Finance Friday: Should I Double Down on Real Estate or Start a Side Hustle?

Mindy:
Hello, my dear listeners and welcome to the BiggerPockets Money Podcast where we are interviewing Kayla and talking about whether investing in real estate is the smoothest and easiest path to financial freedom for her current position. Hello, hello, hello. My name is Mindy Jensen and with me as always is my BiggerPockets is his full-Time job and side hustle co-host, Scott Trench.

Scott:
Oh, thanks, Mindy. You always broker such great intro adjectives for me. I really appreciate it.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate or think through the risks, rewards, and possibilities of balloon financing debt on real estate investments, or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
That was a bit of foreshadowing, Scott. I like it. Today’s money moment is provided by Innago. Start saving time and money with Innago’s free property management software. Find out why in Innago is the number one rated property management software. As an exclusive offer to BiggerPockets listeners, you’ll get $25 for using Innago at innago.com/biggerpockets. That’s innago.com/biggerpockets. Today’s money moment is if you have the space for it, invest in a deep freezer. Do you find yourself over purchasing when buying groceries and then having to toss out too much food that’s gone bad? Having a deep freezer will not only allow you to bulk store and save that way, but you’ll also be combating food waste and saving big time on groceries. Do you have a money tip for us? Email [email protected]. Before we bring in Kayla, let’s take a quick break.

Scott:
Are you tired of spending endless hours managing your rental properties? Innago is here to simplify your life by saving you time and money with its free property management software. Whether you have one unit or 1,000, residential or commercial properties, Innago is built for you. With Innago, you can say goodbye to complex and costly solutions. Innago is free and easy to use. There’s a reason Innago was rated number one property management software by G2 for ease of use. Get started in under five minutes at innago.com/biggerpockets.
From tenant screening and lease signing to rent collection and work order management and everything in between, Innago has you covered. They offer a seamless interface and support representatives to assist you every step of the way. Join thousands of satisfied landlords and start streamlining your property management tasks today with Innago. As an exclusive offer to BiggerPockets listeners, you’ll get $25 for using Innago. Visit innago.com/biggerpockets to get started. That’s innago.com/biggerpockets.

Mindy:
And we’re back. Kayla is a 28-year-old healthcare sales professional in Salt Lake City, Utah. She makes a great salary and just purchased her first property, but she found it to be a bit more complicated than she had first anticipated. Isn’t that the story of life, right? Now, she wants advice on whether she should continue on the real estate investment track or if there are other ways she can optimize her position on the way to early retirement. Kayla, welcome to the BiggerPockets Money Podcast. I’m so excited to talk to you today.

Kayla:
Thank you, Mindy. I’ve been looking forward to this for so long. Thank you so much.

Mindy:
That’s great. I’m super, super excited to jump into your numbers and your story. But before we do that, at a very high level, can you tell us a little bit about yourself?

Kayla:
Yeah. So I currently live in Utah in the Midwest and I’ve been listening to the BiggerPockets Money Podcast since 2017 when I was just starting grad school and figuring out what I wanted to do with my life once I graduated. Scott and Mindy you’ve been a big part of my financial journey and I’m so excited to be here and find out where to go from here.

Scott:
That’s so wonderful to hear. Thank you so much for listening and for coming on today.

Kayla:
Yeah.

Mindy:
I’m super excited to jump into these numbers because at a glance they look pretty good. I want to start with your income. We have a salary of 7,800 with rental income of 1,500 for a total of about $9,400. Monthly expenses, a total of 9,250, but 5,750 without the savings bucket. So we’ve got a 3,150 mortgage payment, 700 going to the church, 500 to auto, 50 to subscriptions, 50 to utilities, 1,300 for an all encompassing gas, groceries and fund bucket. And then I like this, emergency investment and play funds $3,500.
So I like that you include that in your expenses. Investments in assets, we have an emergency fund of $12,000, play fund of $7,000, 401k of 7,000. Roth IRA of 5,000, Robinhood comprising of S&P 500 stocks at 4,000 and home equity at 80,000. Total investment in assets about $115,000. Total debt, we’ve got $488,000. 480 of which is a mortgage at 5.5% and a car at $8,000. So Kayla, let’s look at what you do for a living.

Kayla:
So I do medical sales. Basically, I help senior patients that are looking at either home health or hospice services. So I do that as my full-time job. I also teach cycle at my local gym just a couple nights a week just for some fun extra money. I love to work out, so I thought why not get paid for it and get a free membership?

Mindy:
Exactly. That’s a great way to incorporate your working out. Why pay for it when you don’t have to?

Kayla:
Exactly. Yep.

Mindy:
And you just bought a house. Let’s talk about that. What was your purchase price?

Kayla:
I did. It was listed at 580, but I got them down to 560, which is a total miracle. I was very excited about that.

Mindy:
And when did you close?

Kayla:
I closed, it’ll be a week ago tomorrow, so last Friday.

Mindy:
How did you get a 5.5% interest rate in today’s market where interest rates are hovering around 7 and 8% for owner occupied?

Kayla:
Yeah. Unfortunately I’ve been wanting to buy a house for the past few years, but because right when I have the financial capability to do it, interest spikes up, which is just my luck. So what I did is I looked into my network and talked to a private investor and pitched an opportunity to them and said, “Hey, I would like to buy a house, but I do not want the PMI because I can’t put 20% down.” And the PMI adds way too much to the monthly payment that I couldn’t afford. So basically I offered a 5.5% interest yearly to be paid to them and within five years I will then need to refinance with the bank and pay them off. So that way it’s a good investment for them and it helps me save on PMI and then when I refinance, I’ll have a lower monthly payment.

Scott:
So walk me through this $3,150 mortgage payment. How are we getting to that number with this loan?

Kayla:
So it’s about 2,700 towards the mortgage, but then I have the HOA fee, which is 150. So that was the estimated mortgage when we closed, but just this past week as we finalized everything, it’s actually about 2,700 plus the 145. So 2,850 is about the average or about the monthly payment that I’ll have.

Scott:
Okay, great. So the interest only on a $480,000 mortgage at 5.5% is 2200 per month. And then we have the other incidentals, taxes, insurance and HOA. And that’s how we’re getting to that payment?

Kayla:
Right.

Scott:
Okay.

Mindy:
Is there any opportunity to extend this or is that a drop dead five years you have to refi?

Kayla:
That is the deal that we made unfortunately. So I’m really praying and hoping that within five years interest will go down into the five percents or if we’re lucky, down to the four percents. But if it stays within five, I’ll definitely take that opportunity to refinance. But by five years from now, hopefully I’ll have more equity in the home already and I can be able to afford refinancing regardless of what the interest is at.

Scott:
Great. Do you have the option to refinance this anytime?

Kayla:
Yes.

Scott:
Are there opportunities to add value to this property?

Kayla:
So this is something that I looked for when buying a property is I don’t really have the time or desire to learn how to upgrade homes and put time and money into it. And unfortunately in Utah there’s a lot of fixer upper homes that are for sale right now and they’re for sale at a high price. So that’s why it took me seven months looking with my realtor to find a property. So this home was built just four years ago and the owner, the original owner redid the whole basement.
So everything is really brand new, really up to date. The only thing that I’m changing is the interior walls were painted gray and gray is going out of style right now. So I’m having painters paint it inside to keep it up to date, but other than that there’s really no upgrades that I’m looking at doing right now.

Scott:
Then walk us through the income. You have $1,500 in income. Are you house hacking this property?

Kayla:
I’m going to have two roommates move with me. It’s a three-bed town home, but I’m going to have one bedroom empty and then I’m going to turn the basement into a little private suite down there because it’s a big open room with a full bathroom. So I’ll have two of my friends move in with me and they’re each going to pay me rent and then I’ll still have to pay a good chunk of money towards the mortgage. But again, I’m really crossing my fingers and hoping that this will just be temporarily until I put more equity in the home and have a lower monthly payment.

Scott:
What do you believe the total rent will be from these initiatives?

Kayla:
I’m going to have one girl pay 850 and the other girl pays 700. And then I will pay the remaining balance.

Scott:
Got it. Okay, great. This is really interesting. This is a creative way to buy a house to me that I haven’t heard of this working with a private… I mean, no. We’ve heard of certain things, but I’ve yet to encounter one of these on a finance Friday situation. So very little opportunity to add equity, but a relatively straightforward way to have an affordable housing option and more house hacking here. So we’re dependent. I don’t love what you said there, praying and hoping for appreciation, but it’s not necessarily a bad bet here.

Kayla:
That’s how I saw it too. I mean, I’ve been looking to get into my own place for a long time and I’m in my late 20s. I want to have my own space and my own things and if it’s going to cost me a little more than what I’m currently paying for rent, then I might as well invest that towards my own equity and my own place. I know it’s a little more expensive than I’d like, but I’m just trying to think big picture here.

Mindy:
You said that you wanted to leave one of the rooms vacant. What are you going to do with that room?

Kayla:
That’s a great question. So I want to have just an empty room for guests to come stay. I also just don’t love the idea the three bedrooms are all on one floor and having three girls all up there, it’s just feels a little congested to me. So just having two girls up there, it allows the other girl to have her own bathroom and it just feels a little more empty than we’re not having four girls all living in the town home.
I could do that if I wanted to make the monthly payments a little less for me. So maybe that’s a good question to ask you, guys, just if that’s worth it financially to take that and have an extra girl in there. But I like having a little more independence and privacy, so that’s why I leaned in that direction.

Scott:
How much would the total rent go up if you were able to put someone in that extra room?

Kayla:
If I were to put someone in the next room, I could probably charge them about 700 as well since the other bedroom is about the same size. So it could knock $700 off of my payment, which would be very nice.

Scott:
Awesome.

Mindy:
Any short-term rental opportunities?

Kayla:
No. They do not allow short-term rentals in this area. The HOA doesn’t allow that.

Mindy:
I didn’t think so. With the HOA, I didn’t think so, but I wanted to just dive in there if they did, you could do the basement every once in a while and you could live upstairs when you’re ready to get the basement.

Kayla:
I would love that. They don’t have a private entrance down there or their own kitchenette or anything, so that’s where I’d be limited. And it might be weird for someone to feel like they have to share a whole living space with the owner and then sneak down into the basement. But I thought about that too. The reason that was really attractive to me actually though is it’s a newer town home in Sandy Utah, which is a great area because it’s central between Lehigh, which is the silicone slopes, a really booming area right now with all the tech companies and it’s also close to downtown Salt Lake, which is another big attraction.
And it’s only 10 minutes from the mouth of the canyon where there’s ski resorts up there. So I feel like it’s a really good place. So long-term I could have long-term renters staying there. It could never be an Airbnb type investment property, but it could be just a safe long-term renter stay.

Scott:
What would the total rent be if you moved out on this place and maximized income right now?

Kayla:
If I were to move out completely?

Scott:
Yeah.

Kayla:
It’d be 2,850 that I would need to charge renters to be able to break even.

Scott:
Okay. Do you think you could get 2,800 or 2,850?

Kayla:
I probably could. Especially if I rented it to a smaller family or three professionals that wanted to split that and live there together as friends, which there’s a lot of that opportunity here. People are always looking for places to live with their friends and rent. There’s a lot of young single professionals in this area.

Scott:
I always try to understand how much cash you’re able to accumulate in the next 12 months? That is what we then have options from there to then explore. And so how much cash? Another way of asking this question is how much cash could you accumulate over the next 12 months and how much do you think you will?

Kayla:
About 3,500 a month. That’s pretty safe. So my salary is set at 90 and then I do get bonuses every month based off however many patients I get on services. So I’m averaging about up to 120 a year right now. And so every month is really different on how much cash I get after paying off my bills and necessary payments. So right now I’m averaging about 3,500 extra that I’m just investing or putting into savings accounts.

Scott:
Okay, awesome. About $42,000 a year in terms of cash that you can accumulate to then move to next things. So we have the house hack, we have this. What are your goals? What do you want to do next?

Kayla:
So that’s a really good question because my dream has always been… When I first started listening to you guys, I sat down and I drew a little five-year plan, 10-year plan actually at the time and I wanted to have five properties by the time I turned 35. One of them I would live in. The other four, I would rent out whether short-term rentals or long-term rentals. I just think it’s the most brilliant way to cashflow and it’s lower maintenance than owning and starting and being a CEO of your own company.
So I thought that would be the route for me, but it took me a good amount of years to save up and just get into my first property. So I’m wondering if it’s smart to do the same thing for the second property and prolong that or I’ve been looking into other avenues starting just a smaller business on the side. I looked at maybe purchasing smaller businesses that are already being run and I could just be the manager over it and I still have all the employees that have already been working there and running that on the side.
I’m also looking at starting… I do fitness right now at the gym and I really am looking into doing senior fitness. And if I could start a little side hustle doing senior fitness classes or putting together a senior fitness program on the side, I could do that too. I would need some pretty good capital money to really get the marketing, the overhead, all that stuff done. I’m just trying to figure out the smartest move for me to put my cash in the next couple years.

Scott:
And just kind of digging in there, one more layer, we have five rental properties, you have side hustles and all that kind of stuff. What is the end goal five years from now or five, seven, 10 years from now? What do you want the state of your financial position in life to be?

Kayla:
Yeah, good question. So ideally, I would love to get married and have children by then. Who knows if that’ll happen? But ideally I would like to, and when I do have my own children, I would love to raise my own children, so I would love to have a couple side hustles or things, projects that I can work on while being a stay-at- home mom with my children and not have to be in an office from nine to five. That’s what I’d like to start now is planting those seeds and getting those up and running so that in 10 years from now I’ll be in a position to do that.

Scott:
Kayla, if you were to buy more rental properties, do you think you’d buy more like the one you just bought or what is the best cashflow, for example, opportunity in your area right now?

Kayla:
I think Lehigh is a really big growing city right now. There’s a lot of those tech companies and a ton of people are moving to Utah right now for that very reason. So I think if I were to own a couple town homes or condos in Lehigh, I could get it for a good rate if they’re new builds because their builders offer good upfront deals if you were to buy one of them. I would ideally love to purchase a couple of those and rent them out to people that are working down there and cashflow on those.
Unfortunately with Utah’s market right now and the interest, it’s just not attainable. I’d maybe be lucky to break even if I were to do that. I definitely looked into that earlier this year when I started looking. So as of right now that’s on hold. I’m hoping that’ll change in the next year or two because I think I know the area really well. I have a really good network of people that I could find people to live in a rental property like that. I’m just not so sure if that’s the smart move right now with the way things are going.

Scott:
I think that buying breakeven rental properties, you got to be really careful because sometimes breakeven is not actually breakeven even if it’s a new build. There can be unexpected expenses in there, but assuming that we’re using really conservative projections and we’re getting to breakeven, so maybe even slightly cashflow positive, I wonder if that’s a great way to solve your end problem of having enough passive income or the ability to then not have to work a full-time job. If you had five properties that were breakeven like what you just described there and we’re able to get breakeven, I’d worry that, that would actually put a tremendous amount of stress on the position and actually ramp the pressure to work even more than what you’re hoping for if you didn’t have any of those properties at that point in time because maybe it’s a great appreciation market over the next 30 years.
Anything can happen in the next five years and what if we’re in a position where you have to work a job plus extra in order to cover the unexpected expenses or mortgage payments, which can come with a rental property. Let me just reframe it here. Let’s say we didn’t have five properties. Let’s say we had one paid off rental property that was producing $2,000 a month. What would that do in five to seven years? Forget the math of whether that actually make… The returns are great there, but I’m just wondering how that would feel compared to five properties that were breaking even.

Kayla:
I mean, just 2,000 a month, that would be amazing. Right? That would cover half or more of just my living expenses, which would be so nice. So yeah, even just having one, that would be awesome. Ideally, it would be a little more though so that I wouldn’t have to work at all to cover the rest, but that would be fantastic if I could do that. Awesome.

Scott:
So those are two extremes that might be achievable for you in the next five to seven years. One is acquiring five breakeven properties and one is paying off one property. So then we can go somewhere in between and say, “Okay, we don’t like those extremes perhaps to some degree, but maybe we have two light levered properties that are producing a thousand dollars a month in total cash flow together.” Anyways, I wanted to frame it like that because I see a big problem with the goal of five properties in five to seven years and the idea of that being freeing in this market, unless something changes, you’re going to really need to bring a lot more cash down or potentially swap markets. I think in order to have that kind of portfolio achieve the goal that you’re looking for. What do you think, man? Do you agree with that?

Mindy:
I do agree with that and even further, I am just a little bit nervous about the looming refinance on the original property. When you take into consideration adding more properties to this portfolio, we don’t have any guarantees that rates are going to go down. And it would be awesome if they did because I have a property I need to refinance too. But right now they just continue to go up. If they don’t move in five years and you add another property or two to your portfolio, what happens to your financial situation when you have to refinance? I can see wanting to wait and wait again, and wait again.
“Oh, rates still haven’t come down. Rates went up, rates went up, oh, rates came down to 7.5% from 8%. I still don’t like that.” And you wait again, again. And then all of a sudden you’re at four and a half years like, “Well, now I have to refinance. I have to do it.” And it’s not really financially advantageous. I’m nervous about adding more to this pile before we get a solid, because this isn’t an arm that we’re talking about. It’s not just going to fluctuate after five years. This is a deadline in five years. You have to refinance. What happens if you don’t refinance?

Kayla:
I actually have thought about this a little bit, kind of keeps me up at night sometimes. But the good thing is what gives me peace of mind here is that I already have quite a bit of equity in this home. So let’s say after two years or let’s say I hit my five-year mark and interest is still at seven or 8% and for whatever reason I can’t make those monthly payments anymore, I feel very strongly that I could sell it for a good rate and I would have all that equity that I could put then towards a property that would financially make a little more sense for me. So that’s the mentality that I’ve had moving forward.

Scott:
So there’s a couple of things to be really honest here that I’m not liking about this plan. There’s no opportunity to add value to this property and while you have $80,000 in equity in this property, that’s only about 15% equity in this particular property. And some markets in this country are actually down close to 15% year over year in that. So not saying that’s going to happen. Salt Lake City is probably not going to. In fact, Salt Lake City is one of those markets that would bet on being in the high end of an appreciation potential over the next 20 to 30 years.
I’m completely aligned with that, but inside a five years, anything could happen with that. So you really don’t have a lot of equity even though it feels like a lot and it took you a large amount of time to get there. I don’t want to say, “No, don’t do the five rental property thing and go there.” But here’s what I’d love to hear if you were going to go that route. I’d love to hear, “I’m really handy and I’m going to develop my skillset. My passion project on the side right now is teaching fitness classes, but really I’m going to start learning how to swing a hammer. I’m going to take a leaf out of Mindy’s book here and become super handy and be fixing up properties. I’m going to buy stuff that needs a lot of value add and force equity. I’m going to have the option to cash this guy out, this problem that’s keeping me up at night within the next year or two by adding a ton of value, maybe even a complete extension or remodeling the basement or whatever with that.”
But if we’re buying brand new properties, we don’t have any of those levers. So then the question is how much cash can we generate? If you have a huge amount of income, for example, a much greater income, then we could pay off these properties. Your current purchase I don’t think is a bad deal. You’re house hacking. That’s a better bet than renting and it’s a better bet than buying a house without roommates. So love the current decision. But to repeat it and add on with the current strategy by repeating it, I think compounds risk in an unacceptable way relative to the return that you might generate from that property unless, again, you are willing to treat this as more of a business to go in with it. So what’s your reaction to that, to my initial diagnosis or thought process relative to the plan here?

Kayla:
That is a really good point and I’m really glad I’m talking to you guys today because this really gives me just a broader insight on what I’m doing here. But I could look at definitely redoing some things in the interior, new countertops maybe would be nice eventually or just adding a little more value aesthetically in the inside. But I think you’re right. Maybe purchasing in the next five years in this situation might be a little more risky.

Scott:
Look, I think that another component is, let’s say that the market does go down 15% and let’s say there’s a 10% chance of that outcome, much higher probabilities of the upside on it. But let’s say there’s a 10% chance of that. At that point, the property is now worth 450 and your loan balance is what, 480 on that. So to refinance this, you’re going to need to get a loan. You’re only going to be able to get a load of perhaps up to 75% of the value, which in that future state could be 360 something around that.
So that means you’re going to have to bring 90 to the table to cash out the person that you’ve borrowed from today. Is that definitely going to happen? No. Is it a possibility? Absolutely. And because this is not a fixed straight 30 year mortgage, you now have to, as part of your strategy, at least think through that potential scenario and have a plan to address it, which limits other options like the aggressiveness on the next couple of rental properties.

Kayla:
That is a good point. I did forget to mention this, but there are two other properties in that neighborhood that are very similar layouts and they both sold for around 590 and six and both of them had unfinished basements. So the fact that those that kind of made me feel a little better about this purchase because I got it for way under asking and it has a finished basement. So that kind of told me that, “Okay. I’m heading in a good direction as far as equity goes.”
But you’re right, there is that risk of it dipping in value a little bit and maybe I do need to put a hold on buying another property until I kind of refinance and have a more secure loan in the future for this one.

Scott:
If I’m sitting in your shoes, I’m thinking I’ve got a good house act. It’s probably a nice place, good location, hang on to this thing for 30 years I might be doing great. I’m making a much more responsible decision than essentially everybody in the surrounding area who does not have roommates helping me, or who is renting in this scenario. So you’re in a good spot overall there. But we need to acknowledge that you have… There’s two paths here. If you want to stay in this place.
I love the idea of really emphasizing leaning into the side hustles, building a big cash position, having a conservative portfolio up to the amount that could be realistically or worst case scenario on cash out in five years and focusing on the side business approach. If you want to go the real estate route, what I’d say is, “Okay, if you’ve got comps at 590 and you bought this place for 560 and the basement is finished in your place, maybe it’s worth 630 realistically.”
If you want to go the real estate route, I’d actually recommend you turn around and sell this thing, pay your capital gains taxes and then start over with a place that you could actually drive a lot of value. You might’ve gotten a huge win on this particular deal. If you move down the block, you still get the long-term appreciation of your current market and you can de-risk your process by forcing equity. And maybe your lender will be super thrilled because of your eye for value to give you a similar type of loan and you can de-risk the situation again by driving up the price of the value either than flipping it or refinancing it. How’s that for framing the real estate decision? Do you think that’s a reasonable assessment?

Kayla:
That is reasonable? It’s very interesting. I haven’t really thought about it that way or I haven’t really thought that plan through. So that is definitely something to think about too. And I’m sure the lender would like that too, right? A little more safe.

Mindy:
So you’re 28 and you have a total investment and asset of $115,000. That’s awesome. But it would be a lot better if you had a fixed rate loan. Like Scott said, you’ve got this balloon payment coming up. I see a month and a half or two months of emergency fund right now. I love that you put your emergency investment play funds $3,500 as an expense and you are accounting for that every single month. I would say put that in your emergency fund. Of course you can pull from play fund if you have a big emergency, but I would like to see your emergency fund at three to six months, more towards six months because, yes, you have a newer house and a newer car, but things still break. They break unexpectedly and you want to be able to cover that.
Yes, your job is you’re in healthcare and that’s going to be necessary forever. But companies go out of business and I’m not sure what company specifically you work for, but it’s just always better to have a solid emergency fund. So I would take that and actually… I take that back. I would take it and split it between emergency and investment and skip the play fund until the emergency fund was fully funded at. And I consider fully funded at six months and then start investing future.
You should also be very thankful that current you is starting to think about after tax investing. You don’t want to be retirement rich and cash poor or investment poor. What is the right way to say that, Scott? I’m butchering that.

Scott:
The middle class trap when you have all your wealth and your home equity and your 401k, and none in the other assets you have.

Mindy:
Yes, you don’t want to be that. You’ve got a good start at $4,000 in your after tax brokerage account. I would just encourage you to continue putting some money into that every month, every quarter, whatever your allocation is. I mean, you’ve got a great start. We don’t do enough to celebrate the situation that we’re in and 115,000 at age 28 is awesome. I didn’t have that at age 28. Scott probably did.

Scott:
You’re doing absolutely fantastic and you didn’t make a mistake in my opinion with this house hack or anything like that. It’s just that because of that financing piece, you’ve really now put yourself in a position where you have to place some defense to hedge that risk that’s coming up in five years. And you can’t buy, in my opinion, five properties without putting a lot of chips in the table and having a very real possibility of ruin or some sort of horrible event in five years where you’re forced to sell off a lot of things if things don’t go your way. You’re all in on appreciation in that particular situation.
So again, that doesn’t mean you have to sell your place, it just means that you need to play defense against that and be very cautious. Probably get one or two properties. If you do want to go all in real estate like we mentioned, I think you should consider selling this place pocketing the gain and going into another route with that.
But I also think that a very viable path is building out a defensive position, increasing your emergency reserve like we just discussed, continue to contribute to your 401k and building a liquidity position in after-tax brokerage accounts or otherwise building up a stockpile there while pursuing these side businesses. That’s a super responsible and reasonably high probability path in your situation to moving along towards your goals over the next five to seven years.
I’d love to spend the last five or so minutes here discussing those side hustle opportunities and what’s really kind of caught your eye there because if you choose to keep this house hack, I think that’s where I would push you to lean into.

Kayla:
Yeah. And I’m glad you’re saying that because I mean, first of all, I just want to say the defense strategy is definitely where I’ve been leaning towards. I mean, my whole goal the past six years is buy a house, buy a house, buy a house, and now I’m here and I’m like, “Oh my goodness. I need to have a lot of cash on hand.” The six month for sure, I agree. And that’s where all of my cash right now is going towards. So I’m going to definitely build up that emergency fund. The investment fund I still want to chip at and just start adding so that if an opportunity comes up and I have some cash there, I can invest that right away.
But I do love the idea of starting a side project because I do love my job. I love what I do. I love working with seniors. I went to grad school and studied gerontology and I loved that. I’ve started a side business before and it failed, but I learned a lot from it. So I’m really proud of that. I then purchased a photo booth business, just a small little photo booth business, and I ran that for a couple years and I thought I could hire people to run it for me and I could just manage it on the side. That was the goal.
But the people I hired would always flake and it was me doing it all the time and it just wasn’t worth the opportunity cost. So I sold that and I actually made a good profit on it and that was great. It helped pay off all my loans, my car loan at the time, and gave me some cash. That was pretty nice. So with that experience, I want to use that towards another side business kind of like this that I can run and manage on the side and that way it’ll kind of fill my bucket towards a passion project, but also make me some money and feed me some passive income.

Scott:
I love the idea of the next two years, you using the excess cash to round out your emergency reserve and play defense, working the side gig in the fitness place or exploring other opportunities that are really low cost that don’t require any cash investment. And then as you’ve kind of accumulated the next 35, 70 grand, maybe taking a chunk of that 15 to 20 to put into a really serious side hustle play for example. That would be a super responsible thing. And by the end of year three, four, five things might be looking very clear in terms of the valuation of your rental property, your ability to refinance the property. And if we continue accumulating cash at a rate of $35,000 or $42,000 a year, maybe upping it to 50,000, by that time we’ll have $200,000 to put down on the next rental property, which might get you one or two properties towards that goal in five years while also having your defense mechanism played.
I just think if you go too soon too early in the real estate, that’s where we get into trouble. But I think that would be a very realistic possibility based on what we’ve discussed here. I’m sorry. That would be closer to $200,000 over five years. You could buy potentially one additional property here in Utah or maybe two in an out-of-state location and take your nice swing, a crack, swing, whatever we want to call it, at a great side business.

Mindy:
I like the side hustle idea a lot more now that I know that you have experience with side businesses and running businesses. The idea of just managing it and hiring people right now is still presenting a problem because nobody wants to work. And yes they do. They just want to get paid a really fair wage for their time like everybody does. And that makes running the business rather expensive. So you having the ability to do it is awesome, and having the experience is fantastic.
I would love to see you do a research project. What could you do and what are the approximate startup costs? I could do this photo booth and the approximate startup costs are X and it takes me 50 hours a week or 12 hours a week or whatever. Or I could do this and the startup costs are this and the time is this. And just really brainstorm what you like to do, how long you think it would take you to do. Have you ever thought about online coaching? You do fitness classes at the gym, that’s great. There’s what, 30 people in your spin class? You could do a spin class online or whatever other kind of fitness you like to do.
You could be Kayla’s Elderly Fitness Channel. Don’t use that name. That’s a terrible name. But you could do a lot of different options, make videos and sell them, do online one-on-one coaching. There’s a lot of people who don’t want to go to the gym or can’t go to the gym. You have a lot of different opportunities. Just make a big list of everything. There’s so many ways to make money. It’s just a matter of figuring out what it is you want to do. And I would really focus on those opportunities that are going to be low cost of entry opportunities because you want to save your money for your emergency fund and your next purchase.
If you can get in for super low entry or at least in the beginning, I mean the fitness channel, you need a camera. Okay, check. I see you right there. So you’ve already got a camera. And you need a microphone that’s like the little clip on a microphone that’s like 15 or $30 on Amazon. Maybe less. It’s Prime Day. There’s a lot of opportunities to get in. You could start a whole business for less than a hundred dollars. It’s ridiculous. So looking for something like that. And then if it fails, “Well, okay, I’m out $100.” Reuse the stuff to try your next online venture.

Kayla:
That’s so funny you say the senior fitness doing that online because the past two weeks has been on the forefront of my mind and I do have a plan to do something like that because I had to re-certify for my personal trainer license and I focused on senior fitness. I learned that a lot of seniors as they declined with age, they are a little more ashamed that they can’t do the exercises that they used to be able to do, so they stop working out altogether and they don’t go to the gym anymore.
I used to teach at an assisted living, just morning exercises. And only a few people show up. They’re all a little embarrassed. It’s kind of an awkward hour for them. And so that’s why I thought, “Man, online senior fitness channel would be super fun to do.” And maybe that would be a good opportunity. So I think by you saying that was the universe telling me I need to do that. But no, I think you’re right. I looked into the cost too because obviously I would need to have a room with good lighting. I would need to be very consistent at posting videos. So it’d be a big time commitment at first and putting money into SEO, SEM optimization for getting those videos at the top of the search list.
There’s a lot of work that goes into it, but if I were to devote two months to just diving all into it and making it happen, then that could be cool to see. And you’re right, it’d only be out, what, a couple hundred bucks? It might not be too bad.

Scott:
Yeah. The expense there is the expertise in understanding exactly the type of fitness routine that’s going to make the client successful. You’ve got that one. You’re passionate about it. You love it. You’ve already been noodling on the idea. I like that a lot better than buying another $500,000 property in the near term.

Mindy:
You’ve got the voice and the enthusiasm. And so now I need the link to your gerontology workout show.

Kayla:
That will not be the name of it. It sounds so boring, but I will definitely keep you posted if I do go in that direction.

Mindy:
When you go in that direction.

Kayla:
Yes, when.

Scott:
Mindy charges $500 for brainstorming titles and names for your business.

Mindy:
She’s like, I’m not paying that.

Kayla:
That’s $1,000 name right there.

Mindy:
She’s terrible at those names. Kayla, this was super fun. I loved talking to you today. I’m so excited that you came on this show. Thank you so much for joining us.

Kayla:
Thank you guys so much. It was such a pleasure to meet you, guys. I feel a little starstruck. This was so productive for me.

Mindy:
It was such a pleasure.

Scott:
Yeah, very grateful to you for listening and for coming on the show. Thank you.

Mindy:
We will talk to you soon, Kayla. All right, Scott, that was Kayla. That was a lot of fun. I completely agree with you. I don’t think that real estate in the next couple of years is the right choice for her, especially after we got to the part where she has experience in running her own business, her own side hustle. And did you see how she lit up when she started talking about her seniors and the exercise idea?

Scott:
Yeah, I completely agree. And that’s where her passion lies. I think, look, if you’re going to assume a lot of risk in real estate, then have some passion about it. Be ready to put that sweat equity in and find ways to drive that value up. You don’t have to be passionate to invest in real estate. If you don’t have passion, I think you can capitalize your asset a little bit differently. Put way more down, go out of market, have, again, less leverage to some degree in these things and it’s a fantastic place to invest. But you’re going to really lever up and go big on real estate. I think you need to have a lot of passion about it and be ready to put in the work for it. And I wasn’t hearing that level of enthusiasm. So that’s something that can change. It’s dynamic.
Perhaps there will be a spark that really motivates to really think through the different ways to add value to property and put it to its highest and best use. And when that happens, I’d encourage her to go in on real estate. And the other part of it, like I mentioned I think twice in the show, is the risk factor of a balloon financing payment. If you have that balloon looming in front of you, it does need to change the way you’re going to approach risk in the time leading up to that period. You have to be building defense mechanisms in place right now, otherwise it could put a really big strain on your life at a future date.

Mindy:
Yep. Scott, absolutely. Like we say and have said multiple times, the advice that we’re giving Kayla is specific to her situation and her desired goals. If she had a fixed rate mortgage on this property, a 30-year fixed or even a 15-year fixed, our advice I think would be very, very different. So if you are listening to this episode, our dear listeners, and you have a specific situation that you would like us to comment on, we would love to comment on it. You don’t have to be perfect. In fact, we’d love it if you weren’t perfect. We would love to look at your financial situation, hear where you would like to be in five or 10 years, and tell you what we would do if we were in that exact same situation. And you can email Mindy at biggerpockets.com or Scott at biggerpockets.com and talk to us about it. All right, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
That wraps up this episode of the BiggerPockets Money Podcast. He, of course, is the Scott Trench, and I am Mindy Jensen saying, ta-ta for now, baby cow.

Scott:
If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kaylin Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.