for everyone.
Mindy Jensen expresses admiration for Scott and Virginia Trench's open communication about finances, even during their honeymoon. She contrasts this with her own experience, where financial discussions were delayed after marriage.
Real estate investment trusts (REITs) have underperformed the broader stock market over the past few years, particularly since the interest rate hikes began in early 2022. Despite challenges, experts like Uci, cited in the discussion, believe that many REITs are now trading at a discount to their underlying asset value, presenting a compelling investment opportunity.
Traditionally, REITs trade at a premium to their Net Asset Value (NAV) due to benefits like liquidity and professional management. However, following a recent market downturn, many REITs are now trading at significant discounts (20-50%) to their NAV. This valuation gap is driving recent merger and acquisition activity as larger firms see value in acquiring these assets.
Determining the precise Net Asset Value (NAV) for REITs can be challenging, especially for REITs holding a large number of diverse properties. Unlike liquid stocks, real estate assets like office buildings in specific markets are not easily marked to market, making accurate valuation complex. While an exact calculation might be elusive, a reasonable estimate can still indicate undervaluation.
The speaker expresses a preference for evaluating REITs based on their net asset value compared to their stock price, similar to how they'd assess direct real estate investments. They ponder whether investing in REITs offers better value than direct property ownership, considering factors like liquidity, management, and potential discounts.
While REITs have underperformed the S&P 500 over the last five to twenty years, historical data suggests a different picture over longer periods. According to NAREIT, REITs have provided competitive returns, even slightly outperforming the S&P 500 over the last 50 years, indicating potential for future recovery.
A key factor distinguishing REIT performance is the management structure. The speaker argues that internally managed REITs have historically outperformed externally managed ones due to fewer conflicts of interest and better economies of scale. Investors might benefit from favouring internally managed REITs or avoiding externally managed ones when making investment decisions.
While office real estate faces challenges and may require conversion or redevelopment, other sectors within REITs show promise. The speaker identifies industrial and residential real estate as areas with significant opportunity. Within industrial, specific niches like cold storage are highlighted, while retail and self-storage are also mentioned as potentially interesting.
A 29-year-old couple, Katie and Ann, are on track to become work-optional by age 40 with a $2.5 million portfolio. They recently inherited two rental properties and $185,000 in cash, adding to their existing $1.7 million net worth built through diligent saving and real estate investments.
Scott Trench highlighted the impressive financial position of Katie and Ann, a 29-year-old couple, noting their well-developed and balanced portfolio. He compared their achievements to individuals who have spent two decades building similar wealth in the FIRE community.
Katie and Ann attributed their significant net worth at age 29 to making substantial sacrifices, such as house hacking and having roommates. They emphasized living frugally to achieve their financial goals.
Ann shared that she has always been interested in finance, studying it in college and starting to invest at 18. She has worked as a data engineer, taking advantage of employee stock purchase programs and maximizing her retirement contributions.
A recent inheritance of two rental properties and $185,000 in cash has significantly increased Katie and Ann's net worth to $1.7 million. This inheritance adds to the substantial wealth they had already accumulated through their careers and real estate investments.
Katie and Ann are seeking guidance on how to best utilize their current financial position, which has been enhanced by an inheritance, to continue growing their wealth responsibly. They are also considering starting a family and want to balance this with their goal of multiplying their assets.
Katie and Ann are comfortable taking on some calculated risk to further grow their wealth, aiming for a 'stable floor and a rising ceiling.' They also expressed a preference for a balanced portfolio that includes both index funds and stocks, as well as rental real estate, which they are experienced in managing.
Katie, who is a full-time realtor, stated that she manages their rental properties and is not fazed by tenant calls or the associated administrative tasks. This experience makes her comfortable with continuing to own and manage rental real estate.
Katie and Ann will be eligible to claim real estate professional status this year, as Katie has transitioned into real estate full-time. They were advised to meticulously track their hours to ensure compliance with IRS regulations.
Scott Trench advised that cost segregation strategies for real estate should be timed with years of high income to maximize tax benefits. He suggested utilizing these benefits in years with significant capital gains or when in higher tax brackets, rather than lower ones.
Mindy Jensen addressed criticisms regarding her investment strategy, where 85% of her net worth is concentrated in five individual stocks, with 70% in two Elon Musk-backed companies. Scott Trench defended her transparency and long-term approach, noting that she has openly discussed her portfolio and blogged about it for years.
Scott Trench discussed how significant wealth accumulation, particularly for those with net worths exceeding $5 million, often stems from concentrated positions. He cited examples like employer stock (Nvidia, Apple, Tesla) or concentrated real estate holdings as common drivers for substantial wealth.
Adriene Adams, a CFP from Domain Money, points out that many people pursuing Financial Independence, Retire Early (FIRE) optimize for a number without considering what they want their life to look like after reaching it. This can lead to feelings of emptiness upon achieving their financial goal, as they didn't plan for what comes next.
Adriene Adams discusses the common FIRE mistake of maxing out 401(k)s, which can lead to illiquidity at retirement age. Scott Trench adds that this creates a 'middle class trap' where individuals have sufficient funds on paper but cannot access them without significant penalties. Mindy Jensen shares a personal experience of this, having a large portion of her net worth in her 401(k) and now facing challenges accessing it before retirement age.
Adriene Adams describes a client who, after reaching their FIRE number and retiring, couldn't figure out how to spend their money. Adams helped the client plan a trip to Switzerland, a place with nostalgic significance for the client, by helping them allocate funds and providing the psychological permission to spend.
Scott Trench discusses the strategic consideration of using home equity for liquidity, noting that for individuals who take the standard deduction, the interest on a HELOC is effectively a post-tax expense. He mentions obtaining a quote for a HELOC to maintain the option, even with a paid-off home, highlighting the trade-offs of tapping into home equity versus other assets like rental properties.
Cody Burman discusses his journey to accumulating $5 million by age 30, a goal achieved through an "entrepreneurial sprint" that involved increasing income and decreasing expenses. He highlights that while his exact path may not be repeatable, the principles of taking action and exploiting opportunities are key to financial success. Burman's initial ventures, including a disc golf company started in college, provided valuable lessons that paved the way for more lucrative businesses.
Cody Burman details the rapid growth of his income through entrepreneurship, starting with $96,000 in his first year and doubling to $198,000 in the second. By his third year, his income had surged to $403,000, while maintaining expenses at a consistent $24,000 annually. This significant income gap allowed him to deploy capital into various investments.
Following his rapid income growth, Cody Burman deployed his capital into a diversified investment portfolio. In one year, he acquired 11 rental units, invested $200,000 in the stock market, and focused on his personal brand and podcast. His primary income driver during this period was his digital products business, Gold City Ventures, alongside freelancing projects.
Cody Burman provided a detailed breakdown of his $5.1 million net worth as of age 30. This includes $2.1 million in index funds, $1.7 million in real estate, $663,000 in business equity, and $510,000 in cash. Additionally, he holds approximately $100,000 in cryptocurrency, noting that his higher cash reserve is due to building his forever home.
Cody Burman described his early years of wealth accumulation as a "financial freedom sprint," emphasizing a relentless focus on achieving FI. He credits role models like Scott Trench and reading the book 'Set for Life' for instilling the importance of keeping expenses low while aggressively boosting income. This approach allowed him to create a substantial gap between his earnings and spending.
Cody Burman believes that while luck plays a role in financial success, it's often a result of taking consistent action and being prepared for opportunities. He contrasts his journey with purely luck-based outcomes, emphasizing that actively pursuing different businesses and investments increases the chances of encountering beneficial circumstances. Burman suggests that those who "get the luckiest are the ones who take the most action."
Evan Lawler defines Coast Financial Independence (FI) as a hybrid approach where individuals front-load their retirement investing to a point where investments are projected to grow sufficiently by retirement age. This strategy allows them to 'coast' in their later years, covering day-to-day expenses without further investment.
Evan Lawler addresses skepticism about Coast FI, clarifying that it doesn't enable early retirement like traditional FIRE. However, he argues it provides significant flexibility, acknowledging that many who pursue FI will likely continue working in some capacity, perhaps on more fulfilling or less demanding jobs.
Scott Trench views financial independence as a spectrum, with Coast FI representing a crucial milestone. He suggests that reaching this stage grants individuals more power over their employment choices, allowing them to potentially take less demanding or lower-paying jobs that offer greater personal fulfillment.
Scott Trench suggests that Coast FI is particularly beneficial for individuals with young children, as the demanding nature of early parenthood can make aggressive savings strategies less appealing. He posits that Coast FI can serve as a more attainable intermediate goal, providing a breather before resuming the pursuit of full financial independence.
Scott Trench outlines his strategy for accumulating the first million dollars in net worth for those starting in their 20s, dividing the journey into three buckets. The first involves cutting 'big three' expenses (housing, transportation, food) and potentially taking side jobs. The second is accumulating cash for opportunities, and the third is long-term investing.
Brian Preston and Beau Hanson of The Money Guy Show discuss the 'achiever's trap' with podcast hosts Mindy Jensen and Carl, a couple who have accumulated significant wealth but are now facing potential future tax liabilities due to their aggressive tax-deferred savings. They aim to strategize ways to access their 401(k) funds to minimize future Required Minimum Distributions (RMDs) and create a more favorable tax situation for their heirs.
Carl, who retired in April 2017 at age 42, shares his experience of the past decade. He describes retirement as fantastic and not something he'd trade for any amount of money, stating he works harder than ever but on his own terms. He's currently involved in personal projects like building a house and installing solar panels.
Mindy Jensen, co-host of the BiggerPockets Money podcast, discusses her current work in retirement. She enjoys her roles as a real estate agent and podcast host, emphasizing that she works low hours and finds fulfillment in helping people find the right homes. She does not anticipate leaving these roles in the next 10 years.
Carl details his career path, explaining that he was primarily a software developer. Towards the end of his career, he transitioned to being a contractor, which significantly increased his hourly pay from $85,000 annually to $85 per hour. This financial success allowed him and his wife to maximize their retirement accounts.
Carl attributes his strong savings habits and frugality to his father, a surgeon who was also a spender and worked until age 72 to avoid burdening his children. This personal history motivates Carl's own financial discipline.
Carl and Mindy Jensen, aged 52 and 53 respectively, have amassed a net worth of approximately $9.8 million, with the majority held in retirement accounts. They are seeking advice from The Money Guy Show to optimize their finances, particularly focusing on their substantial retirement savings and cash reserves.
Scott Trench and Mindy Jensen discuss a new budgeting tool developed by BiggerPockets Money. The tool uses government spending data, adjusted for geography and household type, to provide a realistic view of expenses rather than aspirational ones.
The BiggerPockets Money podcast identified Santa Cruz, California as the most expensive market in the US, with a median monthly spending of $12,600 for a couple with kids. Beckley, West Virginia, was found to be the least expensive, with estimated median monthly spending of $6,500 for a similar household.
A comparison between Charlotte, North Carolina, and Manhattan, Kansas, highlights how housing costs greatly influence overall spending. A couple without kids in Charlotte is estimated to spend $9,000 monthly, compared to $5,900 in Manhattan, Kansas, with housing being the primary factor in this $800 difference.
Evan Lawler, a 25-year-old pursuing 'Coast FIRE', aims to reach $500,000 in retirement investments by age 30. He projects this amount will grow to $5 million by age 65, providing a $200,000 annual retirement income based on the 4% rule. Currently, he has $200,000 invested and contributes $3,300 per month.
Evan Lawler began his retirement investment journey at age 17, with his parents contributing his summer job earnings to a Roth IRA. He credits this early start and compounding growth for a significant head start in his early twenties. He emphasized the importance of balancing current enjoyment with future financial security.
Evan Lawler defines Coast FIRE as a hybrid financial independence strategy where individuals front-load retirement investments. The goal is to reach a point where no further contributions are needed, allowing the existing investments to grow to support retirement. This approach is seen as less daunting than traditional FI for younger individuals.
Mindy Jensen and Scott Trench on the BiggerPockets Money podcast delved into six frameworks for early retirement withdrawal strategies, noting that accumulation is simpler than withdrawal sequencing. They highlighted that withdrawal planning is more art than science and requires understanding underlying theories rather than just following rules of thumb.
Mindy Jensen outlined a traditional withdrawal order of operations: after-tax cash flow, after-tax brokerage, pre-tax accounts, HSA reimbursements, and finally Roth accounts. She cautioned that listeners with significant gains in after-tax portfolios should consider all available accounts before making decisions, as this can impact subsidies.
Scott Trench explained how Modified Adjusted Gross Income (MAGI) impacts Affordable Care Act (ACA) subsidies, noting that a lower MAGI can lead to higher credits. He highlighted that maximizing these credits in a given year might conflict with Roth conversions, adding another layer of complexity to withdrawal planning.
Scott Trench expressed skepticism about many financial products but endorsed term life insurance, suggesting a 'ladder' approach instead of a single large policy. He recommended Ethos as a platform for online life insurance applications.
Scott Trench discussed the value of professional financial advice, specifically mentioning Domain Money as a flat-fee service that provides unbiased and personalized roadmaps. He suggested listeners book a free strategy session with them.
Mindy Jensen suggested that individuals can balance a large Roth conversion in a given year by also making a significant contribution to a donor-advised fund. She emphasized the benefit of consulting with a tax professional or CFP to ensure comprehensive financial planning.
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