Elizabeth is curious to know: what does a good net worth breakdown look like? Is it appropriate to have a lot of your net worth tied up in real estate?
Marie wants to start her own business, but she’s living paycheck-to-paycheck. Is incurring debt her only option to make this dream a reality?
Bria wants to take a second mini-retirement and has a good chunk of money saved up. She wants to come back to the workforce with a cash cushion. What should she do with her money while traveling?
Anonymous is relocating from Southern California to Florida. She wants to know if she should rent an apartment and buy a rental property, or buy a primary residence with the $150,000 she has saved.
Connor is facing a dilemma. Is he correct in not prioritizing 401k contributions given that his employer doesn’t offer a match, combined with his goal for financial independence? Is his strategy of using his savings for real estate investing better?
Caroline is wondering: should she aggressively pay off her home and her rental properties, or use her excess savings to fund a brokerage account?
Today’s episode is full of exploring and weighing tradeoffs. Let’s dive in!
Connor asks (at 01:51):
I’m 27 years old, debt-free, and earn $140,000 per year as a software engineer. I save about 60 percent of that over the past six months, and I recently purchased my first rental property that cash flows about $300 per month. I invest around $500/month to Robinhood (S&P 500 Index Funds).
In the past, I’ve contributed to a 401k to get the company match, but the company I work for now is smaller and doesn’t offer one, so I no longer contribute to it. Instead, I max out my HSA.
My goal is to purchase more rental properties to cover my own rent and then some, after which I plan to start my own software company.
Part of me doesn’t like the idea of locking my money away in a 401k because I’ll reach financial independence long before I can access it. I’d rather take that money and buy properties with it. Does this strategy make sense? Should I figure out a backdoor Roth conversion? Does owning real estate provide tax advantages like a 401k?
Caroline asks (at 13:51):
My husband and I earn $10,800/month, with $2,800 of that going towards bills. We’re diligently saving for retirement, our children’s education, and an emergency fund.
We have $5,000/month extra to invest into either real estate or our brokerage account. We have $120,000 in IRAs, and two rental properties – we owe $24,000 on one and owe $70,000 on the other. If we paid both off, that would result in a net income of $1,200/month. We also owe $136,000 on our primary residence, and it’s worth $160,000. If that was also paid off and we rented it out, we could net $1,200 – $1,400/month from it.
My father lives in India, and in the future, one of my daughters will live in Japan. My husband and I would like the freedom to go and visit them. Does it make the most sense to aggressively pay off our properties so that we get more income, or should we fund our brokerage accounts?
Elizabeth asks (at 32:55):
My husband and I have a combined net worth of $580,000. About 68 percent is equity in our primary residence and our rental property, and that number feels too high. Is it appropriate that so much of our net worth is wrapped up in real estate? What IS appropriate for a net worth break down?
Anonymous asks (at 48:04):
I am relocating from Southern California to Florida, and my employer is paying for two months of temporary living expenses. I’m trying to figure out my options for living arrangements.
I have $150,000 saved up to use towards either a rental or a primary residence, but I’m not sure which path to take. The properties available for purchase in this area are townhomes and condos with high HOA fees, and I’m worried about the resale value of these properties as compared to single-family homes in good school districts. For that reason, renting an apartment and purchasing a rental nearby seems more attractive. I could purchase a property in the suburbs, but it’s not the type of neighborhood that I’m looking for.
I’d like to stay in Florida for the long-term, but if I end up unhappy in my job or with the location, then I’m willing to prioritize my happiness and move elsewhere.
Are there any factors I’m forgetting to consider? Will I miss out on any first-time homebuyer deals if I purchase a rental before a primary residence?
Bria asks (at 57:32):
I’ve been thinking about taking a second mini-retirement. I took my first one 10 years ago, fresh out of college, with around $25,000 in savings. This time, I have about $100,000 in mostly liquid cash that I have set aside.
I have around $50,000-$55,000 in a Traditional IRA (a rollover from a 401k). I also have a brokerage account, a Roth account, and a 403b account. I know I should have the liquid savings and retirement amounts reversed, but I’ve been setting aside money for this mini-retirement for the past three years.
I’m not looking to buy a house, get married, or have children anytime soon, and I’m debt-free. I just want to travel.
What should I do with my money while I’m traveling? Should I put a portion of it into my brokerage account, and continue to invest in VTSAX? Or leave it in liquid cash and maximize my mini-retirement?
I want to come back with a cushion to re-enter the workforce with, and I’d like your thoughts on this.
Marie asks (at 01:08:26):
I recently moved to Los Angeles from Detroit in August 2018. I’m living paycheck-to-paycheck and I’m trying to get ahead, but I can’t because my two week paycheck goes directly to my rent.
I have dreams and aspirations of investing and starting my own business, and I’ve done my research. I want to get out of this rut, but I don’t know how to start a business or invest when the only viable option is to incur credit card debt for start-up costs. I have zero savings and just want to find a way to make my dreams a reality.
Resources Mentioned:
- The $100 Startup, by Chris Guillebeau
- The Side Hustle Show
- Episode 85 with Nick Loper
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