Building Your Financial Runway Even with Irregular Income

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 286, Finance Friday edition, where we interview Eric Dunn and talk about getting real with your finances.

Eric:
After having 30,000 grand in debt, seeing that cash accumulate, it feels good, but also at the same time, I got to realize, seeing a zero credit card balance is also a good thing.

Mindy:
Hello. My name is Mindy Jensen, and with me as always is my Girl Scout Cookie-loving co-host, Scott Trench.

Scott:
I’ll take Samoa those types of introductions, Mindy.

Mindy:
Scott and I are here to make financial independence less scary. Thus, 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’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, going to make big time investments in access to real estate or scale your personal business, we’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards those dreams.

Mindy:
Samoa introductions like those.

Scott:
I had to Tagalong to the Girl Scout Cookie theme.

Mindy:
Oh, that was good. It is. We are in the middle of Girl Scout Cookie selling season here, and I am the Girl Scout Cookie troop manager. I have, whew, so many cookies in my house. Boy, let me tell you, they are very, very, very tempting.

Scott:
I ordered a bunch of cookies from Mindy, and actually Claire, and they haven’t arrived yet.

Mindy:
Yes. Do you know what has arrived? Snow. Every single time I’m planning on into the office, there’s this huge snowstorm. I guess I’m not going to get them to him today, but tomorrow, physically, tomorrow they will be in the office.

Scott:
All right.

Mindy:
Today’s Tuesday. Wednesday. Yes, I’m in the office tomorrow and Thursday.

Scott:
Sounds great. Looking forward to them.

Mindy:
Yes, they’re very delicious. We are not here to talk about Girl Scout Cookies. We are here to talk about Eric Dunn and his finances. Eric, this is a super fun show. Eric is 26 years old. He’s a young guy. He has made some traditional financial mistakes. He maxed out some credit cards. He wasn’t paying them off. He has now fixed those problems, and he has a small business where he is making six figures.
But, he is making some classic mistakes financially by mingling his business expenses with his personal expenses. Some business expenses, he’s paying out of pocket from his personal life. I think that we’ve given him some good things to think about along the way, with regards to separating those out. Business expenses should come out of the business income. I think that is going to be a big catalyst for him towards getting his finances in order.

Scott:
Yeah, I think that’s right. Eric has most of the core foundational elements of good financial management in place. He spends much less than he earns. He’s paid off all his bad debt. He’s investing for the future. He’s thinking about real estate investing. He’s got his own business that has a really exciting amount of possibility ahead of it, and income generation potential.
Really, it comes down to his lack of systems for managing his business and personal finances, are really having impacts on his ability to execute a good long-term personal finance strategy. That’s where it comes down to the tactics, really, or the barrier to the strategy here today. I think we had a good discussion about how to think about resolving those.

Mindy:
Yeah. I think that we are being a little too harsh on him. This is something that’s super common with people who are starting a business. When you first started out, you’re not sure how much money you’re going to make, so you are the one who’s funding the business. Then, at some point, you need to decide, okay, the business is making its own money. It needs to be paying its own way now, too.

Scott:
Yeah. Let’s also be real that most people who have assets like Eric’s, those assets aren’t actually generating hundreds of thousands of dollars in annual income. Eric has built a real social media podcasting business in his niche, that is producing big income, especially in the last two years. My guess is, that it wasn’t the case before those past two years.
Building these systems would’ve been unnecessary or irrelevant, or maybe even a waste of time previous to the last year or two.

Mindy:
Right.

Scott:
Certainly nothing he’s doing wrong. He’s crushing it, and he will have a very … He’s already a success story with personal finance. That will only continue to grow in the next couple of years.

Mindy:
Absolutely. Scott, before we bring in Eric, I need to tell you that the contents of this podcast are informational in nature and are not legal or tax advice. Neither Scott, nor I, nor BiggerPockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate, which is something we bring up again during this episode, because Eric does have some tax questions and tax preparation, tax planning issues that he needs professional advice on. We give him some ideas, but then also tell him to go to an actual person who knows what they’re talking about.
Our guest today has a weird income, super weird income. His monthly pretax income is anywhere from $1500 a month to $27,000 a month. I’m going to repeat that. He makes from 1500 to $27,000. This makes it incredibly difficult to budget and plan. But, it makes it far more important to budget and plan, so you can cover the lean months when the money is flowing in. It can be really, really tempting to spend it all when the money’s flowing, but what you really need to do is be very disciplined.
Eric Dunn, welcome to the BiggerPockets Money Podcast. I’m so excited to jump into your story and look at your money.

Eric:
Thank you guys for having me. I’ve been listening to you guys since 2019. I’m really happy to be here and share my story.

Mindy:
Eric, before we jump into what money’s coming in and where’s it going, let’s get a little bit of your backstory. What does your journey with money look like?

Eric:
I’ll try to keep it short, but it’s kind of a lot. Not really. I don’t think so. I graduated college in 2016, and college is where I started my career, doing this digital media, this social media thing. I gained three plus million followers on Vine back in 2013. I was on the Vine app, and that’s really where I decided, okay, I’m going to do this social media thing full time.
In college, I didn’t really know what to do with that money once I was getting it and doing brand deals with companies. I didn’t understand that I had to put money away for taxes, and I wasn’t getting taxed on this 1099 income that I was making. Throughout college, when I graduated in 2016, I moved back home with my parents, and I was there up until last year in April, just trying to get my mind right, and my financial situation back together.
I ended up paying off $13,000 that I owed in back taxes over the course of 2014 to 2017. I also, when the pandemic hit in 2020, I decided I was going to buckle up and pay off all of my consumer debt with my credit cards. That was over 17 grand. I forget the number, but it was pretty high up there. Total accumulation of debt I had was 34,000. I remember that, because I had all of my accounts listed on Northwestern Mutual site, and it tells me my net worth based on my liabilities and assets, and I had no assets, it was all liabilities.
That number was upwards of 33 grand. Seeing that number come down and down and down over the months was really good. How I got started with that was, I think in 2019, I was like, man, I have so much debt. How do I get rid of this? I was going through the bookstore, just looking for books to read. I came across Erin Lowry’s book, Broke Millennial: Get Your Financial Life Together.
Of course, that title stood out to me, because it says Broke Millennial in the title. I picked it up and I got it. It was the first finance book that I ever picked up. In her book, she mentioned your guys’ podcast. When she mentioned your podcast, I started tuning in, and I had been listening all of 2020, and listening to all the people that you’ve had on, and tell their stories. It really inspired me to pay down my debt. That’s what I did in 2020. With the type of lifestyle that I have, with the variable income that I make, it’s been tough to budget for that, and keep that debt out of there, while still trying to make income.
I think I’m right on the cusp right now of being able to manage that, because I don’t keep thousands of debt around anymore. I now have a cash savings emergency reserve, that Scott mentions in his book, Set For Life, 10,000 to 25,000, which is another book that I have. I have several books that you guys have had guests on, that’ve recommended. Every episode when you guys do the famous four, and they mention the book, I go on Amazon, and I would buy it. I have a bunch of finance books that I still have to read.
That’s my background with my finances, in college and post-college. Now, I’m ready to take the next step, to find where I need to go to get to financial freedom, because things have popped up since 2019, and I have to manage all of that, and try not to fall back into that debt hole that I once had, because I’m not trying to go back. That was a rough time.

Scott:
It’s so awesome to hear that the show has been at least a part of your money journey, and great to see all the success that you’re having so far. It seems like things are in a pretty good spot. We can help accelerate things hopefully today on the show.
Quick question before we get into the other stuff, can you give us a little bit more of the money story with respect to your income generation, and the various interests that you have there? We heard about the Vine and brand sponsorships, it sounds like in college. What about in the years leading up to today’s show?

Eric:
That was the main source of income in college. It still is pretty lucrative source of my income currently, is the brand sponsorships, the collaborative campaigns with companies like Old Spice, McDonald’s, anybody that could email me and say, “Hey, we have a campaign and we think you’d be perfect for it.” Sure you’ve seen them on Instagram, Twitter, Facebook, TikTok, all of those channels.
That is still my main source of income, where the big five-figure dollars can come through. Now, I have this podcast brand that I started in 2017, where we have exclusive content through a subscription on Patreon. We also sell merch. We do separate brand deals for the podcast channel than my personal ones. I also model. I signed with a modeling agency back in 20 … If you guys are watching, I don’t know if you could tell, but I signed with a modeling agency back in 2017.
That got started in 2019. It’s picking back up. I’m in the big and tall industry, so that one’s still slow to grow right now. That one can be really good money as well, especially if it comes in every couple months. I just did Fruit of the Loom last month. I’m with waiting to hear if I’m doing a Levi shoot next month. Those are really awesome campaigns to be a part of.
Also, I’ve got a YouTube channel with the podcast. We’re hoping that can grow, and we’re going to probably be rebranding and re-strategize to help grow that channel, because we’ve … I just moved in with my roommate and podcast co-host in 2021 of last year, and we have been doing the podcast since 2017. That’s just another income avenue for us.
Then, I have a couple albums on Spotify, and those bring in grocery money every couple months. I get a trickle in of $100 here, $40 here, every couple months. That helps with just small things that I can purchase for myself.

Scott:
Awesome. We actually did hear about the income statement that we would go through normally on the show here just now. Mindy highlighted this earlier on in the show, but can you give us an idea of what that income looks like? Is it seasonal? Does it peak in certain parts of the year, or is it truly variable, and you’re very opportunistic about a lot of these opportunities?

Eric:
It peaks in the fall months, because I’m a sports guy. A lot of the brands will reach out to me for sports content, mostly football, when football’s going on, between August and December. It starts, it’s pretty good in the beginning of the year, it kind of drops off around March. Coming up here, March, April, May, June, July, summer months are the slower months. Having those brands come to me at the end of the year and then at the beginning of the year, is when I usually have to budget for the next few months coming up, in case something is slow, and I need that money to fly out somewhere to create content, or something like that.
I’ve been learning that over the years of, what’s the peak and what’s the down, so I can have money ready for when I do need to go somewhere to keep my personal brand alive.

Scott:
Okay. It falls. Generally speaking, we have bigger opportunities coming up in the fall. That’s where the bulk of the income’s going to be made, or at least there’s going to be more income being made there. Then, there’s a big dip, I guess, in the late winter, spring, early summer months?

Eric:
Right.

Scott:
Okay. Awesome. How much are we spending per month? How much control do you have there?

Eric:
The fixed ones, I have 650 rent currently. I’m renting a room in my podcast co-host’s newly purchased home. We broke a lease back in November, because he found a house here in Jacksonville that he liked, and now I’m renting it out. It dropped my rent $200. That will probably change here coming up soon, but we’ll get into that.
I’ve been here since November now. I’ve paid about three months in rent so far, and it’s only $650. Utilities is 80. I have a website that I use Wix for, and it’s 22 a month. Gym, 24 a month. Groceries, I use Hello Fresh sometimes, some weeks, and some weeks, I’ll actually go get groceries. That’s usually 200, 300 a month. I use a community text platform, which is a social media platform that is just a personalized number, that I can tweet out or post on social media, that people can connect with me directly to, without giving them my actual number, and to have up to 1000 people use that, it’s $99 a month.
I use that for just helping promote my podcast and other ventures that I’m in. Then, outside of those expenses, I invest into a VTSAX Vanguard brokerage account, $250 a month right now. I have a custodian account for one of my nieces, which I put $165 in. When she turns 18, she can have some money when she gets into the real world.
Those are the expenses that won’t really change right now. Then the other monthly expenses are all of the things that I do to travel for my work, which I love. These are my splurges, really, because I can’t stay in one spot too long. I like to explore cities and meet up with people and other content creators, and my fans in other cities, like at Jaguars games or anything like that.
I create vlog videos of my experiences and put them on YouTube, which in turn, I hope, creates more income for me. In a way, these expenses, I’m investing into myself. These will be flights, hotel, Airbnb, Lyfts and Ubers, restaurants when I’m traveling and I eat out, and then rental cars, which are really high right now. Those can be a lot of money. Then, Amazon, which isn’t that much. I’ve seen some guests you’ve had that really splurge on there, but I don’t really splurge on Amazon. Only when I need updated protein powder or vitamins.
Those are, monthly expenses can get upwards of a couple thousand dollars, if it’s NFL season.

Scott:
One thing I want to call out here real quick is, you said you’re a big guy, right? How big are you?

Eric:
I am 6’5″, and I weigh about 280 pounds.

Scott:
Awesome. The reason I asked that, you said you spent $200 on groceries, and that is remarkable, I think from a lot of folks’ standpoint. How do you manage that?

Eric:
It’s mostly because I used to splurge on DoorDash, but I didn’t include that, because I deleted the app from my phone and I want nothing to do with it anymore, because that … I would spend $600 plus a month in DoorDash. I would gain a lot of weight doing that. I’m trying to start this new thing early this year, where I buy healthy stuff, fruits, veggies, and Hello Fresh is really filling. They make good meals. The meals I get, I can make two servings for myself, so I can spread out a three meal week, all week.
I’m learning to do that, Scott. I’m trying not to overeat, because I want to drop weight. I know it sounds like 290 for my size is not that much, but I’m starting to go outward. The more I age, I don’t want to do that. I’m trying to watch my diet a little more.

Scott:
Fair enough. I’m sure you’re not that out of shape, if one of your income streams is modeling for Fruit of the Loom and Levi’s.

Eric:
True.

Scott:
Okay. I think the first point Mindy and I would have here, is to separate out business and personal expenses. How much, if you exclude what you’re traveling for work, if you can do that, how much are you spending per month? Then, if you layer it back in, how much are you spending in total here?

Eric:
You mean personal, what am I spending versus my business?

Scott:
Yep.

Eric:
Personal is pretty much nothing. I don’t drive. I pretty much just go to the gym. Every day, I wake up and I figure out what kind of content I can do, or who can I email to get the next brand deal. It’s a lot of planning in my day-to-day, and trying to stay in shape. There’s not much that goes into personal expenses outside of the groceries and the day-to-day stuff, but the business expenses are where I spend the bulk of my money, which, with taxes, is one thing I’ve learned, because back when I did have all that debt in college, I had upwards of eight credit cards, and I was just using any old card for any expense.
As I’m learning taxes now, I’m learning that, hey, you should be using certain credit cards for your business expenses, and certain credit cards for your personal expenses. That’s one thing I’m trying to organize as I’m doing this career path a lot more, but my business expenses are way more than my personal expenses. I try to keep those down, because I know when tax season comes, everything I do in my life is pretty much for my business. That’s going to be the bulk of my expenses.

Scott:
Okay. For our purposes here, Mindy just wrote this out, we’re going to pay your monthly expenses at around $1500, from what you just said, from an ordinary course [inaudible 00:19:39]. That’s the low end with very little business activity. Then, it will skyrocket depending on what you’re doing from an income generating perspective, and traveling, and all that stuff. Can you walk us through your net worth real quick, with investments, plus any debts?

Eric:
Investments, I have the VTSAX, which is about 12,000 in there. Started that last year, got a Roth, which has 9000 in it. I just transferred that one over from a different financial institution. I didn’t put any in there last year, really. I was letting the weeds grow. I don’t know what phrase to use for that, but I was just letting it sit in the new account for a little bit. I got 4000 in crypto, just dabble money, in case it goes up, and then a cash reserve of 17,000 that I started after I cleared all my debt back in 2020. That’s what I’ve been trying to build up while reading Set For Life. Then, the custodian account for my niece has $1100 in it. My student loans, I have three student loans that are a total of $10,930. It’s a 4% or so interest rate, but it’s nothing right now until May.
I was paying on those last year, just to get the principal down while there was no interest on it, but I haven’t paid any this year. I’m satisfied with what I did last year on it. I’m content not paying, until the payments are back. No car payments, because I don’t own one, never owned one. No house, just the rent. Then, I do have five credit cards left after I clear all that debt. I’ve been keeping them paid off as best as I can. I still use them for a majority of my travel expenses. I just put it $1100 on an Airbnb for the Honda Classic Golf Tournament in Palm Beach this upcoming week. I get paid for that event, working that event.
When I get the money, I’ll pay that off before the statement closes, and I try to do that as best as I can. If I can’t do a slow month or something, then I just try to keep them below 30% of the balance as best as I can. I’m just trying to keep my credit score above 750, because the end goal eventually here is to get into real estate investing. I don’t want to have to be coming from behind with my credit score. I’m just trying to keep that maintained at the moment.
I do have two credit card balances currently, because my birthday was this past week. I’ve been using them. They’re manageable right now. One of them is, I think one is about to be 1200, and then this other card is going to be 1200. I do have income coming in, that I did not account for yet, because it’s not actually in my account. I’m not worried about paying those off, because I have a few jobs that I do have accounts receivable, to get those cleared.
I only really am counting the student loan debt, because the credit cards will be paid off. Net worth, looking about 20 grand, probably.

Scott:
Okay, great. 17,000 liquid. You have the ability to pay off these credit card balances if you wanted to tomorrow, you just choose not to, and you roll over time with them. Is that right?

Eric:
That’s correct. Because my philosophy is, do not touch $17,000 cash savings for debt. I don’t want to touch it at all.

Mindy:
I get that, but credit card debt is obscenely high interest rates. If I was in your position, and the credit cards are coming due, and the income hasn’t come in yet to pay them off, I would take the emergency fund, pay off the credit cards. Then, when the income does finally come in, replenish the emergency fund, rather than pay 10, 14, 29% interest on these credit cards, because $1200 at 29% interest is still going to be a lot of money, and credit card companies should be ashamed of themselves for charging so much. That’s outside the scope of this conversation.

Eric:
Right.

Mindy:
Because it’s so little relatively speaking, and there’s income you’re anticipating, I would pay them off rather than pay the interest on it.

Scott:
The goal here is to get into real estate investing. I think we have a number of Finance 101 things that will be helpful here that will get you in position, that’ll make that a more accessible opportunity going forward. I think Mindy’s right on this one, or at least I agree with her, where that cash savings account, that $17,000, that’s funding your business. That’s your personal emergency reserve. That’s this safety net for you.
The purpose of that for me, or one of the purposes, is to not accumulate bad debts on a go-forward basis. The fact that there is a bad debt, a credit card balance, even if it’s a relatively small balance, would be something I’d use this money to pay down, rather than have that. If we’re getting below 1000 or $2000 in that cash shavings account, that’s when, okay, I’m not going to even pay off the bad debt, because I need that to be a buffer between myself and the world. You’re nowhere close to that.
I think that I would use some of that to pay down the credit card debt, and then maintain a position where you never essentially have a rolling credit balance, that you don’t pay off in full each month.

Eric:
If I had a daily balance, but it’s paid off before the statement closes, do the credit bureaus know that, or do they only …

Scott:
That’s perfectly fine. What I do is, my credit, I use my credit card, and then I actually pay a balance two months later. That’s just the automatic payment mechanism that my bank chooses. I carry that balance, and then pay it off on when the statement comes due in full every month. Is that what you’re doing?

Eric:
Yes. Because, the reason that I’m carrying the balances right now is because I’m trying to … I try to time it sometimes to use the card that isn’t about to close. I know that the cards that I’ve got balances on right now, they don’t close for a couple weeks or a few weeks. If the money does come in, that I’m owed before that statement closes, then I’ll pay that. Just, usually what I’ll do is, I’ll send some to my emergency reserve first, then pay off the balances of the cards, and then save some for taxes.
If the timing works out like that, then yes, I do pay off the balance first, but sometimes, I do leave it rolling over, because I got to get out of my own head about seeing that cash savings reserve drop. After having 30,000 grand in debt, seeing that cash accumulate, it feels good. Also, at the same time, I got to realize seeing a zero credit card balance is also a good thing.

Scott:
I’d think about it net. My cash position is my cash savings net of my credit card debt. Just because it’s in the bank, doesn’t mean you can actually access it, if you have $10,000 offsetting it. You have $7000 in cash, not 17 in that scenario. I would just reframe it to think around that.
The second observation I have here, and this is something we mentioned earlier is, the separation of business and personal. I think that’s going to be a really important challenge for you, and it may be right now, it’s all intertwined, and it’s all one thing. That’s not a sustainable approach over a five, 10-year look-forward period here. And, it’s going to hurt you when it comes to real estate investing, and these other opportunities, where you want to use those income streams to help you qualify for debt for other assets.
I really put together a plan there to think about how do I separate out my business or businesses, right? Are some of these things all together, one business? BiggerPockets has a YouTube channel, a podcast, books, those kinds of things. That’s one business with this.
Can you put a bunch of them together in one business? It sounds like you have a partner on another line here, so maybe that’s a second business. The simpler you can make this, the better off your life is going to be from this. You can get out of thinking about, how do I time my five credit card payments, and it’s just, no, I’ve got one credit card for business and one credit card for personal. I’m separating those expenses out. The personal expense goes on this one, the business expense goes on that one. Both of those balances are paid in full each time the statement comes due, automatically with your bank feed.

Eric:
With the credit cards, I do a lot of the travel rewards. The only actual business card that I have is a Chase one. Then, with flights, I like to use my Delta Amex card. Then, with hotel stays, I like to use my Hilton card. Am I spreading myself too thin with rewards cards that I use for business as well, but they’re not actually business cards? They’re just expenses for business.

Scott:
I think the goal has to be, how do you keep that super simple? Everything’s automated, if you know how things are going to get paid, and then you can move on to the more fundamental items in your financial position here, and be worried about those things. If you’re spending mind share, thinking about how to time the payments on these credit cards, you’re probably doing too much, in my opinion, on this, and would benefit from simplifying to a certain degree. If it’s super straightforward, I use this one for this, this one for this, this one for this, and I’m maximizing my benefits, maybe there’s something there, given how much you travel.
That’s a good context.

Mindy:
Yeah. You’ve mentioned that you have five cards, you’ve got one for business, one for hotels, and one for airlines. What are the other two? If they’re not giving you rewards, unless one of them is the longest card that you’ve had open, I would close those out, just because it sounds like there is a lot of mind space being taken up with the credit cards, that doesn’t really need to be.

Eric:
The other one is what you just said, it’s the oldest card that I’ve ever had. It’s a student credit card that has no benefits, but it’s not even my highest limit anymore. It once was, but I just keep it around for the credit age. It’s some small private bank in South Dakota that I’ve had since 2012, when I first started college. I just kept it around for that reason.

Mindy:
Oh. That’s 10 years old. I would keep that. I would use that, put a calendar note or something on, buy gas every month with this card, swipe it, and then come home and pay it off, so that’s not taking up any space in your head. You just want to make sure that you’re using it regularly enough that they don’t close it, because that is your longest credit card. The length of your credit history is now 10 years. If you close that, then your credit history shrinks, and that could have a detrimental effect against your credit score.
Also, you can go several months without charging before they’ll cancel it. Yeah, that one, I would keep. The other one I would get rid of, unless it is some amazing card, but you’ve already got a lot that you’re thinking about.

Eric:
Yeah, this one’s a JetBlue card, because I fly Delta and JetBlue.

Mindy:
Maybe only use those four flights on their respective airlines, and then don’t use them. We have multiple cards, but we have one everyday card. This is just what we put everything on. We swipe it, and then that’s the one card that we’re paying off all the time. We’re not really thinking about the other ones.

Eric:
That is what I do with the longest age card that I have. I just used it for that community text platform, for a monthly payment. I just added that as my card for that monthly payment every month, because I know I need to keep it in use.

Mindy:
Yes, but that community text platform is a business expense.

Eric:
Yeah, true.

Mindy:
I agree with Scott, that you need to sit down and separate out your business expenses from your personal expenses, and as somebody who has an LLC of my own, I’m always looking for things that I can call a legitimate business expense. If I don’t personally have to pay it, if I can pay it on my business instead, that’s just better for me.
Your community text platform, absolutely a business expense. Website, 100% a business expense. Gym, this is where we need to get a CPA in here, because I don’t know, since you’re a model, can the gym be considered a business expense? I’m also wondering if your expenses are actually this low, and I’m not trying to call you a liar, but how do you get to the gym? You don’t have a car. How do you get to the grocery store? How do you get to modeling shoots? How do you get to the airport? I don’t see any expenses for Lyft and Uber.
If you’re not driving and you’re not taking a Lyft or Uber, how are you getting to all these places?

Eric:
I did mention Lyft and Uber, but I didn’t say a number. I-

Mindy:
Oh, that’s in the other … I’m sorry, I have it in a different space.

Eric:
Right. That was the other monthly expenses, where I said that they can get upwards into the thousands with the flights, the hotels, the Lyfts and Ubers, the rental cars. Since moving here to this new house from the apartment, I’ve gone to the gym less, I’ll admit, but it’s also because I sprained my ankle back in December. It was tough to do anything. When I did, I went for a week straight, couple weeks ago and I was Ubering round trip, to and from the gym for a week.
I was like, this isn’t very efficient. I need to figure out a way how I can get to a gym without a car and without paying for-

Mindy:
A bicycle.

Eric:
… 10 to $15 Ubers every …

Scott:
Yeah. I think a bicycle actually is a really good option there. For $200, go to a couple yard sales or buy one used, that’s how I got around Denver for a couple of years primarily. I did have a car, but I probably would’ve been better off if I had used Lyft or Uber in a lot of those scenarios. It’s actually a remarkably practical way to get around for somewhat in your situation.

Mindy:
Yeah. Lyft and Uber around town is a personal expense. Lyft and Uber to the airport, because you’re flying to an NFL game, which you’re covering for your podcast, is a business expense. I think it’s really important to be very, very careful about tracking your spending, and which one is business and which one is personal, and separating those out, and as much legitimate business expenses as you can throw into the business, that’s just better from a accounting perspective.
I’m saying legitimate business expenses. Going out to dinner when you’re visiting your girlfriend is not a legitimate business expense. Going out to dinner when you are out covering an NFL game is a legitimate business expense. You want to keep really, really meticulous track of, because it’s a deduction, right? Scott, how does that work?

Scott:
Yeah. It depends, with a lot of this. This is where, we’re not CPAs and can’t get into the … There’s something around, for example, meals change from being at least fully deductible or partially deductible to being less deductible, as they relate to business expenses. I think that, based on what we’re discussing here, I think there’s a lot of spreadsheet work that you need to do here, in the next couple of weeks or months. I think that’ll be your homework to say, last year I went on these trips. How much is a trip costing me, and what is the business asset that I’m producing? It may be hard to calculate the income directly from that trip, because it may be just helping you with your podcast, or whatever it is.
I think you need to say, from this trip, I created these assets that related to my business, an asset being a podcast, a video, a social media post, whatever. This is what it cost me. Here was the flights here, here was those types of things. I think that will tell you a lot. You’ll be like, that trip was definitely not worth it. That trip definitely was. Even if I can’t quantify the straight-up income, I’ll get something there.
Then, at the end of the year, you can hand that to your CPA and say, here’s what I spent from my standpoint, believing in how I’ll judge it, on my business, which of these items are tax deductible, which are partially tax deductible, and which are not? I think that will be a really helpful conversation for you, because you can categorize those things. Then, you can have a discussion over a few hours. If you can get to that point, BiggerPockets will sponsor your visit with a CPA, either before or after tax season this year.

Eric:
Yeah. That’s my biggest hurdle currently, was figuring out how to break that down for tax season, because as I mentioned earlier, I had back taxes owed since 2014, up until 2020. Really figuring out how, as a business owner and being employed by myself, how to figure that out for tax season, is what I need to learn, so I can go into this thing full steam ahead. I haven’t filed yet this year. I just went home where all my 1099s went.
The next step will be going back, because last year, I got so overwhelmed with how much traveling I did. I did a lot more last year. I was keeping track of my expenses on a monthly basis. Then, as the year came to an end, I fell off with it. I’m going to really have to sit down and take the month of March to go through all of that, because from the book, Your Money or Your Life, that’s when I started really tracking my expenses and getting on Excel, and putting numbers in, because I actually like doing that.
I like going on Excel. I have one open up right here, and I put my numbers in and plug and play. For this year, I’ve been writing them down, actually writing them down in a planner. Every single expense, I’ve actually been putting on pin, but I don’t label it as business or personal. I just write it down.

Scott:
It sounds like you have all the data from this. You need to organize it in a way that makes sense to you. I would think about it. You can take my suggestion and do it by trip or by activity set. You can do it by business line. There’s a lot of right ways to do this, but that’s going to be a big, I think, strategic question for you is, how am I going to organize my life and how I think about managing my money since my personal life and business are so intertwined, or most of my expenses are coming through this business?
I think that’ll be a big challenge for you. There’s an art to that. Again, you have those choices around, per trip or per opportunity, or per gig, if you want to do it that way. Hey, I’m going to fly out to this place and do a shoot or whatever. That’s a gig. I would put that into this business line. There’s some way to do that, but those systems are going to get really tough for you if you don’t invest the time to setting them up or thinking them through upfront, I think.

Eric:
Right. Especially, the gigs start coming in more frequently, I’m going to get very overwhelmed with that. I really need to find me a good accountant as well, because …

Mindy:
Travel with one of these. There’s an envelope. Number 10 envelope, random old envelope, travel with one of them, and a pen, and write the name of your trip, and put your receipts in here every time you go anywhere. When you’re out to dinner, you take Scott out to dinner because you’re going to interview him on your podcast, you write on the receipt, dinner with Scott, to talk about the podcast, and then you slip that in there.
Then, when you come back from your trip, you’ve got all your receipts. You can, oh, I had the airline, and it cost me this much, and the hotel was this much. All of the things, all of the surrounding things, maybe you missed a receipt, but missing one receipt, as opposed to missing 14 receipts is going to be better for your taxes. You’re right, you do need to get a great CPA. You need to get a CPA who understands small business, and what is deductible, and what isn’t. I think most CPAs would understand small business.

Scott:
What we’re talking about here is called accounting. Obviously, depending on how much you think you’re going to earn next year, this is something you should either be doing yourself and placing the system, and building it, and investing the time to figure out, or if you’re making a lot of money, then you hire a bookkeeper to do that. Maybe a lot being over $200,000 in net income.
That’s an art. It’s like, who knows what actually, that line is. If it’s going to be, hey, I’m going to make $50,000 after expenses, that’s probably a really activity to do yourself, because hiring the bookkeeper is going to be more expensive than your hourly rate. If it’s going to be $200,000 in annual income, that’s where you might invest in a bookkeeper to help you set those systems, so you don’t have to spend quite as much time thinking through that and learning the ins and outs there.
The other part of finance that’s really important for what you’re doing is what we call financial planning and analysis, or FP&A, in business jargon. That’s estimating what’s going to happen in the future, and are things happening as I plan for them to happen? The million dollar question for you is, how much income do you think you’re going to bring in, net of expenses, over the next … Separating out your personal expenses, over the next 12 months. Do you think that’s sustainable?

Eric:
That is tough to guess, because it is so random. The number is so different every month that it’s … They are consistent. If the podcast that we’re making currently can grow at the rate that I know it can grow, then I’m not sure what number to put there. I think this career is sustainable, and has been so far.

Scott:
I’m not saying your career is not sustainable. It sounds very sustainable. It sounds like things are going very well in most cases. I’m saying that, you need to have an understanding or ability to forecast your income across at least some of your bigger income generation channels, especially if you want to get into real estate investing. That’s going to be essential challenge for you.
To some degree, you’ve got to be able to look a lender in the eye and say, I make this amount of money from this business line, and this amount from this business line, and this amount from this business line, and you can expect that to continue on a go-forward basis, which is why you should give me several hundred thousand dollars to buy this piece of property. Here are my tax returns from the last couple of years, showing something that’s consistent with what I described there.
It is harder for a self-employed individual or a business owner to get access to mortgages and debt, than it is for someone with a job. It’s not impossible, especially if you’ve been generating that income reasonably consistently over the past couple of years. You may look back, if you look back at your tax returns and say, “Wow, this business line or that business line actually was pretty consistent. I made 50 this year, and 75 this year with that.”
Okay, great. That’s going to help make your case to this person. I think that’s where it’s really important to have that breakout and say, this is one business. This is a separate business, and this is my partnership. These are my personal expenses. What is that business line actually bringing in? Yes, you want to be able to categorize these expenses to save money on taxes and offset that income, but you also want to show income so that you can get a loan in the future against one of these properties. Also, you want your business to make money.
Can you give us your best guess maybe, over the last couple years, of what the business income … How you would set up or categorize your business income, and how much it’s brought in?

Eric:
The YouTube channel, this podcast, then we have the brand deals that we got for that. Then, the premium content we got for at. I’m not sure the numbers, because I’m not organized, like you’ve been saying. I just jumble it all together. For the 1099s that I’ve gotten from the modeling that I do, the collaborative campaigns on social media, my YouTube channel and the music stuff, last year, I know I did well over 100,000. Then the year before that, was my first year actually making over 100,000.
Back to back years, 2020 and 2021, six figures from my personal business income. Then, the podcast channel, I’ll have to go through that, but our best year was last year, for sure, because we moved in together and we started … This is why we moved in together, is to create better content and to be able to make more income from it. I know last year was definitely our best year from any other year, and that was probably $20,000.
Those are the two businesses right now. I don’t know if modeling is … Because they sent me 1099s, but it’s under Eric Dunn, and not under my LLC. I think with the modeling-

Scott:
You have all your assets in one or two LLCs, and then you have a separate sole proprietor income as well?

Eric:
Correct. Which, I think that’s where the modeling stuff goes, if I’m not mistaken, it goes to just Eric Dunn, and then the social media stuff, I give them my EIN for my personal LLC, and then the podcast stuff. We just made an LLC for the podcast a couple years ago. We’re starting to get organized with that. Those would probably be the three different categories for the jobs that I do.

Scott:
That’s great. You’re in really good shape with that. I think that’s a perfect structure to have some things in your personal … If your modeling income were to get my much larger, then you can consider creating a second or separate LLC for that. That makes sense to me, the way that you’re setting this up, and it seems pretty organized.
The next question is, how much money are you expensing against the income you’re generating from those areas in the LLC? If you brought in 100,000 inside of your LLC for your brand, and then you offset that with $80,000 in expenses, you’d show $20,000 in income to the IRS on your tax return. That’s going to impact your ability to get a loan. If you didn’t expense any of that or expense it in your personal name, you’re going to have two years of $100,000 in income.
Do you have any idea of what you might have been showing to the IRS the last two years, or …

Eric:
This year, I haven’t gone through it yet, but last year, it was, I think 116 gross. After the expenses and all that, it dropped down to 85,000 in net income to the IRS.

Scott:
Wonderful. I think you’re going to have to talk to a few lenders, but when you file your taxes this year, if you show a number similar to that, and growing, I think that you’re probably going to have a case to be able to get a loan equivalent to somebody who’s earning 85,000, $90,000 a year at a W2 job, or more. You’ll have more paperwork, but I believe that should be the end result. Something that we can confirm perhaps in the Facebook group, if we have some lenders there that could chime in and help us.

Mindy:
Yeah. I will post a question for our lenders to talk about how you can best present yourself as a borrower, when you go to get a loan. What I do know is that, you need to start talking to lenders now, or as soon as you start getting serious about looking for a property, you need to talk to lenders and see what they’re going to say. You don’t want to get a property under contract, and then talk to a lender, and the lender’s like, “No way,” or the lender’s like, “Hey, give us 10,000 documents.”
You want to be able to get those to them in advance, because there is a process to getting a loan, and it’s long and drawn out, and it doesn’t matter how much stuff they ask you in the beginning, they’re going to ask you for more later. That’s just the … Sorry, lenders. I love you, but you ask for so much stuff.

Scott:
Yeah. This is something I would change going forward, but because I think it hasn’t been quite as clear in the past year or two, what expenses are business and what are personal, that may be something to think through as you’re talking with your CPA and bookkeeper. Hey, this meal expense is not tax deductible. I don’t want to offset my LLC’s income with that, since it’s not going to affect my taxes either way. I want to show a consistent number there.
That’s something to think through. You need to do what’s legal and what’s correct with these types of things, but you may have gray zones in there, and you want to think about what that’s going to say at the end state about your business, when and where it is fuzzy, and then on a go-forward basis, make sure it’s not fuzzy, it’s super clear.

Eric:
Right.

Scott:
That’s something to keep in the back of your mind. I think from a real estate perspective, it took us a couple minutes to pick through this situation, but you’re going to be in great shape to invest in real estate. You’ve got $17,000 in cash. You’ll probably build up substantially more cash over the course of the year. If you file taxes and your income from your LLC is close to that 85,000 you filed last year, I think you’re going to have two years of tax returns that showcase income from that business, that might be reasonably stable. That’s an unknown.
I think after you file your taxes this year, would be a really good time to begin talking to lenders, and see what you can qualify for. There are some question marks around whether that modeling income, in my mind, will count for loan purposes. Hopefully it does. There’ll be questions about whether the podcast income will count yet. I think you’d be able to qualify somewhere in that three to $450,000 range, from a financing perspective, would be my very cursory initial hope, based on what you’re telling us.

Eric:
Before I talk more about the real estate, the reason I started actually looking this year, even though we just moved into this house and I’m renting from it, is because I have a girlfriend who wants to move from Ohio down to Florida with me. Obviously, I don’t want to bring her here to this one bathroom house. We want to have our own space. I was looking at houses, just because I had been consuming all of this finance content, and just wanted to finally get my feet wet, because I had been sitting on this idea for a while. Then, this life opportunity, a girlfriend that wants to move in with me, presented itself to move forward with the idea.
We actually just went apartment shopping as a backup plan, but I have … It’s a funny story. On a Facebook post, one of my Facebook posts, sometimes I’ll go through the comments to see the type of people that are commenting. I hovered over this one woman’s name, and she was a realtor here in Jacksonville. I messaged her, and I said, “Hey,” I told her my situation, “Hey, I’m in the market for a house, girlfriend coming down and self-employed, I know it’s a little bit harder to get lending and all that.” Then, she told me she would help me, and that her husband is actually a lender.
He got on the phone with me, and we took an initial call. He was going through all these terms and phrases and asking me my income. He actually asked me, Scott, what I was projecting for next year. I just didn’t know. I told him the last two years, that I had made pretty good money, and I could see it continuing for sure. He just ran through some simple numbers for a $300,000 house with a FHA loan and said, I would probably get approved for a $300,000 house.
That was good news. It was a good intro call, but I knew in the back of my mind that, I had to get through this tax season first, because I was stressing about that, because every year, I’m trying to do it a little bit better, and every time it comes around, I’m a little bit more stressed about it, because now, there’s more businesses involved. There’s a relationship involved now. I’m bouncing between places. The business is picking up. I’m getting more distracted from all the work that I’m getting.
I’m really just going to have to take some time to actually get it done this year, and pick through some accountants, so I can organize this better, and especially organize it for this year, for next year, because I’ve already got the bookkeeping for this year’s expenses from January and February. I can just go through that, and categorize it better for this year. Last year’s expenses, I’m really going to have to sit down and actually do the homework for that.
I think I’m going to be really good for next year. It’s just, I’m worried about this year, because everything’s going to be coming up so quickly. I know I need that tax return from 2021 to even be able to talk to lenders about getting a house by summer.

Scott:
Yeah. It sounds like the big … You’re doing great from a overall financial perspective. You’ve paid off a ton of debt. You clearly have a positive cash flow. You clearly have low fixed, regular ongoing expenses from that. There’s probably opportunity to analyze your business expenses, and make sure that you’re actually getting the ROI that you want on those.
It really comes down to accounting at this point. It’s just, the system is going to get worse if you don’t invest in it, I think, in the next couple of months, and figure out, how am I going to track all this stuff? How am I going to make sure, here’s what a business expense is? Here’s what it is. If you do it in real time, it’s a few minutes that day, or that week, to handle those expenses, or it’s a miserable slog that you’re going to want to keep putting off around tax time.

Eric:
That’s what it’s been the past seven years. A miserable slog.

Scott:
Now, you’ve got a six-figure business. You got a real business. It is time to treat the financial piece of that like a business with this. I think that will solve a lot of a day-to-day problems and admin … And, it will give you insight on how to fix things that are not making you money, that you’re spending money on.

Mindy:
Yeah. That’s a good point, Scott. There’s just because these streams of income are bringing in some money, doesn’t necessarily mean that they are good, long-term options or things that you should be focusing on, or even allowing to continue to grow. It seems weird to be saying, or even giving advice, “Hey, somebody he wants to give you money.” Just say no. That’s mental energy that you’re spending, and physical energy that you’re spending doing something that might not be generating a lot of income.
Whereas, if you cut that part out of your life and focused on your podcast or your YouTube channel, or something that is bringing in more income, you could exponentially grow that. The three hours you’re spending here to make a $1.50, you spend three hours over here and you’re making $10,000. It’s a better return on your mental investment and your time.
I love that you’re getting 2022 expenses all set up and great. In addition to getting a CPA, we want you to talk to a tax professional about tax planning, because now, we can’t plan for your taxes for 2021. Whatever you owe is what you owe. I’m sure your CPA can find deductions that you may not know about, but going forward, your CPA can give you advice, or your tax professional can give you advice on, hey, if you do this, you can save this much money in taxes, but you have to do this during the tax year.
Like Scott said, we’re not CPAs. I am not a tax planner. I’ve got one, and they’re great. I don’t try to figure out what I’m going to do by myself anymore, because I have complicated taxes. You have complicated taxes. If you had a W2 and you were straight income, no deductions, it’s a lot easier to not have to worry about things like this. Once you start having self-employed income and all this financial monkey business, you need somebody who knows what they’re talking about, that can help guide you, so that you’re taking advantage of all of the tax loopholes that are out there, and tax deductions and tax advantages of running your own business, that there are, so that you can pay less taxes.

Scott:
Are you paying taxes periodically throughout the year?

Eric:
I just started last year, doing that.

Scott:
Okay, good. You’re not going to have an enormous tax bill that you need to save up for, from a cash perspective this year.

Eric:
I hope not. If I’m doing it right, I hope not, because in 2020, I put everything pretty much, after I paid off the credit card debts, I put everything into the emergency reserves I have now. Back then, it was to prepare for this enormous bill that I was expecting. I ended up paying 18,000 in taxes for the 2020 year. I think it’s because I didn’t go through all of it like I should have. I just shrugged my shoulder and said, okay, I saved for this, let me get back right next year, because I-

Scott:
Yeah, this is another example of where the accounting system’s going to come into play here, because what you can do is, like most businesses, you can close your books monthly and say, January, we made this much money, February, I made this much money, March, I made this much money. The IRS for businesses or individuals who have this type of self-employment income, if you don’t pay taxes throughout the year, you will pay a penalty, which accrues about a 3% interest rate over the course of the year, and pay that.
That’s going to be unavoidable in some circumstances. Frankly, I’d rather pay a little bit of that penalty, or err on the side of paying a little bit of that penalty, than prepaying too much and getting a giant refund. That’s a philosophical debate we can have.

Eric:
Right.

Scott:
I don’t want it to be a big surprise either way. I want it to be pretty close at the end of the year. Again, that’s philosophical. That’s how I feel about it. If you can close your books monthly and set up your accounting systems, you can say, okay, in the first quarter of 2022, I’m going to make this much money, 10 grand, because it’s a slow season, or whatever, and I’m going to set aside 35% of that, 3500, for taxes, and that’s going to go in a separate savings account. I’m going to write that check to the government, and do it on my periodic payment date.
In Q2, which I think is actually just two months, there’s a weird quarterly schedule, it’s not first quarter, second quarter, third quarter, fourth quarter, it’s January through March, then April, May, then three months, three months, it’s something … Or four months, three months. Something weird like that.
Anyways, then you can go through and say, okay, great, over the course of the year, every couple of months, I’m going to close my books. I’m going to say, here’s how much I made. I’m going to write that check to the government. I’m not getting surprised at tax time with that. Maybe I’m being a little conservative in my estimates, so I’m making sure I don’t get a huge refund, I’m going to manage my cash flow poorly and giving them an interest-free loan, but I’m not going to figure out my taxes and be like, whoa, I owe 20 grand. That’s going to ruin my real estate investing.

Eric:
You said 35. I’ve been putting 30, I think, 30% for taxes. If I get a big chunk of cash, I’ll do 30% and put it … I have a bank account solely just to direct deposit to IRS for quarterly payments. It’s usually 30%-

Scott:
30%’s probably good.

Eric:
… but I don’t know if that’s enough or not.

Scott:
You’re in Florida, with that. If you have a good year, it won’t be enough.

Mindy:
This is where a tax professional can come in and give you actual advice instead of Scott and Mindy-

Scott:
Yeah, there you go.

Mindy:
… who’re just flying by the seat of their pants, because they also have tax professionals who tell them what to do.

Scott:
Yeah. All of this stuff, it’s funny, because this is usually not where we spend a lot of the time, but the strategy for your finances seems pretty good. You spend very little, you have a variety of business interests that seem to be growing, that you seem excited about over time, and seems like you know what you need to do to grow those businesses. We can also talk about that as another topic, if you’d like, and you want to invest in real estate to grow your wealth.
There’s not much in the way of strategy here, that we’ve gotten to yet, but it really has been about the basics of putting your systems in place, to get a really fundamentally strong view of what’s coming in, what’s going out, how can you plan around that, what’s making money, what’s losing money?

Eric:
I think that’s where it starts with us here, because I have been educating myself from the other conversations you guys have had with everyone else. All the other stuff that you guys would’ve talked about, I have been putting to work in my own life. It’s just the tax part of it, is what’s been keeping me bogged down all these years, and what I really had to come out of back in 2020.
The paying off the debt, I already knew I wanted to do that. Then, building up a cash reserve, I had to get that implemented, but it was the tax, it’s the business expenses, calculating that, organizing that. Then, when more business comes in, different from my personal, that’s where it gets even more confusing. Now, we’re here, and need to get this nice and tight, so we can keep this going.

Scott:
I’d also look at it as an opportunity, not just from the tax angle, but to understand the value of the business activities you’re doing. I think that’s where you can come down, again, going back and saying, I did this trip, these assets were produced as a result of that. It was necessary for my job to … it’s like, I talk about football, I need to go to the game for this.
How can you break apart those things? I bet you, since you’re not doing that at a high level, that there have been a couple of activities that have lost your money, or that you wouldn’t do again from an ROI standpoint. Is that fair, do you think there’s a couple?

Eric:
Definitely, most likely. Yes.

Scott:
Every business will have those, but if you can analyze those and learn from them, that’ll be really helpful. Okay. What else, what’s another area that we could help you with today? What are some other things that you’d like to ask while we’ve got some time here?

Eric:
I wanted to know what your advice would be in terms of … Because the market is so hot right now in Florida, and I do have a realtor showing me listings. I get an email for the new listings that pop up on the MLS, just because I want to stay in the know of what’s going on as I get further into wanting to purchase. Would you guys recommend me waiting a year, maybe renting for 12 months, while I build this cash reserve to something greater than 25,000? Or, should I get my taxes in order and be looking and try to jump on something as early as July or June or May?

Scott:
What would you buy if you bought in June?

Eric:
I’m looking for either a town home or a single-family residence. The thing is, I don’t know if Jacksonville’s going to be a place where I want to be long-term, but I don’t think that matters, because you can always sell a property or leave and rent out and stuff like that.

Scott:
What would your payment be?

Eric:
For the mortgage, or the apartment?

Scott:
Right now, you’re paying 650 for a bedroom essentially in a house. What would you be paying for the apartment?

Eric:
Apartment is anywhere between 15 and 1900. That’s going to go up.

Scott:
It sounds like you’re paying 650 a month right now, and you’d be looking to buy an apartment or a condo or a town home, that would have a payment of 1500 to 1900 in the Jacksonville area. How much would you pay in rent if you were to rent instead of buying?

Eric:
Oh, I was saying, that would be rent for a one bedroom, plus amenities at an apartment complex, that’s the rent, 1500 to 1900. That’s what rent’s going for, for those kind of places around here.

Scott:
Okay. What would the mortgage be then, if you were to buy instead of rent?

Eric:
I’m sure it’d be a lot less if I could build a substantial cash position to be able to put down something. Because my credit’s good. I think that’s one of the factors of having a lower mortgage, is good credit and a high down payment, if I’m not mistaken. The research still has to be done on that, but I think it would be lower than paying rent in an apartment complex, because this house here, the mortgage is 1200. That’s why I’m able to pay 650. I know the house is a better decision.

Scott:
I’ve got a spreadsheet for you that would be helpful. It has the rent versus buy decision on there. Personally, I’m actually leading towards, based on what you just said here, renting instead of buying as a better option once your girlfriend moves down to Jacksonville, because you don’t plan on living there for a long period of time.
When you buy a house, there are a number of factors that come in, that actually, that are expenses that don’t show up on the simple back of the napkin math. You’re going to spend 2% of the purchase price in buyer’s closing costs, to close the deal. If you were to turn around and sell the house right after a year from now, you’d spend seven or 8% of the purchase price, let’s say a $300,000 property, you’re going to spend six grand buying it, and you’re going to spend three times eight, 24,000 or so, 21 to $24,000 selling it, in terms of commissions to the agent, and the agent on both sides, the seller’s paid transaction costs, all those different types of things.
You’re going to have the mortgage payment, which may be slightly less than the rent, and you’re going to be building equity and appreciating, and the property may be appreciating to some degree. Yes, those will offset that, but that payback period in a three, three and a half percent appreciating market, can be five to seven years. It depends on the circumstances in your market.
I’ve built a spreadsheet that will be available at the show notes here, at biggerpocket.com/moneyshow286. We’ll send it to you, that you can use to do that math in your area, based on what you believe. If you believe appreciation’s going to be at 20% next year, then buying a house will be better than renting. That’s, I think, a pretty bold assumption [inaudible 01:06:57]

Eric:
I don’t know, Jacksonville’s got out a lot of land and a lot of things are getting built up here. I could see it.

Scott:
Yeah. Something to think about there is, and I’ve done that math for myself, and because I’m not 100% clear on what I want over the next couple of years, from a housing situation, I rent right now, and I rented for the last year and a half. I’ve been perfectly fine with that, because I’ve done that math and said, if I’m not clear, I should probably rent instead of buy. If I am clear about what I want to do long-term, then I can buy.
Another way to avoid that decision in the first place is to buy a place that makes a lot of sense as a rental, be like, I’m just going to buy it and I’m going to convert it into a rental within a year or two. That will be the first property in my portfolio. Because that way, you’re going to hold the property. You don’t have to live in the property, but you have to own the property long enough to allow the magic of appreciation, debt amortization, and then ideally a nice solid cash flow spread to work to your advantage.

Eric:
I would … Oh, go ahead, Mindy.

Mindy:
I just ran the numbers on a $300,000 mortgage with a 20% down payment at 3.8% interest, and some random made-up numbers for property tax and homeowners insurance. It’s $1,500 a month for that. It’s the same price monthly, approximately, as the rental, and the house. Now, if you can house hack, where you’re paying $1500, but then you’re renting out a room to a roommate, and they’re paying you $500 a month, now, your payment is only $1000, and you’re renting out another room, and they’re paying $500 a month. Now, your payment’s only $500 a month.
All of a sudden, it looks like a better deal to buy. I would agree with Scott, that you should absolutely run these numbers and make sure that you’re buying a property that makes sense as a rental. Not every property makes sense as a rental. You could buy this house with your $1500 a month mortgage payment, and then all of a sudden, you need to leave, you can only rent it out for $1000 a month. You just bought yourself a $500 a month deficit in your monthly budget, because you can’t rent this for more than your mortgage payment, and you don’t choose what it rents for. The market chooses what a property rents for.
I once heard Brandon Turner say, “Oh, I ran the numbers on a property, it would only make sense if they paid me to buy this house.” There are some properties that just don’t make any sense. Knowing that going in, you can then not purchase that property. Purchase the one that makes sense as a rental. Purchase the one that’s in the great neighborhood, or right next to the school, so you can rent it out to students, or near the beach, or wherever you guys are living. I can’t remember where Jacksonville is in Florida.

Eric:
The north side, northeast.

Mindy:
Do you guys have a beach? Are you close to a beach?

Eric:
Yes.

Mindy:
Yeah. Go buy the beach. They’re probably not $300,000 by the beach. The closer you are to the beach, the more Airbnb opportunities you have.

Eric:
Yeah. The future is just, like with everything is, it’s hard to play in for the future. I don’t know if this city, I’ll be in it long-term, even though the content that I make right now for the podcast business is around the local NFL team here. That could possibly keep me here for a longer period of time. In the end, I just don’t know.
That’s why I’ve been hesitant for a home purchase, but buying a home to rent is obviously on the top of my list, because I do want to build a portfolio of rental properties, because that’s what you guys are about. That’s all I’ve been listening to.

Scott:
I think that’s a great move. I think you’re thinking about it perfectly there. If you buy a nice house that doesn’t have good numbers from a rental property perspective, you’re going to be stuck, and that’s going to impact your career to some degree, because it’s going to make you weight more towards local things, than the broader opportunities that it may come up over a long period of time.
I like the idea of buying a house hack, or a house that … Buying a rental property that you’re just going to happen to live in, instead of rent for a year or two, and then will make sense as a rental long-term. If you’re going to buy a house, I would lean towards … And that didn’t factor those things in as primary considerations, I would personally lean toward renting. That’s why I personally rent. I wanted to live in a nice place. The second bathroom is a game changer when you have a girlfriend, or a wife in the house.

Mindy:
Always buy a house with two bathrooms, two toilets.

Scott:
The shared shower is one thing. Yeah, the toilets is a good one.

Mindy:
Yeah. I want to invite you, if you haven’t yet listened to Monday’s episode, I want to invite you to listen to Monday’s episode with J.L. Collins, talking about how he lost money in real estate. He lost a lot of money in real estate, and yes, it was a very different market, but there’s nothing that is preventing our current market from switching and turning into the kind of market that J.L. was talking about during his episode and during his rather tragic real estate experience.
There’s no changing, or there’s no predicting the future, like you said. You want to make sure that you’re buying a solid investment. J.L. didn’t. He just bought on a whim and flew by the seat of his pants. We didn’t have BiggerPockets when he was buying in, when was it, 1979, Scott? That he bought this property.

Scott:
Yep.

Mindy:
Slightly different market, but still, same outcome. You can lose a lot OF money in real estate. It’s super easy.

Eric:
On that episode, does he talk about the ways to analyze whether a property is worth getting as a rental?

Mindy:
No, I think it was more of just a cautionary tale. Lucky for you, we have an entire website about how to analyze real estate properties to make sure that they work out as a rental property.

Scott:
Yeah. If you have any books that you would like to read on that, that BiggerPockets produces, or you want access to the calculators on our website with a pro membership, just reach out to me or Mindy afterwards, and we can connect you with any of those titles, or the pro membership, to help you analyze the deal.

Eric:
I do have Brandon Turner’s, what’s that book, real estate …

Mindy:
The book on rental property investing.

Eric:
Yes, I have that one. I feel like that would be a good one.

Mindy:
House hacking. Oh, hey, let me get all mom on you right now and say, what are your plans when your girlfriend moves in? Who’s going to pay what? That’s a conversation to have before she moves in. Who pays the rent? How are you splitting it? Are you splitting it based on income percentages? Are you splitting it 50/50? Who pays for food, utilities, all the things, you want to get that all hashed out before you move in together, because it’s super exciting before you move in together, and then once you’ve moved in, you’re like, “Hey, you owe 50% of the gas bill.” She’s like, “Wait, I thought you were going to pay for everything.”
You want to know that in advance, that there are different expectations, or that you’re all on the same page, and that’s great. Then, you can have a celebratory Hello Fresh meal.

Eric:
We’ve talked about that, because all of the finance has been on my mind the past few years, and I’ve been teaching and telling her about all the things I’ve learned from BiggerPockets as well. She’s in the same mindset as me with money. Before we even-

Mindy:
Yay.

Eric:
… started looking at places, we were talking about opening … We have it written down already. When I was in Ohio visiting her last week, we were writing down the monthly expenses, what we’re going to have.

Mindy:
I love it. Yay. Okay. That’s fantastic.

Eric:
Yeah. We’ll be all right with that. We’re going to know who’s owing what.

Mindy:
Good.

Eric:
That’s the least of my worries.

Mindy:
Okay. I’m glad that that’s the least of your worries.

Scott:
Have we answered your question about housing in this point, or what else would you like to talk about today?

Eric:
Definitely. I think I was just trying to get direction for just renting versus buying at the moment. I think you guys have cleared it up. I just need to get it my tax situation in order, so I can keep a clear head. You guys have definitely given me a lot of information that I can use for the rest of this year, and beyond.

Scott:
Awesome. I want to reiterate that you’re crushing it here. You’re building an awesome brand. You’re bringing in great income. You’ve paid off a tremendous amount of debt. You have a great money story coming into this. You’re clearly going to continue stockpiling wealth over the next couple of years. Real estate can be a great avenue to that. If you decide to rent, stock market’s another great avenue for that, just keep piling it into those retirement accounts and after-tax brokerage, things there.
Put a vision together for that business as well, and what that’s going to look like over the next couple years. Get a little tighter on that forecasting. You’re doing great. It seems very clear to me, based on our conversation, the little I know about your brand, that things are likely to accelerate over the next couple of years for you, from an income standpoint and a business standpoint, in particular.

Eric:
Yeah.

Scott:
Where can people find out more about you and what you do?

Eric:
My website is Eric V. Dunn, V as in Vincent, podcast is Dunn and Drew, it’s Dunn and Drew across all social media accounts. Eric V. Dunn on all social media accounts. Google either one of those names, we are pretty easy to find, because social media is our business.

Scott:
Awesome. You can Google all those things. Eric V. Dunn, D-U-N-N. You can also find all of the … We’ll link to everything he just discussed there at the show notes, biggerpockets.com/moneyshow286.

Mindy:
Eric, this has been super fun. Thank you so much for spending time with us today. I really enjoyed talking to you.

Eric:
I enjoyed talking to you guys as well. I’m glad I could finally come on here and talk to you guys after all the consumption of your podcast that I’ve done.

Scott:
Yeah. Thanks so much for having us. I’ll need to check out a bunch of your stuff as well. This will be fun.

Eric:
Hey, check out the vlogs at Jags games. They’re funny but sad.

Scott:
Absolutely.

Mindy:
Okay. Eric, we’ll talk to you soon.
Okay, Scott, that was Eric Dunn, and that was super fun. We ran a little bit long, but I thought we had a really great discussion with him with regards to lots of things, including, like I said, in the beginning of the show, the very real issue of not really wanting to separate out your public, or your business and your personal finances in the beginning of creating a company. Then, at some point, you need to start creating two separate entities. There’s personal you and business you.
I think once Eric fixes that situation, a lot of other things are going to fall into place.

Scott:
Yeah. Now, if you’re trying to do it by the book, you start that way and you keep it that way forever. In a practical sense, a lot of these business ideas can not really generate any income. Going to all that work to set up those systems and those types of things at first, nine out of 10 businesses fail, 90% of the time are going to be a waste of time, but eventually, they need to be set up, they need to be structured, and they need to be able to give you insight into where you’re spending, what’s producing a good ROI for you inside your business, what’s not, how you can eliminate waste. That’s just straight up, not adding value at all, and how you can sort that out from a tax perspective.
I think we also touched on this as well, expensing everything. If and when there is a blurry line between personal and business, in some cases, Eric is not doing this, to his credit. He declared a substantial amount of income on his tax return, but trying to play the game of reducing your tax income too much can actually have adverse effects on you in terms of your ability to get mortgages and loans and those types of things, if you are interested in investing in real estate.
Something to think about, if you have expenses that can go either way with it is, try to draw that line really clearly and stick to it. Then, you want your business to make money at the end of the day, that you can spend and fund your lifestyle with this, and showing a big loss can have drawbacks as much as benefits.

Mindy:
Yeah, I thought that was a really good point, Scott. We are going to ask in our Facebook group, we’re going to ask our lenders, if you are a lender, Seth, John, if you’re a lender and … Oh, Seth is in Florida too. Let us know in the Facebook group, what a self-employed person can do to show a lender that they are generating income, that they do have a lot of money that they are making, because it is more difficult for a self-employed person to get a loan, more difficult than a W2 employee.
Also, Scott, I thought you made a really great point by telling him to check the ROI on each individual trip, and each individual thing that he’s doing, because like I said before, sometimes it’s really tough to look at a thing that is paying you money and say, I don’t want that money anymore. Sometimes, it’s better to take that time off of your calendar, so you can put it into something else that’s going to be generating a lot more income.

Scott:
I think it was a wonderful discussion, and learned a lot from him. What an unusual personal financial situation, but also, what an exciting one. I think there’s a lot of folks out there that, maybe if you don’t like your job or you don’t like where something’s going, he’s got a really exciting career trajectory that you could learn a lot from.
What makes it all possible, at the end of the day, or what allows him to build so much wealth is, his fixed expenses are pretty low from a personal standpoint, that keeps it there. He’s renting a room in a house with a buddy, with that, to keep those expenses low. He’s experiencing the benefit of what sounds like, somebody else’s house hack, there as a tenant.
It’s a really strong financial foundation that he’s got to enable this. It obviously took him a few years to recover from some mistakes and build that.

Mindy:
That’s not something we really focus on, Scott, is the people who are helping you hack your housing by renting a room from you. They’re getting a good deal out of it too, because they’re not paying full rental price. He’s only paying 650. Now, he cut $200 off of his rent expenses. That’s another point, you can’t really house hack if you don’t have anybody there to help you hack your housing.

Scott:
That’s right.

Mindy:
Okay. Should we get out of here, Scott?

Scott:
Let’s do it.

Mindy:
From episode 286 of the BiggerPockets Money Podcast, he is Scott Trench, and I am Mindy Jensen, saying go forth and prosper.
(silence)