Finance Friday: Signs You’re Saving TOO Much for Retirement
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Today's finance friday guest is hoping to retire by the age of fifty five, but will he be able to given how much of his current portfolio is tied up and retirement accounts and three rental properties, let's see what's possible today. Hello, hello, hello, and welcome to the bigger pockets of money podcast. My name is mini Jenny and with me as always is my blueberry loving cohoes get trench.

Thanks many great to be here with the very good intro. Bigger pockets has A O of creating one million, millions years. You're in the right place if you wants to get your financial house in order because we truly believe financial freedom is tainted for everyone. Matter, win or where you're starting today, we're going to discuss can eaten, retire and sixty eight years. How does he know if he has enough saved and how can eat unlock wealth from his current portsoy before he hits traditional retirement age?

This episode is brought you by connect, invest, realize, investing, simplified and within your reach. Now back to the show.

eason. Welcome to the bigger keep money podcast. We are so excited to have you here today.

Happy here. thanks.

Would you mind maybe opening up with a quick overview of your money story to let us know how you get to the current?

So uh I am a forty eight year old uh tech entrepreneur, husband and father of two teenagers. Um when I was in college, I IT was a founder of a of a tech startup p during the into the dock m boom that company that I found IT in college a ended up getting acquired by the company I work at right now. So the majority of my career has been uh working in technology and in working for a company where i've more or less been an executive leader.

So that's been the last twenty three years, roughly a along the along that way, i've also done some real state investing. I did house hacking when I was right out of college. My first house I had.

Extra rooms in the house and so I ran to those out to um tents up until the point time I got married. And my wife didn't think that that was such a smart idea for me to have range of people living in the house when he was there as well. So that that into debt piece. So i've I also a picked up a romal property from my grandparents uh, when they were a needed to move into uh, retirement housing. So i've been I fixed up that house that they built in nineteen sixty six and had been running get out for the last twenty four years roughly.

Uh in addition to that, i've been doing um just sort of Normal investment in the stock market every year, probably for about ten years when I would get my tax refund back, I would invest that um in a broker account in buying buying stocks of companies mostly that I knew what their reputations were from working in technology. And then I read a books I think I may i've gotten IT off this podcast about creating wells and uh started investing uh on a monthly basis and sort of V T S A X H sort of following the the standard sort of index fun investing rather than trying to trying to pick my pick my stocks. So know that sort of brings me to where we are today.

We've been we've been doing that. My my wife and I both worked full time. The majority of our income comes from um w to uh income and we have three real properties um two homes and in a condo.

And what is your thing IT looks like you have a basic expenses we saw here because he gives a preview of your kids and how old they are and what .

they like to do. Yes, so are my wife and I. We have two beautiful Young girls.

Uh, our oldest is a freshmen in high school uh, and our Youngest is a seventh grade. So she's, uh, so this in medal school, uh both kids are swimmers. Uh so uh extra circular activities. I think that there if I add up their expenses between childcare and the activities that they do, I think that that's more than our mortgage .

IT is I just added them all up for you about that is second here? yeah. Well, fantastic. And you want to give a quick run down of the numbers here. And then I have a couple of places i'd love to ask some questions just to get more context around this as we can to dive into the planned in your goals here.

okay. So I see a very paltry income of thirty four thousand, three hundred and fifty for a month. That's not a year.

That's a month. Uh, so that, uh, nice up doing well there. Uh, no suggestions for increasing that.

I see expenses of two thousand dollars and at first gLance i'm like, how are you spending twenty thousand dollars a month? But then we've got a primary mortgage of twenty three hundred. Again, awesome on that.

Uh, we've got in your expenses. I see savings, rental mortgage I R raise rental expenses and investment accounts that I don't really consider to be senses. They might be money coming out of your pocket, but those aren't traditionally expenses. So I take that out and I see a total of fourteen thousand dollars for monthly expenses.

Even do you do zero base budget in business?

I used to just doing inflow and outflows. So my budget, I used to share the members IT was just based off of looking at everything that leaves are are checking account every month and that is an outflow, and then looking at the deposits that come in from know as inflow. So that's probably why why IT looks that way. I I see all those things heading out. So I consider part of the .

budget and I to me with this here before the asset section because there's two important call outs here. One is sixty five hundred dollars of that is really going to savings or investments. And another seventy three hundred, which I wanna get into, is expenses that I do not believe you would have in traditional retirement in sixty eight years.

I think that there was a two really critical numbers, first to zero in on as the conversation goes through. And those include things like tuition for private school that will that will maybe get bigger when college comes around. But IT is not something you have to plan your retirement around as a monthly outflow. Same thing with college of an account, swimming piano, child care and and a cup, two other categories in your car payments, potentially the first smart. So that does that sound right in terms of the buckets of expenses .

and how i'm thinking about IT does hoping that some of those are go away? Sort of why the time period? My question about time period is is, is mark there? That should be the point time where both kids are in college and uh, no longer, no least in high school. Yeah so what .

will definitely die back into those?

We need to take a quick break but more from Ethan and whether or not he'll be able to retire and say goodbyes. Was w two right after this? Interest rates are sky high in twenty twenty three.

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Welcome back to the show. So back to the beginning, we've got twenty three hundred for primary mortgage, two thousand for savings, a thousand for private school, two thousand for rental mortgage. Number one 啊， thirteen hundred dollars for college savings accounts, fifty hundred for swiming piano, thirteen hundred for rental mortgage, number two, two thousand for child care, nine hundred for car one, uh, six fifty for car number two, six hundred groceries, six hundred shopping, five hundred and forty one dollars for I R A, fifteen hundred for entertainment and travel.

We can talk about that one two, uh, six hundred dollars for ottawa property insurance, four hundred lars for utilities, two hundred and fifty for rental expenses, two hundred and forty for gas, one fifty five for phone internet in cable, two fifty for household maintenance, one fifty for church and five hundred for an investment account. Some of those, like I said before, I don't consider to be personal expenses. Those are business expenses, the business of your rental properties or your investments.

And maybe we should have a discussion about that sometimes got about where the investment should go in your mindset because yeah, you are not that that is money coming out of your pocket, but it's not really inexpensive like saving for the future. So when we pull out those, uh, expenses that I removed got sixty five hundred dollars out. So now instead of twenty thousand lars of expenses, you've got fourteen dollars of expenses against a thirty four thousand dollar income. I think you're doing OK there.

We still need to get the network. But while you're pulling that up, i'll just preview where my mind is immediately shopping. This could be rugged as we get into the conversation. But I think that planning for your early retirement revolves around, first, excluding the about you invest from your expenses, you don't need to plan on that. Second, planning for all of these major line items that um what is that one, two, three, four, five, six, seven college savings account, the private school tuition, the swimming piano lessons, the child care and both car comments just going away after your kids graduate or begin going to college pulling those out. And if if I pull both of those out, if you spend sixty eight hundred dollars a month and if you pull out your p now I on top of that .

now you're at how much.

right? So on the primary mortgage, which should look at one, yes, the principal payment for months is seven hundred and seventeen dollars in the interest payment in seven hundred and twelve dollars.

Okay, so fourteen. So now you're at fifty, three hundred. So we like the reason this is important is because I can back into how much you need to retire by pulling out those and saying, okay, you're actual monthly expenses if nothing changes in the next couple of years.

Inflation adjusted right in today's dollars is about fifty five hundred dollars a month, and the asset base needed to generate fifty five hundred dollars a month, and income is fifty five hundred times, twelve times twenty five or one point six million dollars. The asset base needed to sustain the twenty thousand dollar headlined number for expenses is four point two after point of the six thousand. Five hundred of number of thirteen thousand, you know, is four point two million.

So with a huge difference once we go through that exercise of unloading the pressure on your financial position to generate a position for earlier retirement. And I think that, that really, really nicely into the network conversations of mini. Could you maybe go walk through some of the network members here?

I will. But first, I want to say his rental properties bringing in six thousand twenty one dollars a month. So what was that fifty five hundred dollars amount .

that that was the total amount of expenses that eason would have on a monthly basis for the if there was no principal and interest on the mortgage, we just paid off his mortgage, if there was no private school tuition, if there is no college savings that need to be done, if there's no swiming or piano lessons that need to be paid, if there's no child care that need to paid.

And if there is no car payments inside of the position, right? And all of those should go away over the next eight years, I believe. So hopefully that's a comforting observation, you think have you thought about that before in the doing this?

Yeah had not thought about the mortgage payment go in away in the next eight years. So i'd like to hear about .

how that's going to happen. That's an allocation decision. We not is right now in in some ways. And now we can be working around what's the way to find to and that in plenty of padding to make that as comfortable as possible. You do not necessarily need to pay off for three percent mortgage.

I'm saying that, that as an option we have and with the headline number of how do we generate twenty grand a month and expenses to help you retire is really hard. How do we help you generate fifty five hundred and sixty eight hundred dollars an income? Well.

with we're on well with fifty five hundred, we just generate that with the six thousand that is making out of the uh rental property and then we've got five hundred and twenty one leftover the sixty eight hundred that he might need. That's a different story. But let's go and look at this this network team.

So I see cash sitting at about one hundred and fifty thousand dollars. Give her take. Why do you have so much money in cash?

I think that that was another one of those books that I read that said you should have three months worth of expenses or more a one hand. Uh, so I started there and then IT was just a habit. So I can we just continue to to put money there and IT grows. And lately, the interest, uh, on the savings accounts are pretty good. So that just been growing in okay.

So twenty times three is sixty and this is one forty two. So you're at six months plus actually you're at seven months. How does that feel having seven months of expenses in your cash? What if you dropped IT down to sixty or what if you dropped down to six months? Um you know and that's like that's a thought conversation to have with your partner um but way there's more.

Not only do we have one hundred and fifty and cash, one hundred and forty two in cash, we have nine hundred and twenty one thousand dollars in a four one. K yeah, good job. Did IT right? Uh, but I look at that and like, oh, is here in the middle class trap where your network, the bulk of your network is in your primary residents and your retirement accounts uh, nope.

Again, one hundred and thirty seven in a rough I R A, five hundred and nine thousand in a broker account. I C, rental property asset value of nine hundred and thirteen thousand dollars mortgages against those properties of three hundred and thirty thousand to give you approximately six hundred thousand in equity. Uh, your primary residence is worth seven hundred and forty three thousand dollars and your mortgage is two hundred and ninety seven thousand.

So I see some pretty good numbers here. My math shows a grand total of two pots, seven in network s, so two point seven million. And you're making thirty four thousand dollars a month.

What do you want for me? What can I help you with today even then? Or it's got kind of spoil everything by saying, you know, pull all these expenses .

presses and you're already fine. Well, how can we how can we best help you? Am I am I on the right track? Or am I jump in the conclusions too quickly?

Well, I mean, there's there's one thing sort of the horizon that IT is possible as another thing, you know getting to the getting to the breast tax of the right. So I would not assume that the current budget is exactly what a retirement budget will look like. And and I might have been sure that I want to completely retire. Um my wife and I have used this term called prety um very, very loosely. And and I think our goal is to just be more free to travel and do other things as soon as our kids are in college ing don't need us on a dated day basis um but not necessarily you know without doing any I thought about maybe doing some consulting.

I thought about maybe buying a business that I can um uh Operate on a absence t basis, thought about you know lots of different ways to do that because right now we don't know we we go on a family vacation, maybe want to hear about my wife and I have ideals of maybe travelling that you know a third of the year, you know you know and that's that's not inexpensive, although I think there are ways to do IT to to sort of minimize costs. So uh, I think some expenses potentially would increase, but not less. I don't think that they would increase to offset all of the child related expenses that that exist.

Um i'm not sure what college will um will mean uh, in terms of the amount of money that we need to be able to come up with in order to pay for college. We live in georgia. They have the hope scholarship and the allow scholarship.

So good students that they're go to in state schools essentially get free tuition. Um we're encouraging our our kids to uh continue to do well in school and and potentially go to one in state school. But my wife and I both went to private schools for college that were very expensive.

And I don't think we're in a position where we would shut that down, you know, if they got into a really good school and they really wanted to go there. Um and then i've got the blessing of having two girls. And at least at this point time, I think that they're y'll both want to get married at some point. I have no idea how much we should be you saving for that. He does concern me to have some pretty large expenses that could pop up right around the same time that we are talking about, you know sort of checking out from the number five.

well, that's great. And yeah, what the plan around all those I was jumping to conclusions. I apologized there.

I just look at numbers OK. 我 reframe a couple of those things around this and and go go go on that track。 I didn't want to ask one other question. Rock OK. I based on your questions, are we missing an asset or maybe several things that could at least one important one in a private company equity that could come in to play? And is anything else like that like a pension or anything else .

that we should be considering right to? No pensions are neither neither my current company nor my wife's current company have pinching plan. The company that acquired the business that I started in college um has issued stock options to a number of the executive team members but IT is a private company um as far as I know, there are no plans to take IT public uh and there are currently no plans to actuate you know as a cell of any sort or especially not necessarily on the time for me that that we are talking about. So um I don't know how to think about that.

Um you know there are options so I would have to purchase them at the time of a transaction in order to net any sort of proceeds. But given all that, i'm still struggling with how I should feel about you know sticking around longer or potentially working out something to where where maybe a working part time after that time frame just so that I can continue to hold onto those options. H, should there be a transaction to be part of?

Can you give a little bit of a sense for if things continue to go away, they're going, would this be worth a lot of money or a little is a way to kind of get I get some directional sense of this in terms of a magnitude component? And for the record, I I would via them as zero in your network. But if they're likely to be worth something, I would not ignore that potential either. And that's that you to the obvious but be helpful on yeah.

I would say that the transaction value, you know maybe the tens to hundreds of thousand, but not in the you know I wouldn't say it's gonna two hundred and three hundred, four hundred or five hundred thousand. And the harder a transaction value if if there was a transaction given the current trajectory of the business. Um that being said, I guess that's partially in my control, right? I can increase the value of the business. And obviously, ue, the shares are retired.

Okay, this is a boost, but we're not talking about more than potentially ten percent of your network in most likely scenario for this. So something to consider in factor and have them back reminds, but not not the way will you would plan your life around the realization of any of these things.

Stay tuned for one final break to hear what investment vehicles might be a good fit for eat and goals and financial time eline right up to this .

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So I wanted to comment on a couple of things. You said, you said I wouldn't assume that the current budget will be the same as our retirement budget. And I think this is a really smart way to think about IT.

I think there's A A lot of people who are like, well, I spent forty thousand now that's what I need to retire. I'm not even going to consider anything else. And your expenses are going to be lumpy.

Some months you are gonna come in wait under budget, but a lot of month you're gonna come over budget because your tire blows or it's time to go to the dentist and hoops. You have a cavity because you don't. Fs, uh, there's there's all sorts of weird things that you can't really plan for.

And assuming that your current budget will be the same forever is a mistake that I see a lot of people making. So I love that thought um you said you would potentially buy a small business. Would that be so that you are putting the money into IT and then getting money back without having to work there like you're hiring somebody .

to run the business for you? Or even as A A partial like something that I can do remotely, something that know I just need to keep an eye on versus something that I need. I I don't want to buy a job. You know that would be the last thing .

I wanted to stay in this current one if you're just buy in a job because this current one is pretty sweet.

But one of the things that i've thought about is health care expenses, right? So um what I thought, well, maybe if we did have either if files working part time or we did have a company that though that the company can provide the health insurance benefits, especially in the first know until medicare ages. Whenever I I don't remember exactly what I think it's sixty five that you qualify for that cineas. So if we retire, we retire in our fifty years, i've been doing some bit of research IT looks like health care expenses can be quite a expensive.

What do you think they'll be if you have to change .

for the the last the research that I looked for my wife and I and I don't even know that when I continue to have to cover my kids as well since they've in college. So probably twelve hundred and months.

probably yes. yeah. So that would definitely know that would be to put back, uh, into my earlier math for sure. Let's can have to go back there, but I think I still think I should do. Do you think do you agree with in my approaching the problem from the right standpoint? I've saying here are the expenses that are going on today.

We have to figure out what you want to spend in this early retirement phase to some degree in the way that i'm trying to back in the that number because it's absolutely essential to everything else that we're trying to discuss is by cutting out all the things that we, I possibly can from the budget, and then we can lay your back in twelve hundred bucks a month. And health care, which does not gna be for four, five years right at most. And that will begin going down as child one personally gets a job and has their own health care and child two um eventually faces out about as well and then say, okay, we we want more for traveling, more for entertainment, we want more for all the fun stuff. But we want to basically get to the lowest possible number and then build a back up. I think in order constructing the portfolio here that you like that approach .

I do in this probably in other sport, and I should have shared with you guys took a step at that. But building IT back up and including health care, if I don't count the the cost of the renal prop like the mortgage on the runner properties, you conservatively I came up with roughly double what we what you are talking about, so close to close to ten thousand a months. But that was assuming that we continue to have like we didn't pay off our cars and we we decided to get new cars and you know continued sort of that run rate. Um i'd rather be conservative about IT and know that I can turn back you too tight and then all of a certain i'm asking for my job back.

Well either way, where we're pretty dark club you at two point seven million right now and to generate one hundred and twenty k reliably ten thousand a, you need an asset base of about three million. So I think it's about fine tuning IT and giving as much margin of safety as we possibly can over the next sixty eight years because you're you could just put IT in cash and you'll be where ahead in terms of the four percent role for this.

But that's not work. No, we got six years. Let's maximize the opportunity to the the maximum possible extent and then know the way my brain works as I was like to put in as much margin of safety there because once you get once you get close to that point in sixty eight years, you want the biggest possible.

I pace. And I like to think about financial dependence, and I ve a heavy bias towards moving away from the math at that point, the maximum returns and to keeping the expenses as low as possible to reduce the amount of income that you need to realize and pay taxes on to support that lifestyle. And that's where the math of paying off the mortgage at the end of that might make sense to some degree.

And the uni had a big debate about this a while back, because you need so much more income and so much more assets to pay that you IT just gets a lot easier when that numbers goes ten thousand and eighty five in terms what you need to pull from the portfolio. Are not going to do that right now as you have eight years left. Why would you pay off for margins right now when you have eight years of investment potential to earn in other, other areas? But when you get there, that might be a time where you say i'm actually to put this in the stock market and they relocate to the mortgage.

And at that point or in the last two years, I am going to put all the extra cash list toward that mortgage that could be good fie math, even the result in lower long term network. Those of the things are jumping into my mind. You think what's your comfort with the rental properties? Do you want to buy more or do you want to buy like what what do you want to do from investment standpoint?

I don't mind more as long as the property is a relatively dominate its properties like I understand how to do that. I am not afraid of a know having to talk to contractors or are even doing some of the repairs myself. Um so that is certainly a possibility. At one point in time, I thought that maybe we should be on my wife and I talked about all maybe we should have ten reels and at that point that should should be enough cash flow, you know, for for a nice retirement. And then I also thought about, okay, well, maybe at some point we decide to sell the runners, but we hold the notes instead of selling them alt right, and then use that as an income, uh, IT is a retirement income rather than, uh, just taking all that as a as a sam and trying to invest in. So I think I i've tried to think about multiple different ways, and that's where I get stuck just, you know, and the analysis analysis of at all how this what .

feels Better to you between these two approaches. One is taken on as much risk, you take IT out more risk and driving the mathematically optio approach for the next eight years, or saying i'm gonna a get there by a huge margin no matter what, or most likely no matter what, with all of these buffers and spending that time d risking the situation over the next eight years, would you like, would you rather have a go for more or would rather go for safer?

I think that i'm probably leaning towards d risking this this juncture like try and true things i'm willing to do but taking on a bunch of well, I guess that depends on what you mean by risk. If you're talking about taking on new mortgage loans against renal properties, I don't consider that a bunch of risk.

Um but no, I would i'm not sure about the risk profile of like buying a company where there is actually no assets and it's all service delivery. And then you know the people that are delivering in the service decide that they want to go out and do something else. Now was so i've got an I said that I mean, yeah, I bought myself a new job if I want to get my money back out of IT. So what type of risks are you are you thinking about what I think .

I was asking if you're comfortable lever and up on more rental properties um or you want to put IT all in the stocks or if you want to just pay everything off and say i'm done good, good. And I think you're much more along that. I would like to take a little more rise in that spectrum based on your response there. You're thinking about buying a business, continuing to invest and not aggressive, but real, real number, real state these lines to continue building up the portfolio is what i'm hearing.

Yeah yeah. I I don't mind doing those things. And in six, eight years, you know I don't want to be sitting on the beach all the time, right? Like I like to have things to keep me busy. I think that I think that's healthy um but I want the freedom to be able to you know to go places and do things and not say, well, I only get two weeks of vacation or three weeks of fiction because it's know because it's tie to the tie to the Normal job.

Have you thought about specifics with regards to what types of businesses .

are thinking about buying? So I years so on two different rental property businesses where people were trying to sell their portfolio of remo property assets that they were managing. Neither one of those principles for me like the risk was too high that either there was a lot of concentration with like one owner in a bunch properties verses or or that seems problematic and more of a more of a headache than than a true business.

So i've looked at that. Listen to a couple of your podcast where where you've had people on talking about the fact that lot of bombers retiring and trying to trying to offer their businesses. I'm interested in that in concept.

I've been running businesses. I've been running a business for the most part put the last twenty something year. So I think I understand how to Operate a relatively simple business. Um but I just don't want to get stuck actually doing more than Operating IT, right?

Like you think what is your what is your procurement to buy this business while you're working your current job that i'd been up, bring assumption this would be after you left your job, but is that you just said you reviewed too recently? Are you going to put .

and do that dinner? I'd be open to IT as long as IT was a situation where I thought abn t you know, like oversight was all we need to do outside of transacting, right? The purchase if I felt like I needed to be there, no, ten, ten, twenty hours a week, that sort of a non starter for right now.

And I think what's making this conversation so hard for me is your super rich, super competent and super successful uh, in all these areas as you have like all these options in front of you, right you have you provide what is clearly an awesome you park awesome a life for girls um there well set up, you're thinking ahead for all of these things. You will have no trouble retiring.

And these options are just like, like it's it's kind of around like that. What do you want question around IT? Because you have you will get there regardless of which path you take, whether it's rental property investing, you can buy cash, you can buy ten.

You can get the ten properties in cash over the next eight years, potentially within we were not ten properties, but you you can get to five properties paid off. If you want to do IT, you get to turn easily if you if you want to take on a couple more mortgagees um and those there, you're clearly skilled managing these things that producing great cash law and performing really well. You told us us about a home on deal a uh a before before the the show here are this you you can run a business um you can do that today.

You got clearly a great job and A T you know uh killing IT at the current profession. Everyone of business for twenty years with some equity into options there. And I think that's what why i'm struggling here to give give direction is because all of those are good and you should be successful with all of them as long as you remain the conservative relative to you're overall situation here.

And so now I guess that's the question is what what sounds more fun, what sounds like more, more you over next couple years? Is that just passively active asset and stocks? Is IT built to property portfolio? Or is IT run a business? Or is IT doing all three because you can do all .

three in your situation? Well, let me maybe you can provide some guides on this. What are your thoughts on what puts me in a Better tax advantaged position? So there's a zero version interest credit card that know I had to come out of pocket to pay me know more than ten thousand dollars worth of taxes this past year.

A every time I do that, IT hurts. He has where we're paying taxes on our w to income already and then I turned around enough to pay taxes after that. Um you know i'm all for paying my fair share, but I feel like I feel like a given blood when tax time comes around. So i've been contemplating positions that put us in a Better tax position as part of the calculus.

Well, I think I think that your tax problem is, is related to the fact that you're in four hundred and twelve thousand dollars a year, right? So that's a great problem to and so you just are gonna pay tax on that. And that's where know if we go back to what I was saying earlier, if you can chunk down those expenses that I just listed in a very meaningful way and backs up the four, we know all those different types of things.

Now you don't need to realize you you have to realize fourteen thousand, those a month after tax right now to fill your lifestyle. That is the biggest problem here. And you you can do things that are tax, but it's going to be really hard as A W two employee with the current portfolio you set up here.

So if you if you want to say, how do I get serious about reducing my tax though? Well, I think that by the time you retire, if you only need if you only alive fifty, five hundred, you may pay no text at that point time from your rental portfolio. Who do we have on recently, mainly the guy with the A, I think we held episode actually with draws most one gate early.

Eric Cooper.

yeah, eric Cooper, you know that guy has a couple properties with handful rental properties and a little bit of passive income and he generates ninety seven thousand dollars year in cash. Well, but his tax bill is like twenty. His A G I is twenty four thousand.

So that's something to think about when you're planning around this is and that's why I always begin with the expense side because a lot if you need to realize ten grand a month to fuel your lifestyle, you're gna need to think about how to do that efficiently. If you were to go down that road that you described earlier of buying a property management business and managing properties, you'd probably get licensed as a broker in the pursuit of that. And now you're a real estate professional.

okay. Now we've got something interesting going on there where there is probably a world where there's more rental properties in the picture and there is maybe even some indications that provide that passive those passive losses. And because you're a full time business owner doing real estate related activities as a property manager. Now we ve got something really fun to begin working with from a tax perspective.

But I think that the fundamental problem with building a tax to in, and we can talk about this more, but I think you're going have a hard time realizing the eighty, twenty those benefits with the current jobs set up, which is not really that big a problem because that pays so well. But how how's that for a reaction in any any idea of that Sparks? Uh, I think to start talking .

through yeah yeah so so maybe that is a good transition idea to to actually do the property management business as a you try to start building IT up while i'm doing this where IT doesn't take a lot of effort. And I have thought about becoming a real state profession in order to change the our ability to realize depreciation and and other another riots related to real states. So I would lean towards that.

I think to me that feels like something that I know how to do and that is not a far departure from what we're doing already. Um and I you know one of my one of the rental properties is out of region already, like I don't I don't have to be there in order for you to uh to Operate. So I I feel comfortable with you know being out of the country for two months and you know only checking emails and you know place in phone calls help managers I can stuff. So I think that.

that is possible. We talked about home equity a little bit. I touched on the best way to freed up is to remove the P. N.

I pay in my one of the best ways to freed up, if you are gonna stay put after they are, they're gone to college, is I want to paid off. You no longer to realize the income, so I won't go back into that point. The other one is to sell IT.

And the last option is to pull out a hello refight, which could be an option for you if you decide you want to go into the business world. But you're gona lose your cushy mortgage um with the low interest rate right now for something higher rate at a higher rate or you're onna take out a pretty expensive variable rate on the ioc. So you need to have high conviction in that business, but that would allow you to have a lower cash position or not have to diversify away from other assets. Did you have a more specific question .

on the home meps? The home that we're in is is great. You right now that we have kids like we've got plenty of room and all I can stuff, we actually probably have more house than we need.

Because when we first built IT, uh, we had family coming to visit all the time. So we wanted to make sure we had a place for everybody. But fortunately, a lot of our families moved to this nearby us.

So we don't really have all that mining out of town long term visitors anymore. So we will likely downsize in in the size of property. Wants the kids， uh, are gone um that probably is not right when they go to colors that might be a little shocking. But in the in in retirement, I would i'd like to sell the current property, hopefully be able to buy the following property, you know alright and and not have to take a mortgage of noon.

That's I love that that that will make life way easier on a lot of friends and terms is planning around your retirement expenses. So I get a great plan. That's that's the best way to use the homework ity.

in my view. So one thing to consider with regards to buying another buying a business IT will do you think that you can make more money than you're making now at your current job?

no. And i'm not looking to buy a business up before the kids go to college. Like to to replace my current income.

I would only be looking to buy a business that I could transition into managing on a fractional basis after after they get in the school. So um after they start college, that is um in the property management. I'm wondering if IT doesn't even make sense to to buy one. I wonder if that makes more sense to try to do slowly manage my own properties as a property management business and just grow into that and try to expand the portfolio rather than turning IT into like a make taking more risk in trying to buy a portfolio of assets. Somebody else imaging.

I think that reps. So so this the question, I think, comes back to the tax strategy that you wanted implement. And I think that .

I think that when .

when you get to there impact and you leave your job in a couple of years and kids are out ecology of these lower expenses, you'll find that this portfolio in seven years will double roughly. I mean, there we put in takes, but that's a role seven, two double seven point two years. So good chance that happening certainly could not around that, but that puts yet five point four million.

Before we talk about all the additional cash flows that you invest over the next several years um from your the desperation, your income and expenses right now, which will, by the way, diminish the expensive will diminish naturally over that time, you would actually be culling more and you parly get a razor. Two might even realize this equity. So I would pick your nominal networks at between six and seven million by the time you make that decision at that point.

And then it's gna come down to how much how much do you want to spend on a regular basis and with the most tax efficient way to generate that amount of income. And if you want to spend a lot at that point, then I think we're talking about, okay, how do I make money on our um how do I make active income from reps and how do I appreciate IT with rental properties and play and play all of those different types of games. But I think there's also a good chance where you will find you don't really need to change that much.

Your your real estate income at that point will naturally be very tax advanced um because because because of rental property income. And if you buy a few more of them like the levered properties like you've been doing, you may find that you're able to just like A A Cooper generate close to a hundred k with a pretty low now. And I without having to do that business zi project, and that's just a bonus, you think you can just say, okay, well, I don't only have to worry about the tax angle because the rental property income is already fairly passive.

And i've got enough in my four one k easily tired me when I get to traditional retirement. And by the way, I I got a bridges for ten years before we can start collecting such security. So I think that that's one like a perspective. I don't know the doubling ling in the compound nature are so fantastic now that you're at this level of wealth that I know. Is that a fresh angle or new way to think about IT?

You only know that that's actually very comforting. That means that you know that essentially you stay stay on the existing path, let they ask, grow. And then the part time job, which is entering the remo properties that, that we currently have and I don't have to IT certainly .

could not happen that way. You definitely to be conservative, but you already are conservative all but if that happens, that would be very historically average um for for from a portfolio design to standpoint, we'll give you great options then yeah, you could buy that business, but it's just because you like more than business and get some more extra robots money.

It's not because it's really necessary to take you over and in that world off to figure out what the the put back is for inflation adjustments. Yeah that definitely angle an angle to pursue on this one one um other note in this this I am just jump at around here a little bit here and what do you think is reasonable for weddings? Um how do you how do you even think about that? I I have a daughter, actually be another one on the way in April. So like what what is like the number you should be thinking about, uh, on my right?

Well, congratulations on having another one way 啊。 The short answers I have no idea, I know with inflation is got to be more than double what my wife and I spent on our, on our. So my my guess is hundred thousand dollars .

and to two hundred, two hundred for two.

I don't know in there. I don't know what do you think .

is a water budget? My wedding budget was five thousand dollars, and my parents gave me a check for ten thousand dollars and said, however much you choose to spend on your wedding is however much you choose to spend on your wedding. And this is our contribution.

So if you want to spend one hundred thousand dollars, you will have to come up with the ninety. And if you want to spend five thousand, then you get an extra five thousand. And that was their gift.

My wife is more frugal than I am, so that that hundred thousand dollars will likely get she's going .

to listen to this and .

say what yeah what he is but I don't know you know it's is one of those things where know when that your kids you to do what you can um so I like to i'd like to know that we could have what do I think that that's a wise way to spend money to to uh be out a hundred thousand dollars in a single day? No.

I would eat that. Mean, I think on this one now like I think I think, like, what are you gna do in this situation? Bum up against reMilly and network.

Good job. Kids are almost, almost out of the house. There's not really a world where he's going to leave his job in the mirror. m. Aly buys of business, which kids to keep working on.

Why wouldn't you plan on two hundred thousand million weddings in terms of the way you're projecting out the model over the next couple of years? And then I probably won't actually come to that. And then the way you do that, I think, is you just build the network pile as large as possible in the context of your overall relatively conservative plan.

And it's there if you need and you don't have to spend IT if that doesn't happen. So I I think in this situation, I didn't do the same thing. I have a lot of trouble, say, and note the next apple sauce from my two year old. I don't know how I would say no, a wedding if that was the dream, you know, twenty years. But I see you, see you then is just been helpful.

IT has been hello, I think so I think think you sort of talking through IT and having, uh some somebody to confirm assumptions. I started looking at this, my god, well, maybe we're almost there, but then again, maybe we're not. So this helps to to clarify that.

I think that the answer is yes. Where almost there stay on the path, you know, if some opportunities present themselves. So we don't have to drastically change anything, we should be able to to comfortable ly step step back from the this full time work. And in the next six, eight years, I think a lot of people .

are strugling with the same questions you are. And it's awesome because you have done such a good b here and it's just about finishing the play over the next couple of years. And I think you are thinking about all the right things.

Got a pick option, but you have no real bad options on this BRT. You you can be successful with any of the three courses and stocks, real estate or business and because you're clearly skilled in all of these areas around around personal finance. So congratulations.

Thank you. Thank you, and thanks for your time today. Thanks for walking through this with me. This is, this is very good.

Thank you for sharing your story with us. I really appreciated. And I agree with everything Scott said.

I think you are doing fantastically and you this is part of that that slog that you're like, am I there yet? Am I there yet? You could be if you change the point of your spending, but you also have kids at home, so you don't have to change a bunch of your spending.

And you I have every confidence that you will still get there. All right, that was easy. And that that was a really fun series of events. I really liked what scot said about pulling out some of these expenses that you won't have in retirement.

And you know, I was I was joking at the beginning and like, oh, you got all this money, what do you need me for? But actually, this particular problem pops up a lot. You get in your head that you need x number of dollars for your retirement.

And IT can be very easy to overlook the fact that you're not going to have babysitters in retirement. Most likely, you're not going to need to be paying for high school expenses and daycare expenses and all of these other expenses that you currently have. And I really appreciated that Scott pulled some of those other expenses out besides the ones that I had pulled out when I said, you know, these rental property expenses are not your personal expenses, those should go through your business.

But I really, really appreciate each and sharing his story today because while his his outlook is fantastic, tic um kind of changing your mindset and looking at things a little bit differently is absolutely the reason why we do shows like this. Uh, so we would love to talk to you as well. If you have a financial situation you would like us to comment on.

Please email mdi at bigger pockets com or Scott at bigger pockets on, and we will love to review your finances with you. That wraps up this episode of the bigger points money podcast. He is got trench, and I am, I jennen saying goodbye, butterfly.