The Truth About Rental Properties (Is It Passive Income?)

Introduction: The Real Estate Dilemma (0:00)

Bo: You’re now at the place where you get to make financial decisions not so much because you have to but because you get to or because you want to but you have to define that. Is real estate a job for you or is it part of our financial life is that we have some real estate properties, because those are two very different things. How do you want to approach it, and how do you want to attack that?

Meet the Couple (0:25)

Christian: So I’m a manufacturing engineer in the aerospace industry, 10 years now.

Brian: And, you know, does that mean like building planes and stuff?

Christian: I like to say it’s, we as a manufacturing engineer we build the, the Lego assembly set, you know, that, that, that, you know, gives the instructions from the design to the operator, you know, so it’s, it’s really cool stuff.

Brian: And how about you?

Becca: So, I manage a team of associate recruiters for like a tech enabled search firm that’s based out of Chicago, full-time remote. I’ve been doing it for almost 5 years now. And we specialize in like high impact placements and executive recruiting. So, we’ve worked for anyone like Dude Wipes to Peloton. Oh, wow. Software companies that you may never have heard of but are doing very well. Topgolf is a client of ours. So, it is, it is fun.

Bo: And you’ve been doing that for 5 years.

Becca: Yeah. And I’m, I manage a team internally, so I kind of like more ops, people management.

Bo: I love it. So, you say you guys have an 18-month-old little boy at home. How old are you guys?

Christian: I’m 35.

Becca: 35. 34. Going on 35. 34. Going on 35.

Brian: That’s kind of that progression.

Becca: I was like, if I can say 34 on air, that’s great.

The $821,000 Net Worth Reveal (1:37)

Bo: Well, it’s interesting. You know, you guys were kind enough to share a net worth statement with us. And I’ll be honest, when I saw it, I was like, “Holy cow.” Do, do you guys feel like you’re way out ahead of the curve and crushing it? How do you guys feel about your current situation?

Christian: So, when we really started looking at this, we pieced it all together and realized where we were and it, it, yeah, it was eye opening for sure. I don’t think we expected it to be as high as it was and, and but I, I feel like we’ve been very diligent about it, you know, in the past couple of years. So yeah, I, I think it’s,

Brian: Well, how long have y’all been together? Because you,

Christian: So we’ve been married for about three years now.

Brian: Okay. And is this the, doing this exercise? Was this the first net worth statement y’all done? A like a fully comprehensive net worth statement?

Christian: Yes.

Becca: He likes to run the numbers on the back end, but yeah, we met during COVID. I like to say he’s my COVID cutie, right? And I love that. Our first date was virtual. Amazing. But yeah, we’ve been working, but it hasn’t felt like we’ve, like we feel like we’ve reached more of a tipping point in the last I would say 6 months when things started accumulating a little bit more and we felt like oh, we need to talk to someone and figure out what our next steps are because the decisions we make could lead us in a direction pretty significantly at this point. Yeah.

Bo: Well, when we look at the net worth statement, you can see that you guys have absolutely crushed it. Now, it’s interesting. You said you’ve been married for three years. So, sounds like both of you had some success before you got together. I’d love to talk about that. But as it stands right now, total net worth of almost $821,000, like rapidly approaching the two-comma club in your mid-30s, which is insane. And a very healthy household income. You make almost $300,000 a year, $276,000. So, not only do you have a big income, it looks like you’ve been able to turn a big income into wealth. How’d you guys do it? Like what was the, what was the secret sauce? You said you’ve, you’ve reached the tipping point. What were you doing before you got to the tipping point?

The Saver Origin Stories (3:34)

Christian: Yeah. So, I think we were pretty diligent on like our savings rate. You know, definitely, you know, even before knowing, you know, the 25%, you know, it was how, how high could we go? And not always, but certainly in my late 20s and let’s say for the past six, seven years. But I think for Becca it might have been most of your,

Becca: I’ve always been a saver. And I’ve always been a worker. So like the day I turned, the day I turned 15 was able to work. I walked into Burger King was like I need a job. I love that. And then, one of my first financial memories really is of just watching my parents be very frugal in different ways but both frugal. And my mom saying like okay, you get your paycheck, that’s not all yours today. You have to pay yourself for tomorrow. So at least half of that should be saved. And so when I entered, that’s been, I’ve always had a job. I’ve never not had a job. Even when I was full-time in school was working as well. And when I got my first more professional job post-grad school, that started my career we’ll say, at one point the financial person that our accountant was like, do you know how much you’re saving? So because it wasn’t normal, right? I was probably at 20% at that time.

Bo: And for a young person that’s wild.

Becca: Exactly. And I’m going to keep it that way, you know. So, it was interesting. She’s like, not financial advice, but I just wanted to make sure, you know, some people save and then don’t realize it’s not vested. Like, it was kind of that conversation, but on the other side of the spectrum.

Bo: I love it. You guys just figured it out early on that, hey, if I save and build a little bit for tomorrow, it stacks up pretty quickly.

The House Hacking Story (5:09)

Brian: So, so who’s the, the, the person that’s kind of driving a lot of the financial decisions in the house? Who’s like the financial person or are y’all both? Are y’all like collaborating on everything?

Becca: He’s the spreadsheets guy more so and more of like crunching the numbers like he says that the, I mean he’s, he’s tried to do like net worth statements and stuff like that before and like trying to calculate when we could potentially go into coast FI or something. For me, I’m much more the person that’s like what’s the impact on our family and what is our lifestyle actually, what is, what does it look like now and what is it going to look like? And I think especially since having our son, that was kind of like the shifting point for us because we manage real estate and we do it all ourselves. Like we don’t, we don’t contract out most of the stuff. And I’m like this is taking into a lot of time and our priorities have shifted a little bit. So, yeah.

Christian: Yeah. And I think, yeah. So, that’s where we’re here now is, I mean we, we have fairly tight margins on our real estate properties. We both bought them before we were married as like a, you know, owner occupant multi-families and decided when we got married we would buy single family and keep both properties and still manage them, self-manage, right? So it’s kind of now we’re looking at it and we do a lot of the work ourselves. How much is it, you know, helping support our journey on, you know, financial independence or not, you know, and we think it is, but you know, this is where we’d like your take on, on that.

Bo: So, you both lived in your own houses and you got married, got a y’all’s house, and you just held on to the houses that you had. Did I hear that right?

Becca: So, he bought his in 2020. It’s a quadplex, so it’s four units, and he lived in one. Yeah. So, that’s, there’s a lot of multi-family real estate in St. Louis and so he has a quadplex. I have a duplex. They’re ours now. I know. Yeah.

Brian: So, and y’all both, house hacked it. They both lived in part of it. Oh, y’all are like prodigies. Good for you guys.

Becca: He had his first and I had just moved back January 2020 from Michigan, which was a very expensive market. And I was single at the time and I was like, I can’t afford to live here. So, when I moved back to Missouri to be closer to my twin, I decided I’m going to rent for a year and then I’m going to buy. And I wanted multi-family so bad. I was actually going for a quadplex, but it was crazy COVID times and they were just getting like swooped up. So, I was, I ended up buying a duplex and owner-occupying it too, like house hacking. He moved in there with me for a little bit and then we bought our single-family home.

Brian: Can you imagine their first date? We started talking about commonality and, and interest and stuff and start talking about duplex and quadplexes and house hacking. I mean, I just all of a sudden, I’m sure bird chirps and, you know, and harp sounds started playing in the background. The apps immediately like, “This is it. We’ve done it. We found them.”

Christian: I think, yeah, we, we’ve had experience with, you know, in the past with, our relationships. We’ve learned, you know, we really learned what we wanted in life, what kind of a partner we would want in life. Sure. And we, yeah, absolutely.

Becca: That’s very true. Yeah. We, we’ve realized we click, this is it.

Brian: I love it. Deleted the apps immediately.

The Real Estate Portfolio Breakdown (8:12)

Bo: So when we look, when we look at the net worth statement obviously, $820,000 net worth. Well of that we have about $530,000 of, of liquid assets of state savings you’ve been want to talk about that but the real estate is a pretty big portion. If you look at just the value of the assets that you have for real estate it’s like $815,000 with debt on that real estate of a little under $600,000.

Brian: Look at those interest rates. Well haga haga. Well, two, two of the three are high on the, on the rental property. I mean, y’all have to be feeling pretty good about those.

Becca: Yeah. Yeah. The rental property number two. The 2.75 is the duplex. And that’s actually the one we might be considering selling. And I’m like, “Ooh, that 2.75 is so nice.”

Brian: Well, walk us through it because you said you have some questions, right? Like, because I’m sure for a lot of people out there hearing this, like, “Holy cow, these two are killing it. Net worth is amazing. They have a duplex. They have a quadplex. Have the primary residence. What possible issue could they have? What could they be worrying about?” So, walk us through what are the questions you have?

Becca: Time, Bo. Time is the issue.

The Time Management Challenge (9:18)

Becca: So, we have pretty tight margins and Christian could get a little bit more into the numbers there, but, so, for our properties, all, most of them, we have six units altogether. Five of the units are long-term rentals and one is a midterm Airbnb. So for the Airbnb for example, like most of the time tenants will stay from 2 months to sometimes 6 or 9 months, but we flip it every time. So if someone’s going in cleaning after tenant, that’s us. If a pipe bursts, I’m the one helping manage contractors most of the time because I work from home. And we screen all of our own tenants. We like, I’m basically the general contractor managing work that needs to be done.

Brian: Are you good at that or have you been burned?

Becca: I think I’m pretty good at it actually, but not without help. I’m a part of like a women’s investor community in St. Louis that’s very strong, super resourceful. So, I honestly like if I need a plumber, the first thing I do is go onto our shared Facebook page and either ask or like search for if anyone’s got recommendations because recommendations go a long way in this industry. You can get burned. And so I’ve had some mentors to help along the way in that regard, but it’s still a lot of time that goes into it. Probably spend, I don’t know, it depends on if there’s a project happening but probably five hours a week or something, so nothing crazy but it’s never planned.

Bo: But you’re still, work, you both work full-time right? So you’re working full-time and this is an additional, an additional thing every week that’s,

Christian: Exactly, we yeah. So I think we, you know, we, we make, you know, the positive margins on these properties and so we see that and we see that, you know, we’re paying off our mortgages diligently, our equity is raising and, you know, we, we know it’s, it’s going to help in the end with our financial independence journey, you know, to, to break away from traditional, you know, work environments in the future but, you know, how, how is it compared to our traditional retirement investments? Is it something we should swap focus on or not? And we could give you the numbers like specifically in the real estate.

Bo: Yeah, I’d love to hear a little bit about, about the numbers and the margins because where my mind is immediately going is like okay, you have this issue, we don’t have enough time, but you have resources. What was the thought between you guys self-managing this and not having a management company or not outsourcing that?

Becca: So it felt very simple when we started by owning them right? Like if something happened I could do it, you live there and then there’s obviously some tax write-offs implications to that too. And so that’s why we chose to self-manage. I had thought maybe that I could transition from a full-time W2 to managing property. So, for example, we need some renovations on our quadplex. It’s got four units and two sides or two units are very outdated and so we basically have to do probably put $40,000 to $50,000 into each unit to bring it up to current market. Current market. Exactly. And so, it’s like I actually think that would be a fun project to take on, but it sounds horrendous when you think about working a full-time W2 and doing that. And so, but we like it. Like I work from home full-time remote. I manage a team so I do talk to people. But like I actually love that I know who my tuck pointer is for brick work. I’ve got a roofer. I mean I think for us, he’s not from St. Louis originally, but like for me like we’ve all had our share of like slummy kind of landlords and I think we pride ourselves in like being not being that and being like a service to the community and, you know, in that way too. Like, like if I sold, I mean obviously money matters, you know, I’m not going to get super undercut but like I would love if it was someone who was owner occupying and also lived in that space, you know, so there’s a values piece there.

Breaking Down the Numbers (13:02)

Brian: I would love to know some more numbers because there’s, there’s a few things that jumped out to me is that first of all with rental property, sometimes one rental property is a pain in the rear because you have to deal with it, but y’all have five to six because you’ve done, so you start, it’s not scale is not the proper word but you at least got enough coming through, scale to an extent, yeah. And then I, and then I look at, and I look at what y’all’s barrier, I mean your price to entry was with, with the debt and stuff so I need to know the numbers to know the hassle factor. Why is it taking so much time? Is this something we can buy our way out of? Because and then also you’re kind of talking out of both sides of your mouth a little bit because let’s go.

Becca: Okay, let’s go there.

Brian: No, and I’m not picking on you, but I just, I want to just give you the feedback. That’s why we’re here because you’re telling me we have no time to do this. But then out of your breath, you’re also like, but I love, let me tell you about my brick layer that I have in my Rolodex and that I can reach out to. I mean, you’re kind of giving both, both vibes. So, that’s what it makes me immediately wonder because like I have, you know, what’s funny is I have some property down in real in Florida and my real estate agent also now kind of helps me manage the, the property as well. She, she’s fabulous and that’s what, so and I’m wondering if you, if there’s not a, an in between here, but, but I don’t want to jump right there until we know more of your data sets.

Becca: So, we’ll start. I don’t know where you want. So, like just going back 30,000 feet, I would say we make money on the quadplex and then we kind of break even on the duplex. And that’s a product of scale, right? We got four units on that side and two on the other. And then also last year was a very expensive year for me for the duplex. Replaced the roof and was actually in the red. So, but I’ll go,

Bo: So, in a normal year, you break into a duplex. Last year, you were under.

Brian: But a roof is more of a capital expenditure because you have to, you get it. I mean, you’re hopefully you’ll get 20 years out of it. So, I mean, yes, you’re in the red, but if you think about it from an accounting standpoint, you made a big capital investment into it. It’s not necessarily just operations.

Becca: See, that’s a good way to think about it because I, anything I spent money on is in there. So, like you’ll see we’re pretty conservative when we like when it’s good for us, we’re conservative on the low end, right? When it’s bad for us, we’re conservative on the high end. And so, you’ll see that in these numbers.

Brian: But, it’s negative from a cash flow. You’re right, probably from a cash flow is negative, but I’m just thinking in analyzing the venture that wouldn’t necessarily be a bad thing.

Becca: And we did buy them to buy them and hold on to them for like we thought like maybe 20 years, like when real, when our son goes to school, do we just sell one and have that help pay for his school or, you know, we really like diversifying and being, you know, anyway, but so are, do you want to know like what’s owed on it and the potential equity and all those numbers?

Bo: We got those two numbers. We have those. I’d love to know the rents you come in or, or the net margin you have on these right now.

Becca: So, starting with the duplex, the rent we get is about $25,000 a year and mortgage payments including like principal and interest, tax, insurance, all that stuff is like $17,700.

Brian: So, basically getting $1,000 a month per unit on the duplex.

Becca: Yes, a little over.

Bo: Y’all, that $17,000 is mortgage, taxes, insurance, all that kind of stuff.

Becca: And then average operating expenses over the last three years I averaged them was like $11,000.

Bo: There’s another, there’s another thing you have to do, right? If you just include your whole mortgage payment, you’re kind of, you’re, you’re double counting, right? Because part of your mortgage every month is paying down some principal. So it’s not really a cost. It’s kind of like a force saving. So you want to back that out to figure out, okay, where am I actually? Like what does my number actually look like? And, then the capital investment side too because hopefully you put one roof on, we’re not doing it two years in the future.

Becca: That $11,000 does include like the roof, like that average, the roof is in that average. The other thing is, is I don’t think we mentioned these both of these homes are over 100 years old.

Bo: Oh wow.

Becca: So they’re old. They’re beautiful St. Louis brick. Old but sturdy we like to say. But so like we’ve done like tuck pointing and things like that which again like you see our building.

Brian: This is our 100 plus year old building. We like to say it’s sturdy as well.

Analyzing the Duplex Investment (17:02)

Bo: All right. So, the duplex is roughly break even. Talk to me about, about two opportunities. What’s the opportunity for rental increase specifically on the duplex? Meaning, are you at top of market pricing right now? And then is the St. Louis market from a rental standpoint increasing every year? Like, do rents go up 3, 4, 5% on an annualized basis, or are they pretty much flat?

Becca: I would say there is an opportunity to move up a little bit.

Christian: I really might be the middle.

Becca: No, I would say like for what the amenities are. So they don’t have, they don’t have AC, central AC. So it’s window units. They’re good. They work great. Radiator heat. So they’re like older units in that way. So I feel like I’m at the top, top end of rent. I probably have like I would go up every year, but, and I do go up every year, but I feel like unless I made this, you guys can correct me if I’m wrong, but I feel like unless I made a significant investment to like have central AC or an HVAC system, then I really probably shouldn’t be at the higher end of the market.

Brian: Yeah. It’s not going to move super quickly.

Bo: And, and is it the duplexes or the quadplexes that would require $40,000 per unit?

Becca: Two on the quadplex side.

Bo: So, all right. So, we’re on the, so, on the duplex, we know that the rental increase is not going to be, it’s likely going to be cost of living, inflation, maybe a touch below that, something in that ballpark. So, then the second question we have, if we’re think about this from an investment standpoint, is okay, what’s the capital appreciation opportunity, right? So, when you bought the duplex, right now you have it listed as worth $260,000. How much did you pay for it when you bought it?

Becca: I paid $211,000.

Bo: So, $211,000. We bought this like at COVID, like right around that time, right?

Becca: April 2021.

Bo: April 2021. And since then, we’ve seen like a rapid rise in the real estate market. We’ve seen it go from $211,000 to $260,000 over that time period. Realistically, what are the outlooks on this property increasing? Is it, is there something happening in the area, the neighborhood, the geography that would cause this to become a much more highly valued property or is it likely that again it’s going to be inflation, cost of living?

Christian: I think yeah, they’re, they’re very stable environments.

Becca: I think yeah, they’re, they’re very stable environments. Mine’s a little more stable. Yours is a little bit more growing. He’s on like a, the, he’s in an area of St. Louis that’s very close. It’s like our second largest park, but he’s on the per, like the periphery of that. Still in the neighborhood, but it’s just keeps going down. Like in terms of development we’ve both had on our streets houses that have been purchased and completely rehabbed and things like that. So signs of positive growth and development.

Bo: So you think there is a, a lot of upward potential for let’s just talk about the duplex. I want to do, let’s talk about them individually. Just the duplex. A lot of upward potential in terms of what the price could appreciate.

Becca: My realtor thinks that it could go for $300,000 now. So $260,000 is conservative.

Brian: You being very conservative.

Becca: We’re trying to be conservative.

Bo: Got it. Absolutely. Yeah. So, it’s probably worth more than $260,000 right now.

Becca: I think it’s probably worth like $285,000 realistically.

Brian: Let’s assume for this conversation it’s worth $300,000. Where can it go from here? Does it, does it go from $300,000 to $350,000? Does it go from $300,000 to $400,000?

Becca: Over time yes. I don’t know in like the next handful of years. I think I would say I would use St. Louis as an average like in terms of like national growth for real estate and what real estate tends to go up. It’s not, it’s a pretty stable city in that regard.

Bo: If we’re looking at national averages of real estate increase, you know what the national, you know, on average how much real estate increases every year, sans the past couple years, roughly the rate of inflation, right? It’s going to roughly keep up with inflation somewhere 3, 4% depending on what’s going on.

Investment Analysis Framework (20:33)

Bo: And so we’re thinking about these rental properties as an investment opportunity. Well, generally when people invest in real estate, they want one of two things. They either want cash flow, they want it to create some sort of income for them, there’s a yield to it or they want some capital appreciation in the future. Well, what you’ve laid out for us right now are the mortgages on these 30-year mortgages. Yes. On these, right? So, you’ve got these 30-year mortgages. So, it’s not really cash flowing. It’s cash breaking even in terms of duplex. And then in terms of growth on the real estate property, what do you think is realistic? Well, probably around the rate of inflation over the long term.

Brian: I want to hear more about the quadplex, but I also don’t want to just get bogged down only in the real estate because I think that my outside and Bo and I will do a deep dive after this, this meeting and kind of come up with some thoughts and we’ll probably need to get a little bit more specifics on how much of this is expenses versus capital improvements. But I think because y’all’s income is so strong now, I heard a bird whispered in my ear that y’all might even want to change how your income is structured with both of you working. So, we’ll want to talk about that, too. But it’s a current status income. I don’t know that it matters. It’s more of the time, right, is the most valuable thing for you guys is because y’all should probably have, y’all have such a strong savings rate. These are multiple assets that are building. So, we need to get to the, to the bottom line of how much time is this really taking, you know, and then how profitable is it? And then what are y’all trying to do as a household? Yeah. Because that all kind of interconnects.

Becca: And if you, to be honest like we’re flexible. I would say it’s a blessing or a curse like we obviously built ourselves a lot of optionality here and it feels a little debilitating sometimes.

What Do You Really Want? (22:16)

Brian: I’d heard because what are y’all, what’s y’all’s primary, if you were trying to put to one word what are you hoping happens? Is it, is it like flexibility? Is it simplicity? Is it what, what are y’all, what are y’all trying to,

Bo: Coast FI a few times I did hear that too.

Christian: So I think actually both flexibility and simplicity are something that we’re absolutely looking for, especially in especially into the future as, you know, as our son gets older, you know, we’d love to be able to spend time with him and build.

Brian: Do y’all feel in the weeds? I mean I know y’all make plenty of money and stuff but do y’all feel like you lay your head down and you’re like there’s just not enough hours in the day?

Christian: I think we did a few years ago. I think this today and last night not as much.

Becca: It depends on the season like if we are not, like seasonality of like what’s happening. So for example like this is future you’re looking, but like when something happens with the property, it’s pretty all-consuming and you have to think about it because you’re managing contractors and doing all that. Looking at like honestly, we normally lay our heads down and are like pretty peaceful at night. For me, my work can be very consuming as well. And so, if there is something happening at work that’s all consuming, then it’s, it’s harder to sleep at night. But in general, like we recognize that we’re in a really good spot and then we’ve worked hard to get to where we are and at, if worst comes to worse, like we sell a property and we’ll be fine, you know, like we, or we’ll make it work because even on one income we would be okay. It’s not necessarily where we want to be, but, yeah.

Brian: Well, that’s and that’s kind of what I’m getting when I said it doesn’t matter. It’s more of I’m trying to get you to choose a side on because like I said, back to the, to speaking out of both sides. Do you want to be a real estate investor? I think, y’all got good, y’all got good bones. I mean, but it’s a matter of because that’s the thing when you’re talented at multiple things, you know, it’s just, I’m watching some documentary and gosh, I’m horrible with names, but I found out this, this NBA player who’s on, you know, the Netflix’s five, you know, that they do. He was like an all-star baseball player, too. And he’s like, I could do, I could have done either one. Yeah. And he’s like, I chose basketball, but I, and I think sometimes when you’re gifted, you have to make choices and y’all have good income, you have good assets, you have the things, but do you want to be a real estate investor?

Becca: So, I think I’m open to what it looks like because I do like the aspects of like, and work. I’m a project manager and the real estate investing and managing projects, whether that’s flips or, you know, in our case like a rehab for units is very much like that. So, I see potential in that and I had thought about that very deeply. But now that we’re like a little closer to where our investments are at, like over $500,000, I’m like, do I need to do that? Because to be honest, like if I’m, if I told you like what my ideal day would be, it is not sitting in front of a computer all day. So real estate investing definitely has that draw of flexibility. But also like after having my son, I had some health complications or health flare-ups, we’ll say. And right now I feel like I don’t have time to like build in gym time, which sounds so simple, but it’s either like before 6:30 in the morning or when I’m, you know, when I’m feeding my son for dinner or things like that. And so to be honest, like a little more flexibility in my day, which real estate investing would lend to, but it also can be all consuming as well.

Current Savings Strategy (25:27)

Bo: Tell me a little about your savings. I want, I want to know about your savings rate, right? Like tell me outside the real estate, where’s your money going right now when you’re building?

Christian: So, so we are pretty firmly at 25%. I do 401(k) match and I do get 10% match. So I do that minimum right now. But then we max out IRA, max out my HSA. So we kind of both throw into that bucket effectively. And then we kind of just started, if you look we just started our brokerage.

Brian: I saw it on there. I was like, man, are they step seven? This sounds like something about the three buckets.

Christian: Yeah. We were kind of like I think we should do this. So we should probably start. And then, go ahead. What, your savings are?

Becca: Yeah, I’m at 25%. He runs what I should be putting everywhere. So, that’s what I do.

Bo: And did you max out your 401(k)? $24,500 for both of you, your 401(k)s, right? And then you said you’re maxing out the HSA. So, that’s like what, $8,750 this year, something like that.

Brian: You wouldn’t let me bring my tax cut in.

Becca: So, and no more papers for you. And then I have a 3% match for work. Awesome.

Bo: So, and then you’re doing, you said you’re doing IRAs as well.

Christian: Yes.

Brian: Just putting money in like traditional IRAs, non-deductible, and building that up.

Bo: Got some ideas there.

Brian: Yeah, no kidding. Well, I do see a big, it’s not a huge, but I see a rollover IRA.

Bo: Yeah. Well, I see some, where each one of your 401(k)s at?

Becca: I’m at $190,000.

Bo: No. No. Who’s the custodian?

Christian: Oh, mine is through, oh, wait. Hold on. We, mine’s through Fidelity.

Becca: Okay. Yeah, I know. I love that. Mine’s through a census right now.

The Backdoor Roth Opportunity (27:05)

Brian: Okay. So, Christian, you could roll that, you could roll that IRA rollover over to your Fidelity 401(k) and then you would be magically delicious available for doing backdoor Roth contributions, right? Is that the Lucky Charm? Who doesn’t want to be magically delicious? This episode brought to you by Lucky Charms. That’s hilarious.

Christian: Yeah. So that is something that I mean I, I’m aware of but I’m not too familiar actually how to do that and it’s something that I’ve kind of told myself that I, I’d like to learn and more understand more, because I think it’s something, yeah, it’s like are we at that point even, you know, I, I’m not sure and I know in the future absolutely this is something I need to do before, you know, before, you know, 40, 50, something at that age.

Brian: Well, it’s just an easy thing. Y’all have enough income, and it would just be another thing in the Financial Order of Operations that allow you to, to boost that tax-free bucket because y’all are still so young that the compounding growth on that, it would be incredible. I mean, it, it would make you think like a leprechaun on keeping it on the theme. Sorry, Bo.

Bo: We’re running a real serious financial show here on the,

The Quadplex Numbers (28:17)

Brian: Okay, so duplex is breaking. We’ve talked about that. Let’s talk about the quadplex a little bit. What are the numbers in the quadplexes in terms of net margin?

Christian: So I mean yeah, you can see I, what it’s, what I value it now is $270,000 and that, is conservative, you know, see a trend here and, again, potentially up to $300,000, you know, today, right?

Bo: Did you have to pay for it when you bought it?

Christian: So, I bought it at $205,000, April of 2020. And honestly, it was literally as everything was shutting down, I thought this was either the worst or the best idea I’ve ever had. I have no idea. Let’s go with it. Roll the dice. But I knew I wanted to do it. So, I was like, it’s now or never. I, I just, I, I can do it.

Brian: Y’all made the most out of the pandemic. You bought real estate. You found love. Really? Keep it going. I didn’t mean to interrupt.

Christian: You’re okay. The, so, I think I’m right about $40,000 rent for the year and, and again one of the units is an Airbnb so it’s a little more variable but that’s, you know, pretty average. And then, I think it’s mortgage annually with, in taking in mortgage and, and insurance, taxes is $25,000, $25,000 a year. Yeah. And then it operates about $10,000 a year, utilities and everything that we put into it average.

Bo: Yeah. So it’s netting you about $5,000 a year.

Christian: Yeah.

Brian: And then like you said, if we took out the actual principal payments on that, I bet it’s, it’s even better.

Bo: So this one seems pretty, these two do not seem the same to me.

Bo: No, it does require, it sounds like it’s going to have an $80,000 capital expenditure if they, if they have to rehab.

Christian: We would really like to if we kept it long term, we’d really like to do that. Absolutely.

Becca: Yeah, because I think the rents would probably double on that side.

Christian: Yeah, it’s possible up to, yeah.

Brian: Yeah. Oh, man. We’re getting somewhere. It’s almost like you could and I don’t know. I mean, we’ll have to, to crunch numbers, but it’s almost like you could take the proceeds from the duplex, roll it into rehabbing, double your rent. There’s some magical things that could happen here, cash flow.

Step Seven Territory (30:32)

Bo: Often times we’ll sit down with folks and they’ll, they’ll be doing real estate and we’ll be like, “Hey, you’re, you’re kind of missing the mark. You’re, you’re focusing all your effort and all your attention over here when you’re missing some stuff over here.” With you guys, it’s really tough because you’re not missing the stuff over here. You’re doing the 25%. You are building for the future. And that’s what Brian was diving into. What is it that you want exactly? What do you want to be doing? Because like yes, we could objectively look at the duplex and we could objectively look at the quad and we can provide some analytics around the best cost of capital and I could likely say for the duplex if rents are going to be dead break even so there’s no cash flow and capital appreciation is only going to be at the rate of inflation there’s a really good chance that a brokerage account will outperform that over the long term if you’re just buying low-cost indices. So that’s like a use of capital conversation, but you’re already saving really, really aggressively. And so like if real estate is something that you enjoy, that you find fulfillment in, that you want to have, you’re kind of in that step seven of the financial order of operations where you get to do what you want to do because you want to, not because you have to. So that’s where we don’t know what you like. If you’re thinking about maximization, optimization, we can talk through that. But I don’t know what, what do you want?

Christian: I think we’re at that crossroads really where it’s just like, you know, we, we’d like your take on like how can we build, flexibil, more flexibility into our lifestyle. I mean maybe a little bit more today but certainly more and more as we age, as our son grows up.

Becca: Yeah. So for me, we’re both very risk-averse too. So like for example like if you ask him like when would you, he’s like 55 is the latest that I’ll work for full time. For me, I would love to transition out of a W2, full-time W2, like ideally like in the next 5 years would for me. And I do see real estate as part of our futures. Obviously, we bought it. We, not going to be like, I don’t know, commercial developers by any means, but if we had a few more units, like we would love that. We, that would be great. And down the line.

Bo: How’s it, how’s the income differential between you two?

Becca: We’re fairly close.

Bo: Fairly close. So, like if you went hard stop, no W2 to real estate, there’s a big chasm to make up, right? It’s like almost $150,000 you’d have to like figure out how to make up or budgetarily live off of one income?

Becca: Right.

Brian: You just said something. I’m slowly getting information and I love it because it helps me paint the picture. Because, you, you, you laid out that because one of the things I don’t want, I, I threw out the suggestion you could potentially sell, yeah, the duplex, take the proceeds, but y’all’s income is so strong. Now, I, I would challenge you. We’d still want to do a lot of the basics on the financial order of operations with your 401(k), with your, with your Roth funding once we get the backdoor structure set up, but it’s, if y’all could fund because I hate for you to sell a duplex if you, now you’re telling me we might want more real estate. You see how you’re kind of sharing different visions and, and I don’t want to tell you to take away something that you won’t be able to reproduce because you bought something for $211,000 that now is over $300,000. So that’s why we, part of our job as financial advisors is because there’s, it depends is, is a word that carries a lot of weight is because you guys and you’re quickly realizing y’all have made such good decisions at a young age. There’s not just one path to success and victory. There’s actually thousands, if not even multiple thousands of way. And y’all, because y’all made such good. Now, the problem with people who defer and procrastinate, the thousands turn into one into zero. Y’all are the opposite. You get to, you’re, you’re like my favorite books as a kid, the choose your own adventure. And, and we just have to help you figure out what gets you the, the intersection of both the mathematics but also the mindset as well as the happiness that when you lay your head down at night you go I spend my mornings and my days doing exactly what I want to do.

Section 121 Exclusion Opportunity (34:23)

Becca: Yeah. And I think for me it does mean like eventually going away from a 9-to-5 job. Okay. Like I’m a very tech and computer focused in my day-to-day work. And I’d love more flexibility throughout my day to like, I mean I have nephews and going to their, going to their stuff. If real, when or whenever our son has field trips doing that. Like now it’s like okay I have to like I could find time to do that and I have a remote job so I could, but it’s just like anytime I do something like that I feel like I’m taking away from the work that I’m doing. And so building in a little more flexibility. But the choose your own adventure book, like my problem was I read every adventure.

Bo: She just did them all. She just kept, go to page 48 and then she went right back to page 27.

Becca: It was hard for me because I like them all.

Bo: Yeah. How, with the duplex specifically, how recently was it your primary residence?

Becca: We moved in 2023. So, up until fall of 2023.

Bo: So, it was your primary residence in 2021.

Brian: Two of the last five years. You’re picking up.

Bo: Yeah. Okay. We’ve thought about that, too. Because, because again, okay, if you’re going to do real estate, similar as you do any investments, it’s like not all real estate is created equal. Some opportunities are more attractive, some opportunities are less attractive. Some opportunities are a better use of capital, some opportunities are worse use of capital. With the duplex, one of the things that I’m seeing is you bought it for $211,000, it’s worth $300,000 now. So you saw roughly a 50% run up in price over a very short amount of time. And you’ve already said I, not a whole lot is going to improve on this duplex over the near term because of just the way it’s structured. So you kind of like, you know, Warren Buffett always uses the analogy he used to walk around looking for cigarette butts that had one puff on it, one puff on it, one puff on it, cigars, I can’t remember if cigarettes or cigars. Your nasty, your duplex, right, had, had a really good puff on it and you got that puff from 2021 to 2025. The question is, does it make sense to continue holding that or might that capital better used somewhere else? Because you just said if we were to have some sort of capital infusion into the quad and improve it, we could roughly double rent on that one. And it’s also one that was bought for $205,000 and turned into $300,000, a 50% rate of return. And yet, it does have upward mobility, right? So, if you’re going to turn into like real estate investors and folks that want to invest in real estate, you have to figure out, okay, well, how do I analyze each property in that sort of, in that sort of way? And you also have to recognize when opportunities exist, like, okay, if I’m going to do something with a duplex, man, I might need to do it pretty quickly because there’s a, there’s a clock ticking on me to be able to take advantage of.

Brian: Because it was your primary residence, so there’s a chance we could exclude a portion of the gain. The other thing now, look, you also, even if we, the timer ran out on us, you could do a like-kind exchange potentially too, where you, you know, you have 45 days to, to designate and then 180 days to close on, on properties and by the way when you do those like-kind exchanges don’t choose one property because real estate’s so shaky you need to go find three to five potential properties to name in that 45-day period is what I always recommend to people. But you have options, yeah, on this and because you really, it, it does intrigue me. So, in some ways, I know we’ll, we’ll kind of talk about plan of actions later and share that, but we’ve already heard from Becca that they want to do more real estate. So, now it’s like where’s the most bang for the buck and what’s the biggest opportunity in this moment?

Becca: Yeah. Well, I think I mean quadplexes tend to outperform duplexes anyway and we want the, like we have to upgrade the one that he has and so like we do, we see ourselves having more real estate in the future, but I think before we were to buy another property, we would fix that one up.

Family Planning and Future Expenses (38:03)

Brian: Let me ask you a lifestyle thing. Y’all have one child. Any more kids?

Becca: So, that’s something we’ve talked about. So, that we don’t know the answer to yet.

Brian: Okay. Because the reason I asked that is because also I noticed on your cash flow y’all spend what is it, $1,500 a month on, on daycare. So, that, that goes into the cash flow analysis on how much income we have to replace. It’s not necessarily around $130,000 or $140,000. $20,000 of that might come off. Then if you have another child, now we’re, you’re quickly realizing now there’s even maybe this thing gets below six figures. Now, how do we maybe build that up some else? Or if it’s even necessary because y’all are, you’re not, you’re not spending every dime you make. Y’all are very disciplined with your, your savings rate already.

Coast FI Numbers (38:43)

Bo: You’ve mentioned Coast FI a few times. Walk us through some numbers. If, if you were to, if you were to actually be able to coast, have you done any of the number like, hey, if we could save this much by this age?

Christian: So, I think, yeah, I, I’ve tried to look at it from, you know, a, a lot of different ways here, listening to advice from, you know, yourselves and from others, you know, that I can find. And I’ve read, we’ve read several books as well. And, and I really think especially as we age and as we pay off our primary mortgage, and reduce daycare, I mean, you look at what our spend rate is now, I mean, I think we could reduce it to like $4,000 a month, right? Four to five would be, you know, fairly comfortable. And I think even looking at like retiring at, as early as 50, I mean, if we, if I were to see, I think the number of like two or 2.5 million, I mean, that would be to me an indicator like I think we’re, we’re here. We hit our number, but I mean that’s also something that I feel like is a little speculative. I feel like the horizon, our time horizon is still a little further out that, you know, things could change. We might have another child. I, I don’t know. And so it’s, it there’s just feels like there’s too many variables to like firmly say, but I think that at least is a good base for us to, to start with.

Brian: Got it.

Becca: Yeah. And Coast FI for me doesn’t mean like not having an income at all on my side. Like I could do a part-time job like also very flexible there, which is helping and hurting this conversation, I guess.

Bo: She said, “I can do, I don’t have to do, I, yeah, I could do these other things. I got all these, I can do anything. I can do all these things. I love it. I’ve already got, I’ve already got some homework for you.

Brian: That’s what I’ve already, I’ve got ideas too because it’s one of those things you’re already saving 25%. You could if we backed into the numbers. A lot of people think Coast FI has to mean and maybe technically it does if you’re going to follow it to the definition. You go from saving 30, 40% of your income down to zero. I always say but somebody like you guys, you could go from 25% to you’re changing lifestyle where you go off of one income. There’s nothing that says that you can’t just save 10 to 15% to maximize the, the employer match and other things and, and still, you know, get some growth in there, but still fulfill your goals of being financially independent between 50 and 55.

Becca: Yeah.

Bo: What other questions do you guys have for us? I mean, I’ve already my mind’s already kind of racing on because here’s what’s going, I already know what we’re going to do. We’re going be like, well, they could do this or they could do this or they could do this. And she does really good with options. If we give her a bunch of options. Odds are she’s not going to-

Christian: We’ll be a minimal to all those options.

Future Expenses to Consider (41:21)

Becca: Yeah. I guess not necessarily a question, but things to factor in. In prep for the show, they’re like, “What are some expenses that you anticipate?” So, the house that we’re in now, it’s interest rate is more on par with where interest rates are today. We may, like buying another house may be an option. So, in St. Louis, we may buy to like be in a better school district for our son which we have a few years to determine that but it’s something that’s on the back of our mind for sure. We wouldn’t really do a major, like I don’t think a major upgrade. We just really want a second full bathroom because we host family for like multiple times a week. It’s like seven people.

Brian: And you would sell the existing home because it’s not really, it’s not rental type property right now.

Becca: Yeah. Okay. Yeah. We, we’ve, we’ve thought about it, but we decided I think yeah, we would sell that one. And then in the next 5 years, we do anticipate we’ll need another new to us car. I drive a lovely Ford Fiesta that wasn’t made to go forever.

Christian: Well, we both have 10-year-old vehicles. Paid off. I drive a Tacoma. It’s also 10 years old, but her Ford Fiesta. Putting the baby in the baby seat in the back is, it’s pretty tight. Facing backwards. He’s really upset now.

Bo: Is there a reason why you say new car in the next 5 years as opposed to like in the next five years?

Becca: Well, we still have the mentality of we like to run them to the ground. You know, it’s basically, you know, so many,

The Cost of Frugality (42:37)

Bo: I love the part where you said your son’s like crying when you, when you put them in the bag. Did y’all hear that? But rewind the tape real quick so they can eventually.

Brian: But, but by the way, I love because I don’t think this is public. Bo won’t mind me sharing. I found out that Bo was putting on, he was telling me, you know, my child’s diapers keep getting had blowouts every day. They’re blowing out. And I’m like, Bo, you realize, and look, this is years ago. He has, he’s now a veteran. He has three children. This was on the first, the first one. So, we, we all love to mentor each other. And I was like, you realize that is indicator one that you’re putting on two small diapers.

Bo: I was like nah man I have a whole box I got to burn.

Brian: That’s exactly right. The tight-wad side of him is, and that’s what I would tell you guys. I get, I can already feel from you. Y’all aren’t going to die broke. You’re not going to die penniless. So, you have to, we both, by the way, we were card carrying tight wads ourselves for the very beginning part as we’re growing. But there was a time that I was like, my income’s at a point and the way I’m living my life now, I’m still very good with money, but I’m definitely not a tightwad anymore. And I think you guys are probably in that transition phase right now. That’s where, and when I meet tight wads that are, that are financial mutants that are kind of trying to figure out what money can and cannot do for them. I, I would challenge you from a safety standpoint, from a quality of life. If your child is crying because the car’s, you know, this is an exercise and, and not good for the family. Yeah. You know, let’s figure it out. You can buy a nice used car and, and probably solve that problem sooner than 5 years.

Becca: I do think there’s definitely a mental, mindset, mindset shift in that regard to being less frugal.

Brian: You’re still good with money. Look, I’m telling you, it’s just that I’ve seen so many relationships where a lot of those, there’s a fine line between financial mutant and financial miser. And you just have to navigate that. A lot of those good behaviors that you’re rewarded when you’re younger of being a miser. It’s great because it builds this awesome foundation. But as a couple, as y’all were making these big decisions on, you know, who stops working, you know, when do we buy a new car, do we go deeper into the whole real estate investor, you’re going to quickly realize that, that all of this also has this umbrella of quality of life and is who do we want to be and what gives us fulfillment and happiness from this tool of money? Because that’s all it is. It’s just a tool. You’re going to find out when you reach $3 million, $5 million. It doesn’t feel any different than it did when we were getting our first million. We just got to now shape our life to understand our why and be the people we want to be.

Becca: Yeah. It’s very helpful to hear from you because I feel like we feel that, but we’re still getting around to,

Brian: We’re doing great. I mean, we, I feel like I’m a coach here just chiseling barely around the edges because y’all do so much stuff naturally good. Now, y’all are a financial planner’s dream. I will tell you, I mean, after this is because I see so many opportunities for you guys to fine-tune this and you also, and what’s cool is it’s not just a one-off, come on, Making a Millionaire. You guys have every year you’re going to have, hey, but we wanted to do, we’re thinking about doing this. Let’s go run the numbers. That’s why I, I love what we get to do for a living is because we, we get to work with our successful clients and kind of build this together. It’s not just a one-off thing.

The Homework Assignment (46:01)

Bo: Yeah. And so what we’re going to do is we’re going to come up with some of the quantitative stuff. We’re going to come up with some options. We’re going to crunch some numbers and hey, here’s some stuff that you ought to think about that you should look at. But I’ve got some homework for you guys and it’s more on the qualitative side. I just kind of jotting down some notes. If I were you guys between now and the time that we kind of send you some of our thoughts, I’d do some research on both of your 401(k)s. You said yours is a Fidelity, yours is a census. How good are the investment options inside the 401(k)? Are they robust? Are they diverse? Because there might be a strategy where it makes sense to roll your IRAs into your 401(k), zero them out, and open up a backdoor Roth opportunity. So now all of a sudden, instead of y’all just doing $7,500 into regular IRAs every year, you get to do $7,500 into Roth IRAs every year, and you can start growing some tax-free money. That’s a boom shakalaka. That’s a boom shaka is the technical financial term for that. The other thing is you guys really need to sit down and talk about what is it that we want. You’re now at the place where you get to make financial decisions not so much because you have to, but because you get to or because you want to. But you have to define that. Do we want to do real estate? Do we want to manage this? Do we both want to work? Do we, so, you need to have some conversations around that. And in those conversations, you figure out how deep you want to go into real estate. Is real estate a job for you or is it, hey, part of our financial life is that we have some real estate properties? Because those are two very different things. How do you want to approach it? And how do you want to attack that? And then I just put the last thing here. I think it’d be worthwhile for you guys to sit down and calculate the cost of frugality. At your income, at your savings, at your assets, you could go buy a new car tomorrow, right? You’re, you’re at the place where you could do that. But you have this like mentality that we want to drive it all the way until the wheels fall off. And that’s okay. Again, money is nothing more than a tool that allows you to accomplish the goals that you have. But is, are you doing that because it’s what you want? Are you doing that just because something’s hardwired in you guys? Because if there are things, would being in a newer automobile give you more peace of mind, make family road trips more fun, whatever the thing is, is there a cost that you are paying unnecessarily, needlessly to be as frugal as you are because it’s okay to graduate and grow out of that. Okay. So, a lot of conversations for y’all to have and a lot of calculations for us to do.

Brian: I just, the big thing is I, because I love, immediately I mean kudos to y’all. Y’all superpower. I was in love with y’all the first five minutes. I mean, when I heard about when I heard that, you know, the way y’all met and then the conversations of what y’all own, I’m like, “This is the coolest couple out here.” So, you guys are crushing it.

Becca: Thank you. Also, the like is mutual. So, thank you. You guys are great.

Bo: We can delete that. We’re happy to be here. Awesome. Thank you guys.

Christian: Thank you.

The Analysis: Better Than Expected (48:52)

Bo: Brian, what a great conversation we had with Becca and Christian. Two folks in their mid-30s. They’re kind of crushing it.

Brian: Well, I didn’t even hide the fact that I thought I loved these people. I mean, the fact that the way they met and then they started talking about personal finance and they both had rental properties. These are my folks right here. It kind of all went together nicely. I will tell you what I think is amazing about them is not only did they have a personal finance focus, but they got into real estate. And sometimes it’s better to be lucky than good because man oh man did things go a little different once you and I crunched the numbers than what we even kind of laid out in the show for them about their rental property.

Bo: Yeah, it was interesting as we were recording. I was kind of, I don’t want to say like soured on them, but there was not like an incredibly compelling story to both those rental properties. But then we began to peel the curtain back a little bit and actually run the numbers and what we found was absolutely fascinating. So what we did is, is we took the information they shared with us. We kind of went back to the drawing board and if you remember they told us total rents coming in for the duplex it was just a hair under $26,000, $25,800 and for the quadplex it was just a hair under $40,000, $39,000 and they said that realistically they were kind of just about breaking even. And while that may have been true from a cash flow perspective, I would not describe either one of them as break even investments.

Brian: Yeah. I mean, what I think is interesting, if you were to ask me while we were recording in real time with them, I was like, we’re going to tell them to sell the duplex. I kind of knew that they need to invest more into the quadplex. If we can double the rent, let’s, let’s make some magic happen here. But also, I couldn’t, we couldn’t definitively say that because there was a lot of cloudy or muddy water there because they didn’t know how much was their, the mortgage payment that was just paying back the mortgage. They didn’t know how much were capital improvements like when they put roof on or, or any of the repairs that were going to in the long term be better for the investment. They weren’t getting a clear reflection on what the actual cost or operating expenses were or what the return on their equity really was. Bo, when we kind of looked at this, it was like poof. I mean, it, it kind of blew my mind on how good, not only because remember, let’s focus on this is unique where they live. There’s, there’s actually duplexes and quadplexes. When they brought this during around the COVID era, they got super low interest rates. They’ve gotten really good rents compared to what their initial low-cost purchase. This stuff is kind of amazing when you actually peel back the numbers.

The Real Numbers (51:30)

Bo: Yeah. When we stripped it back and looked at the numbers, this is what we found. When you pay a mortgage, part of your payment goes to principal and part goes to interest. When you’re thinking about the cost, it’s really just the interest cost you want to factor in because principal payments are sort of like a forced saving mechanism. You’re saving it inside of the equity of the property. So, when we just look at the interest expense on the duplex, remember the rate was 2.75%. They were spending about $5,600 in interest. And for the quadplex at a rate of 3.625%, so low, they were spending just a hair under $6,500 in interest. So the money going towards the principal was sort of like this forced savings. So even though they weren’t necessarily having a ton of cash flow come their way because the mortgage payment and the rental payments were roughly equal, it was looking pretty good. So from there we said, “Okay, well let’s look at what the average operating expenses are. Let’s take the capital expenditures out and only look at the operating expenses.” And what we found was for the duplex, it was operating on a year-over-year basis with about $11,000 of expenses. And for the quadplex, it had about $16,500 of non-capital expenses. So, when you continue like following that down and you look at how the numbers played out, the actual net profit on the duplex came into just under $9,000 a year. And then the quadplex came in at $16,900. And so when you look at these properties now, we know what the actual dollar figure of return is, we have to compare that to the actual capital investment or the equity they have in the properties. And if we adjust the values of the properties closer to market value, because, and look, me and you love being conservative. We do it all the time. But I would argue in the world that they were living, they, they were perhaps even a little overly conservative. Agree? Disagree?

Brian: For sure. Sure. I mean, I already see the numbers here, but I’m being a math nerd. I mean, we’re going to do this off of return on their equity, not their initial investment. The number would even be even bigger if we base this off of just what the down payment was on their initial property because this was levered debt. But they have $100,000, like the duplex, $100,000 of equity right now. And you by showing right here, they’re making profit of close to $9,000.

Bo: 9% yield on their cash.

Brian: 9% yield on that. That, that’s pretty incredible once you strip out what’s capital investments. You strip out all the, you know, the principal payment on the mortgage and you look at the quadplex. I mean, they’ve got $125,000 of equity. You can quickly see that they’ve got profit of $17,000. Yeah, that’s, that’s like a 13.5%. And, and here’s what’s even so wild for me. We, as I already alluded to, I would have told you we were going to say sell the duplex, but after seeing these numbers, we can’t do that. You can’t. It’s too good. But they, they, they told us because there’s something that we need to at least address is that they said, “Hey, if we invest in this quadplex and we put approximately $80,000 into this, we could double, double the rent, our rent.” So, I want you to, I want you to kind of internalize what that means is, is that this thing that already is at 13.5%. If we could just put a little bit more money into it, we could double the rent, which would easily put their rate of return, rate on return on, on equity over 20%.

Bo: Well, it’s $16,000 into an $80,000 investment. That’s unbelievable. It’s a 21% rate of return on that. They’re like a credit card company. They have to do it, right? It’s too compelling. They have to do it.

The Homework for Them (55:05)

Bo: And so the question that the homework that I would give for them is they need to have a conversation. Okay, what do we want? Obviously, we were wondering if there was a lot of merit to either one of these properties. We have now discovered that when we actually look at the numbers, they are both incredibly compelling investment opportunities. Don’t sell either one of them. So, it doesn’t make sense to sell them. They need to figure out, okay, what do we want our lives to look like? Do we want to add on to our real estate? Do we want to be real estate managers? Do we want to hire some sort of management company? Because I would argue at the numbers that they have, they kind of have the freedom to choose. They can pick and choose how they want to interact with this and what they ultimately want their wealth building journey to look like.

Brian: Well, and also they ought to go ahead and try to figure out if they can come up with a plan to do the improvements. That’s right. But I think the good news is they have a big shovel. They have a really good income coming in. They have a lot of margin separation from what their living expenses are, from what they bring in. I think that within less than a year, they could pay for those improvements on the property on that quadplex in the first year and then get all the fruit, all the yield off of those improvements. So, super powerful stuff. I thought it was valuable. I think there was, there was another question, Bo, and I, I want to know what, what we put together on this. What does their retirement look like?

The Retirement Projections (56:20)

Bo: Well, so again, one of the things we say that makes a lot of sense is they ought to figure out how that they come up with the capital to improve the quadplex. Like that makes sense. And one of the ways they had talked about potentially doing that was backing down their savings, kind of doing like a little bit of Coast FI thing and saying, “Okay, what if all we do is just the 401(k) and there’s a, if I put in 10%, I get a 10% match. What does that look like? How does that play out?” Well, what we found is if they do that and they only save up to that 10% and then they get 10% match, that’s going to be a total of about $22,000 a year going into the 401(k). Well, they already have $527,000 of liquid investment assets saved up. Just saving that. And if we assume an 8.5% rate of return from now until they get to retirement, by age 55, they’d have almost a $4 million portfolio, not including the real estate, not including those assets. If they did this all the way out until age 60, it’s over $6.2 million with just Christians saving that 10%. So again, they’ve done a lot of the heavy lifting early on that gives them tons of flexibility and margin to figure out how their future should look.

Brian: Well, and if you look, even for my inflation trolls, that’s still for, for at 55, present value of about $89,000 a year. At 60 years of age, the equivalent of today’s dollars of close to $120,000 a year. That’s, that’s $10,000 a month. I love it. I mean they have, talking about poster child for why if you get in early and do it often on saving and investment, you get lots of flexibility, lots of opportunities. So they are going to be a good definition of good decisions on real estate, good decisions on investing early is going to allow them to have this coast opportunity and still check all the boxes on what they want to do financially.

Final Homework Items (58:08)

Bo: So a few piece of homework items I have for them. Number one, figure out how we come up with the capital for the $80,000 to improve the quadplex. Number two, figure out when it comes to real estate, what do we want our life to look like? How actively involved we want to be? How much do we want to expand? How much we want to add to it? And then number three, I think that would really be helpful for them to think about is they’re going to have options earlier on in life. We’ve already said the way that they’re going to be saving from a liquid standpoint is in their 401(k). So if they leave the workforce before age 55 or before age 59 and a half, they are going to have to figure out how do we bridge that gap. Right? If we’re saving all in qualified assets and we want to leave at 50, we might need something to get us from 50 out to 59 and a half. Maybe that’s real estate income. Maybe that’s some sort of other passive income. But I think they are so far ahead of the curve at this point. They ought to begin thinking about what that looks like.

Brian: Yeah, those taxable brokerage accounts is going to probably be able to create a nice bridge account in there, too. But what an awesome couple. I mean, I think I, I led with it. This was, I quickly knew I loved this couple just from the, the hearing how they met and so forth. And I just can’t wait to see what the future builds for them.

Bo: If somebody else wants to come on Making a Millionaire, where do they apply?

Brian: Yeah, if you’d like to be a guest on Making a Millionaire, you can go to moneyguy.com/apply. Or if you want to check out any of our tools and calculators, you can go to moneyguy.com/resources. Becca, Christian, thank you. This was an absolute pleasure. We loved creating this content for you and hopefully many out there in our financial mutant universe are going to get a lot of benefit of this. I’m your host Brian joined by Mr. Bo. Money Guy team out.