The Average American’s Guide to Investing $10K–$100K

Mindy:
Welcome to the BiggerPockets Money Podcast, where we have a discussion about what you should invest in if you have 10,000 to a hundred thousand dollars to invest. Hello, hello, hello, my name is Mindy Jensen and with me as always is my steady investing co-host Scott Trench.

Scott:
Thanks, Mindy. Great to be here with you and great to be here with the returns of James and Kyle.

Mindy:
Joining us today is James Dainard from our sister podcast, On The Market, and Kyle Mast, who is a regular contributor to BiggerPockets Money. Welcome guys. How you doing?

Kyle:
Doing good. It’s good to be here.

James:
I’m doing good. I love being on the Money Show. It’s my favorite name of show by the way.

Mindy:
Scott and James and Kyle 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, start your own business or just think about how to invest your first 10, 25, 50, or a hundred thousand dollars, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Scott, I am super excited to jump into talk about investing, but first I want to share our money moment, which is a new segment that we share, a money hack tip or trick to help you on your financial journey. Today’s money moment, do you have a habit of overspending? Don’t get a cart at the store. Seriously leave it at the front. That means you can only purchase what you can put in your hands. It might seem like a pain, but it’s actually a really useful tool because then you’re not adding extra stuff that you can’t carry.

Kyle:
Have you ever tried to do Costco without a cart? That’s a big mistake. That will keep you from spending a lot. You can get two items and then you’re done.

Mindy:
You’re like this. They come in such big containers. That’s a good tip. Otherwise, you’re like $500 out the door.

James:
But then you can become the guy just dropping stuff in the store, breaking things. That’s what happens to me all the time. I’m like, “I don’t need a cart.” And then I’m struggling down and you burn up half the time because you’re just picking things up half the time.

Scott:
Money tip is grab a basket at the grocery store. There you go.

Mindy:
That’s a better choice too, Scott, a basket instead of a cart. Then you can get more stuff than in your arms, but still not filling up that great big shopping cart. Do you have a money tip for us? Email [email protected].

Scott:
You might’ve listened to our part one of the show where we talked about what we would invest in if we had 100 to $5,000. Today we’re going to up the ante and talk about what we’d invest if we had 10,000 to $100,000 to get started. For this show, we’re assuming that you have an emergency fund, have paid off all major debt and are ready to start investing with these cash amounts. And for this show, I also wanted to provide some context of Americans investment habits and where they are currently keeping their money to best guide you through the advice that we each give today. 61% of Americans say that they have money in the stock market, either in an individual stock or a mutual fund or a self-directed 401(k) or IRA, which is the highest level since 2008. Go America.
Individual investors own 71.6% of rental properties, which is around 14.3 million properties and only 13.7% of Americans own crypto, Mindy’s favorite asset. And the median balance of savings account in the United States is $5,300, while the average savings account amount is $41,600 in the US. Like we say in this show, there’s no right way to invest and you have many options, but today we hope to give you some advice on how to best to start if you do have a bit of a larger nest egg like many Americans.

Mindy:
Scott, before we jump in, I want to challenge each panelist to give us a caveat with their timeline. If you have a three to five year time horizon for using the money that you’re investing, I’m going to go ahead and say 10,000, a hundred thousand dollars, you don’t need to be investing it in the stock market. There’s all of these predictions that we’re going to have a recession. I keep waiting for it to happen. Not really, I don’t really want it to happen, but you keep hearing about a recession is going to happen.
If you have a hundred thousand dollars that you are going to put into a property and you put it in the stock market and then that recession magically happens, you’ve lost value on your investment. Your job in the next three to five years is to preserve the value of the money that you need for the next three to five years, your emergency fund, your home down payment, that sort of thing. I would say think about a longer time horizon for these dollar amounts. With that said, if you had only $10,000 to invest, James, where are you putting that money?

James:
I love this about how much I had when I started my real estate investing career. The first property I bought, I was 19 and I bought a piece of land and that’s what I could actually afford. But for me as an investor, I’m always looking at to get to financial freedom, it’s about building that nest egg that will pay me enough passive income. And that first $10,000, first 5,000, whatever that is, I know as an investor I can’t live off that and be passively free. I’m always focused on high growth to grow that capital, grow that pot of gold, that pot of funds to pay me higher yields. If I was going to invest that in the first $10,000, it’d be two growth high growth items. A, one is flipping a property. You can flip a property with $10,000 if you line up the right kind of debt.
That’s how I grew my first 10,000 dramatically. It was I got a first and the second, I was able to do that by relationships I had built as a wholesaler for a couple of years and by doing that first flip on average, when you can lever that high, your average return on a flip is going to be about 35 to 40% or at least for us in a six-month period. But when you can stack leverage like that, your return can go over a hundred percent on that first deal without a lot of problem. You can give away equity, you can bring in partners, but you get that first big jump in growth. And for me it’s about building, getting in that fix and flip space where I can get that high growth. There’s very little avenues in real estate that you can hit a hundred percent return in a short amount of time without going into fix and flip or wholesaling.
Wholesaling’s another way that you can do that because you can invest 10,000 into a business and the first deal you do, you can make 10 to 20 grand on really quick and you can get that a hundred percent growth. Be focused on high growth. And for me, how I grew it was I found a condo that was really cheap. I got financing set up for a hundred percent with a first and a second. I put the $10,000 into renovation and then I was able to turn a $25,000 profit, which was a huge growth and the 10,000 turned into 35 in a four to five month period. It was a big, big impact on the bottom line.

Mindy:
And you said you got a hundred percent financing with a first and a second. I know what you mean. Can you explain that for our listeners who may not have heard this term before?

James:
When you’re buying short-term investments like fix and flip, typically you’re buying that property with a hard moneylender and that hard moneylender is typically going to finance you by 80% of your total project costs are purchase price. If you’re buying a property for a hundred thousand dollars, they’re going to lend you 80. The problem is an investor, if I only have $10,000, I’m still short half that cash and I line up the first with a hard money and then I brought in a private investor to finance in the 20% for me as a second, and I paid them interest in points on that. And by setting up your debt, typically you can get 80% on your purchase, but then bringing in a private moneylender, other people’s money for the other 20%. Essentially you’re getting two separate loans on the property

Mindy:
And then you paid for the renovations with your own $10,000?

James:
Correct. Or you can have your hard moneylender. Most hard moneylenders will give you a construction loan. Let’s say that property is a hundred thousand, it needs $20,000 in work, they’re going to give you 80% of the 120, not just a hundred. You can actually get your construction funds rolled into your first and then the 10,000 actually would go for more servicing your hard money payments and the debt as you’re going to sell the property.

Mindy:
Do you think 2023 is still a viable option to do flipping?

James:
100%. It’s a viable option because we’re crushing it right now. It’s a little bit different right now. You got to buy a little bit heavier projects to get the big discounts, but no matter what market you’re in, we flipped hundreds of homes, 2008, nine and 10 and that market was receiving really quickly. And as long as you adjust your business plan, like who you’re partnering with, the leverage that you have access to, the discounts, the deal that you’re trying to buy and how you’re evaluating that asset, you can flip in any market. It’s about just adding in layers of protection and as long as you add in enough layers, you can make a very high risk business very low.

Mindy:
Great, thank you. And Kyle, where are you putting $10,000?

Kyle:
That was an excellent answer from James. Especially, he talked about how he was going for really high growth for that first deal and we talked about that on the previous show and I’m going to caveat my answers with again, as I did in the previous show that I’m in my mind thinking the advice that I would give to my sons. I have a six-year-old son and two year old twins, and if they were 18 to 20 years old, this is the advice that I would give them with these monies. When we’re getting into these higher dollar amounts, 10,000 to a hundred thousand, it’s going to start getting drastically different for people depending on what their goals are, what their age is, if they want to stay in their current career, they really like their current career. Is early financial independence their goal?
These things are really going to dictate when you get to these higher dollar amounts. This smaller dollar amounts In the previous episode, it was easier to pinpoint really strategic things and areas that you could go into. The $10,000 for me, I would kick off of the previous episode where at the $5,000 mark, you do a zero down payment loan like a USDA loan, live in primary residence. You can house hack it to juice the returns if you want to. But in my mind, as I’m thinking about my sons, one of the things that I want to be careful with my sons is I love investing, real estate included. I don’t want to put too much pressure on my sons to do the same thing and be all about investments and real estate, but I do want to teach them that those are very good financial security instruments.
As I give this advice for the different dollar amounts, it’s going to be things that they can do in conjunction with maybe wanting to pursue a certain career in, I have no idea, tech or rocket science or being a teacher, whatever it is. But these things you can do while you have a full-time job and if you enjoy it. The other thing in the advice that I usually give is I want people to always be thinking, “What’s your five to 10 year exit plan?” You might be in a career that you really love, but let’s do things now that get you ready in case in five years you don’t love it anymore or in 10 years you don’t love it anymore and you can really take a step back and move and pivot to something else. Go real estate full-time or something else full-time that even pays less.
Real simple with a lot of caveats there as we go into these other dollar amounts, but I would just live in that property that you bought for zero down, 5,000 as your reserves with that $5,000 mark. Live in it for a year, buy another one with the $10,000 either down, there’s some low down payment loans that you can get or another zero down, if you have VA loans available to you. But to start stacking these simple primary residences and turning the previous one into a long-term rental while you’re continuing to save and build up some cashflow and reserves as you continue to go forward with what other income you have. I love James’ answer. That’s the way to get the most from your returns. If you’re ready to go full-time real estate when you’re young, do the stuff that he’s talking about because if you mess it up, you can recover, you can go mow lawns, start a business, you can get back on your feet. Make those mistakes early as much as you can give it a try. That’s good stuff.

Mindy:
Kyle, thank you. I love that answer too. And Scott, where’s your $10,000 going?

Scott:
For this exercise I broke out, I’m cheating and I have two approaches for each answer. One is an active aggressive approach and the other is a passive approach to investing the amounts. From an active perspective, $10,000 is a great amount of money to make one or a handful of small but meaningful bets. An example of a bet that I might make was, I might sign up for a bootcamp to learn how to code. That would help me change careers and dramatically expand my income. I might look at a small business opportunity, for example, a website that only earns a few hundred or a few thousand dollars per year and purchase it on one of these brokerages like Quiet Light Brokerage or something like that and get dabbling in website entrepreneurship. But I’d make one, two or maybe three bets like that as a really all out aggressive approach and I’ll talk about house hacking in a little bit.
I think $10,000 is a great stepping stone on the way to house hacking, fully recommend that, but I don’t think we’re quite there yet with 10,000 in Denver at least to be able to house hack or make a real estate investment without being exceptionally entrepreneurs like James’s phenomenal answer was. And then from the passive side, I’d begin going down a list of tax advantaged investment opportunities. I’d max out my HSA, I’d then take the 401(k) match from my employer and then I’d either invest the balance in a Roth 401(k) if my employer offered it or continue to just max out to progress my 401(k) towards my maximum there.

Mindy:
I love all of these answers. I noticed that Scott’s the only one that talked about the stock market. James, you didn’t say anything about being a real estate agent and when I think back a thousand years when I got my license, it cost me the first year about $3,500 with all the testing and all of the background checks and my brokerage and all of this stuff. It costs about $3,500 to have my license. With $10,000 I would get my real estate license because that is something that has paid, I can’t even tell you what factor that has paid me over and over again. There’s just so much money to be made in real estate investing. There’s so much money to be made in real estate as a real estate agent and I don’t even work that much. If I wanted to work a lot, I could make even more, but I’m easily making six figures just by doing a deal a month and a deal a month is pretty low-key for me.
A few hours here and there. For 3,500 that’s going into my real estate agent license and then probably the rest of it would be in growing the business, maybe a little bit of ads, some social media and working open houses. Really that’s the best way to get buyer leads is to be sitting open houses for other agents when they have listings.
If you don’t want to be a real estate agent, that’s a totally valid option too. The other option that I would do is VTSAX and just put it in the index fund so you don’t have to think about it. I think that’s something that a lot of people tend to overcomplicate is, “How can I make the absolute most out of every dollar?” You don’t really have to, you can just put it in VTSAX and then be done. Let’s move on to $25,000. We’re going to 2.5x the 10,000 amount. Scott, where are you putting $25,000?

Scott:
All right, for my active investment, remember I have an active and passive, for my active investment, I’m house hacking. This is the house hack and live and flip amount, three and a half percent down on a $500,000 property is achievable for a lot of folks and that’s $17,500. You can do that with $25,000 and still have a few thousand dollars left over for emergencies or to begin repair work on the property and the returns on a live-in flip or house hack can be 100 to 250% over the next one or two years in there. And I think that there’s very few things in life that will be a better opportunity from an investment standpoint than that all but the most explosively growing businesses or highly leveraged investments will lose to this.
Then from a passive standpoint, if I’m not willing to do that, I’m going further down my list. I first maxed out my HSA. I then go down and take my 401(k) match from my employer and I’m now able likely to max out my Roth 401(k) or 401(k) and still have a little bit left over to invest in my after tax brokerage account. I’m investing specifically within those accounts in VTSAX or a similar index fund, either a total market stock index fund that’s low cost or a S&P 500.

Mindy:
Awesome. James, you’re up next. What are you doing with $25,000?

James:
I definitely know I’m not putting in a stock market. I’m just terrible at that. There’s nothing wrong with a stock market or these funds, I’m just not good at it.

Mindy:
That’s a valid option.

James:
Yes, I have a special talent for losing money in the stock market. 25,000, then you start making some growth, that 2 and X return when you go 10 to 25. And for me, I’m still trying to get in that growth factor and I want to grow that as quickly as possible because as I don’t really start looking at passive until I can get at least a certain amount of money that’s going to make an impact on the bottom line. I want to go after growth again, but at 25 you can start scaling a little bit as limiting as a lot of people like to mention like, “25 grand is just not enough to get going,” but it is. And I would actually take that 25,000, I would still do the same type of flip because I just had done a flip with somebody.
I got the first mortgage, I got the second mortgage, it went well, we made some money. That means I’m probably going to have access to that secondary lender again. And I’m going to go and do that same process again, but then I have an extra 15,000 then to play with and that’s where I would start reinvesting that into a wholesaling business. And the reason I didn’t say brokerage is because I actually started as a wholesaler, not a broker. And the fee size that we make as wholesalers is usually two to three x what we make as brokers a lot of times on selling a contract or at least on a percentage basis for packaged in a right. I like that business in addition to I like wholesaling because it doesn’t require as much service. Being a broker eats up more time. A broker probably eats up 50% of my time even today.
And I would reinvest in wholesaling because it’s going to serve two purposes. A, it’s going to get me better deal flow, so I’m not paying assignment fees. I’m able to source my own deal, which is going to help me with that next flip to get even more growth on that. In addition to I can start revenizing other deals that I’m passing on as I’m growing my fix and flip business and selling deals elsewhere. And if I put 25,000, if I have 20 that can go into the flip. I can get a little bit bigger project, a little bit bigger scope of work, which will have a bigger margin and then I just need the 5,000 to really get my wholesaling business going and that’s sending out some mailers, pulling a data list, start communicating with people and building out that pipeline. And if you can do in a year period two wholesale deals, that could be $20,000 on your 5,000 growth in addition to growing on that flip where you can hit that 50, 60, 70% cash on cash return to get that high growth.

Mindy:
I love these big numbers you’re throwing up there, James. The stock market doesn’t quite return. What did you say, 50, 60, 70%? I have not yet had one of those years.

James:
It’s just leverage and when you’re stacking leverage with the first and the second, you’re cashing the deal. If you put $20,000 in a deal and you make 20 because you put more debt on it, that’s a hundred percent return on your investment and typically our average fix and flip is six to seven months, 6.1 months to be exact. You can do that twice in a year and hit 200% return on your investment if you’re buying the right deal. And that’s how you get that hyper growth and to keep building up that pond.

Mindy:
Kyle, you’re a CFP, surely you’re going to tell me with your $25,000 you’re going to put it in the stock market, right?

Kyle:
You would think so. I worked with a lot of real estate investors though they converted me over the years. I just want to touch on a point that Scott and James both made as far as the returns. You touched on it right there just to make sure people understand that, that in real estate is one of the few places that you can put good debt, even fixed long-term debt. The 30-year mortgage is just this incredible thing that’s available in the US that’s fixed, a fixed payment for 30 years and you can’t do that with a stock portfolio. If I could put 20,000 into a stock portfolio and have a lender give me a fixed mortgage for three and a half percent for 30 years on another 80,000, I could put that all into VTSAX, put it all in the S&P 500, I do it in a heartbeat because that’s way more passive than even sourcing wholesale deals or fix and flips.
But you can’t do that. Lenders don’t lend like that. There’s not that kind of margin out there. It’s only on real estate and what’s Scott said about putting the three and a half percent down, you know what you put $15,000 into a $500,000 house if it goes to just 550 in a year or two, who gets the 50,000? Not the bank that loaned you the money, you do. That’s where you’re getting this triple digit return on your money just to make sure people wrap their head around that. It’s not like some crazy returns that aren’t real. It really does happen. There’s some work involved, but it does happen. This 25,000 mark, a couple of assumptions. My kid has bought two houses, let’s say he’s working a job making median income in the US and then now he’s got 25,000 saved up.
At this point I am very, very partial to self-employment. I would encourage someone to try to either start their own business, whether it’s in real estate directly or if it’s in the field that you’re in and you can start so cheap if you want to. And I think one of the BP podcasts recently had Codie Sanchez on, and this is like her bread and butter. All she talks about is buying these boring businesses that you can make a ton of cashflow and you can buy them cheap. You can either buy them with like $10,000 down, $25,000 down or you can buy them on an earnout. Just to give an example, about 10 years ago I bought a small set of clients from the firm that I was working for as a CFP on a complete earnout. I paid nothing for them and the agreement was to pay a certain percentage of the revenue that those clients produced over the next 10 years and I could buy it out early if I wanted to, which I did a few years later.
But what happened was I wanted to go on my own. The current business owner was gracious enough to see that in me and he had clients that he couldn’t get to and he was now getting paid for them and they were of a size that you wouldn’t be able to sell them to someone else other than someone who’s working at the firm and takes them over. It worked both ways and these opportunities are out there. If you’re young and you’re starting out and you’ve saved up $25,000, whether you’re working at a specific industry and you’re working at an HVAC company and you say, “Hey, maybe I will get my electrician’s license, I’ll become a journeyman. I’ll start my own business that way.” And there’s a lot of reasons to do that. One reason is you can do your own schedule. You can make as much or as little as you want to, as much time for your family as you want.
The other thing is there are immense tax advantages. If you start coupling your real estate investing with also self-employment income, you now have access to things like solo 401(k), being able to business expense trips to properties, if you meet certain rules. And this is not like bad stuff you do in the tax code, it is written in the tax code for you to do specifically. I would encourage someone at this point if they’ve done a couple of these other things, maybe have a couple properties under their belt that are already rented out, cash flowing, look at trying to start a business or buy a business that’s already in service with clients that you can take over and build over time to what you want it to be.

Mindy:
Fantastic. Kyle, I love this answer. We did an episode with Tim Delaney, number 325 of the BiggerPockets Money podcast where he talked about buying a business. He did buy it for I think a hundred thousand dollars. Boy, it’s been a while since we did that episode, I can’t remember exactly what he paid for. Maybe it was generating a hundred thousand dollars afterwards, but he bought it. He bought this business and it started generating income. He was able to pull back a little bit. It started off as a full-time job, but then he was able to pull back a little bit and not work so much while still generating six figures for himself.

Kyle:
Definitely. The other thing too is you now have another asset that is another diversification tool. Now you’ve got real estate and now you have a business that you’re building. If you build it right in five to 10 years, if you’re thinking, “I want to make sure I have an exit strategy if I need one,” you don’t need it. But if you build a business, right, and you’re watching for buyers along the way who might be interested in it, think of that and then now you have a separate asset and then yes, it’s a great, people should listen to that episode. It’s something to really pay attention to. There are a lot of small business owners. My electrician that came the other day asked me if someone wants to buy his company and it’s just him, but he has a awesome set of clients. If there was a 25-year old that was an electrician, I would tell them to buy it instantly and they could sell it in five years.

Scott:
And no 25 year olds have 25 grand or 50 grand to buy it. And if you have it, you’ve just made an enormous return. That’s why it’s so important to accumulate this at 25.

Kyle:
A small business owner like that, they don’t get good buyers. That’s who you want to buy and they’re more willing to do an earnout where you pay them over time. It’s their retirement income. You don’t have to put as much upfront.

Mindy:
That’s awesome. And I think a lot of the trades are like that. Some random person decided to start his own business as an electrician or my HVAC guy is in this same boat. He thought his children were going to take it over and then they didn’t. Now he’s like, “Well, what am I going to do with this business?” He’s the guy that everybody goes to in our town, he’s got so much goodwill. You could go and start your own business. Of course anybody could start their own business, but then you have to build up from scratch. Whereas you buy Bob’s business, Bob does an awesome job. If you could do an awesome job too, you just instantly inherit this amazing business. Not inherit, buy it. For me for $25,000, I would look at maxing out my 401(k), especially if I am younger.
I might look at the Roth version of that. I might look at my own Roth IRA. In fact I would look at my Roth IRA, do as much as I can for my company’s 401(k) match if anything. Then switch over to max out my Roth IRA because that’s after tax money that is growing tax-free. Looking at my HSA as well, that’s triple tax leverage that everybody loves to talk about. And then going back and finishing, maxing up my 401(k) because I like the stock market. Everybody else gave real estate answers, which are great too. That’s just a different perspective.

Scott:
All right, let’s do $50,000 next. And Kyle, you want to take this one first?

Kyle:
Yeah, this one, I’m going to go into another asset class now and we start getting to these higher numbers and the options just start opening up more and more. And I really wish I would’ve stole Scott’s framework from the beginning of a passive versus an active investor because those are two camps that people are often in one or the other depending on their stage of life, their age, how many kids they have or what their career looks like, if they like it or if they hate it. You’re a lot more likely to want to get out real quick if you hate something that you’re doing. At this point, I would start to do some serious planning. The 50,000 marks, say you’ve got a few properties, you’ve got a business that cash flows, it’s what you want, you’re building it. Now we start to look at what’s 10 years from now really look like.
I can go different directions and with some of this money I would probably start looking at some of the tax advantage accounts where Mindy’s already talking about them, but you’re self-employed. Look at your tax bracket. Are you bumping into the next tax bracket as a self-employed person, you’re paying extra taxes for the employer and the employee because you’re self-employed, the FICA taxes, social security, Medicare, some of those things. You need to watch that stuff. These days you can put 50 to $60,000 in a solo 401(k) in one year, which is huge. You could bring your income down by 50 grand, drop you from a tax bracket that’s 10% higher on that marginal amount to a lower amount. And you just need to look at what are your plans? In two years, are you going to be a full-time real estate investor and your tax liabilities are pretty much going to go to nothing because of all the depreciation, bonus depreciation, say you have some short-term rentals, you can offset some of that income?
If that’s the case, then you want to reduce your self-employment income as much as you can right now because you’re not going to have much income later. This starts to get a little gray on where I would recommend someone put this $50,000, but my first thought is to start doing some stock market retirement accounts mainly for the diversification piece, both of the tax advantages, the asset class and then the liquidity. Real estate is less liquid than stock accounts, even if it’s an IRA, 401(k) or a non-retirement account, all those are more liquid than a house on a corner as far as if you need money quick. And I’ve used my Roth IRA several times to purchase a property because of certain rules that the Roth IRA has to be able to take money out short-term, put it back in within a certain timeframe. Having this extra bucket is a good thing as you progress down the road, gives you options depending on where you want to go.

Scott:
Awesome. James, you want to go next?

James:
I actually really loved what Kyle just said about working smart and getting into the tax planning and trying to save more. I actually feel like that was a big mistake I didn’t do for the first 10 years of my career where I was just trying to make money, make money, make money, bring it in, they redeploy it, but then you end up paying a lot of taxes and you can be working a lot harder than smarter. And I think that’s a really important thing people to dig into. And once you get to this $50,000 mark, you can really start planning out, or at least when I was an investor, I was getting to that amount of money. I could start planning out and looking at different things. The first thing I would do with a 50,000 is I still want to allocate at least half of that to high growth, which I’m going to continue with my fix and flip. I know I beat that drum, but that has been the most successful way for me to grow capital at that point.
The next thing I’m going to start doing is looking into what everyone else has mentioned, which is that house hacking, owner occupied purchase because I don’t want to eat up too much of my money to goes towards my house for the house hacking, minimizing my overall housing expense, and I want to keep it in the fix and flip space that I can continue to grow. If you own a property that’s owner occupied, you get a huge tax break.
If you’re single and you sell a property after two years, you get a $250,000 tax credit. The first $250,000 that you make does not go anywhere but back in your pocket. After if you’re married, it goes up to 500,000. That first initial owner occupied purchase, you can make a huge, huge tax benefit gain by buying something that needs a little bit of work. You get to increase the value, sell it in two years and get all your capital back tax-free plus the gain. In addition to I’m not eating up all my cash and I’m continuing to do fix and flip properties. And once I got to the 50,000, I would definitely go look at that owner occupied property, find something with some value add, get my tax benefits and savings going that way, and then continue with the fix and flip to get those high 35, 40, 50% returns.

Mindy:
With $50,000 I can max out my 401(k) for 225 this year. I can max out my HSA if I’m single, that’s 3850 if I’m married or have a family that’s 7750, I can max out my Roth IRA that’s 6,500 and I still have $13,250 left over to find something to do with, to invest in a different way. I can do all of my tax advantaged accounts and start setting myself up for a comfortable retirement. That’s what I would be doing. Tagging off of James Dainard, I do actually really love that live-in flip. I would be looking for my next live and flip. I’m always looking for my next live and flip. I bought the house that nobody wanted. They were smoking in it and it has a swimming pool in the backyard in an area of the world that nobody has swimming pools.
It was very undesirable house, it was hideous. And the same house I bought it for 365, the same house around the corner last year sold for 850. There’s a lot of upside. I’m actually really hoping that someday I will pay taxes on my live-in flip because I have gone over that 500,000. That’s my next goal, is to pay taxes on my live and flip. I’ve so far never actually paid taxes on them, which is also really awesome. I love not paying taxes as well when I could do it legally. The $13,250 that I would have left over, I could go learn how to be a real estate agent if I wasn’t already because I already had the 10,000 to do it with. I think that the rest of you are focusing on real estate so much I want to give people an option to do non-real estate things because not everybody wants to invest in real estate and I think the worst time to invest in real estate is when you haven’t done your research, you’re not really all that interested in it and you’re just doing it because everybody else is doing it.
The stock market is a really valid place to park your money.

Scott:
Awesome. Love all these answers. Lots of different opinions here. For me, for $50,000, I’m going to go with on the active front, rental property investing. This is not as aggressive as an entrepreneurial pursuit that’s been mentioned, but this is a great way to get a 15 to 20, 25% IRR. If you’re sophisticated, if you use use leverage, this is where you can put down 15% and legitimately buy a rental with conventional financing. In parts of the country, maybe not your hometown if you’re in a higher cost living area, but there are rental properties available in the 300 to $350,000 range in this country that will be accessible to you from a traditional standpoint. And I just think it’s a super powerful way to build wealth and park that next 50 grand after we’ve done the house hack, after we’ve done some of the tax advantage stuff that I talked about earlier.
And then on the passive side, if I’m trying to be totally passive with my real estate investing or with my investing of 50 grand, now I’m going to be thinking about syndication opportunities. I’ve already talked about going through the 401(k) and the HSA and the tax advantaged accounts. I’m assuming that’s already passed us. What I do with the next 50k here, now I’m going to be thinking about, “Hey, can I invest in an apartment complex and get skilled at evaluating syndication or other investment opportunities?” And those guys will target a 11 to 18% IRR in many cases, depending on where you go with risk profile, leverage, all that kind of stuff. That’s where I’m going with my next $50,000.
Loving these answers guys. This is a pretty fun, fun discussion. Lots of different opinions here, hopefully this helps and explains that there’s no right answer. Kyle, I just want to call you out for the great framework you had here. The options explode when you get to 50 or a hundred thousand dollars in investible liquidity. You just have so many different paths you can go down so many permutations of active versus passive if you’re creative and willing to do some things, willing to be actively involved in those investments, especially if you go the entrepreneurial route in the early days. All right, let’s do a hundred grand next. And Kyle, you want to kick us off again here?

Kyle:
Your comment there is a good setup for this one. This is the last one that we’re hitting and I just want to bring it back to the timeframe that I was talking about of, from the beginning I want a five to 10 year potential exit strategy.
If the career I’m in I don’t like, if my family life changes, if something, all kinds of things can happen. We talked about in the other episodes. I do these crazy planning retreats every quarter where I think through our goals for our family and everything.
And I think about things like, “What if something happens to my wife and I have to take care of our three boys by myself? Can I step away? How fast can I step away?” These are different things. And now when you have a hundred thousand dollars now you need to really step back and say, “Where am I in this journey? Where in the next five years do I want to be? Do I, with a hundred thousand dollars, buy two turnkey single family rental properties in Atlanta, Georgia that are new builds, brand new, fairly passive, have them turned over to a property management company with very little maintenance.” And I enjoy my career right now for another five years and I keep stacking that on and then that’s my potential exit strategy, if I don’t like my career anymore or, “Am I done with my career? Do I need to take this a hundred thousand dollars and make a complete shift?”
This is where it gets a little bit interesting because you can invest this in ways that aren’t typical asset classes. And what I mean is say you’re in a career where you’re making $150,000 a year, let’s bring it down a little bit, maybe you’re making a hundred thousand dollars a year and it is just burning you out, it’s burning your family out and you need to take a step back. Say you can find another job that makes 70,000 a year that has better hours, more enjoyable is going to make your health better. It is okay to take 60,000 of this hundred for two years to float a family budget if you need to help keep your priorities in the right spot.
And that’s a hard thing to say on a money and investing show because now you just bled through capital that you can’t get back, but you also can’t get back the time with your family and you also can’t get back your health either. If whatever you’re doing is very intense, you can buy that back over two years. Who knows what idea you’ll get over those two years, who knows what other opportunity will come up if you are in a better state of mind, your family’s in a better state of mind. I don’t have a good answer for this one because there’s too many options and it really depends on what your goal is, short, long-term, where you’re currently at, how you’re feeling, single, family, all these things really play in together what age bracket you’re in. But this is a large enough amount that you can make a really awesome move in whatever direction you choose. You just need to think it through really well.

Mindy:
With a hundred thousand dollars, there’s the stock market response, from the 50,000 there’s after tax stock market investing. Again, I’m going with index funds unless you have done the exhaustive research on a specific company or a specific sector that allows you to invest in individual stocks. But on a more active note, I’m going to start looking into real estate. I like to put 20% down. Even though I just said you don’t have to, I prefer to because when you don’t put 20% down, then you’re paying PMI, private mortgage insurance. I would be looking at a short-term rental or probably more honestly a medium term rental. Short-term rentals have the quick turnover. Medium term rentals are 30-day stays or longer, both of which have books available at BiggerPockets Publishing and Private Lending, also a book available for BiggerPockets Publishing where I am lending money to a flipper like James, who is then doing all the work.
My returns are 10, 12, 14%, which is awesome for me because I’m taking very little risk. The reason I’m taking very little risk is because when I am doing private lending, I am lending as much if not more to the person than the deal. I know James, James, if you need money, I have money for you. Scott, maybe you don’t know what you’re doing. I’m not going to lend you any money. I’m all tapped out. I get emails from people randomly, “Hey, can you lend me money?” I have never heard of you before. I don’t know who you are. I am all tapped out. I lend to people that I know are going to pay me back. Regardless of James’s deal, I can look at it and I can say, because I have the experience, I can say, “Wow, his numbers look pretty good,” or, “His numbers are completely fabricated, there’s no way he’s going to be able to do that.”
But if his numbers look pretty good and I know him, there’s a really high chance that I will lend him money if I have it available. And the returns for just writing a check are pretty phenomenal. The timeframe is pretty short, like six or eight months. And I get whopping checks either every month or at the end when they sell it, depending on how we’ve set it up. That’s a really great way to be in real estate without being in real estate, making a great return without a super lot of risk.

Scott:
James, how do you turn a hundred grand into 250k in six months?

James:
This is where you can start putting rocket fuel on your portfolio. And I think taking a step back, everyone has their own risks. They all have their own goal. And I know Kyle’s mentioned this a couple of times, Scott’s definitely mentioned this about setting your goals and really planning it out. And that’s important. I have a high threshold for pain and risk and it’s not for everybody. And I think as an investor you have to pick out what do you want to do? Do you want to grow steady? Like Kyle’s mentioned, what do you want to do in your personal life with your time? I’m just a deal junkie that likes to grow. But when you get this a hundred grand, you can really turn things around. And what I would be focusing on with a hundred grand is A, I’m always going to be fix and flip.
You’re going to hear that as my steady story because it’s that high growth. It’s always going to be bringing them in more income to go buy more property. But once you start getting a hundred grand, I’m really going to start exploring keeping real estate as holdings at that point because now I can start allocating a certain amount to start buying buy and hold.
If I got up to a hundred thousand, I’m still keeping 50. I’m still fixing, flipping or high return deals, whether it’s a JV deal or anything that’s going to get above a 40% return at that point. The other part, I’m going to start building out my portfolio for high growth, not for cashflow. I’ve never been an investor that bought off cashflow. I buy for opportunity and growth. And what do I mean by that is I take that 50,000, I’m going to target the busiest, heaviest BRRR property that I’m going to find, that’s going to be the cheapest property that you can get. And you’re going to buy that property, you’re going to renovate it, you’re going to refi it, and I’m going to break even for two years. That’s totally fine.

Scott:
James told us us about the smell of this property in the intro actually.

James:
That was one I should have kept as a BRRRR with my hundred grand, but I ended up flipping it. It had a purpose. I bought something else with it. But that was a stinky one. Buying the stinkiest house that you can buy, but the deeper discount for your holdings, that’s your gunpowder to explode you later down as an investor. When we started building out our portfolio, we’re up to almost nearly a thousand doors. We got it by buying these heavy fixer single family houses with big equity positions, the cashflow was okay, or even some of them are hitting 10% cashflow. But the problem is when you only have 25 grand in a deal, that’s 250 bucks a month and you can’t get that to stretch that far. And I’m going to target the heavy value to increase the equity. You get that and then after one year, I’m going to 1031 that out for another value add two to four unit that I can get higher cashflow and even more equity.
And that’s where the dominoes start going. And if you start putting these dominoes in your portfolio of getting equity, trading it. For me, I never hang on to equity. I want to utilize it and I want to utilize it by levering it up more. I want to trade it and get myself into a better position. And that’s where the dominoes go.
You take a house, you trade it for a two to four unit, you get a value add there, then you trade that for 10 units and it just keeps going. And for me, I’m a high growth guy. It does require a lot of time. It requires a lot of mental strain sometimes, and you got to be in the business. It’s not the most passive lifestyle, but it’s going to get me to that passive lifestyle a little quicker than I would be if I stayed more steady. And again, that is not for everybody. I’m just a weirdo that likes to keep going hard. But it is the way that I have found has totally exploded my portfolio. It’s just always chasing value add and then utilizing the equity, not just sitting with it.

Scott:
Awesome. Kyle is buying brand new builds in Atlanta, Georgia, but really opening up to the endless possibilities of this amount. Mindy is lending to James and James is buying the smelliest, dumpiest piece of property he can find in his area for the cheapest possible price. Love it. Love the variety here. For my answer, I’m going to go back to that, what we’ve all been talking about, about how many options are here, and I’m going to say at a hundred grand in liquidity. Now you got to start thinking about, “Okay, I got a real pathway to a million or 2 million portfolio. What do I want that to look like when I’m there? If someone handed me a pile of 2 million bucks, let’s call it, how would I allocate those funds to give me exactly the life that I want?” Because that’s within your grasp or that’s what you need to be thinking about here at the strategic level.
And for me, that would look like a portion in growth, in tax advantage stocks, a portion in cash flowing real estate, and then something that’s for me, not tax advantaged, but just delivers actual cashflow to me. I’m in Mindy’s camp squarely here on the passive side at least, and saying, if I’m at with a hundred grand, I’m going to lend to James and I’m going to collect my 10 to 14% simple interest. I am reasonably skilled in real estate, I feel like I can invest in either the jockey, James, and his capability set or the horse, the asset itself. If I don’t know quite as much about the investor in that case, maybe I have a great LTV spread there. I’m doing that with my passive investment. Now, if this is my first a hundred grand and I’m still trying to get to this point, it’s not in the context of a larger portfolio, then I’m taking the more active approach.
And I’m going to go back to a discussion point that you guys all brought up earlier, many of you did, around small businesses. I think for me, buying an electrical company is not as interesting to me or a list of clients, total respect for that. That’s a great way to get started. But I would rather buy a larger business that’s more established maybe in the 200, 300, 400,000 EBITDA range. And that business is going to transact for a million dollars, 750 to 1.5 million.
A hundred grand is enough to get started on that. That’s where you can get seller financing from one of these buyers. You can get an SBA loan and you’ll be taken very seriously with a hundred grand. And this is a real opportunity to 3, 5, 10, 15 x that investment. And there’s no right answer here, but that’s just personally for me where I would be taking the small business route a little bit more seriously, I’d be more interested at a hundred grand than I would at 25 grand for me. That’s my answer there. Overlaps a lot of folks, there’s no right or wrong here.

Kyle:
I love that business answer. One of the things that Scott touched on there, is that using that a hundred thousand as the down payment to get a seller finance deal up towards the million dollar range. But what happens is if you are able to buy something like that and then you grow it, create efficiencies, you now bring it from a seller financed business deal to a potentially bank finance business deal when you want to sell it. And that’s a whole different jump as far as the income that you can get or the value that can get for it, or even where they roll that company into a larger company. There’s HVAC. I keep coming back to HVAC. HVAC is something where this happens all the time.
A larger HVAC company can roll in a smaller one and they will pay nothing for one that is just a one man show or a five person show. But if someone has efficiencies and it’s an enterprise in a geographic region that someone grew, like if Scott bought it and increase it to an actual enterprise business, they will pay top dollar for that because they have money that they need to deploy or they’ll give it to James. I noticed that no one wanted to invest in me during this podcast. It was just James that was getting all the dollar amount. I need to change something in my answers here. It’s not exciting enough or not stinky enough is probably the-

Scott:
Kyle, we invest in the financial planning back in the hundred to 5,000 episode there.

Kyle:
That’s true.

Scott:
I agree. I think that business thesis, that’s been something I’ve been noodle on for years. That’s where I’d be hunting, especially in this first a hundred, a couple of hundred thousand range for someone starting because this is the most inefficient market ever, I can imagine. These are people that have no one to buy their businesses that have been around for 25, 30 years that probably some businesses don’t even have websites. Some businesses don’t have basic technology practices. The episode Mindy referenced, the gentleman bought a liquor store and they didn’t have a point of sale system that was just a cash register. With that, they didn’t have an inventory management system. Adding these efficiencies drives tons of revenue, tons of profit. And to your point, if you can multiply that income from, take it from 250,000 a year to 500, not only are you making 500,000 a year, but your multiple expands when you sell it.
Now, instead of buying it for a million, you’re selling it for two and a half, 3 million. This is something that is not new. Codie Sanchez, Alex Hormozi, a lot of these guys are all over this, but that would be where I’d be really hunting at that level, after my real estate investment here with it and I have a good solid financial foundation to help me take this down. It’s going to be way more active though. It’s definitely not a semi-passive investment stream. This is your profession if you’re going down that route.

Mindy:
And I think it’s really important to note that you need to be comfortable with what you’re doing. If you don’t want to invest in real estate, then don’t invest in real estate. If you don’t really want to own your own business, then either don’t own your own business or buy a business that somebody else can be running so you don’t have to be in there all the time. But if you’re buying a small business, be prepared to be running that small business. There’s a lot of things that people think would be really awesome. And then it turns out reality is way different than the fantasy. Do your research first and foremost, because you can turn a hundred thousand dollars into $0 super quick by doing it wrong.

Scott:
Can we all agree though that we’re on the same page of don’t buy it, spend a hundred grand buying the nice car and the nice house that’s going to be your primary residence and trap trapping yourself from those things? Don’t build yourself a million dollar portfolio 20 years down the road and call yourself a millionaire, but it’s all in your home equity. It’s all in your 401(k), you got 10,000 in the bank, and no other assets accessible or available to you to take that trip now or spend the time with your kids. How do we feel about that statement?

Mindy:
I think that’s a valid statement. I would say that that’s not the best way to do it, although it’s better than having zero.

James:
Save your money. One of the best things that we ever did was short-term, paying long-term gain. We didn’t pull any money out of our flipping business for the first three to four years. It compounded on itself. We didn’t go buy the nice car, we didn’t buy the nice house. It was just like we were just growing, growing, growing. And it really compounded into something to where we can have the nice car, the nice house, but it’s paid for by interest, not principle. And the more you grow, the more that interest will pay for that lifestyle. Just wait. It’ll come.

Scott:
Now James has the nice car, the nice house, and the nice yacht. All right guys, well this was a great discussion. Thank you so much for the different perspectives here. Really appreciate it. Always learn a lot. And I hope this helps folks think about it. And I think the biggest inspiration I hope you take away from this is amassing each stage of liquidity that we just discussed here, just multiplies your options. I think that Kyle stated it best earlier today, earlier in this episode when he made a point to that effect. And that’s the magic here. When you can accumulate this liquidity, especially if you can do it early in life, the options are just multiply ahead of you and you can take advantage of a lot of different angles here. Look forward to hearing what other folks suggest in the comments.

Mindy:
That’ll be a lot of fun. And Scott, like you said, this episode clearly shows that there is no one right way to invest, only that you must start. We hope this advice was helpful for you. James Dainard, thank you for joining us today. Where can people find you?

James:
Best place to find me is on Instagram @jdainflips or jamesdainard.com.

Mindy:
And Kyle, thank you for joining us today. Where can people find you?

Kyle:
Just kylemast.com or on Twitter @whoiskylemast. I post on there sometimes. I have a newsletter that I put out.

Mindy:
Who is Kyle Mast? I wonder who is Kyle?

Kyle:
Who is Kyle? Have you read Atlas Shrugged? That’s how I came up with that. Who is John Galt? It’s from the book Atlas Shrugged.

Mindy:
And Scott, everybody knows where you are, I don’t have to ask you. That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench. You can find him at [email protected]. I am Mindy Jensen. You can find me [email protected], and we are saying, on the bus octopus.

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.