Start with No Rentals, Retire Decades Early

Dave:
Here’s a simple rule for building wealth through real estate. Get your own financial house in order before you go buy someone else’s. Today’s guest has bought dozens of properties and he reached financial freedom in his 30s, and his secret isn’t finding better deals. It’s actually having a rock solid financial foundation underneath his investing, saving money, using leverage, managing risk. And he’s created a system around these ideas that help him build millions of dollars in equity. And today he’s sharing all 11 steps so you can do the same. What’s up friends? Dave Meyer here, Chief Investment Officer at BiggerPockets. My guest today on the show is Andrew Giancola. He’s the host of the Personal Finance Podcast. Andrew has successfully bought, operated, and sold many different businesses, and that includes several years as a full-time real estate investor. And through those experiences, he’s seen one skillset that separates the investors who succeed from those who fail.
It’s a strong understanding of personal finance. So Andrew actually built a system around it. He calls it the Financial Freedom Stack, and it combines real estate investing strategies with financial best practices like emergency funds and market exposure into one simple and repeatable package. Today on the show, he’s breaking down this 11-step framework to show you exactly when you should be saving, when you should be investing, when you should be paying down debt, and when it’s time to scale your portfolio. If you want to build wealth in real estate without feeling financially stretched, this episode will show you exactly how. Let’s bring on Andrew. Andrew, welcome to the BiggerPockets Podcast. Great to have

Andrew:
You. Dave, thank you so much for having me. I am so excited to be here.

Dave:
For people who don’t know Andrew or his podcast yet, maybe you could just give us a brief introduction of who you are and how you’re involved in the real estate and investing space.

Andrew:
Sure. So my name is Andrew Gincola. I am the host of the Personal Finance Podcast, and my entire goal with that show is to actually create a million millionaires. That’s the initial goals that I had when I set out to create the Personal Finance Podcast. And our entire goal is to kind of empower you with your money. And that is the big thing that we do over there. And so I started investing in real estate back in the day where I was a sweat equity partner. So I was a sweat equity partner with two cash partners and got into real estate in 2015 and then exited and kind of sold my portfolio with those partners in 2018. We’ve done a lot of cool stuff just within those last couple of years. And it is something that is one of my favorite ways to invest overall and something we talk about all the time in the show and is a huge, huge deal for the things that we talk about every day.

Dave:
Let’s talk about your wealth building journey a little bit though. So it sounds like you’ve done a lot of stuff, not just real estate. So how has real estate sort of fit into your personal wealth building journey over the years?

Andrew:
So this is really fun because I started out in corporate finance. And when I started in corporate finance, I was not making much money at all whatsoever. And so what I did is I was sitting in my cubicle, which then eventually as I got promoted, became an office. But when I was sitting in my cubicle, I would listen to podcasts. And there was a bunch of different ones that I would listen to, but one of the big ones I listened to was BiggerPockets. And so at that timeframe, I was kind of listening to the show and then all of a sudden I got hooked listening to a ton of different episodes. And it was one of those things that all of a sudden I got the bug. I just wanted to invest in real estate so bad. And the biggest thing for me was I had analysis paralysis.
I spent so much time trying to understand and learn deals. I read every single real estate book out there. And so this was one of those things where I really, really just needed to get started. And I probably took two to three years too long before I actually got started. But eventually, when I was working at that corporate job, got a couple of promotions and realized I don’t really want to do this for the rest of my life. And so I worked with two different folks who were worth hundreds of millions of dollars who said, Hey, I want to get into investing in real estate as well. I don’t want to do all the work. You become the sweat equity partner. We’ll become the cash partners and we can start this company together. And so I took a leap of faith and I jumped into the water, literally quit my job.
I don’t recommend anybody do this, quit my job and decided to go start investing in real estate. And I remember that first day sitting down at my computer, I’m like, okay, I got to make this happen. I was only married at that time. I didn’t have kids yet. And so I could take on this risk. And I set up my finances ahead of time to make sure that I actually could take this risk. But once we took the leap of faith, then we started to invest. And honestly, these guys were willing to invest as much as we possibly could. And it was one of those things where I was sticking to my numbers and my metrics going forward. And I wish I bought everything in sight. I didn’t. I was very strict to my numbers, but it was one of those things that was one of the best experiences because once we started that journey, then I got to test out pretty much all the different types of real estate investing and it was a very, very powerful lesson.

Dave:
I would imagine from your experience, you can identify some other things that separate successful investors, whether it’s real estate or not, from the people who want to get into this stuff, but don’t actually wind up pulling it off. So what are some of those things that you’ve seen?

Andrew:
So early on, I think one of the biggest things that most people need to do is kind of reverse engineer what they want to do when it comes to building wealth. And I think this is the big key that overall most people don’t do when they get started. I think a lot of people get the real estate bug like I did and they just want to jump in, they want to get started, and they’re trying to figure out what to do. But what I like to do is begin with the end in mind. And so I like to reverse engineer exactly where I want to go. And so there’s a number of different ways that you can do this. You can look at this and say, “Hey, here’s how much I spend every single month.” And overall, this is going to be something where I reverse engineer and figure out how much cashflow I need, how much can I cashflow on each property and get to that point in time.
We all know that. Dave and I spoke on my podcast recently and Dave was talking about the equity model where he kind of has a focus on the overall equity in his portfolio. And that’s how he figures out how he gets to financial freedom. And I think this is the biggest part that most people need to start with, is they need to start with understanding what that financial freedom number is. And once you get to that point in time, this is going to be your north star. This is going to be your guiding light on where you need to go next. And you can shift the way that you’re going to invest. You can shift the way that you think about this, but this is really how you set your plan in place, how you set up your goals and how you get to where you need to go.

Dave:
I could not agree more. I literally wrote a book called Start with Strategy. The number one thing is set up that vision and then build your entire portfolio backwards. I love this, Andrew, but I’m curious, there’s kind of this debate, I feel like in the personal finance investing community about a financial freedom number. What’s your take on whether or not it should ever change? Is this something you set and forget or do you adapt it time to time?

Andrew:
I have a very, very big thing that we always do. And the biggest thing overall is I think this adapts over time. My biggest problem is in my 20s, I was very frugal. And I had this goalpost in place where I had this number where it was basically, we call it financial independence or the fire movement. We have this number in place where we were looking at this and saying, “Hey, I’m going to be lean fire. This is the minimum amount that I need in order to be able to be financially independent.” The funny thing is, then I got married and all of a sudden that goalpost moved a little bit.

Dave:
Exactly.

Andrew:
And then I had my first kid and then all of a sudden the goalpost moved again and then again and again. And so I realized very quickly, I can’t get this goalpost to stop moving. And so instead, what we do is we tell people, you need to evaluate your freedom number every single year. What most people do is they do it every five, 10, 15 years, if ever. And when you wait too long, all of a sudden the gap between what you actually need and what you thought you needed is way too big and now you have to play catch up again. And so every single year, just like you would on your net worth or just like you would on your finances and taxes, we tell people to evaluate your freedom number, look at your expenses and how much you’re spending, look at how much your burn rate is and go back and make sure that you were on track to accomplish that.
Now, there are going to be things that change when you retire and when you stop working and all those different things where you may not have as much expenses later on in life, but we want you to evaluate it on a yearly basis so that you can stay on point and stay on target. Whether you’re investing in stocks, real estate, businesses, all of these are going to matter to make sure that you evaluate it on a yearly basis.

Dave:
I love this because it kind of drives me crazy when people say set it and forget it kind of thing. If you’re in this community, if you read fire blogs or Reddit or whatever, you see people who do LeanFire go back to work all the time. Your life

Andrew:
Is going

Dave:
To change. I’m not super old, I’m 38, but what I spend my money on now is totally different what I thought that I would need to spend my money on when I was 25. It’s just totally different. And I’m sure when I’m 50, it’s going to be very different from what it is today. So really recommend it, but that does not take away from the necessity of actually creating this number because flying blind is worse. Adjusting is fine, but flying blind is like a thing that I just think you’re bound to go astray, introduce risk and lacks efficiency. So I completely agree with this. We started with step one, which was defining your financial freedom. Andrew, what’s step two?

Andrew:
So step two is to build up that starter emergency fund. So if you’re just getting started with your finances and you’re just getting the ball rolling, it’s getting that starter emergency fund, which is one month of expenses. So we have this thing called the 136 method where we do it by a percentage of your expenses because everyone’s needs is going to be very different. And so when we look at a percentage of your expenses, we want you to save at least one month of expenses ahead of time. What is this for? Because when we look for these future goals and some of the things that we’re going to be doing, this one month of expenses is not there for anything other than to protect you and not derail your financial progress as you move on to some of these stages. So if your car breaks down, you have some cash on hand to take care of that.
If your water heater breaks, you have some cash on hand to take care of it. If your kids get sick, you have the cash on hand to take care of that as well. So all this is for is just some early financial protection to allow you to continue working on your financial goals as you move forward.

Dave:
Okay. So this is step two, just fund one month before you do anything else. It’s lower than I’ve heard other emergency funds though. I’ll usually hear like three to six months, maybe even longer. So why just one month?

Andrew:
So one month is just the first stage till we get to the next steps. Ultimately, I think the minimum you should have in your emergency fund is six months. And so when we look at six months, we want you to build to three and then six, but ultimately I think at a minimum, you need six. So there’s a lot of people out there that will say three. There’s a lot of people out there that will say a little less. I think you at least need six because of job loss is the big key.

Dave:
I feel like most people are like, “We have no idea what’s going to happen a year from now with AI, the broader economy.” It’s big question mark. So I like the idea of protecting. But so it sounds like this first emergency fund one month is sort of like you sock away a little bit of money so you can make other progress in your financial journey. Is that step three?

Andrew:
Exactly. So the next step would be to eliminate any high interest debt. So what I classify as high interest debt is things like personal loans, credit cards, those types of things that are anything above a 6% interest rate outside of your mortgages or anything that has asset classification on it, any of that consumer debt. We want to get rid of that as fast as possible because this is something that is a pants on fire emergency, in my opinion, where it’s one of those things, you got to get rid of this, otherwise it is just going to drag you down going forward. And really, if you have credit card debt and you are thousands of dollars in credit card debt, you have no business investing in real estate yet, in my opinion. I agree. Instead, you need to make sure that you get this stuff paid off so that you have the financial foundation in place so that you can go out and take the risks that you want to, the calculated risks and have those in place to move forward.

Dave:
A hundred percent could not agree more. You absolutely … Real estate is not something to get you out of crazy debt. You need to be first in a good financial position to take on the financial responsibility. It is not capital light. I mean, this is a capital intensive business. And if you have not gotten yourself to a position where you can manage your own budget, managing your own personal budget and managing a business’s budget is probably going to be really hard. So show yourself that you can do it with your own personal situation, and that’s a great way to learn. And then you can apply those skills to managing a budget, managing a P&L for a business. It’s kind of similar. And so this is an opportunity for you to learn. And I also see sort of where you’re going now with the emergency fund of one month.
You don’t want to fund it to six months because it sounds like in your opinion, paying off that high interest debt is actually more important and more urgent than fully funding an emergency fund up to six months.

Andrew:
Exactly. And if you don’t have that one month in place, then what happens to a lot of people is that something will pop up and it will derail their progress from paying down that high interest debt. So instead, having that one month in place first allows you to at least have somewhat of a protection where if anything were to pop up, you would at least have some cash on hand to take care of it. And then from there, you are focused on paying off that high interest debt.

Dave:
So it sounds like there’s a presumption in this framework here that the folks who are going on this journey are at least able to earn more than they spend, right? Is that a fair place that you think people need to start from?

Andrew:
That is a fair place to start from. So the difference between your income and expenses, we call the gap. And I believe the gap is where wealth is built. This is the place where if you are struggling or you’re living paycheck to paycheck, you either have two options you can cut back or you can increase your income. And for me specifically, my biggest goal is to pull that big lever of increasing your income. You can only cut back so far and your income is infinite. And as real estate investors, we’ve seen this. We’ve seen this happen time and time again because the more houses that you add or the more properties that you add in your portfolio, the more you can grow your income over time. And so this is a very, very powerful thing that once you have the difference between your income expenses and you have a gap there, then you can deploy this cash into income producing assets that are really going to help you over time.
But you got to get rid of that high interest debt first, this debt that’s dragging you down, this huge weight. And so that is what is so important upfront to make sure you have that foundation.

Dave:
Welcome back to the BiggerPockets Podcast. I’m here with Andrew Jimcola talking about his 11-step financial freedom stack, specifically for real estate investors. Hopefully you get that consumer debt under control. It’s a really important part in anyone’s financial journey. And if you pull it off, congratulations, it’s hard to do. What comes after that?

Andrew:
So after that, we get to the six months of emergency funds expenses in place. So the reason for this, and a lot of real estate investors are going to say, “Well, I want to get that capital working,” but let me talk to you about just why this is so important for a lot of folks out there, is six months is going to do a number of different things. One, if you lose your job, your nine to five, you have the cash on hand to take care of this. And a lot of people will say, “Well, why don’t I just have three months?” Well, if you lose your job, let’s go through this sequence for a second. First, you’re going to have to get your resume back together, start sending people your resume from LinkedIn. You’re going to go through a couple of rounds of interviews.
Maybe if you don’t get those first rounds of jobs, you got to go through more interviews and you don’t just take the first job that comes up front. Instead, you are trying to find a job and find the job that fits perfectly for you. And so if you’re doing this during that timeframe, that takes about six months, sometimes five, sometimes four. But if you are someone who is in an industry that may take a little longer to find a job, that is going to take six months. Number two is you can also take advantage of opportunity. So a lot of times, big opportunities happen where people who don’t take advantage of opportunity, meaning moving across the country for a job that pays more or being able to take advantage of opportunities that pop up, maybe a property pops up. You cannot take advantage of that opportunity without cash on hand.
And so you have to have this cash on hand in order to help protect you moving forward. Now, this isn’t really the money that you’re going to be investing. This is going to be helping you stay protected, but it also just allows you to use your emergency fund if opportunities pop up that are once in a lifetime situations.

Dave:
I like that a lot. Yeah. I think this number really varies. I personally would never recommend under six months. I just think that makes sense in an uncertain economy. For some people, if you’re single, you’re living cheap like three months, I’m not going to argue with you. But if you have kids, if you have responsibilities outside of just taking care of yourself like most of us do, six months makes sense. I think everything you said is true, Andrew, taking advantage of opportunity, finding a job. The other thing I’ll say is I think the one thing that hurts real estate investors, the one situation you never want to get yourself in is a place where you’re forced to sell, where you have to sell a property at an inopportune time. If you can hold on and you get to pick one to sell, you almost always make money in real estate.
That’s just how it works. And if you don’t have a big enough emergency fund, you are putting yourself at risk to have to sell a property. Maybe even you have a great deal that’s doing well, something comes up in your life and the only equity, the only capital you have is tied up in this property. Now you got to go sell a good deal to cover your expenses. I’d rather you wait and get those emergency expenses covered so that when you go out and find that great deal and do all that hard work, you know that you get to hold onto it.

Andrew:
I could not agree more. And that is the biggest reason, is to protect you against life. It protects your family, it protects your investments, it protects everything. And so this is basically just de- risking your situation. For example, in my story, I would not have been able to take that leap of faith without having that emergency fund in place. The opportunity came up very quickly, and I would not have been able to take that advantage of that opportunity if I didn’t have this in place. So it’s very, very important to have this upfront. And we call it the SWAN number. So six months is always our minimum, but if you want more, what is your sleep well at night number? That is going to be the number that you come up with. And it’s just the amount of cash that you have on hand that maybe makes you slightly uncomfortable, but it is what you really, really need.
That is the big number there.

Dave:
Yeah. I keep more cash than most people say. I keep a year of expenses personally. I just, I don’t know if I’m paranoid, but I just think it’s just, it makes me sleep at night. I’m okay keeping that in a money market fund and earning 4% instead of what I earn on a real estate property. It’s fine for me.

Andrew:
Same here. And that’s the big thing for me as I keep more cash than most people and they pick up crazy, but it’s just what I feel comfortable with.

Dave:
100%. So much of economics is just psychology. It’s just what you’re comfortable with. And that’s more important in the long run than getting a maximized return in this next year. I promise you, that is more important. Making it sustainable for yourself and being in the game a long time and figuring out what you got to do to stay in the game for 20 or 30 years, that’s the most important thing. So what comes next, Andrew? What’s step five after you’ve really built out that emergency fund? Is it time to start putting some money to work?

Andrew:
Exactly. It is. So this is the next step, especially if your number one goal is to invest in real estate. It’s to build your, we call it the investor war chest, but all this is, is just the cash that you are building up to start investing into real estate. So there’s a number of different things that you can do here. One is as you start to build up enough cash maybe for a down payment, or you can look at strategies out there that are going to help you get into real estate with low to no money down. You could do things like house hacking. You could do things like what I did like find sweat equity partners while you’re starting to build up this cash. You can do a bunch of different strategies that are going to help you get started investing even while you’re building up cash to buy some of your additional deals.
And so this is a timeframe that I think is very, very powerful for a lot of people because you know that now this money is going to get to work for you. And so you can start to build generational wealth for you and your family.

Dave:
This part is so variable, right?This could take you a year, this could take you five years. Do you have any advice for people who might feel that this is going to take a really long time?

Andrew:
I think this is the big piece for most people overall is I think over time your strategy can change. And Dave and I just recently talked about this where your tragedy can shift based on what market conditions are, but also what situation you are in. So folks who don’t have a lot of cash on hand yet, but you have your emergency fund in place and you have your financial foundation in place, you’re in a prime position to start to look for deals with low to no money down strategies. And this is going to be one of those areas that I think for most people out there, if you can get into a house hack with an FHA loan at 3.5% down, that’s a really powerful strategy if you could find that deal. If you can find this sweat equity partner during that timeframe where they give you the cash and you do all the work, even if you only get 10% in the deal, your experience that you are going to get investing in real estate is better than anything else out there that you can do.
If you sit on the sidelines and just continue to read books and not do anything, your education is not only going to get you so far, you have to get out there and do something. I remember my first deal was the easiest deal ever. So I bought it actually from a hedge fund. I developed this relationship with the hedge fund that already had a tenant inside of this property. And I was like, man, this real estate stuff is so incredibly easy. This is the best thing ever. My second property, I bought the property. I had a duplex in there. I had to first evict both tenants. One side of the property had exploding toilets where like all the pipes were bursting. The other side had, when I evicted the tenants, they left 15 different animals inside the property. And so it’s just one of those things-

Dave:
Is that real? 15 animals? 15

Andrew:
Animals. I had to call the SBCA to come. They had fish tanks, they had illegal turtles, they had legal fish, they had dogs and catch. I felt terrible for all the animals. Oh my God. Yeah, that’s terrible. And it was the craziest experience I’ve ever had. So I had the easiest first experience. My second property was probably the worst possible experience that you could have. And between those two things, you don’t know how this is going to work and you don’t know how to handle these situations unless you do. And so I highly encourage every investor out there who has not bought their first property yet, to while you’re building up this cash reserve, find a way that can help you get this education right now to get this education out there. Maybe you only do one or two deals with these folks, but at the same time, when you do those deals, you’re going to learn so much more than you ever would just sitting on the sidelines.

Dave:
If you were sitting at home, you’re willing to house hack, you’re doing low money down strategy, what’s a number that you think a threshold people need to get to and saved up money in order to pull off a deal that they are at least a part owner in?

Andrew:
Well, if you’re looking at the strategy, for example, if you’re looking at a house hack and you’re doing 3.5% down, all you really need to do is get to that 3.5% number. As long as you run the numbers and you can get to close to breakeven or cash flow, that is going to be a really, really powerful way for you to kind of get started. And so first, which is kind of partially what the next step is also talking about, step six, which is matching your capital to your real estate strategy where this is looking at and making sure that whatever strategy you’re going to do first, you’re also matching how much capital you are saving with that. And so these kind of go hand in hand. And so if you’re looking at this, I mean, house hacking is the number one thing I want to do.
I was already married when I started to invest in real estate and my wife wouldn’t go for it. I was looking for duplexes and she just would not go for it at that timeframe. But if you can househack, I think it is the number one strategy to kind of get started. And I think that is the big thing for most beginner investors out there is if you can find ways to just get deals, even when you don’t have a lot of cash on hand and BiggerPockets has great books on low and no money down in terms of how to find deals that way, I think that is just one of the best things that you could do. But you could also get into some active income things as well. If you want a wholesale, if you want to do other deals that are just ways for you to get involved in real estate, I think it is one of the most powerful things upfront.
But make sure you set your goals first and understand what you’re going to do. And then from there, you can start to really allocate as many dollars as possible towards that specific real estate strategy.

Dave:
We talk a lot on the show about systematizing things in scale, which is important, but it can also be daunting at first if you’re coming from a position with low capital to say, “I want to buy 10 rental properties. I have this long-term goal. I don’t even know where I’m going to get the money for my first deal.” So how do you mentally or psychologically recommend people navigate those sort of competing interests?

Andrew:
So what I would do is I would kind of reverse engineer how long it would take you to get there. So let’s say, for example, you have 500 bucks extra every single month. Well, you have to figure out, okay, well, let’s do easy math for Andrew here. If we had a $100,000 property and we’re just using a nice round easy number, if you wanted to house hack that property and you wanted to find that $100,000 property, well, you need 3,500 bucks to go out and buy that property. Obviously there’s not many deals like that out there anymore, but that is like a situation where you could figure out, okay, this is my common goal. Now I need to reverse engineer how long it’s going to take me to get there. And when you do the math, then you can see, okay, it’s going to take me one year, two year, three years, four years to get there.
Well, during this timeframe, then that is the timeframe where I can figure out how can I get into another property with no money down because you have time available. And so you know my second property or my third property is going to come this way and some other opportunities might open up if you start to kind of do the work. So I recommend A, during that timeframe also networking, just kind of how we have talked about a number of different times here, but I think that is going to be one of the best things that you can do because then you can find deals. And maybe another big thing is finding deals seller financed. You could find things like assuming mortgages. There’s a lot of cool things that you can do there that are going to help you, but I would reverse engineer it. I would do the math backwards and that way you know exactly how long it is going to take based on your savings rate.
Now, if you get to a point in time where you realize this is going to take way longer than I think to accomplish my goal, again, you have those two levers to pull. You can either decrease your expenses or increase your income. Those are the two levers that you have available to you. And if you focus your time and energy on increasing your income, and if you are really focused on real estate investing, then maybe it is some of those active income things where you’re the sweat equity partner in a flip or you’re a sweat equity partner in something else that can help you get through this process and understand how this works. Maybe you take a part-time job with a property management company so you can understand how to manage properties, but there’s a lot of different things that you can do to really get yourself in the game so you have an understanding and you are that much better off when you get started.

Dave:
Totally. And I just want to reiterate that if you want to try and increase your income, it doesn’t need to be through real estate. That is an option. If you think you’re good at that and it will be something that you enjoy and you like and you can make money, go for it. Absolutely. But if you could make more money, drive an Uber or doing something else that’s just another way to increase income. I personally sort of had a crossroads in my investing career in 2015. I was like, “Should I go into real estate full-time, be an agent, whatever.” And I was like, “Actually, I think I can increase my income more if I went back to grad school.” So I went to grad school, increased my salary, and then used the excess income from that to invest in real estate. Not everyone can do that, but I just wanted to point out that I was fully committed to real estate, but chose to do something outside of real estate because I thought it would build my portfolio long term at a faster rate.

Andrew:
Exactly. And that is the biggest key is finding those biggest levers that you can pull. I highly recommend if you have a nine to five learning how to negotiate your salary, putting together a system that helps you negotiate your salary, that is going to be one of the fastest ways that you can increase your income. Or we do this series called side businesses that can turn into a full-time income. There are different things that you can do that really are going to make you a lot more money. And again, it does not have to be in real estate. It could be something else. And especially if you know that you can make a lot more based on your current skillset, doing something else and then you take that extra cash and put it into real estate, that is just going to compound so much more than you can ever imagine.

Dave:
We’ve gone through the first six steps. As a reminder, step six was to match your capital to your real estate strategy. Where do you recommend people go from there?

Andrew:
So step seven, and this is something that I believe in, especially if you work a nine to five or something else. And Dave, you may have a differing opinion on this because I’d love to hear this, but it is to build market exposure next to real estate. So if you’re a real estate investor and you are someone who is investing over time, there’s a couple of different things that I like when it comes to investing in the market. So I am a guy who does both. I invest in market and I invest in real estate, and these are ways that I just diversify the way I’m investing. But I like to just look at things like getting your 401k match. Why? Because that’s 100% rate of return and that is free money. And if you work a nine to five, that is a fantastic option for people out there because you can’t get a rate of return like that.
Another one is looking at something like a Roth IRA where you put money in, it grows tax free and you can pull the money out tax free. But for real estate investors, if you decide, “Hey, I am really crushing it in real estate,” you can do a self-directed IRA through your Roth IRA and be able to invest in real estate with a Roth IRA. You could do things like if you invested in your 401k, you have your 401k available and building wealth over time, that is one of the most powerful accounts I believe in building wealth over time. And if you look at some of the studies of millionaires, for example, Ramsey Solutions did a study of millionaires and found that 80% of them built their first million inside of their 401. It’s just an automatic way to kind of invest your dollars. And so it is one of those areas that you could do some really, really cool stuff, I think that can help you with real estate.
But even if your money’s in your 401k, a lot of people are like, “Well, it’s locked in there.” Well, you could do things even creative, like if you wanted to invest in real estate, in reality, you wanted to do that. You could do things like a 401k loan. Now that’s not something I would do, but you could do a 401k loan and the interest actually goes back into your 401k when you do this. So market exposure, I think just helps diversify your investment strategy, especially when it comes to finances. And so that is the next step if it is something that you’re interested in. I love liquidity. I love having the ability to have that, and so it just gives you some cool stuff there.

Dave:
I’m so glad you brought this up. It’s something I feel on an island over sometimes with other real estate investors. I mean, no offense, like Henry, co-host of the show, invest only in real estate, nothing else. We have other people come on, James Daynard, Kathy Fecke, they’re all in real estate. They don’t invest in the stock market. For me, I’m not comfortable with that. I mean, I believe in real estate. I have two thirds of my wealth roughly in real estate. So I clearly believe in it, but I also, the stock market offers different cycles, it offers different opportunities, and I just think it makes a lot of sense for people to have some balance. The question though, Andrew, I get all the time. Top 10 question I get is how do you decide how much to put in real estate, how much to put in the stock market?
What do you do or do you have any rules of thumb that could be useful?

Andrew:
The way that I think about this is for a lot of folks who are new to this, and if you know you want to do both, if you know you want to invest in real estate and you know you want to invest in the market, then I would look at a, first, making sure you get that match. That match is always the number one thing that you should go out and get. In fact, we’ve done studies in the past where we’ve looked at getting your match over the course of 30 to 40 years. And over the course of 40 years, you’d have over a million dollars in your portfolio just It’s by getting a 4% match. So please, if you have that match available, it is very, very powerful what you can do there. But secondarily is then you can decide, okay, well, first, if I split this off fifty fifty, I always tell people when it comes to their money, split it off fifty fifty and kind of see how you feel.
So if you start investing dollars into the market, for example, let’s say you start with the Roth IRA because you could do a self-directed IRA later on. For real estate investors, I always want them to think of the backup if they want to take some of this money and put it towards real estate. So if you put it in a Roth IRA, for example, and take the other 50% and put it aside for real estate investing, see how you feel, see how that money’s growing, see over time when you have that financial plan in place, is this something you want to continue to do? Because then as you start to build up that portfolio, then all of a sudden maybe you buy your first property. And when you buy your first property, you’re looking at this and saying, “Man, this first property is absolutely killing it.
I love this stuff. I am so passionate about this stuff.” Well, maybe then you’re going to shift it over to 20% in the market and 80% in real estate. And that is a situation where you kind of have to make that shift. But I always tell people to start with fifty fifty and then start to shift it over based on how their plan looks, which is why I want you to review your financial freedom number every single year because as these strategies shift over time, you may have to review that number and shift the strategy based on that number.

Dave:
That makes a lot of sense to me. I think there’s no science to it. You kind of just have to feel it out for yourself and what you like. You had mentioned something before though that is one of the top things I think beginner investors of all type overlook, especially in real estate is liquidity. Liquidity, if you’re not familiar with this term, it’s just basically a measurement of how easily you can convert an asset to cash. So cash is the highest liquidity thing out there because it’s already cash. Things like bonds and stocks in terms of the spectrum of liquidity, pretty high up there. There’s a very sophisticated, high volume market where you can go sell that. If you want to sell your stocks, your bonds and get cash, takes a couple days, right? Maybe. Real estate, even in the best times, takes weeks or months.
In a market like we’re in today, probably takes multiple months or half a year. I know it’s a little bit more advanced, but something to think about as you progress in your investing careers. Do you want access to your money? How quickly do you need access to your money? Not just for emergencies, but for opportunities. Sometimes you see an amazing deal. Can you sell your one property in time to get to that other one? Probably not. Can you sell some stock to get to it? Maybe. So it’s just something to think about. There’s no right answer, but I would really recommend, one, diversification lowers overall risk, and two, liquidity allows you to get more opportunity and mitigate risk. So two things to think about there.

Andrew:
100%. And for real estate investors out there who don’t have any liquidity now, if you have all of your money tied up into properties and you have that in place, here’s just an example of this is like recently a really good deal to buy a business came up for me a couple of years ago. And when that deal came up, I had to close within less than a month. And the only way I had the cash on hand was because I had it in a taxable brokerage account. I had the cash there and I was able to liquidate that money super quickly and go and take advantage of that opportunity. If I had to liquidate a property, I wouldn’t have been able to take advantage of that opportunity and I would’ve completely missed out.

Dave:
Exactly. Perfect example. Welcome back to the BiggerPockets Podcast. I’m here with Andrew Gincola talking about 11 steps that real estate investors should follow to build their financial freedom stack. All right, so once you’ve done this, you recommend getting this exposure to the market. What’s step eight?

Andrew:
So the next thing is basically what we’re going to do is we are going to allocate based on our progress. So what we want to do is basically take a second, take a breather and decide, we’re looking at our freedom number. We’re going to decide, do we want to really push and accelerate? Meaning that do we want to start to buy more properties? Two, are we okay where we are and we want to continue to, if we’re investing for cashflow, do we want to stay here? Or three, do we want to divest or figure out if we want to allocate some of the stock money to real estate and/or vice versa? And why I say this is because I think a lot of people get to this point in time where they push, push, push, push, push, and never stop to think about the overall grand plan of, “Hey, am I okay where I am now?
Is this the point in time where I can then decide to make some other moves and/or how do I need to think about my portfolio?” Because at a certain point in time, we reach our goals and if we continue pushing on and on and on, if that’s not our goal, then we need to decide, well, what is the life that we want to live? How do we design this? How do we have a lifestyle design that makes a lot of sense? And so this is kind of reallocating capital based on what our overall goals are. So maybe you got your first five, 10, 15 property set up. Now we need to decide, do we want to continue doing this and just kind of letting this compound over time, or are we okay slowing down and reallocating capital somewhere

Dave:
Else?This is so important. I feel like it’s one of the things that people really miss and is kind of lost in the broader social media conversation about real estate where people talk about door count, which I hate. I talk about that a lot or this idea that you need to get to a certain number of properties or that you always need to be pushing. I just personally believe what I said earlier that the goal is to stay in the game, right? And sometimes you have capacity. Sometimes you have capital, sometimes you have time and you could go and you could get out there and acquire a bunch of assets and turn them around and do some rentals, and sometimes you don’t. Sometimes life happens, sometimes you need capital for something else, and that’s totally okay. I don’t know how you feel, Andrew, but for me, designing a portfolio that is sustainable is the most important.
If that means you don’t buy a deal one year, that’s okay. It’s like, yes, you want to keep that goal in mind, but there are inevitably times where your progress is going to ebb and flow and you just need to know that that’s normal. And reallocating and rethinking these things is just part of the journey. It is not expected that you’re just going to be a regimented robot that’s going to be able to buy properties at the exact time that you want to and grow on the exact scale. It just doesn’t happen that way.

Andrew:
Exactly. And the person that opened my eyes to this was Chad Carson where he kind of talked about his portfolio and how he had this small and mighty portfolio in place where he would just kind of stop and reallocate and make sure he knew exactly what his plan was. And is he okay with the amount of doors that he currently has? And I think that’s just a powerful, powerful way to look at this.

Dave:
All right. So once you’ve done this, Andrew, what’s step number nine?

Andrew:
So step number nine is to save for any known future expenses. So we’re getting back into the personal finance realm here. What do I mean by this? Well, let’s say you start to have kids. Let’s say you get married or let’s say you have some big future expenses that you want to save for. Well, after you get some of your real estate investing done and you start having this working for you and you have a certain amount of allocation and capital that you have there, maybe your income starts to increase. Well, as that income increases and you have more of a gap to play with, that’s when you start to save for future expenses. So things like maybe your kid’s college or your kids’ future brokerage accounts or whatever else you want to save for. Maybe it’s a wedding fund, whatever else, this is the timeframe where I look at this, where I want to get as many dollars as possible, working as early as possible, and then I will start to save for some of that other stuff.
One of the big things that we talk about with this, especially for folks out there who do have kids, is a lot of people want to save for their kids first. They want to do it upfront. But we talk about this thing called the oxygen mask method where if a plane is going down-

Dave:
I already like this analogy. Yeah.

Andrew:
If a plate is going down, what do you do? Well, first, you take care of your own oxygen first, then you help others. And we want you to do the same exact thing, but guess what? There are no student loans for retirement. So there’s no loans out there for retirement. You got to take care of yourself first, then you can take care of your kids. Otherwise, if you do not take care of yourself and make sure your investments are going to be funding your retirement and your financial freedom, then your kids are going to have to fund that and it’s going to be more of a burden on them. And so overall, future expenses are just a big piece of the pie. I know a lot of people want to save for their kids’ college. They want to help their kids in their future, but we got to make sure that we have this in place first.

Dave:
This is a hard one. I struggled with this personally on two fronts. One, I don’t have kids yet, but hope to and think about this. But secondly, I think the other part is like, once you get to this stage, accepting that you can use some of your capital for personal things, I think was a really hard thing for me where you get into this mindset where you’re like, okay, I know the law of 72, right? I know that if I can invest this capital at 10% in 7.2 years, it’s going to double. And I’m like, oh, I don’t want to buy a new car. I don’t want to plan for having an expensive wedding. So I just think it’s difficult to get out of that investor mindset. Was this hard for you too?

Andrew:
It was very hard for me. And so I kind of developed a plan and a system to make this work well for me where I just automated all of it. So now, for example, I have a 529 open for my kids. I have a taxable brokerage open for my kids and I just literally set that up and automate the funds to those different accounts so I don’t have to think about it. They automatically invest and that helps me tremendously. And we’re a big proponent of automating your entire financial system so you don’t have to think about it. The reason why that Ramsey study shows all those millionaires in a 401k is because really all they did was automate their money into that 401k so they didn’t have to really think about it anymore. They didn’t see those dollars in their checking account so they could go out and spend it.
And instead they automated their funds there. And I’m a huge proponent of automation. So that’s how I kind of got past this, was just automating my finances as much as possible because it is very hard psychologically to get over that.

Dave:
Yeah, because then you’re not thinking, okay, I have this 10 grand, I could put it towards 529 or I can invest it in the stock market or real estate. You’re like, okay, I have eight grand, right? Because you already took the whatever. I’m just making up the numbers, but you took some number out and allocated it elsewhere. So it’s not even going into your equation as an investor that this is investable capital.

Andrew:
Exactly. That is the big key. And I think that helps overall for most people. It removes willpower out of the equation. And our willpower is the worst thing of anything. And so it removes that from the equation. Then we can just send the money over and it is a very, very easy way to build wealth. I have had people do this and they’re like, “I don’t know what to do with my hands when I automate my money, but my accounts just keep growing and it’s the best thing ever and I literally don’t have to do anything.” So it’s very cool to watch people do this.

Dave:
Okay. Step 10, what do you got?

Andrew:
So step 10, this is going to be one that not everyone’s going to want to do. And you don’t have to do it in this order, but I want to give people the option of this because it’s strategically to pay down any other debt that you have, any consumer debt that you have on hand. If you want true financial freedom, let’s say, for example, you have car loans and they’re at a 5% interest rate or anything else like that. If you want to become completely debt free at some point in time, you’ve got your investing rolling, you’ve got everything going in place, then now you have some extra cash on hand and as you’re starting to build wealth, you can start to pay down some of that debt. Whereas for most retirees out there, for folks who are getting their 50s or closer to their 60s and they want to be retired, or if you’re retiring in your 40s, I love the idea of having debt freedom, meaning you don’t have to worry about any other debt out there outside of maybe properties and things like that, but you really just want to get this paid down.
And so over time, strategically getting this paid down is very, very powerful.

Dave:
Yeah, I totally agree. I’m sort of at this point in my career where I’m thinking like I have a mortgage, but I’m still thinking about paying it off. I know it’s not the best financial decision, but it’s that I love your swan analysis. It’s like, how do I sleep well at night? I’m at a point in my career and I think that’s why this is step 10, not step five where you’re like, okay, just reduce risk, reduce complexity, make your life easier. And it’s a blessing to be at this point of your career, but it is also another big change in mentality. But I totally agree with this. I’m like, I don’t know when I’m going to do it. I’m not going to do it this year. But one of my short term goals, two, three, four, five years, something like that, is to pay off my mortgage and just be completely debt free on a personal level.
I’ll still have debt on my rental properties, but be personally completely debt free.

Andrew:
And that’s kind of the goal I think is a lot of times I’ll look at the same thing. I bought my house in 2020 and my mortgage is like 2.7%, so I’ll probably never pay it down. But sometimes I look at it like, “Well, what if I did? What if I did do that? How would I feel about this? ” And it’s one of those things where I feel like I would feel a lot of just relief and no worries and those types of things. And I know a lot of people who have done this with really low interest rates and they’re like, “It’s the best thing I ever did, not because it was a good financial decision.” In fact, it was probably a bad financial decision overall, but it was just one of those things that I de- risked my life. I don’t have to think about it.
I don’t have to worry. And it’s a really, really powerful way to just take control and de- risk everything.

Dave:
This framework is great. It’s just tracking my own personal life for the last 15 years. Okay. Well, I think 11 is the last one, right? So what is it?

Andrew:
So 11 is going to be investing in advanced strategies. So this is going to be a number of different things. We call them wealth accelerators, but what they are is basically A, you could do real estate syndications, you could do advanced note lending, you could do a lot of different things here, but also if you’re interested in things like buying businesses or if you want to try different strategies, this is a great place to do that where you have this extra capital on hand that you can then put in riskier things or things that are riskier in quotations here that are just one of those areas where I love wealth accelerators. Why? Because a lot of people, once they start to invest in wealth accelerators, then they really see their money start to grow. But it is one of those things that if you do this too early before you kind of have your foundation and your rentals in place and your investments in place, if you do it too early, you could be taking on way too much risk.
And so I like to have it later on down the line because it’s very, very powerful.

Dave:
This is, I think, the fun part of investing now. It’s like being a capital allocator to me is a good time. You’re like, all right, I got X money to work with. I could put some of it in passive, I could put some of it inactive, I could put some of it in the stock market. And just as an analyst, I think it’s really fun. And it also, I like the steps that you’ve done it. I didn’t do it in this order, but I can imagine you pay down your mortgage, right? You’re probably more willing to take a couple big swings on a syndication or something that has big upside but has lower liquidity because your living expenses are just so much lower. On a personal risk level, you don’t have that much. And so yeah, go take some swings.

Andrew:
Exactly. And I think for most people out there, if they’re saying to themselves, “Listen, I’m not going to pay down my low interest debt. It’s at 4% across the board and I have this car loan and I have this mortgage, but I’m not going to pay that down.” You can flip the two. I think that’s the point in time where you can kind of flip and do this before that low interest debt. If you just want to pay off that low interest debt last if ever, that is completely fine in my book. And in terms of for most people out there, it’s just getting this capital to work and kind of like you said, doing some of the fun stuff and being able to kind of get that point in time. Because once you establish the foundation, you have enough cash flow coming in or you have enough equity in your properties, being able to get towards financial freedom and you know you’re on track and you’re investing your money in the market and doing all these other things, you are in such a powerful position that you can really take advantage of some of this stuff and take on a little more risk.

Dave:
What kinds of advanced strategies do you like or do you invest in?

Andrew:
So my favorite strategies right now, and I think one of the biggest opportunities right now is small business acquisition. And so this is one where I see people have talked about it at nauseum, but the baby boomer generation is retiring and a lot of them don’t even know that they could sell their businesses. And they have systems and operations that are completely outdated. And with the age of AI now, there are a lot of just AI implementation things that you can do in some of these businesses to dramatically increase profit. And so this is my favorite opportunity overall for most people. That’s one of my favorite wealth accelerators. But another one is finding real estate syndications with really good operators, like having really good operators in place where it is completely passive. Sure, you’re going to be tying your money up for a long time.
I don’t like that part, but at the same time, as long as the cashflow is there and you see that rate of return, that I think could be very, very powerful.

Dave:
Totally. Doing nothing is great.

Andrew:
I

Dave:
Love it. Yeah. I mean, I agree. I do syndications. I love private lending, by the way, great way to get 10, 12% cash on cash returns every single year, great way later in your career to build wealth. And then yeah, I’m just starting my buying a small business journey, but the numbers are compelling. But Andrew, this is awesome. Thank you so much for joining us today. I love the framework. I think this is so powerful for real estate investors to just see that you don’t need to do it all at once. I think people think, oh, how do I get into syndications or how do I get into the market? How do I balance it? Think about it systematically. Everyone has to do it slowly. No one does this all at once. And I think this is an awesome framework. For all of our listeners to apply to their own investing career, hopefully it will help you see that if you do this for eight, 10, 12 years, you can get to step 11, it just takes discipline and knowing yourself.

Andrew:
Exactly. I think that is the most important thing is if you go through these steps, I did these steps myself personally and it helped me set myself up where I was protected, but then in addition, helped me accelerate my path to wealth, which was my ultimate goal. I just wanted to buy more freedom every single year. I love

Dave:
It. So thank you again, Andrew. If people want to connect with you, where should they find you?

Andrew:
Thank you so much for having me. So they can find me on the Personal Finance Podcast where anywhere you listen to podcasts, you can find us there or on YouTube. In addition, we have a PDF guide of this exact framework if anybody is interested. If you go to mastermoney.co/resources, we have that there available for you. And then we have Master Money Academy. If you ever want help with your personal finances, that’s what we help you there is in Master Money Academy.

Dave:
Awesome. Thanks again, Andrew. We appreciate you. And thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.