Anna has made the leap to self-employment … but what’s next? She lives in the Bay Area and she’s trying to choose between five business ideas; she needs to make enough money to stay in her high-cost area.
Doug recently won $9,000 from an online poker side gig and is wondering how best to use the funds: pay off high-interest student loan debt, or keep it to increase his poker earning potential?
Alex and his partner want to househack a single-family property with a mother-in-law suit. What should they consider as far as zoning goes?
Darrell is on track to retire in two years at age 55 and wants to know what he should do with his primary residence. Should he rent it out? Or should he sell it and use the profit to invest in rental properties? Or use the profit to buy his retirement home?
Mara is curious about 1031 exchanges. She has equity in a rental property that she’d like to harvest, but she wants more information before making the move.
Michael and his wife are struggling with competing goals. They want to invest in real estate, but they also want to move into an apartment closer to work to reduce their long commutes. Should they sell their home and invest the equity into a rental property, or should they take a HELOC on their home instead?
Anna asks (at 01:28 minutes):
I recently quit my day job in marketing to become self-employed, and I’m looking at different options for what to do next. Whatever I pursue needs to be lucrative enough (quickly!) for me to stay in the Bay Area.
I’m 33 and have $150,000 invested, $50,000 in cash, and no debt.
The options I’m looking at are:
- Online digital marketing and consulting – I’ve been doing this as a side hustle for many years, so I could build this out as a full-fledged business. It’s not my passion, but it’s the most practical choice.
- Blogging – I’ve heard that it takes six to twelve months to see any profit, but I love writing.
- Product-based business – I could package and sell Paleo cookies that I make that people have enjoyed. I’d like to appear on Shark Tank and sell my product in stores.
- Amazon fulfillment – I could sell rave clothing.
- Ebook business – I’ve already been running this as a side hustle; I’m an author of several self-published books. It doesn’t bring in enough revenue to support myself yet.
What’s the best path to choose if I want to be both financially responsible and stay self-employed?
Michael asks (at 12:11 minutes):
My wife and I live in Chattanooga, TN. We earn a combined $143,000/year and we have $100,000 of equity in our home. We want to invest this into a rental property, but there are a few decisions we need to make first.
Both of our families live outside the Knoxville, TN area, and we’ve discussed moving closer to them in the next few years. My job would transfer to the area, but my wife’s job wouldn’t.
Right now, we each have an hour commute to work. I’ve suggested selling our house and renting a luxury apartment a few minutes away from our jobs. This would be a quality-of-life improvement in terms of being able to spend more time with our 9-month old, and it would free up our equity to begin investing in rentals. Our total housing costs are $1,800 and renting an apartment would be around $1,800 as well.
My wife isn’t on board with this idea because there are inconveniences with renting an apartment. She would rather take out a HELOC on our current home and use that money to invest in a rental instead. I’m not sure if this is a good idea if we later sell the house, which could happen if we decide to move to Knoxville. What are your thoughts?
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Darrell asks (at 25:19 minutes):
I’ll be retiring in two years, when I’m 55 years old, and I’m not sure what to do about my current home. Here are the details:
When I retire, I’ll have about 20 years left on the mortgage. My principal is $400/month, interest is $430/month, and my tax and insurance is $320/month. I pay $105 a year for homeowner’s dues.
Upon retiring, I’ll owe $150,000 on the mortgage and the house will be valued at around $325,000, so I’ll have approximately $175,000 in equity. The value of my home is a little less than the median value for the area. Comparable homes in my area rent for $1,600 – $1,700/month. Should I keep this as a long-term rental? Or should I sell my home and take the equity to invest in one or two rental properties? Or use that equity to purchase my retirement home?
I don’t plan on living in this home during retirement. I’m contemplating the opportunity cost of holding it as a rental vs. selling it and reinvesting the equity in alternate rentals.
Doug asks (at 36:41 minutes):
I’m 31 and I have a negative net worth because of poor decisions in the past. I’m saving as much as possible and I’m around 10-15 years away from retirement.
I have a side hustle playing online poker. I recently had a big score of $9,000 — more than I generally make — and I have two choices for how to use it:
- I could pay off a 7.15 percent personal student loan with a balance of about $7,500.
- I could hold onto the money and add it to my poker bankroll, which would allow me to play higher stakes and have higher earning potential.
I’m leaning toward paying off the debt because it would free up $500/month that I could then use to invest in index funds.
Mara asks (at 43:50 minutes):
I have a question about 1031 exchanges. I was thinking of harvesting the equity I have in a single-family home if my tenants don’t want to renew the lease. I may sell it, harvest the equity, and put the equity into a 4-plex. Do you have any recommendations for resources on this subject?
Alex asks (at 54:19 minutes):
My partner and I want to househack a single-family property with a mother-in-law suite. We would live upstairs and rent out the full basement apartment. We’d hold onto the property long-term with the plan to rent out both halves.
What should we consider from a zoning perspective? I’m a newly licensed real estate agent and I’m wondering where I can find information about the limitations this set up might face. Do we need a zoning variance to make this property an income-producing property?
I answer these six questions in today’s episode. Enjoy!
Resources Mentioned:
Mara’s Question –
- Like-Kind Exchanges: Real Estate Tax Tips (IRS article)
- What is a 1031 Exchange and What Do You Need to Know in 2019? (The Street article)
- 1031 Exchanges: 10 Things to Know (Investopedia article)
- How to Do 1031 Exchanges to Defer Taxes (The Balance article)
- Making the 1031 Exchange: Is Swap Till You Drop Always the Best Motto? (Kiplinger article)
- How To Do A Section 1031 Like Kind Exchange (Book by Michael Lantrip, accountant, attorney, former IRS tax examiner)
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