What Percentage of My Net Worth Should I Use for a Down Payment?

00:00:00.000 | (beeping)

00:00:02.180 | (upbeat music)

00:00:10.940 | - Welcome to Portfolio Rescue.

00:00:18.800 | Each week our audience gives us tons of questions

00:00:21.600 | and Duncan and I try to get on here,

00:00:23.800 | provide some context, research data,

00:00:25.800 | maybe a few charts, help people out.

00:00:27.560 | Duncan, our Google doc is full of questions.

00:00:30.840 | So many so that I don't know how we're gonna get to them.

00:00:32.760 | So we might have to do a Jim Cramer lightning round

00:00:34.800 | at one point.

00:00:35.640 | - Yeah, yeah, I like that.

00:00:36.480 | - And you're just gonna have to put a timer up,

00:00:37.960 | 60 seconds and go.

00:00:39.720 | Remember if you have a question,

00:00:40.560 | askthecompoundshow@gmail.com.

00:00:44.160 | I've been writing about finance for almost a decade now

00:00:46.680 | and there's certain topics

00:00:47.520 | that always get people worked up.

00:00:48.600 | Taxes is one of them.

00:00:49.600 | We've mentioned that on the show before.

00:00:50.840 | The Fed, you know, my colleagues at the Fed

00:00:52.880 | always get people worked up.

00:00:53.880 | Crypto of late.

00:00:55.200 | Anything with government policy

00:00:56.600 | and how it impacts the economy or individual households.

00:00:59.680 | Here's one that surprises me.

00:01:00.800 | Individual bonds versus bond funds.

00:01:02.520 | People have very strong opinions about this.

00:01:04.160 | Maybe we'll get a question about that someday.

00:01:05.680 | And finally, housing.

00:01:06.520 | And I think that's because housing is by far

00:01:08.840 | the most emotional of all assets you can own.

00:01:11.480 | And also 2/3 of the country owns a home.

00:01:14.520 | So people like have a vested interest there

00:01:16.520 | and they have personal experience there.

00:01:18.320 | So I've been writing about the housing market a lot

00:01:20.200 | over the past two years 'cause it's been so crazy.

00:01:21.680 | So we got a few housing questions today.

00:01:24.520 | So I wanted to actually go through it.

00:01:25.800 | I pulled out like five of the craziest,

00:01:27.440 | five of Ben's craziest housing facts

00:01:30.120 | of the last few years that I've written about.

00:01:33.120 | Number one is we haven't built enough houses.

00:01:35.680 | So in the 1970s, there was like 200 million people in the US

00:01:39.280 | and we were building like two million homes a year.

00:01:41.880 | There are now 330 million people in the US.

00:01:44.080 | Last year, there was less than 1.3 million homes built.

00:01:47.560 | The whole 2010s was the lowest amount of homes

00:01:49.840 | we've ever built in a decade.

00:01:51.560 | If you wanna know what's happening there,

00:01:52.720 | that's probably why.

00:01:53.560 | Here's another interesting one.

00:01:54.760 | In 1944, after the Great Depression,

00:01:56.800 | there was 114 new single-family homes started to build.

00:02:00.760 | By 1950, it was 1.7.

00:02:03.360 | So after the World War II,

00:02:04.200 | they just built a ton of homes

00:02:05.040 | and the government made it happen.

00:02:06.480 | Not really happening this time.

00:02:07.360 | Here's a more recent one.

00:02:09.400 | In 2015, the summer of 2015,

00:02:12.320 | there was 1.2 million homes across the whole country

00:02:14.400 | for sale.

00:02:15.240 | How many do you think it is now, Duncan?

00:02:16.480 | - Wait, how many?

00:02:19.600 | - So there were 1.2 million homes for sale,

00:02:21.520 | like listed homes in 2015.

00:02:24.440 | - I'm guessing that today it's like 500.

00:02:27.240 | - It's like 250,000.

00:02:29.200 | - Yeah, no.

00:02:30.040 | Yeah, it seems like nothing, basically.

00:02:33.160 | I looked the other day around the New York City area

00:02:37.240 | and it's insane how few places are on the market.

00:02:40.360 | - Basically.

00:02:41.200 | All right, I did some research.

00:02:42.040 | This is from the US Census data.

00:02:43.320 | They look at new houses built in the 1970s and today.

00:02:46.400 | So I think it was like 1973.

00:02:48.560 | 50% of new homes had no air conditioning in them.

00:02:51.440 | By 2015, it was just 7%.

00:02:53.600 | In 1973, 40% of all new homes had 1.5 bathrooms or fewer.

00:02:58.600 | That's just 4% of homes today that are new.

00:03:01.160 | In 1973, the median square footage of a house

00:03:04.720 | was 1,500 square feet.

00:03:06.240 | Today, it's 2,500 square feet.

00:03:08.600 | - So our standards are going up.

00:03:10.000 | - Yes.

00:03:10.840 | - We need more space. - Standards are going up.

00:03:11.680 | So if you wanna know one of the reasons houses

00:03:13.560 | are more expensive is because they're bigger

00:03:14.760 | and better these days.

00:03:16.200 | Obviously, then it's not everything.

00:03:17.040 | - You gotta have room for that Peloton, you know?

00:03:19.360 | - Yes.

00:03:20.440 | Yeah.

00:03:21.280 | And by the way, moving one of those is a beast.

00:03:23.200 | They are very heavy.

00:03:24.600 | - Oh, I didn't realize that.

00:03:25.840 | - I got mine delivered in April, I think, of 2020.

00:03:29.960 | The pandemic was starting and they were like,

00:03:31.040 | "Here, we're putting it next to your garage

00:03:32.560 | "and we're out of here."

00:03:33.680 | It's like, "We don't want anything."

00:03:34.520 | Otherwise, they used to put it in.

00:03:36.240 | So me and my wife had to carry it down to our basement.

00:03:39.080 | It was very heavy and awkward, not easy.

00:03:41.560 | All right, here's one for you.

00:03:43.120 | 2004 to 2006, the height of the housing bubble, right?

00:03:46.120 | The subprime mortgage lending.

00:03:47.880 | Roughly one quarter of all mortgage originations

00:03:50.320 | had credit scores of 659 or less.

00:03:52.080 | So not great credit scores.

00:03:53.280 | You know, I like to keep that credit score up.

00:03:56.320 | From 2019 to 2021, just 6% had that.

00:03:59.560 | So that subprime thing is completely gone.

00:04:01.800 | So that's one of the scarier aspects of this

00:04:03.560 | if you're a first-time home buyer.

00:04:05.080 | The fact that people's finances,

00:04:06.480 | it's not like they've been going crazy.

00:04:07.440 | People who are getting mortgages are doing so

00:04:11.080 | with good credit scores and good finances.

00:04:13.240 | So their finances are in good shape.

00:04:14.240 | So it's not like you can hope for all these people

00:04:16.400 | to all of a sudden foreclose on their house or something.

00:04:19.080 | Like people who are buying houses have the means to do so.

00:04:22.240 | Finally, here's one that kind of blew my mind.

00:04:24.200 | The housing market bottomed in 2012

00:04:27.280 | from the great financial crisis, blow up all that stuff,

00:04:30.160 | the housing bubble that popped last time.

00:04:32.440 | At that point, people had $6 trillion of equity

00:04:34.560 | in their home.

00:04:35.520 | Right now, people have $26 trillion of equity

00:04:37.800 | in their house.

00:04:38.640 | We've added $20 trillion of equity

00:04:40.560 | in about 10 years, basically.

00:04:42.040 | Just a massive amount of wealth.

00:04:43.840 | - It's a good time to be a homeowner.

00:04:46.000 | - Yes, a good time to be a homeowner.

00:04:47.160 | And the thing is, that actually builds wealth

00:04:49.080 | for the middle class too,

00:04:49.960 | which that's their main source of wealth for a lot of them,

00:04:52.480 | which is crazy.

00:04:53.320 | So all right, that's Ben's five crazy facts about housing.

00:04:56.000 | Maybe we could have done a little graphic or something.

00:04:59.240 | - We could have done a graphic with sound effects

00:05:00.680 | and stuff, yeah.

00:05:01.520 | - All right, next time.

00:05:02.340 | Let's get to a question on housing here.

00:05:03.480 | - Okay.

00:05:05.080 | So first up, we have what percentage

00:05:07.600 | of a first-time homebuyer's net worth

00:05:09.520 | should they put down on their first real estate purchase?

00:05:12.160 | Do you advise buying property before getting,

00:05:14.080 | hold on, so it's kind of two very different parts.

00:05:17.160 | So the second part is, do you advise buying property

00:05:20.160 | before getting married to hedge against

00:05:21.940 | the unintended event that you could get a divorce

00:05:24.560 | in the future and you want to be able to stay

00:05:26.240 | in the property you've owned since before marriage?

00:05:29.040 | So a real romantic one.

00:05:30.760 | - First of all, if you do do that second part,

00:05:33.600 | don't tell your future spouse that you bought the house

00:05:37.080 | in the event of them.

00:05:38.320 | I'll get to that one in a minute.

00:05:40.020 | I would say, first of all, with that part,

00:05:43.360 | I don't know that you'd, I mean, sure,

00:05:44.760 | if you want to buy it for investment property,

00:05:46.560 | but buying a house and then potentially having

00:05:49.440 | your future spouse not like it,

00:05:50.820 | that could lead to problems down the road.

00:05:52.320 | So I would say, if you're trying to get ahead of that,

00:05:54.700 | and if that's your thought process going in,

00:05:56.520 | you're probably gonna get divorced anyway, I think.

00:05:58.440 | I don't know.

00:05:59.280 | - I feel like you're starting off on a bad note.

00:06:01.320 | - Yeah, that's your Great Depression there,

00:06:03.680 | because when you get divorced,

00:06:04.560 | you lose half of your net worth, so.

00:06:06.080 | All right, so there's this personal finance rule.

00:06:08.440 | I don't know who came up with it.

00:06:09.280 | It's called the 50/30/20 rule.

00:06:10.960 | And it basically states you spend 50% of your money

00:06:13.600 | on necessities, this is your budget,

00:06:14.940 | housing, transportation, healthcare, food, et cetera.

00:06:17.440 | 30% on wants, so that's dining out,

00:06:19.120 | travel, entertainment, clothes, et cetera.

00:06:21.680 | 20% on savings, so that's retirement,

00:06:23.440 | emergencies, debt repayment, that sort of thing.

00:06:26.160 | Obviously, these can vary based on where you live.

00:06:29.300 | Some people might not pay as much on transportation

00:06:31.200 | if they live in a big city and don't have a car.

00:06:32.960 | Then you're probably paying more for rent or housing,

00:06:34.800 | that sort of thing, but those are the general guidelines.

00:06:38.380 | I don't know if you necessarily need to look at it

00:06:40.120 | in terms of net worth, like I have a certain net worth,

00:06:42.360 | what percentage should my house be?

00:06:43.600 | 'Cause especially when you're first starting out,

00:06:44.840 | your net worth is probably gonna be relatively low.

00:06:46.800 | I think you think about it in terms of

00:06:48.080 | can I service this debt, can I handle the property taxes

00:06:52.080 | and insurance on it, and can I handle the maintenance

00:06:54.520 | that's involved in a house?

00:06:56.080 | You also, one of the things I did,

00:06:57.080 | I moved from an apartment when I first got a house.

00:07:00.080 | One of the things I never realized

00:07:00.920 | is you have to buy a lot of crap for a house.

00:07:03.120 | All the lawn care stuff, shovels and rakes

00:07:05.720 | and wheelbarrows and ladders and all this stuff

00:07:07.880 | that you don't need when you have an apartment.

00:07:09.260 | You have to furnish all the rooms.

00:07:10.460 | We took our time to do that,

00:07:11.600 | but you have all these different bedrooms

00:07:12.840 | and you have to buy sheets and towels and all these things.

00:07:15.280 | Owning a house is expensive, so can you handle all that?

00:07:18.080 | I also think how long do you plan on living in the home?

00:07:21.160 | I'd say a minimum five to seven years,

00:07:22.720 | because otherwise you pay realtor fees when you move in,

00:07:26.080 | you pay closing costs, you're paying insurance,

00:07:28.400 | so my rule of thumb is kind of,

00:07:30.880 | I tell people don't buy a starter home.

00:07:33.460 | That may have looked like bad advice the past few years

00:07:36.240 | 'cause you bought one, you got a ton of equity in it,

00:07:38.160 | but let's say you have a $350,000 mortgage

00:07:41.360 | at a 4% interest rate.

00:07:42.920 | In the first three years of that loan,

00:07:45.040 | 2/3 of your monthly payments are gonna go to interest

00:07:47.400 | and only 1/3 is going to principal,

00:07:48.640 | so you're not really building much equity

00:07:50.060 | in terms of your payments.

00:07:51.160 | So if you're living in a house for a couple years,

00:07:53.000 | so my whole thing is make sure you live there

00:07:55.040 | a minimum of five to seven years.

00:07:56.440 | And then I think you have to figure out

00:07:57.520 | how comfortable you are,

00:07:59.440 | like how much you're comfortable spending,

00:08:00.520 | because if you go to a lender,

00:08:01.480 | and I would advise on at least talking to a couple lenders,

00:08:05.020 | to see what they're willing to give you, right?

00:08:07.320 | Because they might give you a range.

00:08:08.320 | We can go to this high and start at this level.

00:08:10.880 | You have to figure out like,

00:08:12.000 | do I want my housing to be 50 or 60% of my cost?

00:08:15.400 | Or can I settle on a house that's much cheaper?

00:08:18.320 | Obviously, right now, it's gonna be hard

00:08:20.360 | to have a choice in the matter,

00:08:21.720 | but I don't think you think of it in terms of net worth.

00:08:23.760 | I think you would think in terms of,

00:08:25.200 | is this a debt I'm willing to service,

00:08:27.120 | and maybe can my income grow to meet that debt

00:08:30.280 | in the coming years?

00:08:31.200 | 'Cause I think that's one of the great parts

00:08:32.840 | about a fixed rate mortgage

00:08:33.960 | is that technically you can grow into it over time.

00:08:37.160 | - Do you think, is it a flawed assumption?

00:08:39.000 | I feel like a lot of people think,

00:08:41.200 | oh, I can't get more than I will be comfortable

00:08:45.000 | with paying back.

00:08:46.760 | Is that like a false premise to base your home buying off?

00:08:51.760 | - I don't know, because I mean,

00:08:53.880 | how many people really live in their home for 30 years

00:08:56.240 | and pay it off?

00:08:57.080 | And how many people end up refinancing

00:08:58.640 | and extending that loan?

00:08:59.840 | And I think there's, so a lot right now,

00:09:02.160 | the biggest worry is,

00:09:03.400 | mortgage rates are getting back to like 5%,

00:09:05.160 | which does seem worrisome,

00:09:06.240 | especially with housing prices so high.

00:09:07.720 | Your monthly payment is gonna be way higher.

00:09:10.120 | I mean, are we gonna see 3% mortgage rates again

00:09:11.920 | in three or four years after the Fed lowers rates

00:09:13.840 | and we go into a recession?

00:09:15.240 | Probably, I mean, I don't wanna like,

00:09:18.640 | don't quote me on this, but--

00:09:19.480 | - Is that a call?

00:09:20.400 | Should we timestamp that?

00:09:21.800 | - I mean, guess what?

00:09:23.120 | Do you really think the government's gonna be allowed

00:09:25.840 | to relieve rates at 5% or 6% for an extended period of time?

00:09:28.120 | I would be shocked if mortgage rates

00:09:29.720 | aren't at 3% again in the future.

00:09:30.960 | So I think it's something you can,

00:09:32.620 | I mean, people in the '80s,

00:09:33.580 | my dad's first mortgage was like 12 or 13%,

00:09:36.980 | and then they refinanced all the way down.

00:09:38.820 | So yeah, think of it in terms of long-term,

00:09:42.080 | but I think if you're thinking 30 years,

00:09:43.940 | it's, for most people, that's probably unrealistic.

00:09:46.500 | - Cool, good advice there.

00:09:50.180 | - Let's do another one.

00:09:51.020 | - And yeah, one that,

00:09:52.220 | people have commented on Animal Spirits recently

00:09:54.260 | that you guys are really depressing them

00:09:55.620 | about like their home ownership prospects.

00:09:57.500 | - I really feel for people because it's luck.

00:10:00.220 | Like if you would have started your housing hunt

00:10:02.660 | 24 months ago and got a house,

00:10:03.980 | you're doing in fantastic,

00:10:05.460 | you're in a fantastic position financially.

00:10:07.340 | If you're starting now, you're in a world of pain.

00:10:09.900 | - Right.

00:10:11.440 | Okay, so up next we have a question from,

00:10:16.440 | oh, I don't see a name.

00:10:17.780 | Okay, so I'm 35-year-old, about to have my first child,

00:10:21.260 | born and raised around Grand Rapids,

00:10:22.980 | and I moved to Boise after grad school 10 years ago,

00:10:26.340 | bought a small house in a desirable neighborhood

00:10:28.340 | shortly thereafter.

00:10:29.720 | The Boise housing market has boomed.

00:10:31.420 | I've been slowly purchasing real estate

00:10:33.660 | and have two cashflow properties in Michigan,

00:10:36.060 | as well as two in the Boise area.

00:10:37.900 | I would love to continue to invest in rentals

00:10:40.080 | or venture out into something bigger like storage units

00:10:42.380 | or apartment complexes in the future.

00:10:44.660 | I'm currently close to closing on a cash out refinance

00:10:47.640 | on my personal home, and this brings me to my question.

00:10:50.460 | This is a really long one, so we had to do a two-part.

00:10:52.660 | I owe just north of $100,000, bought for 176,000 in 2012,

00:10:57.540 | and my appraisal came in at $822,000.

00:11:00.340 | So, 4.5 times their money,

00:11:04.160 | which allows me to acquire up to $375,000 in cash

00:11:08.100 | at 60% LTV with the idea to reinvest

00:11:11.980 | the vast majority of the cash.

00:11:13.780 | Our incomes have increased enough

00:11:15.520 | that the increase in mortgage payment is not an issue.

00:11:18.220 | I feel that I'm on track for my goal of retiring early,

00:11:20.860 | hopefully in my 50s.

00:11:22.380 | What would you recommend putting that money into?

00:11:24.780 | I will certainly be funding a 529 with some of it,

00:11:27.100 | as well as continuing to look at local real estate,

00:11:29.720 | but don't want to waste this very unique opportunity.

00:11:32.520 | I have to be honest, I have no idea

00:11:33.820 | like what's in that stuff, is LTV, that kind of stuff.

00:11:35.860 | - Okay, LTV is loan to value, basically,

00:11:38.620 | because he has so much equity in his home.

00:11:41.040 | So, this guy's in a very good place financially

00:11:42.940 | for a mid-30s person.

00:11:44.340 | I'm guessing that's because of his West Michigan upbringing.

00:11:46.420 | He grew up in a flyover state,

00:11:47.660 | so he's doing pretty well for himself.

00:11:49.520 | Listen, we get a lot of questions like this

00:11:52.140 | from people saying, "Hey, I have $5,000 or $10,000

00:11:54.660 | "or $100,000 or something bigger

00:11:56.480 | "because of home equity or inheritance or something.

00:11:59.080 | "What do I do with it?

00:11:59.920 | "I have no idea what to do with it."

00:12:01.660 | I want to start this with a story,

00:12:03.760 | and I pulled this story from my book,

00:12:06.420 | "Organizational Alpha," which is a book I wrote

00:12:08.260 | for foundations and endowments people,

00:12:09.660 | so no one really read it, actually,

00:12:11.740 | besides those foundations and endowment dorks,

00:12:13.380 | so I feel like I can talk it

00:12:14.900 | because no one actually read that book.

00:12:17.100 | Went into a meeting a number of years ago

00:12:18.300 | with an institutional consultant,

00:12:19.340 | and he was kind of a heavy hitter,

00:12:20.580 | and he started off the meeting bragging

00:12:23.020 | about all his contacts in the industry

00:12:24.420 | and all these really heavy hitter investors

00:12:26.500 | he's worked with.

00:12:27.980 | Side note, the kicker was one of his biggest clients

00:12:31.000 | was Fred Wilpon, the former owner of the Mets,

00:12:33.240 | who, guess who he invested money with?

00:12:35.560 | Bernie Madoff, of all people.

00:12:37.640 | - That's rough. - Anyway,

00:12:38.480 | this guy walks in, and before he even asks us any questions,

00:12:40.760 | he says, "Listen, you need 15% of your portfolio in timber,

00:12:43.980 | "and how are we talking on the mezzanine private market,

00:12:48.120 | "middle market private equity,

00:12:49.660 | "and lower your allocation to LBOs,

00:12:52.280 | "and what's your hedge fund manager?

00:12:53.320 | "We can get you, and how long is it gonna take you

00:12:55.180 | "to move your entire portfolio with us,

00:12:56.480 | "and here's what you need to do."

00:12:57.600 | And we were blown away,

00:12:58.440 | 'cause the guy didn't ask us one question

00:12:59.920 | about our organization, our time horizon, our risk profile,

00:13:02.780 | nothing about our goals, any of that.

00:13:04.880 | And that's kind of the thinking here,

00:13:07.480 | is that you need an investment policy

00:13:10.360 | to understand what to do

00:13:11.220 | with any sort of new money you're thinking about, right?

00:13:14.040 | 'Cause I think there's plenty

00:13:14.880 | of wonderful investment opportunities out there,

00:13:17.240 | but they might not be right for you

00:13:18.720 | because of your personality, or you don't understand them,

00:13:21.680 | or you simply don't have the stomach to invest in them,

00:13:23.700 | or they just don't fit with your investment plan.

00:13:25.180 | So, and there's nothing wrong with that.

00:13:26.620 | You don't have to invest in everything.

00:13:28.160 | But I think most of the time,

00:13:29.380 | the stuff that you say no to is gonna have

00:13:31.440 | a far greater impact on your performance

00:13:32.280 | than the stuff you invest in.

00:13:33.760 | But the boring answer here is

00:13:34.740 | you need an investment policy, right?

00:13:37.280 | So, Charlie Ellis, who wrote the famous book

00:13:42.280 | about avoiding investment mistakes,

00:13:45.120 | I've mentioned it before, he said,

00:13:45.960 | "Investment policy does not enjoy much popularity.

00:13:48.060 | "Almost everyone agrees it is a good thing,

00:13:49.640 | "but almost no one does anything about it."

00:13:51.200 | Basically, why are you investing in the first place, right?

00:13:54.280 | How can you align what you're investing in

00:13:56.660 | with your stated goals?

00:13:57.820 | Like, how are you gonna measure success in your investments?

00:14:00.560 | What are you gonna benchmark it to?

00:14:02.020 | What's your risk profile and time horizon?

00:14:04.300 | You know, what do you own and why do you own it?

00:14:05.900 | Like, these are the things you have to ask yourself,

00:14:07.500 | and it's really boring to do all this heavy lifting up front

00:14:09.980 | and understand that stuff,

00:14:11.460 | but if you just have a pile of money and you say,

00:14:12.860 | "I just wanna make some money with it,"

00:14:14.100 | or, "I wanna do something interesting with it,"

00:14:15.180 | like, that's fine, but if there's no overarching plan

00:14:19.140 | in place, then no one's gonna be able to help you.

00:14:21.300 | If you can't tie your money to your goals,

00:14:23.280 | it's impossible to offer advice.

00:14:24.940 | So I think that's the first step,

00:14:25.920 | is having some sort of investment policy,

00:14:28.460 | and if you don't have that or can't figure it out yourself,

00:14:30.540 | you're gonna have to probably find a professional

00:14:32.940 | to help you work through those goals

00:14:34.620 | and understand what you can invest in.

00:14:36.380 | - With the real estate stuff, too,

00:14:38.660 | we've gotten a lot of questions over the years about this,

00:14:40.900 | where it's like, why would you buy an actual property

00:14:44.300 | as opposed to a REIT or private REITs

00:14:46.900 | versus publicly traded REITs, all that kind of stuff.

00:14:49.580 | So it seems like with real estate, it's a little confusing

00:14:52.220 | 'cause there are so many ways that you can get exposure

00:14:55.260 | with varying levels of--

00:14:57.260 | - Yeah, this person has some rentals.

00:14:58.620 | I think the fact that they know what that entails

00:15:00.740 | probably helps a little bit to think.

00:15:02.900 | That's fine.

00:15:03.740 | There's many different paths you can take as an investor.

00:15:06.100 | If this person's whole investment philosophy

00:15:08.260 | is based on real estate

00:15:09.100 | and that's what they wanna do more of,

00:15:10.020 | that's great as long as they know

00:15:10.940 | what they're getting themselves into,

00:15:11.820 | and obviously they do if they already have

00:15:13.220 | a handful of rentals.

00:15:14.060 | The problem is if you've never done it before,

00:15:16.140 | then you get into it, that can be tricky

00:15:18.380 | because it's not as easy as it sounds.

00:15:20.300 | - Granted, owning an apartment complex

00:15:22.340 | sounds like a lot more work than just a single unit place.

00:15:26.140 | - Yeah, but obviously the ability to raise rent these days

00:15:29.620 | is probably looking pretty attractive to some people.

00:15:31.220 | - True, true.

00:15:32.060 | - All right, let's do another one.

00:15:32.900 | - Okay, so up next, question three is a question from John

00:15:35.980 | who writes, "I'm 22 and have been an investor

00:15:38.320 | "for four years now.

00:15:39.640 | "Having just started my career,

00:15:40.720 | "I'm beginning to build wealth steadily,

00:15:42.380 | "but I know little to nothing about taxes or tax law

00:15:44.960 | "as it pertains to being an investor.

00:15:47.020 | "How would you direct young, beginner investors

00:15:49.200 | "to start worrying about tax law?

00:15:50.960 | "Do you have any big tax-related mistakes you've made

00:15:53.340 | "or that you've seen too many people make?"

00:15:55.940 | - Look at John, starting out at age 18, that's impressive.

00:15:58.500 | - Yeah, yeah.

00:15:59.700 | - That's good to see these young people.

00:16:01.060 | Well, let's bring in my personal tax advisor.

00:16:03.220 | He's been on the show a number of times, Bill Sweet.

00:16:05.380 | I think he's our-- - The tax man.

00:16:06.300 | - He's our number one guest here, I think, right?

00:16:08.500 | He's like the Ed McMahon.

00:16:10.100 | - Yeah, yeah.

00:16:10.940 | - If Duncan's the Ed McMahon, no one's gonna get that.

00:16:12.220 | - Lately, I've felt like the second Bill.

00:16:14.100 | It's hurting a little.

00:16:15.980 | - I've joked that at some point we're gonna license

00:16:17.980 | the Beatles song and have that play

00:16:19.420 | whenever Bill joins us, the tax man.

00:16:22.460 | - So, Bill, what's the low-hanging fruit here?

00:16:24.300 | My first thought is just take advantage

00:16:26.560 | of tax-deferred retirement accounts.

00:16:27.720 | Is that the simplest thing a young person can do

00:16:29.700 | and think about taxes?

00:16:31.120 | - Yeah, that is simple, but first I wanna address

00:16:33.180 | the elephant in the room, and that is this Midwest bias.

00:16:36.420 | Grand Rapids, Boise.

00:16:38.420 | Duncan, I feel like Ben's just looking down on us

00:16:40.660 | from his ivory tower in Grand Rapids

00:16:42.540 | at us hardworking New Yorkers.

00:16:44.300 | - Hey, these questions come straight from the viewers.

00:16:45.960 | I have nothing to do with it.

00:16:46.900 | My hands are tied here.

00:16:48.020 | - But no, but for listener John, good for you, John.

00:16:52.580 | That is great.

00:16:53.420 | Most people, like we've talked about before,

00:16:55.660 | they hate paying taxes more than they like making money,

00:16:58.620 | and so for me, the first step to getting help with tax

00:17:02.100 | is admitting you have a tax problem,

00:17:03.780 | and if you're a U.S. taxpayer, we all do.

00:17:06.160 | So for me, Ben, and jump in, please, if you disagree,

00:17:09.620 | but I think the gateway drug is doing your own tax return.

00:17:13.580 | That is something I think every U.S. taxpayer

00:17:16.580 | should give a try.

00:17:17.900 | It doesn't mean that you have to file it.

00:17:19.660 | I mean, there are plenty of software platforms,

00:17:21.620 | just ask Google, that will help you file a tax return,

00:17:24.860 | and what is their harm in taking the inputs,

00:17:27.480 | taking your W-2, taking your mortgage document,

00:17:29.660 | taking your real estate taxes, taking your HSA docs,

00:17:32.660 | and just tinkering around, take a look.

00:17:34.700 | I would strongly-- - Especially when you're young,

00:17:36.300 | and it's not gonna be that complicated,

00:17:38.220 | depending on your situation.

00:17:39.580 | I think when I got my first job--

00:17:40.420 | - Hey, guys. - It's '15 or '16.

00:17:41.900 | Hey, Michael. - Oh, my God.

00:17:43.460 | - Big fan of the show. - Just wanted

00:17:44.300 | to come say hi.

00:17:45.140 | - Yeah, first time, long time.

00:17:47.380 | - When I was '15 or '16 and got my first job,

00:17:50.100 | my dad wanted me to do this, and he showed me,

00:17:52.220 | and obviously, I had two inputs or something, you know?

00:17:54.540 | I didn't have much, so I think starting it at 22,

00:17:56.460 | you may not have a few more,

00:17:57.460 | but it's probably gonna be pretty easy, so I agree.

00:17:59.700 | Getting to understand that is huge.

00:18:02.420 | - I think that's the way to start,

00:18:03.460 | and you can tinker around with the online platforms, too.

00:18:06.300 | Take $50,000 of tax-qualified dividend income

00:18:09.460 | instead of wages, play around,

00:18:10.980 | see what that does to your income.

00:18:12.460 | Is it a higher or lower tax rate?

00:18:13.900 | It's a great, interesting thing to think about.

00:18:15.900 | What happens if you plug in $12,000 of rental income?

00:18:18.820 | Messing out inputs and then gauging

00:18:20.660 | is a really great way to kind of test it out,

00:18:23.020 | and it really figures out how do you get to know

00:18:25.140 | what's actually on that pay stub

00:18:26.700 | that we all get every two weeks?

00:18:27.980 | Take a look at it.

00:18:28.820 | What is OSDI?

00:18:29.660 | What is SSI?

00:18:30.540 | I can explain these things ad hoc,

00:18:32.380 | but I think, John, if you have that thirst

00:18:34.060 | and you wanna check it out, that's the place where I'd go.

00:18:36.420 | Most importantly, do not file that return

00:18:39.100 | that you just created at a thin air.

00:18:41.700 | - Bill, I can't believe we've been talking about this

00:18:43.740 | for five minutes.

00:18:44.580 | You haven't mentioned that Roth IRA yet.

00:18:45.580 | - Well, I've been trying.

00:18:46.940 | I've been told it's too much.

00:18:48.420 | The listeners can't handle it.

00:18:50.100 | But the listener also asked a couple of big mistakes

00:18:52.780 | that people make.

00:18:53.620 | I just have four that I would avoid at all costs.

00:18:56.220 | Number one is early retirement income distributions.

00:18:59.500 | Do not pay that 10% penalty

00:19:01.580 | from an early IRA, 401(k) distribution.

00:19:04.500 | It's better to have not funded the 401(k)

00:19:06.900 | than to have taken a penalty later on.

00:19:08.420 | - Right, let that money ride.

00:19:09.540 | Don't take it out. - Exactly.

00:19:10.740 | 'Cause that money, set it and forget it.

00:19:12.780 | You're gonna touch it after you're 60.

00:19:14.580 | Secondly, another big mistake people make,

00:19:16.780 | filing a tax extension without making a payment.

00:19:20.180 | Filing an extension extends the time to file.

00:19:22.260 | It does not extend the time to pay.

00:19:24.020 | And so you kind of have to have an okay idea

00:19:26.300 | of what you may owe.

00:19:27.660 | Typically, the most common reason that people extend

00:19:29.780 | is 'cause they owe money.

00:19:30.660 | They don't wanna pay it.

00:19:31.820 | But that to me is a big mistake

00:19:33.540 | because you basically end up increasing,

00:19:34.900 | at least doubling the penalty

00:19:36.220 | that you're gonna end up paying.

00:19:38.100 | Number three-- - What do you pay

00:19:38.940 | for a penalty if you pay your taxes late?

00:19:39.980 | I don't even know that.

00:19:40.820 | I didn't know that. - It depends.

00:19:41.640 | It depends on the amount.

00:19:42.480 | At the worst case scenario, Ben,

00:19:43.900 | a 20% accuracy-related penalty of whatever's due,

00:19:46.620 | and then roughly 5% annualized interest.

00:19:49.260 | - 20% they charge you?

00:19:50.940 | - Yeah, well, for accuracy-related.

00:19:52.580 | - The US government is like the mob.

00:19:54.860 | - It ain't good. (laughs)

00:19:56.660 | - Yeah, that's like Amex level on this.

00:19:58.420 | - I would rather have them break my kneecaps, I think.

00:20:00.460 | - They're not Comcast, which I would argue is actually evil,

00:20:03.460 | but it's not far away. - Oh, yeah, yeah.

00:20:04.860 | - They're more indifferent.

00:20:06.240 | Number three, I think not filing during a bad tax year.

00:20:09.340 | I've seen this a lot where somebody says,

00:20:11.220 | "Hey, I took an IRA distribution,"

00:20:13.020 | and they just ignore it, right?

00:20:14.660 | That's really bad news.

00:20:16.660 | Even if you can't pay the government,

00:20:18.220 | if you just file the tax return,

00:20:19.820 | usually cutting your penalty by like 80%,

00:20:22.500 | and last but not least,

00:20:24.020 | do never, never, never have short-term capital gains.

00:20:26.620 | There are very, very few reasons to have a short-term gain,

00:20:29.720 | and that's on an asset you've held less than a year.

00:20:31.460 | Tax rates are just brutal there, so don't do it.

00:20:33.780 | - Yes, if you're 22, don't become a day trader.

00:20:36.140 | - Amen.

00:20:36.980 | - All right, next question.

00:20:40.260 | Okay, so up next, we have another long one, but a good one.

00:20:44.140 | We are 43 years old and maxing out

00:20:46.340 | our Roth IRA and 401(k) accounts.

00:20:48.640 | House is completely paid off,

00:20:50.300 | we have a good taxable brokerage going,

00:20:54.420 | and 529 plans for both our boys, 11 and seven.

00:20:57.960 | One of the best things we ever did financially

00:20:59.740 | was set up a UTMA, no idea.

00:21:03.060 | - Utma, Utma. - UTMA custodial accounts

00:21:05.960 | for our kids when they were babies.

00:21:07.780 | They have now grown large enough

00:21:08.960 | that I am having to file taxes for them.

00:21:11.860 | Our 11-year-old's account in 2021

00:21:14.140 | had over $5,000 in capital gains from dividends.

00:21:17.420 | They are mostly in mutual funds,

00:21:18.900 | which I now realize

00:21:19.860 | are not the most tax-efficient investment.

00:21:22.780 | How can I maximize the tax efficiency of these accounts

00:21:25.540 | now that they are starting to get big?

00:21:26.940 | Will rebalancing to index funds,

00:21:28.940 | I'm not sure if they mean ETFs specifically,

00:21:30.960 | but will rebalancing to index funds be a taxable event?

00:21:34.240 | Could I maybe transfer to a 529 plan

00:21:36.240 | without tax consequences?

00:21:38.220 | - All right, Duncan, we got another one for you here,

00:21:39.820 | another abbreviation, the UTMA account.

00:21:41.380 | - Yeah, yeah. - All right, Bill,

00:21:42.260 | let's explain first what an UTMA is,

00:21:44.100 | maybe how it differs from a 529

00:21:45.840 | and what some of the tax ramifications are here,

00:21:47.460 | 'cause I've never used an UTMA, actually.

00:21:48.700 | I've used a 529 and funded it,

00:21:50.340 | but I'm not as familiar with the UTMA either.

00:21:52.260 | - Yeah, so UTMA, just the word salad here,

00:21:54.940 | UTMA's a uniform transfer to minors account.

00:21:57.380 | You may also see them referred to as UGMAs

00:21:59.460 | with a G in there, and that just differs on the state.

00:22:01.900 | What is it?

00:22:03.220 | It's an account that you open for your child or grandchild.

00:22:06.540 | The child owns it.

00:22:07.780 | That's the important thing to understand.

00:22:09.660 | But you, the T is you're the trustee.

00:22:12.500 | And so you as the adult, the parent, whoever funded it,

00:22:14.960 | you have control over that account

00:22:16.860 | until the child reaches age of majority,

00:22:18.560 | which is 18 in most states.

00:22:20.740 | So UTMAs are pretty powerful in tax planning,

00:22:24.040 | but they come with a couple of problems.

00:22:25.740 | Let's start with the good.

00:22:27.080 | The good thing is you get $2,000 tax-free.

00:22:29.420 | So that's the nice thing.

00:22:30.520 | And this listener, $5,000, they were over the threshold.

00:22:33.780 | That's no good.

00:22:34.600 | I wanna talk about that in a second.

00:22:35.860 | But basically, you get a $1,000 exemption.

00:22:37.860 | You get $1,000 at the child's rate, usually zero.

00:22:40.060 | Kids typically aren't earning any money.

00:22:42.280 | And so that's the benefit.

00:22:43.220 | - Freeloaders. - But once you go

00:22:44.060 | above that threshold. - Freeloaders.

00:22:45.320 | - Yeah. (laughs)

00:22:46.880 | So start charging them rent.

00:22:48.220 | Once you go above that threshold, things start to get ugly.

00:22:50.580 | And Ben, I think that's probably the reason that you, me,

00:22:52.660 | and I'm guessing Duncan, too, do not have an UTMA,

00:22:55.700 | and we're not given an UTMA

00:22:56.780 | because they're potentially problematic in other ways,

00:22:59.180 | which I wanna get to in a minute.

00:23:00.020 | - So if you get too much money,

00:23:00.900 | and then they become a hassle, basically.

00:23:02.900 | - Yeah, basically.

00:23:04.020 | - I hate having too much money.

00:23:05.620 | (laughs)

00:23:06.440 | These are good problems to have.

00:23:07.280 | So let's not weave too hard.

00:23:09.300 | But a couple of problems.

00:23:10.740 | Number one, I mentioned it before.

00:23:12.180 | When the child is 18, that's their account.

00:23:14.660 | It's no longer yours.

00:23:15.500 | You no longer have custodial access to it.

00:23:17.740 | So if the kid walks into the bank

00:23:19.060 | or walks into custodian and says,

00:23:20.260 | "Hey, I want this money,"

00:23:21.700 | and they drive up to the Canadian border

00:23:23.260 | and they buy a bunch of maple syrup

00:23:24.980 | or whatever you guys do in Grand Rapids these days for fun,

00:23:27.980 | whatever the kids are doing, you can't stop them legally.

00:23:30.620 | I mean, you can yell at them

00:23:31.620 | and you can kick 'em out of your house,

00:23:32.780 | but you can't stop them from doing that legally,

00:23:34.700 | and the bank has to do it.

00:23:35.620 | So that's problem number one.

00:23:37.460 | Problem number two comes in taxes.

00:23:39.260 | Once you go above that $2,050 threshold,

00:23:41.980 | which is not indexed for inflation,

00:23:43.480 | it's been there as long as I'm aware, back to 1986,

00:23:46.300 | then you're stuck paying taxes at your rate,

00:23:48.980 | not the child's rate.

00:23:50.460 | And so until they're actually free and clear

00:23:52.380 | out of your house and free of college,

00:23:54.060 | which can happen all the way out to age 26,

00:23:56.380 | you end up paying the taxes on any gains in that account.

00:23:59.480 | So unless you're willing to hand over that account

00:24:01.840 | to your kid after they're out of your house

00:24:03.740 | and after they're done with college,

00:24:05.300 | you're gonna eat the tax burden.

00:24:07.220 | Last problem with these comes into college and financial aid.

00:24:09.980 | These are the child's assets.

00:24:11.740 | And so when you go to apply for college,

00:24:13.700 | you go to apply for a grant, a needs-based scholarship,

00:24:16.180 | or something like that, the EFC contribution

00:24:18.460 | is 50% of this per year WAD account can be used for college.

00:24:22.100 | So it does kinda screw up some college planning sometimes

00:24:24.420 | if you're looking for aid.

00:24:26.420 | And that's why I think the 529

00:24:27.700 | is just generally a better account

00:24:29.740 | if you can deal with the lack of restrictions.

00:24:32.100 | - So are they gonna be paying a lot of taxes

00:24:33.380 | if they try to roll this over, basically, either way?

00:24:36.460 | - Yeah, that was the question listener asked.

00:24:37.940 | And it's a good question, but ultimately, no,

00:24:39.640 | you cannot directly contribute to a 529 from an outlet.

00:24:42.260 | You gotta pay the tax in order to do that.

00:24:44.700 | I think, basically, the listener,

00:24:46.780 | again, these are good problems to have,

00:24:47.940 | so let's focus on that, but has one of two options.

00:24:50.580 | Number one is they eat the tax in one or two years,

00:24:53.300 | maybe they spread out over a couple of years,

00:24:54.920 | and move the money into a 529.

00:24:56.580 | If the 529 account is used for college,

00:24:58.540 | it generally comes out tax-free.

00:25:00.020 | So that, to me, is a better thing to do.

00:25:02.100 | Bite the bullet now, or take door two,

00:25:04.900 | which is you just leave the assets alone,

00:25:06.700 | and you plan to give these to the kids

00:25:08.660 | once they reach past the age of majority, past college.

00:25:11.660 | And maybe the thing to think about there

00:25:13.140 | is because you really can't rebalance,

00:25:14.740 | if you rebalance within your account,

00:25:16.500 | sounds like this listener had a capital gains distribution

00:25:18.660 | which was not under their control, so that stinks.

00:25:20.860 | They're kinda stuck with that.

00:25:22.140 | But what they can do is, as they add assets

00:25:24.620 | to the account over time, use that cash to rebalance.

00:25:28.240 | So effectively, you're stuck with the assets you have

00:25:30.460 | if you don't wanna pay the tax,

00:25:31.860 | but you just rebalance within the account

00:25:33.220 | with cash going forward.

00:25:35.140 | - All right, I got it.

00:25:36.300 | Sounds very complicated to me.

00:25:37.860 | I'm glad I never used it.

00:25:39.180 | - Yeah, I think there's a reason why.

00:25:41.460 | - All right, we've got a bonus Duncan question.

00:25:43.260 | Did a heap on Slack yesterday.

00:25:44.620 | I said, "Duncan, save it for the show."

00:25:45.980 | - Finally, East Coast bias, let's do it.

00:25:48.940 | - So basically, I just wanted Bill's take on,

00:25:51.620 | and yours, Ben, but especially the taxman's take on HSAs.

00:25:56.280 | I know we've talked about 'em a little bit before.

00:25:58.100 | I still find them confusing.

00:25:59.300 | We still get questions from people

00:26:00.540 | who are confused about them.

00:26:01.700 | Is it a retirement savings vehicle?

00:26:03.300 | Is it a health savings vehicle, truly?

00:26:05.780 | Why do they exist?

00:26:06.620 | I just don't understand.

00:26:07.580 | - I gotta be honest, Bill.

00:26:08.840 | I don't use one, and maybe I should,

00:26:10.360 | but to me, it sounds like a huge pain in the ass.

00:26:12.300 | Am I wrong?

00:26:13.500 | Like, saving the receipts, and to me,

00:26:16.140 | that sounds like a pain in the butt.

00:26:17.420 | Or am I off base here?

00:26:20.020 | - Is it a pain?

00:26:20.860 | Yes, but back to the government is the mob.

00:26:25.220 | You get with an HSA something you don't get

00:26:27.260 | with any other account, and that's triple tax exemption.

00:26:30.660 | So you fund an HSA.

00:26:32.340 | You get a tax deduction for doing that.

00:26:33.980 | Comes from your paycheck.

00:26:34.820 | You don't pay tax on it.

00:26:35.660 | Awesome, right?

00:26:36.500 | So that can be worth up to 40% of the value

00:26:38.900 | for a high-income taxpayer.

00:26:41.080 | Then, if the asset grows,

00:26:43.220 | let's say you invest in the stock market.

00:26:45.060 | It grows, I don't know, 10% a year, 5% a year,

00:26:47.100 | whatever we're doing here these days for math.

00:26:48.940 | Let's say it doubles over 10 years.

00:26:50.440 | All that gain can come out tax-free in the future

00:26:53.160 | if you're using it to pay medical expenses.

00:26:55.480 | So that's the key,

00:26:56.320 | is that you get a tax deduction up front.

00:26:58.200 | You do not have to pay tax on the back end,

00:26:59.940 | kind of like a Roth,

00:27:01.220 | but the triple comes in in the respect

00:27:02.980 | that any gains that develop in that account,

00:27:05.060 | those are tax-free, too.

00:27:06.500 | And so, Ben, you mentioned hoarding receipts.

00:27:08.580 | It's kind of like a neat thing

00:27:09.720 | because when you get your dental work done

00:27:12.300 | or when you get some medical expense,

00:27:14.060 | the year that you take the HSA distribution

00:27:16.140 | doesn't have to be the year that you get the work done,

00:27:18.460 | which is crazy,

00:27:19.300 | and I have no idea why the tax code is written this way,

00:27:21.860 | but that allows you to effectively incur expenses today,

00:27:25.220 | leave the money in the account, let it grow,

00:27:27.100 | and basically use your future gains

00:27:29.380 | to pay for medical expenses in the past tax-free.

00:27:32.140 | It's really wild stuff. - So if Duncan

00:27:33.180 | funds an HSA today and then in 10 years,

00:27:35.640 | he surgically has a hat placed on his head

00:27:37.300 | that can never be taken off.

00:27:38.820 | - I thought that was it, yeah.

00:27:40.660 | - He can use that as his HSA

00:27:43.220 | and use that as a tax break, basically.

00:27:44.380 | - It kind of sounds like "Financial Inception."

00:27:46.500 | I'm just having trouble remembering.

00:27:47.340 | - Yeah, in this wild version of hat surgery, then yes.

00:27:50.940 | So the reason that most people don't know

00:27:52.980 | or use these things is you have to have

00:27:54.540 | what's called a high-deductible healthcare plan.

00:27:56.440 | This isn't universally open.

00:27:58.180 | You have to have what's defined as an HDHP healthcare plan

00:28:01.180 | in order to participate.

00:28:02.500 | But Duncan, you asked, "Are these retirement vehicles?"

00:28:04.740 | Well, yes.

00:28:05.740 | If you happen to not have any medical expenses,

00:28:07.900 | which God bless you if you don't,

00:28:09.940 | if you make it to age 65, I think it is, yeah, 65,

00:28:13.360 | you can take the distributions penalty-free.

00:28:15.500 | And so effectively, you can use this

00:28:16.920 | as kind of like a super IRA,

00:28:18.660 | and it's not just your medical expenses.

00:28:20.320 | It's your spouse's, it's your kid's,

00:28:22.180 | potentially anybody that you're providing for.

00:28:23.900 | It's a very, very powerful thing in the tax code.

00:28:26.260 | I wish that there were higher balances.

00:28:28.280 | You can only do like $6,000 or $7,000 a year,

00:28:30.380 | and I wish this was open to more Americans

00:28:32.060 | 'cause it's a really, really powerful thing.

00:28:34.220 | - So does the reason this exists,

00:28:36.540 | is this essentially a way for companies

00:28:39.200 | to not spend as much on healthcare plans, though?

00:28:42.900 | Is that the idea of the high-deductible plan being?

00:28:46.060 | - Yeah, that's part of it.

00:28:46.980 | I mean, not just companies, but yes,

00:28:48.740 | you can generally get a less expensive plan

00:28:50.740 | on a higher deductible for obvious reasons.

00:28:52.740 | I think if you're kind of a health policy person,

00:28:54.940 | that does make sense.

00:28:55.820 | You probably don't want somebody going to the doctor

00:28:57.720 | for every little silly thing, right?

00:28:59.660 | So that's why these high deductibles do make sense.

00:29:02.140 | But if you're interested in covering catastrophic insurance,

00:29:04.940 | they're really perfect.

00:29:05.900 | If you're relatively healthy,

00:29:07.500 | if you don't have a lot of health concerns,

00:29:09.040 | if you don't expect to, your genes are good,

00:29:11.160 | they're a really powerful thing

00:29:12.300 | because it effectively allows you

00:29:13.180 | to put away $6,000 a year and deduct it fully,

00:29:16.620 | and then use that for some future expense.

00:29:18.420 | They're very powerful things.

00:29:19.540 | - Are you sold, Duncan?

00:29:20.380 | - Like I said, I wish there were--

00:29:21.200 | - I can see the wheels turning there.

00:29:22.260 | - Yeah, no, I mean, this makes sense.

00:29:23.980 | It makes sense.

00:29:24.820 | I mean, I asked the chat,

00:29:26.380 | and so it looks like 36% of the chat has an HSA.

00:29:30.100 | - Wow, that's awesome.

00:29:31.180 | - That's actually higher than I thought.

00:29:32.020 | - Yeah, good for you.

00:29:33.580 | - All right, actually, I saw a few quick questions

00:29:35.700 | from the chat.

00:29:36.540 | Someone asked, "Is the 50/30/20 rule pre-tax?"

00:29:40.780 | I would say it's probably net of taxes.

00:29:42.900 | That's what I would think,

00:29:43.880 | because you're taking anything you have to spend, basically.

00:29:47.340 | Someone else asked--

00:29:48.180 | - Yeah, you don't need pre-tax returns.

00:29:49.140 | - Yeah, someone else asked, "Hey, I just got my mortgage.

00:29:51.920 | "How long do you have to wait until you refinance?"

00:29:55.360 | The rule of thumb is typically 1%,

00:29:57.360 | but you could also basically calculate the break-even

00:30:00.040 | between if you're paying $4,000 in closing costs,

00:30:03.160 | or if you live in New York,

00:30:04.000 | you're paying like $27,000 in closing costs.

00:30:06.880 | How long is it gonna take you on your monthly payment

00:30:08.740 | that you save to break even?

00:30:09.840 | I think the rule of thumb is like,

00:30:11.000 | yeah, if it's less than two or three years,

00:30:12.800 | go ahead and do it.

00:30:14.320 | - I've seen a two-month cycle.

00:30:16.400 | Taxpayer or listener signed up, client signed up.

00:30:19.400 | Two months later, there was a big rate drop,

00:30:21.080 | and they did.

00:30:21.920 | They just went back to the bank and said,

00:30:22.740 | "Hey, can we refinance?"

00:30:23.880 | So they did.

00:30:24.720 | - I'm just saying, 3% mortgage rates

00:30:26.120 | by the end of the decade, timestamp that it's happening.

00:30:29.200 | - Wow, that's a call.

00:30:31.080 | Yeah, I don't know, I don't know.

00:30:33.320 | - That's what I think.

00:30:34.160 | All right, thanks again to Bill.

00:30:36.280 | We wanna mention real quick,

00:30:38.320 | this was great, was some help from Duncan and John.

00:30:41.320 | John is our producer off-camera.

00:30:43.120 | They put together these awesome graphics for us

00:30:45.980 | that they've been in Animal Spirits before for NFTs,

00:30:47.840 | so John, show what they look like here.

00:30:50.360 | Michael and I are minting NFTs,

00:30:53.480 | which I still don't know how it happened.

00:30:55.080 | Luckily, we had someone who knew what they were doing,

00:30:56.540 | did this for us, a company called Audiograph.

00:30:58.760 | Michael and I are selling these for charity.

00:31:01.160 | All the money's going to No Kid Hungry,

00:31:02.680 | so if you haven't heard about this yet,

00:31:04.460 | take a look, check it out.

00:31:05.300 | It's on my website.

00:31:06.120 | All the information is there.

00:31:07.620 | You get access to a Discord channel with us,

00:31:10.360 | and you get all these benefits.

00:31:11.440 | You get to ask us questions.

00:31:12.520 | We answer with videos and all these things,

00:31:14.960 | and we're giving all the money to charity.

00:31:15.800 | - It's off to a great start.

00:31:16.620 | - Yeah, it's off to a great start.

00:31:17.460 | We've already raised like $50,000.

00:31:19.160 | It's 0.1 ETH to do this.

00:31:21.160 | All the money's going to a good cause.

00:31:22.840 | Duncan and John did an awesome job

00:31:24.740 | putting the NFTs together.

00:31:25.640 | They're really hilarious, funny, and really well done,

00:31:28.280 | so take a look at that if you haven't.

00:31:30.600 | Keep those questions and comments coming.

00:31:31.980 | Again, maybe one of these times

00:31:32.820 | we'll do a lightning round.

00:31:35.880 | Thanks again to Bill for his tax expertise.

00:31:38.160 | Thank you to Duncan, as always.

00:31:39.640 | Like his questions as well.

00:31:41.040 | And if you have a question for us,

00:31:41.920 | askthecomboundshow@gmail.com.

00:31:44.080 | Thanks, everyone, in the chat.

00:31:45.080 | I love all the questions and comments,

00:31:46.840 | and we will see you next week.

00:31:48.600 | - Thanks, everyone.

00:31:49.640 | - Portfolio rescue.

00:31:51.940 | (upbeat music)

00:31:54.520 | (upbeat music)

00:31:57.100 | (upbeat music)

00:31:59.680 | (upbeat music)

00:32:02.260 | (upbeat music)

00:32:04.840 | you

What Percentage of My Net Worth Should I Use for a Down Payment? | Portfolio Rescue

Chapters