How to make a Passive income | Buying a second Home & HELOCs | The Real Estate Revoltion | Episode 4

Coming up on this episode of the.

Real Estate Revolution are easily worth entertaining. It's just from a business perspective, as you kind of touched on before the call happened, there are some business needs where we could kind of double dip and have a space where we're not paying an Airbnb and get that. It's important for us to feel like we're at home. And so the idea of having a place in these locations where we go on a frequent basis also gives us that stability of feeling, that feeling that we're after of being at home and. And not going to a new Airbnb every single time.

You are going to be blown away on this episode of the Limitless Podcast, where we're talking about life, real estate, wealth and legacy with Rich and Shelby. This episode is just full of knowledge from somebody that wasn't quite sure where to go, and we're going to get them there because we're talking about second homes. VRBOs. How many houses do they want to own as rentals? What are they doing with the helocopter? There's so much to unpack in this episode. Let's go. Hey. Welcome back to another Limitless Podcast. We're talking about real estate, life, wealth, and legacy. I'm Steve Valentine. Today I've got special guests with me, Rich and Shelby Setnam. I hope I got it right and didn't botch it. They have one of the most unique businesses, which I'm super excited you guys have to look them on. It's called let's not K N O T and say we did. That's where they're on Instagram and. And they do, like, destination crazy weddings for couples, and they curate it. And Shelby's the photographer, Rich is the preacher, does the vows, and he's got a really cool beard, too. So they've got some ideas that they wanted to run past me about the real estate side, and we're going to jump into this. So thank you for joining me and being willing to do this and share kind of your questions so we can hopefully impact some more people.

Thank you for having us.

Yes, absolutely. Well, where do you want to start?

Well, I could start with kind of our current situation and maybe our current as well as our current vision of where we'd like to go.

Okay.

And maybe work on filling in the possible in between scenarios. So Shelby and I bought the. The townhouse we're in now here in Phoenix back in May of 2020.

Perfect timing.

Always perfect timing. So the equity, we easily have a hundred thousand or more in equity in our home. Okay, we currently don't have a HELOC or anything like that, but this is the only home that we own. So with our business, we do travel a lot. And one of those places we travel to pretty extensively is Sedona. And even though it's two hours away, it's one of those things where we're in Sedona all day long. We're probably going to book an Airbnb. Sometimes we do two or three weddings a week in Sedona, and instead of driving back and forth, we just stay up there for the week. And over the last two years, we've spent at least 20,000 a year in Airbnb costs. Kind of building up our portfolio to go to the bank and say, hey, look, we have two years of income. Can we buy a house now? Because we're self employed. So there was like this waiting period of proving our concept that, that we are high earners, that the bank can trust us. We know going the conventional bank route. And so now we're in this position of we have some liquid cash. We have a desire to this. This is where the long term vision comes into play. We'd like a house in Sedona that we could also use as Airbnb property for when we're not there, because it's not somewhere that we see ourselves living full time. We also do weddings in the summertime in Montana and in Colorado, both of those locations. The one in Montana specifically is in Whitefish, which is also a ski resort. So there's the potential of, hey, we're up there for the summer, but the rest of the year it's also being rented out for people who are coming and going to ski. And then in Colorado, it's in southwestern Colorado, in the San Juans. And then Shelby, that one's open, that one's pretty open. And Shelby in her dream portfolio, would like someplace on the ocean, on the ocean for her to escape to for just a pleasure type of vehicle. That's kind of long term. I think in the mix of that is also to have, obviously these are properties that are kind of hybrid, partly for us and partly for Airbnb. You think having properties that are solely long term rentals or even Airbnb properties are easily worth entertaining. It's just from a business perspective, as you kind of touched on before the call happened, there are some business needs where we can kind of double dip and have a space where we're not paying an Airbnb and get that it's important for us to feel like we're at home. And so the idea of having a place in these locations where we go on a frequent basis also gives us that stability of feeling, that feeling that we're after of being at home and, and not going to a new Airbnb every single time. So that's the predicament we're in now. Do we get a heloc? Do we, like, I don't know what order to do things and we've never been in this position and so, yeah, that's awesome.

No, I love all the goals and the different destinations and what it can be utilized for. And we're going to talk about in a second when we start talking about the equity in your primary is, you know, the first place I always recommend people is let's set up. You know, we certainly don't want to refinance it because the rates are too high right now. Right. We don't want to touch that, that good mortgage payment. But what we do want to do is be prepared for opportunity when it happens. Right. So you would hate it if I called you tomorrow and said, hey, Shelby Rich, I've got this off market deal in Sedona. Like, we need to jump on this. You're like, oh, we don't have our heloc. We really don't have the money. Like, how do we. Not that I can't help figure that out. But my point is we want to be prepared for the things that are coming up and have some of those goals to drive, you know, from one place to the next. And so there's going to be stages in this that are going to be really critical that we kind of follow. Some of it's going to have some business practices and then some of it's going to have some of the financing things. So step one is if you have a primary residence, we want to get a home equity line structured on it now, Right. So that it's there. It doesn't cost you anything to use it. It's, it's meant to be there to use as a, as, you know, swap of equity. Some people do home equity lines and they pay off their credit cards and all this other stuff. That's not what it's there for. It's so that we can move equity from one house to the next, keeping our real estate whole and being able to double down on our properties or, you know, more importantly, you know, continue to make it work for us in that nature. Right. So you always have to be careful with HELOCs, though, because their Interest rates are floating, you know, with the prime. So as they're a little bit above prime. So as they're going they're getting more expensive. I think the last time I looked at my heloc, it's running at like seven or seven and a half percent. So while it's expensive money from the interest standpoint, it's still easier than using all of your liquid cash. Right. If you only have enough liquid cash and that's what we have in reserves, I'd rather use the equity line. And plus the way it is going to be structured is it's basically being lent from you as a person to this business entity in order to recapture the money and make it a write off and an expense. Okay. So there are certain structures we'll go into more in detail but that's kind of, you know where we would start with that plan is like the first step is the home equity line. The second step is to really talk about Sedona seems to be the priority.

Okay.

So I always ask people, you have a little bit different use, although it's going to be very similar. So you know, the second home that we own in Munds park was the first one that we bought. We partially VRBO and we partially used just like what you guys wanted. Right. Which was great because we got to test it out. We kept our personal stuff there and then it was rented out to cover expenses. Right. So we have to kind of think and look at in Sedona. There's definitely some rules, regulations and we want to make sure that where we're buying is, is going to allow for the VRBO type space. Right. That is the first and most important thing. The second thing is looking at like what is it going to cost us. So because of what you guys are doing, we will, the next step is going to be, hey, let's talk to a lender. I know that you said you guys are about two years into your business side of things, right. As far as income.

So income wise, the first year was 2019 and which we filed in 2020 and it was, it was part time work, it was like $6,000. Like it was very little. The next year was like $19,000. And then when we started doing packages it went from like 19 to 280,000 and the bank was like, whoa, you did this for a year, that's fantastic. But we're taking two years of income and so they average it out and they're like, it's be, it would be worth your while to wait. And, and so we took that advice and we're like, okay, well, so now we've waited a year and now the iron is hot and we're ready to like, okay, good things.

Okay, that's amazing. So one question, because you guys are self employed and I don't know if anybody has given you this advice. Are you guys structured to where you're a sub s corporation to where you're getting payroll, or are you guys strictly self employed?

Yeah, we're an escort.

Okay, good, Perfect. Then we don't have to go any further than that. I'll do a little disclaimer. I'm not a CPA attorney or any of that other stuff. Right. So do your own due diligence. But if you're self employed out there, you need to find somebody and talk to somebody about the tax structure because IRS taking a lot of your money. So, okay, so you're coming up on 2023. So you're getting ready to file 2022 taxes, which is going to give you.

The two years they're like being filed today. CPA is like, you'll have them by the end of the week.

So, okay, so next step is. Because this is kind of the backwards thing that some people do. Do you guys have an idea? My guess is you guys have been looking at properties in Sedona and you've been doing the Zillow hunt and you have some sort of idea of budget or type of house that you want to potentially purchase. Do you have that?

Yeah, I think we might have two different visions.

Okay.

I think because the house that you were really wanting was. It was closer to the million dollar mark.

It was like 1.1 and then now it's a jumbo.

And for me, I think our like, as we're building up investments and this is why we're talking to you. It's like for me, maybe we don't go to the jumbo loan. Maybe we stay under 750 to just get something that we can Airbnb out and make, make us some type of income and then we go into the next property where it's more in the millions.

I think we're in the same. I think we're on the same page with that. I think realistically, because of the jumbo aspect, just the liquidity is not there. So, like, we're probably looking between 5 and 700,000. And it seems like somewhere in that 700,000 is probably where we're going to land, where it could easily be seen as a secondary home and not as an investment property. From the stance of like we're in a two bedroom, two bath townhouse. So like a two, it's, it's the same like swap from a living standpoint, anything less than that, you're fine. It's like a one bedroom, one bath and that's gonna be two.

So you're, you're on the right track. So let's just go through the financing aspect a little bit. The, the guidance that I would have for a couple of different reasons is that again, we've experienced it. So you need to experience it first where you get into something smaller, knowing that, hey, maybe we want to build into something bigger and we can keep that one as a full time VRBO and we're done with it, right. So we kind of take baby steps. We did the same thing in Muns Park. We bought our first one. We used it part time. It was a little bit smaller than we wanted, but it got us in the door. And then we bought the bigger house and we kept that one as a vrbo and now we keep this one, you know, as our primary. That nobody, we don't rent at all. Now we just loan it out to friends and family. So it's a fun way to be a blessing to people at the end of the day. And on your financing end as well is that when you get to that jumbo range, right. We're probably talking about 20% down, which might eat up more than the equity or the cash that you guys have. But it doesn't mean we don't want to explore the options because there's also some jumbo loans out there that combine a first and second where it's still a 90% financing. And you are going to be buying this as a second home for your financing. You're not going to be buying as an investment. And here's the reason why. Your rate's going to be a little bit lower and you're going to have less down payment as a second home when it comes down to it. So you're still going to do those things. And that next step is going to be once those taxes are filed, we want to. I'll connect you with our lender and we'll go through that process of here's what we're doing. We want to get that budget set. So they're going to be looking at, you know, what is our payment going to look like based on the current rates, do we need to do something creative on it? And then we're going to get what is going to fit. So the lender typically is going to take you to the max qualification and then we can go, well, we either want to max this out or we want to dumb it down or we want to start down here and work our way up, let's see what's down here and what works and then kind of move our way up and make find that happy medium when it comes down to structuring it from that standpoint.

Okay.

One of the reasons I say all that about the VRBO is you have obviously stayed in VRBOs and so have I and I've also owned them. With what you do, VRBOs can be a little bit of work. A lot of people, which I will send you this link. I just did a VRBO webinar of the good, the bad and the ugly. Right. What a lot of people think is making a lot of money is not making a lot of money. But there is a business aspect for you guys. This process which I'm going to walk you through it, this is where it gets super creative and it's really fun and you're like, wait, that's really cool. Okay, so I will share with you the strategy on this. So when you guys buy this as a personal asset and you are using it for your business because you guys are going up there, you're staying and those types of things, your business is going to rent a portion of that property from you on a monthly basis. What that does is it's taking income out of the company and paying down a personal asset. Because a second home is not a write off in any form of taxes at all. You don't get to depreciate it, you don't get to do anything on. It's just straight up expenses. The house we're going to buy, even though it's going to be a second home, you're partially going to be using it as a second home because you're going to be owner occupying it. Right. But you're also going to have the ability to structure as a rental property and this is going to be important for our future. And here's what it is, is that let's say you guys use it for two weeks a month or two. Yeah, two weeks a month. And you rent it out two weeks a month. The business is going to pay the other portion as rent to you guys to the LLC that we structure for that rental property and the clientele, whoever you rent it to is also going to be paying a portion in. So what it does is we want to make that kind of a break even asset that you can get money out of the company, which you now have an expense and you're not paying taxes on that income. But what it's doing is it's helping you pay down a personal asset. Are you guys following me on this?

Yeah.

This, this is where it gets fun and complicated. And this, this is what I have done with my CPA's approval. And she's a monster. She's like, I will let you take it all the way to the line, but I'm not going to let you walk over it. So we have done it. You know, our, our companies lease our primary second home from us because we do a lot of business, we entertain, we give it to friends and family and, and it's completely legitimate to do that. Now let's just take a fast forward step. In a couple of years, let's say all of a sudden you want to sell that house because you found a bigger one and you don't want to keep that one because it's a rental property. We now can do a 1031 tax free exchange where we're not paying capital gains tax on the sale of it. If it was only a second home, and that was classified. There's no way out of, or no way to do a 1031 exchange on a second home. But because it's a rental, we can push it out and move the property and its gains from one place to another without paying capital gains tax on it. So that's why we want to structure it this way. I did this for another client in Hawaii where he hasn't pulled the trigger on it yet, but we had to go back. And I told him you need to wait a year and you need to keep this as a rental for a year because you're going to have a million dollar tax liability if you don't do it this way. So now he can sell it and 1031 exchange all of his profits into other properties and pull cash out. But $1 million is an entire property or multiple properties just by that one year. So he's better off doing it that way. So some of what we're doing is not just for now. We're looking towards the future of how we want to structure it.

Right, okay.

And you guys have some other structures and other ventures that you want to do because it might take a couple of 1031 exchange to get to the ocean.

Shelby, that's okay.

Just so we know that. So when we look at that process, that's kind of what it looks like. Now let's talk about the property is, you're familiar with it, you're educated on the VRBOs in Sedona. You're educated with the area. So you know all the different things. So now we want to pick those areas and make sure that, you know, we can vrvo, we can do those things. And what we're truly looking at, that's going to make the most sense income wise. Because now, you know, you guys had the expense of, you know, last year you said you spent about $20,000 on VRBOs and Sedona. Well, now just imagine, yes, it was probably an expense for your business, but now imagine it being an expense for your business, but it's paying off an asset. Right. So that's, that's, that's kind of the nice part. And when you're structuring it, you may not have to take as much money out of the business for the rental if it's being rented more often. Right. So you kind of have a variable lease. Some months you might rent it for $3,000 a month, and other months you might rent it for $1,000 a month, depending on the income that's coming in from the rental side.

So the business is making a payment to the rental llc.

Yes.

Monthly basis. That's variable based on how frequently it's rented out.

Correct.

Okay.

Because what we want to do is make that asset at the end of the year because we're. When you own rental properties, the goal isn't to be break even. You want a cash flow. Right. But in this particular case, we want to get it to break even. Because if you've got a bunch of rent from clients, there's no point in taking the money out of the business over here and making this cash flow over here.

Right.

Does that make sense? But again, you want to check with your cpa, because maybe it does make sense. Because if taxes are higher in your business on that income and you still pay the same amount of rent no matter what happens over here, and it's creating cash flow, it's passive income, so it may be taxed less by being in the llc.

Okay, just taking notes over here.

No, you're fine. Good news is recorded. You can go back and listen to it 12 times. Okay, now with the VRBO, you guys want to use it. What is the plan for? Is there any other plan with your business to offer it as a package with things, or is that some of the things you're thinking about?

There's definitely that. You know, we also have a vision of having our own venue at some point. Or having a place that can operate as both. Where, like, if we had a big enough place where, because everything's very intimate, like our weddings go up to 20 people, they're most likely going to be in that 10 to 20 person range. So if we had a property that was big enough to even sleep half of those people I know it would get booked. It's because we get asked all the time, hey, what are your favorite Airbnbs in Sedona? And it's like, well, we have one. You can book it, right?

Because they're also wanting to do like, private chef dinners at the Airbnbs. And then they're coming into like, hey, we don't want to offend the Airbnb owners. Like, do. Can we even have a party here? Party. Which is like, right, yeah.

So have somebody cater for you.

So it'd be nice for us to own the. Own the spot for sure.

So here's, here's where we get, you know, again, a little bit in the future where we start to experience. Because once you guys own it, it's kind of like, you know, the thing we were talking about offline that Chris said, well, why aren't you doing wedding Val renewals, right? You're going to see other things in the process. You're like, well, we could be doing this or we could be doing this. So the dream starts to get bigger and then you may look at something which is, again, one of the ways that we got to the point of the bigger house and the first house is we partnered with somebody, right? So you start looking at what can I do with more people or with a silent partner or something of that nature that, hey, do we want to go down this road? I, you know, as far as, like, a bigger place and can it be designed this way? I had a call with a conversation this morning. This is one thing you didn't know about me as we were talking about it before, is that my wife is a general contractor. So she has renovated more than a thousand homes in the Phoenix area, plus up in Munds park. And we're building our secondary home up in Muns right now. But we're also doing, we're renovating a property for a luxury VRBO fund right now where we're putting about $3 million into it, but we are making that specific to the vrbo. And so in your case, we potentially might be dreaming about what specifically can we do as a venue, right, that may not just be used for your purpose, but it's also used for. For other people. So then we get to start dreaming of what the bigger piece is. Right. Because now you have a venue, vrbo, that may sleep more people. It's not always utilized by you, but you probably have more connections in your space of people looking for those types of things.

Oh, yeah, very easily. And I mean, that's one of the. If I had to say the top three questions that we get asked is, where do you recommend we stay? It'd be a no. It'd be a no brainer. Hey, you stay. Stay here. We wouldn't have to include in the package. Just stay here. You book through this site like it would be perfect.

So you know what, what that kind of looks like, Right.

It's.

It's a vertical integration into the current business you already have. Right. Because you're going to have amazing photos that Shelby has taken at these different event spaces and things like that, which now becomes kind of another piece of your business. And it's vertically integrated into everything you're doing. And connection wise.

Yeah, we're. We're wanting to involve more vertical integration versus, like spreading ourselves out. We want to go up short.

Yep. Yeah. It's anything and everything that has to do with what you already do.

Yeah. And the ability, the ability to do this in multiple spots too, like.

Yeah. And then at some point in time, depending on, I mean, these are the first two steps that we talked about is something you could accomplish easily in the next six months to a year, depending on how fast you want to push it. Right. Because I think you're there with your taxes, the equity line, those types of things. The equity line takes about 14 days to set up, so it's pretty painless when it comes down to it. But then you start looking at, okay, so now strategy wise, and this is where you know, my strength and my gift comes in, is, you know, every year we're looking at the strategy, what's next? Right. Because we want to be prepared for it. We don't want to miss the steps. Right. So it's like we get in, we get comfortable. You're comfortable with your vrbo, your bookings, the price, all that other stuff. Maybe your income is going up. And then we're looking at, okay, so what is the next iteration of what we want to do? Is it doing another one here in Sedona? Is it doing one in Colorado? Is it doing one in Montana? And then we start thinking about what that looks like. Right. And the goal for this, for me, when I'm coaching and mentoring and doing these things, I want you to be able to take the conversation that we've had because I guarantee you're not finding me in Montana or in Colorado, but we will connect you with an agent that I can help guide through. But the goal is that you're learning these things so that you can have the conversations and direct it based on the knowledge and the strategy that you're already working towards in this space with the multiple assets.

Right, right.

So it's kind of, everything's integrated and then there's like one more strategy that we slip in there is that, you know, is it okay next year, you know, do we want to keep our. Yes. This. Now, now we're going to switch into more of the long term assets. Is that, Are we, Are you guys good? Do you have any questions, like on the first steps of where we want to go here?

My first couple, I guess I have a couple of questions. The first one with the HELOC you mentioned, do you have somebody that you can connect us with to do, to, to streamline that?

Done. When I get off the call.

Okay, cool. Because I. We're ready to pull the trigger on that. It was just like I was waiting to find out what's the first duck that I need to put in this row. Because if I do the second home first and not the HELOC and I drain all my money that I'm like, did I do this backwards? So, yep, yep, we're ready to go on that. I think we're pretty ambitious of that. We started this year with the goal of purchasing two homes this year. Okay. Okay. I still believe that's possible, especially with the, the help of the heloc. It's just because we also have a desire. We're, we're kind of outgrow. We are not kind of, we are outgrowing the home that we're in. We want to start having a family and little babies and, and so start with one. Start with one. And so we're trying to figure out, well, we get this home in Sedona, we're. We're renting out. You know, we're kind of living here, renting out. I don't know what we're doing with the current property we're in now. And we also. So that means we want to get a property that's our living residence here in the Valley somewhere. So I think those are the two homes, one in Sedona and one in the Valley. Be like the goal for the next 12 months.

So thank you for telling me that because that's going to Kind of shift us in the next strategy because all of this is going to work together very seamlessly. Because if we're not disclosing to the lender, hey, not only are we wanting to do this, we want to do this. They're going to see your blind sides and what are we preparing for, how much money should put down those types of things, Right? So because, you know, we buy a second home and you know, right now your, your condo is your primary residence. You can only do a HELOC on a primary residence. Okay. That's, that's why it's important before you move out of it, before you change anything to get a HELOC on it. Because once you're out, you're done, right? You can't go back and do it. You know, that's just the banking requirements. The only lend on the, on the primary. So now let's just kind of talk through, which is going to be a very interesting talk through, is what's. If you don't mind sharing what your current mortgage payment is on your primary.

Right now it's 1338 plus a 262hoa fee each month.

So we'll just call it $1500 a month.

Probably closer to 16 with the hoa.

Okay, yeah, you said 13. And then how big is it?

1800 square feet.

Oh, it's a big condo. Okay.

Technically it's three bed, two bath.

You guys are going to love this. Watch this. Okay, right now, at 7% interest only on a HELOC, you're roughly going to be about $583 a month. Let's just say $600 a month if you pull the entire $100,000 out. Okay, now we're going to say you pulled the $100,000 out to buy the house in Sedona and you have this primary house as your next rental because we're going to keep it as a rental and then we're going to go buy a new primary residence with little money down. Right? Because the primary residence you can do as little as 5% down. But I believe, and I'll check with our property management company, that's the other piece of the equation that we have, is that we do own a property management company, so we'll make that seamless as well. You're probably renting that condo for 2020-$200 a month. So here's the cool thing. Even though it's break even, it's covering the cost for the down payment. The Sedona house at the end of the day even with the hoa because you guys have a really good mortgage on it, those types of things. So it's really going to work all the way around together in really pushing this strategy through this year.

I love that. That was another. That was one of the questions I had. I didn't know how to formulate it of like, well, if we take the HELOC out, we do the max about, you know, what are we paying and breaking even. Sounds great.

To cover, like, to not be here anymore.

Well, to get. To get the. To get the resident. Yeah. We're done with this place. Got it.

So. So the amazing part of that is like, again, it's. It's a big chessboard and we're just going to move things around. So where's the. Again, you guys have been Zillow hunting for your next primary residence down here. Tell me a little bit about that.

Well, Shelby likes Paradise Valley. She likes Arcadia. She likes Scottsdale. You're not really getting anything there for less. Decent. Decently sized for under a million, in my opinion, at least from what we've been hunting. There is a property out probably close to you, Steve, and it's called Sterling Grove. It's a new development being built out in. Surprise. We've looked at new builds out there we did get last year and we fell in love with this. It's called the Valentine. Close to Valentine, right?

Yeah. It's perfect.

The build is amazing like that to us. Like, that's our dream home and it exists in this community. So I would say we're probably around a million dollars for the.

Yeah.

I don't want to speak.

I would.

I would also say I'm willing to.

Because you have this dream.

I have a dream. But I'm. I'm also willing to wait a little bit for it. Like, I'm not like saying, oh, yeah, we have to go get. Like, I'm willing to like, hey, what if this was a smarter investment? Then we. Then I end up getting what I want later. Like, he's really excited and he wants things to happen really fast and I'm a little bit more of a slow burn.

All right. So I love the million dollar property idea. I hope you don't mind if I give you a little bit of opinion on this.

Please do.

Okay.

I love to work with. I'm going to call you guys younger couples because I know you guys are younger than I am. Where we're in this, we're making good money. And you remember what I said earlier about how you see, like, the increase in lifestyle very quickly. But we forgot to do these baby steps down here. And what I see for you guys. And again, this is just opinion and strategy. It's an idea. If you're like, you know, we don't like your opinion. We want to buy a million dollar house. Cool, I'll help you with that. But I'm trying to look at you fast forward or not fast forward, you know, slow forward in the future of what this potentially looks like. You're at a spot that, okay, you don't like the condo, right. You're fine with the condo, but you're ready to move. Whenever we buy owner occupant properties, it's the lowest amount of down payment and it's the lowest interest rate that you can get when you're buying owner occupied. So what if we did? You know, you guys are planning on having kids and having a family, but it's not necessary to settle right this minute. Right. And kind of be nesting and doing all those fun things. So I always try to get people and said, you know, Rich Shelby, if I said in 10 years you could own your Sedona property and 10 rental homes in Phoenix, do you want to hear that plan?

Yes.

Yeah.

Okay. That means all of your belongings stays in boxes for the next 10 years. Because that's the strategy that kind of goes through it where I can tell you, if we execute the plan, you could own three or four million dollars of real estate by moving from house to house and kind of having fun with it, maybe even doing some fix up stuff. There's a lot of different things to it, but you're like, okay, cool, if we do this plan, we've now accumulated four or five million dollars worth of assets over a ten year period of time. And by that ten years is up, our kids are probably going to be about the age that we really want to settle down and them to really have a home that they're not moving from again. Right. And it's called, you know, it's called owner occupant house hack. Right. It's like we buy one house, we live in it. We're buying that house specifically knowing it's going to be a rental in the next 12 months because we're going to live in it and then we're going to refinance it or not refinance it and then we're going to go buy another one and we're going to move again and we're going to keep that one and we're going to keep doing that as Long as you want to. But that's, that is the easiest strategy because if you don't, here's the hard part. Unless you're making or want to a substantial amount of income, if you want to buy that same $4 million worth of properties, you're going to have to have $800,000 of your own income to put down as investment properties to where if you're not, you're only putting 5% down annually on the next property. So 20, $25,000 depending on the price. And again, we are buying those homes with a strategy of this is going to be an ideal rental. And there's a buy box that I've designed that's like these are the reasons you want this as a long term rental. And so we go looking at houses. Yes, that will work for us, but more importantly, it's going to work for our long term future.

Makes sense. How do you feel about living in boxes for 10 years?

I think I would have a much easier time doing that than you would.

You have a lot of stuff though.

I do.

You have a lot of like little tickets and.

Yeah, but that, that's.

I think if it was like a mental shift of like I do, I do great. If I have a goal in mind, if I see an end in mind versus like, well when will this ever be over? Like do like versus like hey, in 10 years. Like it's super realistic to have this amount of portfolio if you're able to like shift your mindset a bit and know that like there's a strategy to it. And I think I don't know the strategy to it and I didn't know any strategy before even getting on this call. So to me it just seemed like this massive, like I don't know what I'm doing. But I think it would be easy to shift into that minimalist, like take what you need to each house, live there for 12 months and then shift into another place. I also kind of like that because I like changes of scenery and I think that's why I like going to Montana and Colorado so often is because it just, it changes everything. And that's why you like going to the beach changes the scenery. So I mean, I'm open to that.

I'm open to it. I might, I might actually here I'm trying to check in with my body. I might want to go for eight years instead of 10.

It's, it's your dream, not mine. I'm just here to help. I'm just here for you to facilitate what your vision is and help you structure the way to get there.

No, that's. Yeah. My, my other question is, what if as part of this vision, we're not technically tied to having rentals in just Phoenix? If there are other areas within the state of Arizona that would be worth investing in that we have no intention of ever even living there. The downside, I guess is we're paying that it's not a, it's not considered a primary. So we're going to be paying more. But if the house costs less, doesn't that offset some of the down payment?

Can I understand what you're saying? It's like, hey, we also want a house in Prescott, right? So we go buy a primary residence in Prescott. I mean, I think the nice thing about, you know, what you guys do is you don't have to be tied to down somewhere, right? You can technically go be a primary somewhere else. But again, everything in the strategy is going to be looked about. Okay, you want to buy this place, but what is this? What is the exit strategy for it? Is it going to make a long term rental? Are we going to furnish it and make it a vrbo? Right, so we start looking at the other avenues of what does that look like? Right? Because you could be like, hey, you know, we definitely want something in the pines. Like if I showed you months, have you guys been to Muns?

Yeah, I would love a place in the park. We love, we both love the forest.

Right?

Okay.

So again, it's like if you looked at a place in Muns, you're like, hey, we want to buy another second home after the Sedona. We buy it Muns and we can utilize that one. It's also close enough to potentially rent out to other people from wedding venues. Because it's close enough, right? Just so you see, it's like, it just really depends on after the first year. Where are you guys feeling? What do you, what do we want to look at? Where do we want to go next? There's no set in stone strategy because sometimes the strategy will shift based on income, based on what the market's doing, based on what interest rates are. There's too many variables to say this is exactly what it's going to get. But it's more of the mindset and the opportunity and the preparedness of this is what it will look like if we do this and if we looked even further forward and we're like, if we execute even half of this over the next 10 years. I want you to think about at the age of 55 going great. We have $15,000 of passive income and $3 million worth of free and clear properties. And we're super happy with that. Right. But we can also keep going. But it's just thinking a little bit about what that future looks like and what we're willing to sacrifice now for that peace of mind down the road.

That is, the peace of mind I'm going for is like, I don't trust the stock market and we don't really have much in the market because of the volatility. I'd rather invest in properties and then retire with that mailbox check every month from Collect, you know, free and clear. So to me, real estate is the play for, for long term when we do want to retire and either decide to keep doing this or just, you know, go to your beach house and sip mimosas on the beach in the morning. Like, there you go.

Or somebody else's beach house. Yeah, we, we did it for years. We rented the same VRBO every year for seven years with our kids for spring break. And I think it was $8,000 for the week in San Diego. And every year we get there and we'd Zillow it and we'd run the numbers as a VRBO and go, this makes no sense whatsoever. It's cheaper us for us to spend $8,000 for the week here than it is to actually buy this place. Because, I mean, we met the owner a couple times. Yeah, we're like, we bought this in 1980 for $800,000. Like, yeah, you're doing really well on it, but I'm not paying 5 million for it because it's never going to cash flow.

Yeah. So. So Steve, you're helping us with finding properties that ideally fit this. You know, I'm assuming there's some collaboration on the, on the box of.

Yep, yep.

Hey, like, we have to have three bedrooms or we have to have, you know, whatever. And you're helping us find these places to build that portfolio.

Yes. So there's, there's something I call the buy box. And so when we buy something, let's say we go out tomorrow and you're like, okay, we want to buy a primary residence, but we know it's going to be a rental property. I'm going to point things out that we're trying to reduce long term liability. And what I mean by that is that people come in and they buy rentals thinking that a big house with three AC units and a pool is a really good idea for a long term investment. And the reality is I want a single AC unit, I don't want a pool, and I want all the things that are not going to break that somebody is going to intend to be there for a long period of time. Because I'm trying to look forward to if I replace an AC unit, it's only one of them. It's probably only going to be one the entire life that I own the property. Right. If you have three ACs, they're always breaking, there's always repairs on them.

And.

And a bigger house doesn't make sense because of turnover cost. See, whenever you buy a big house for rental, it's usually a temporary housing situation for somebody. Right. They're building a house, they're relocating, they're not going to be there for 10 years. When you buy these smaller homes, and not that it has to be small, but I typically like them to be under or around that 2,000 square feet, a single AC unit, two car garage, you know, three or four bedrooms in different areas. It doesn't really matter the area. We can talk more about that, you know, with what you guys like, because you're going to be living there. Those make ideal rental properties because people tend to stay in them long periods of time. And that's what we're looking at is looking past living in it to what it's going to be.

Okay, so it's.

It's kind of. So my. One of my favorite books is called the Road Less Stupid by Keith Cunningham. And one of his sayings in there is, it's not what you see, it's what you don't see. So a lot of times when we go to look at houses from the rental perspective, we're looking at it from the emotional side, not from the business side. And that's really where I try to help you point out the blind spots in the business side because you guys are going to be on the emotional side. I'm going to be helping you on the strategy from the business side and trying to find that happy medium and making sure that Shelby's body's in agreement.

That's a good place to be.

I know, I know. I can tell.

The 12 months that seems to be like, is that a standard standardized waiting period for first for primaries?

Yeah. So when you do a loan and you sign those papers, you're saying that I intend to live this as my primary resident. Right. So you can't go in at nine months and go, well, we want to go buy another primary residence. Because the bank is going to say, well, you Just bought a primary residence. So there's. There's some seasoning that should be required and some of that stuff changes. And there's no time frame. It could be 14 months, it could be 18 months, it could be two years. It depends on however fast you want to move the strategy and what you're comfortable with it. I just like to point out it's like it's whatever you want it to be. But here's the mindset and here's the end goal.

Okay. So first, second and third steps would be we contact the lender, do the heloc, and then we start actively looking at Sedona. Because we'll have the funds to purchase, correct?

Yeah. And even in Sedona too, because again, if we stay in that 5 to 700,000 range, you're probably only going to have to put 10 down. So you may not have to use the entire key lock to do it, depending on the price of what we buy.

Now, if we get. Now with getting, securing the heloc, does it matter if we go Sedona or Phoenix first? Or it has like Sedona has to be the play because. No, because one of them is a. That's what I'm trying to. Because if we get the HELOC and we find. I check, I'm on the flex MLS like every single day and I'm. There's not much just popping up in that range I talked about, so. Right. It may be, if we're wanting to at least get one going, like Phoenix is. The inventory is massive.

Yeah. So one of the conversations that we'll have together with. So you've got two different lenders. Just so you know, there's a HELOC lender through Bell bank, which I'll refer you to Patrick via text. And then there's going to be the primary lender for the housing stuff. Right. So the housing stuff will actually have a conversation saying, this is what we potentially want to look like at Sedona or potentially want to do this. We're not sure which one's going to come first or if we're going to be able to do them both this year. Because I want them to look at the big picture because if they say, hey, I really think you should do this first, they're going to give us an idea based on your finances, you know, debt to income, those types of things. So we want to make sure again, that they're involved in both those decisions at one time because they're going to give us more guidance because I don't know your numbers, your taxes, and all the things that are going to have to go with that. So that's why they are a critical aspect in that.

Okay, so what? So to make sure I'm understanding what you're saying, with the heloc, the bank will essentially be the deciding factor on whether we can do two houses in one year or whether we need to do a Sedona one first or a Phoenix one first. Okay, so. All right, that makes sense. Cool. This feels very expensive.

That was a fire hose, wasn't it? What'd you say?

I, I forget what I just said.

Oh, you said it feels very expansive.

Yeah, I said it feels expansive.

I thought he expensive. I'm like, man, you haven't seen nothing yet. You haven't had kids?

No, not yet.

My kids are 18 and 20 and they're more expensive now than they were when they were little.

Yeah, I, I feel very expansive with. My brain's just like the HELOC would essentially pay for itself with the mortgage, like with us renting this place out, and then it's just waiting for the, the next step to find fall in place. The HELOC will be easy because we'll have, I mean, that can be done by the end of March.

Oh, yeah, easy.

And then we're just looking at, you know, where to go next. Okay, cool.

That, that give you enough to think about?

Yeah, I mean, it gives me definitely like the next action step for sure is the heloc. And it's just talking with the bank to figure out, hey, if we do want both, is it possible? Because again, we're just kind of sitting around waiting for something to pop up in Sedona, and I, I don't have access to off market stuff, but, but like, what I'm seeing is there's not much just popping up. There are some things that could work. You know, there's, there's like three or four currently two bed, two bath that fit within that six to $700,000 price range. Aesthetically like that they both, they don't need much work at all. It's just like, do we want to get something that we're just kind of like, that's okay.

Yeah. And the last piece to all this strategy, just to kind of give you guys some insight, is making sure that we, we also understand that what we bring to the table as far as Wendy and I goes, is that there's a lot of other not complicated things, but if we find an off market, which is, you know, where I specialize in that market. Right. I know a lot of people that, you know, might bring something off market, something that needs to be gutted. You know, that's. That's what my wife does. Right. And there's ways to get through the financing in different ways with it. So we'll cross that bridge when we get to it. But I don't want you to look at something go, oh, my gosh, this thing needs so much work. There's ways around it. Right? Because sometimes we look at those, like, if I could make this what we really wanted to on the first go around, that would be awesome. Right? So. So there's. There's some other possibilities there as well. So just keep your mind completely open as we kind of start down that process. And that road is that there are other ways to do this that, that we know and that we've created over the years. So. And again, it makes it fun because there's limitless possibilities, no pun intended, in what we do.

I love it. I love it. Well, Steve, we do have a 3:30. I think I had mentioned that before.

Go do it.

This has been amazing. I look forward to connecting with. I think you said his name was Patrick. Yeah. Yeah. Limitless possibilities. Where I have limitless possibilities.

You guys were amazing. Thank you for coming on here and sharing all your story, your vision, your goals. And I'm looking forward to connecting with you and putting this strategy together and making it happen.

Thank you. We're excited.

Thank you. Thanks, Steve. Have a great day, guys. I hope you enjoyed that episode of the Real Estate Revolution. I hope you'll join me in the revolution through stevedvalentine.com. this is where the podcast the Limitless Circle. Private mentoring, coaching, and all the real estate that we do. Plus there's a few exciting courses in there as well that might interest you. Looking forward to connecting you soon. And I hope that you will share and subscribe this podcast if it had value to you.