Part 5: FIRE with Jassen Bowman – Scenarios 10, 11 and 12

The following are the last 3 of the 12 Scenarios of common strategies to achieve financial independence and retire early that I cover with Jassen for a new book we are writing.

Copy the tenth Scenario 5% Down Payment Owner-Occupant with Stocks, Buy Ten 20% Down Payment Rentals into your Real Estate Financial Planner™:

Copy Scenario into my Real Estate Financial Planner™ Software

Or, copy the eleventh Scenario Renting with Stocks, Buy Twenty 20% Down Payment Properties into your Real Estate Financial Planner™:

Copy Scenario into my Real Estate Financial Planner™ Software

Or, copy the twelfth Scenario Ten 5% Down Payment Nomads with Stocks into your Real Estate Financial Planner™:

Copy Scenario into my Real Estate Financial Planner™ Software

Check out the other parts of this series:

Or, check out the transcript of the video below.

Transcript of Video

Jassen: Hello, Jassen Bowman, here and I am pleased once again to be joined by the creator of The Real Estate Financial Planner™ software, Mr James Orr. How are you doing James?

James: I am doing amazing. Thank you for having me on once again.

Jassen: Thank you for doing this series of webinars and man. Woo, I gotta tell Ya, I gotta tell you something man.

James: What are you going to tell me?

Jassen: So this is now what I think our fifth day in a row today of recording these, a special set of Scenario overviews, uh, uh, that we’re putting together for the book that we are going to write that illustrates some of the variability that you can introduce into the system, etcetera, but also as a user of the software myself, I’ve always found it very difficult to use because it is a professional level tool that has a ton of moving pieces to it.

Jassen: But over the course of the past four days of doing these webinars, uh, it’s kind of served as training, if you will for, for me. And so I ended up spending almost four hours yesterday, uh, playing with different Scenarios. I’m pretty sure I ran a total of well over 200 different Scenarios for my own personal circumstances, trying to find a sweet spot between the earliest possible, uh early retirement date for my target income and also a while still maximizing long term, a net worth because you know, the, the, as we’ve already seen, uh, yesterday, uh, you can hit your FIRE Goal through a Scenario that does not actually maximize your, uh, you can hit your FIRE Goal faster by running a Scenario by, by following a financial plan that doesn’t actually maximize long term net worth. And so, um, I, I was trying to find a sweet spot for that, especially given some of my particular assumptions about the future of the markets and my own beliefs about this, that, and the other.

Jassen: And it was just absolutely fascinating to run literally a couple hundred different variations with minor tweaks here and there, you know, tweak this, tweak that, rerun it and see what it did in terms of net worth, a true cash flow and the, the number of months that it takes to hit my target monthly income and retirement Goal. Those were the three primary things I was, uh, I was looking at and it’s just fascinating.

James: So you finally drank the Koolaid, Jassen. You used the software and you’re like, wow, this is cool. Actually, it’s taken you like four days to call me, like, Oh yeah, that looks pretty interesting. That’s cool. But like yesterday, you actually went and used it and you’re like, wow, this really is cool.

Jassen: I wasn’t just saying that I’ve, you know, I’ve seen the output of the software in, in, in different iterations, right. For, you know, a year and a half or so from you. You have ran my Scenarios and I’ve seen the output, but it’s always been you driving the bus.

James: Yeah.

Jassen: And so now after, after kind of being on here with you for them for four days in a row, a bunch of things clicked, you know, I got to understand how some things worked, how some of the different pieces of the software interacted to, to impact, uh, an output. And so now that, a bunch of those things clicked, I was able to spend a few hours playing with it myself. Um, and, and, and I, and I still have some questions, you know, I emailed you late last night with some additional questions, you know, a couple of things I didn’t quite understand. Um, but for the most part I was able to finally have enough, uh, I guess confidence in my own ability to go in and tweak stuff without thinking I was going to screw it up, uh, you know, which, which is a fear when using new software. Right?

James: Totally.

Jassen: And, and you had created a baseline set of, of, of assumptions modeling my Scenario and I was scared to death of messing that up.

James: Well you know, how to make a copy. Right? So it’s like.

Jassen: well, yeah.

James: So you didn’t have to up what I already did. You could go ahead and make copies in there and that’s one of the nice things about the software. So we’re trying to make it so that you can copy any of the templates. We’re going over template Scenarios that we have and say that’s sort of what I want to do. Let me copy that into my Account and then I can kind of edit what it is. But for you, because you have unique stuff and I did a lot of a manual creation things based on your actual Properties, you were able to make a copy of that and then kind of.

Jassen: Yeah. And, and so now I feel much more comfortable with, with certain things like, you know, am I better off putting money into um, you know, my solo 401k or am I better off, you know, buying another house, am I better off, um paying , you know, doing accelerated payoff of my loans or, or put that money in bonds. Right. So I’m able to answer questions like that because I spent a few hours with the software yesterday and I hadn’t been able to do that before.

James: So that’s great. I’m really happy to hear that. I’m glad you were able to try it out and you like it.

Jassen: Well, thank you for having me on, for these trainings and it’s been hugely beneficial to me and I hope that everybody else that’s watching, maybe they’re not going to get it as all amped up and excited as I am. But, you know, I, I hope that by watching the series, you know watching three or four of these videos, the same thing will happen and that it will click for you about how to use the tool, uh, and, and that you can, again, I think it’s just a confidence thing of feeling confident with the tweaks that you’re making and, uh, that this series of webinars is, is instilling a sense of what the different variables do so that you can understand better what you should be tweaking. Right? So, yeah, I just really appreciate you doing that. So

James: Yeah. You’re welcome. And I do that too I get excited to run a new stereo for my own personal stuff and I’m like, all this is amazing. Like you once you see like how things are kind of all inter-playing and you’re like, oh, I need to test this. And then you end up seeing something new and it never ends. I mean there’s probably hundreds of tests. I still want to run on my own stuff and even though I have access to do whatever I want with this software, I just, uh, you know, I don’t have time to do it all for myself. So I do the most important ones and I learn something new every time I played with it seems like so.

Jassen: Well. And then, and then also out of that, I came up with a suggestion for a new Rule that I think that would be good for you to add to the software. So as more people start using it, you’re also going to have more people doing that to you. So you’re going to be more spending more time coding than running your own Scenarios.

James: That may be true. I would point out that our philosophy with the software has been don’t force you to model things the way that I think about the world. Don’t force my view of the world on you, but give you the Rules to model the world as you see it. So I do know that we are going to create Rules and that you’re going to be able to accomplish similar results using different types of Rules. Excuse me. But, um, I want to give you the power to do the testing. You want to do the modeling. You want to do the way you see the world. And the way you see Rules working, so I know that we’re creating a ton more Rules in the future

James: Love it.

James: Yeah. So let’s, let’s jump into the last, I don’t even know is it the last three. Where are we at? I don’t even remember.

Jassen: So I, I. So yesterday we looked at a 10, five percent down, no Nomads, no stocks or bonds.

James: And that was the first one we did?

Jassen: We looked at renting. Did we do renting which stocks and 20 percent?

James: I don’t think we did. I think we did A and B on day two. Then we did two more on day three. And then yesterday I think we did two five percent down payment, Nomads, with stocks, and 10, five percent down, Nomads with no stocks or bonds. And I think we have these four left,

Jassen: Right. So I think what happened was, is that the very tail end yesterday, I think you, you must’ve thrown on the renting with stocks buy 10. I think you threw it onto the Goal Chart really, really quick for comparison.

James: That’s good there because there’s really not a lot. Once I show you how to like hit these basic things and set them up, all the assumptions are the same. That we’re buying the exact same type of Property. So I don’t need to cover what’s included in the Property. Again, you know, we’re doing the stock modeling is exactly the same for all of these. Basically. Any money you have left over, you’re investing in the stocks that eight percent and if you’re doing bonds, you’re investing in bonds at three percent. So, and, and then when we’re doing, the 60/40 splits were basically dividing the Account up every single month, um, and doing the division 60/40. So I, I, we’ve already covered all those things so it can move a lot faster. So if I did already throw these on, that’s really good news so then we only have three to do today and I think we could easily get through this.

Jassen: Great. Then let’s jump into the five percent down payment owner occupant with stocks and then buy 10, 20 percent down payment rentals. That one’s an interesting one, I think by the way, because I think it, it, it, it resembles the Scenario that a lot of people are probably going to follow anyway. It’s like a not uncommon Scenario, especially for people that don’t want to move every year.

James: Yeah, no, so I do. So like yesterday we covered renting with stocks. So you’re renting a Property, you’re investing in stocks, but as soon as you have enough to buy a down payment, you’re buying 10, 20 percent down payment rentals where you’re never living in a Property you’re always renting, but you’re buying 10 rental Properties do in it. And the difference between that one and today is with this one, we’re saying, hey, you’re going to buy an owner occupant Property. You’re never going to rent. You’re still doing stocks and you’re still buying the same 10, 20 percent down rentals. So what I’d like to do, since we kind of know what the boundary conditions are, they’re the same as the one yesterday, except we’re now buying an owner occupant Property. Let’s just jump in and compare these two because these two is, it’s like the difference between should I rent or, should I buy if I’m going to buy rental Properties?

Jassen: Correct.

James: That’s really what the question is, right?

Jassen: Yep.

James: So let’s do this. Let’s go ahead and do a look at the Chart for this one and then let’s also pull up the same net worth Chart for renting with stocks by 10, 20 percent down payment rentals, and let’s just take a look at coming to some of the things. So this is the difference in net worth between owning a Property and renting when you’re going to invest in stocks at eight percent return, but you’re going to buy 10, 20 percent down payment rental Properties as well, so they start off remarkably similar.

Net-Worth

James: This is the first whatever that is a 160 months. So what is that like 15 years, something like that. A little less than 15 years and you can see net worth is relatively similar because you’re doing similar things and you’re able to kind of do this, but once you start really getting out here, the difference in net worth by the time you get to 60 years in the future, 720 months is $10,000,000. So I’m going to repeat this in a way that that kind of makes sense. I’m going to simplify it down to this one thing owner occupying instead of renting is a $10,000,000 decision.

James: That was my pause for dramatic effect. It’s a $10,000,000 decision because it’s not in inflation adjusted dollars. It’s in the highly inflated dollars and are talking 60 years out. I mean I’ll give you both those points, but it’s still a pretty big decision. Even if we adjust for inflation, it is a almost $2 million dollar decision in inflation adjusted dollars.

Jassen: Right.

James: Sixty years from now. So that’s sort of the difference. So what am I going to do the show you, number of Properties owned and look at the difference between these two. So as you can see with the one where we owner occupy, that’s the blue line. We buy a Property right away. I’m sorry, it’s not the blue line, it’s the red line. The red Line is when we buy a Property right away, the blue line, we start off with zero Properties because we’re renting and we have to save up for almost what is this 14 months uh 18 months before we have enough for a 20 percent down payment.

Number-Properties-Owned

James: So with one with the model where we’re owner occupying and we have enough for five percent down payment immediately we buy it immediately in month one. But with the other one it takes us 18 months to have enough for 20 percent down payment. And then from there basically almost every year we’re buying another one or so. So it looks like according to me, you know, it’s probably a little bit less than that or a little bit more than that depending on the year. But then eventually gets to the point where in one case you own 11 Properties because you own one where you’re living in it and 10 rentals. And then the other case, you own 10 rentals and you’re renting. So can you see that difference, Jassen?

Jassen: Yep. And I want to point out for in case, uh stop right there in case anybody is wondering how on earth do you start on that red line from the very get go, being able to afford to jump into a five percent owner, owner occupant Property. Don’t forget that this entire time, one of our base assumptions is that you start with $30,000 in savings.

James: Absolutely. In all cases,

Jassen: And that’s where the money came from.

James: In every single one of these 12 Scenarios that we’re doing. One of the core assumptions is you’re earning $66,000 a year, $5,500 per month. You’re saving 20 percent of your gross income per month and you’re starting with $30,000 in savings at the very beginning in.

Jassen: Right.

James: So those are like some of our baseline assumptions. We’re also for figuring out our Goal of when we can retire. We are trying to hit a passive income between positive cash flow from Properties and um the ah 3.25 percent safe withdrawal rate or the withdrawal rate. You know, we’re assuming that’s safe, um, between the 3.25 withdrawal rate and the cash flow that has to equal $4,400 per month in inflated dollars.

James: So whatever it is in $4,400 in today’s dollars.

Jassen: Right.

James: Yup. So that’s exactly right. That’s why you’re able to do the $30,000. And so you acquire those Properties. Um, let’s take a look at cash flow. So cash flow, you’re both buying 10 rental Properties, they’re just slightly offset. So if you look at this, your cash flows are really similar. There is a slight difference because one of them you’re buying a little bit sooner than others, but overall the cash flow is very, very similar. You could see they, they sort of follow each other and remember why we have these blips, right? You basically every time buy a new Property, excuse me. You basically have one month where you are and not needing to make your mortgage payment. Because mortgage payments are paid in arrears, you basically get to own the Property for a month before mortgage payment is due.

Total-True-Cash-Flow

James: And so each one of these blips is a new purchase of one of the rental Properties and can kind of see those. But overall you could see that the cash flow numbers they track very, very closely all the way through to the very end. And I’ll show you raw dollars if you want to, um, because this is the raw dollar number one.

Jassen: Yeah.

James: Okay. So that’s what you could see there for cash flow. Your equity is going to be very similar except you’re going to have an additional Property. So I’ll show you just total equity to kind of compare those two. And you could see the difference between these lines is the one on top has one extra Property, the Property you’re living in, so you have a little bit of bonus for equity in that one as well.

Total-Equity

Jassen: Um, but that, that difference magnifies with time.

James: It does, but only by the difference of what that Property is increasing in value. So you get to the point where once you pay off the Property, the, the only real improvement is the appreciation rate of the one Property that you own. All the other ones are appreciating at the same rates.

Jassen: Right. But go out to 60 years on the Chart.

James: You want to know what the difference is?

Jassen: Yeah, it’s not insignificant. It’s $1.2 million dollars.

James: So ah $1.2 million dollars is what it is. Let’s go ahead and adjust that for inflation and I think you’ll find it to be about the value of the Property. So the difference is about $200,000.

Jassen: There you go.

James: Yeah. Because basically if you just backed it, today’s dollars, the Properties are $200,000 Properties that we’re buying. So if you really adjust back to inflation, the only difference is you own an extra Property.

Jassen: Right.

James: So that’s why it’s about $200,000.

Jassen: Okay.

James: Okay. So we kind of talked about those. I’m not going to drill into a lot of these other ones. Do you want to, you want to toggle on. Oh, let’s do it this way. Let’s go look at the Goal for this and then let’s toggle on some of the old ones and see where we stand for kind of the Goal and net worth. Does that seem fair?.

Jassen: Yep.

James: Okay. So let’s go look at the Goal and how quickly can we retire? You could see they’re very similar.

Goals

Jassen: Wow.

James: You know, the, the one where you are an owner occupant is the smallest bit earlier, how much, uh, 10 months. So you can retire 10 months earlier instead of taking 22 years and six months where you’re, you’re renting, you can do it in 21 years and eight months if you buy as an owner occupant. So it’s not that big of a difference. I mean it’s slightly better, but it’s not going to be, you know, you got to work 10 more years or anything like that to do it. So I, I consider these to be interchangeable in some ways. One model, you end up with a little bit more net worth and you end up living in the house. You have, you know what’s, what’s interesting about this is we talked about this before but I’ll bring it up again here because I think it’s appropriate. So we were modeling hitting a $4,400 per month, kind of target income and retirement.

Jassen: Right.

James: But the big differences and it’s inflation adjusted so it’s much higher later, but the big difference between these two Scenarios and really it would make the one where you owner occupy it could happen a lot earlier. The big difference is that in one of the Scenarios, the one where you’re renting, you need to have the rents coming out of your personal expenses in the one where you owner occupy your Property. You don’t need to make a mortgage payment because you at this point own the Property free and clear. Well, I guess you don’t at 21 years, but as soon as you pay off the Property, 30 years, you no longer have a mortgage payment and so your. Your actual monthly expenses don’t need to include a mortgage payment. You need to include tax insurance, but not the actual principal and interest part of your mortgage payment on the House that you live in, so your lifestyle actually increases if you’re, if you’re living on the same $4,400 a month, one where you’re renting need include your rent payment and that in the one where you own your house, free and clear at year 30, you no longer have that mortgage payment and so your standard of living actually goes up a little bit.

Jassen: Nice.

James: Does that make sense?

Jassen: Yeah.

James: Okay, so let’s go ahead and add back in some of the old ones that we did. That way we have a. We can kind of compare all of these dates. So five percent down payment owner occupant, 60/40. I think we had that one as well. Go ahead and add that in there. What about a two down payment Nomad Properties with stocks? Did we cover that one? I think we did right. I don’t want to ruin the surprise three, five percent down Nomad with 60/40. I think we talked about that one. I think that was what I thought your model was going to be a 10, five percent down, Nomad’s with stocks. I don’t think we’ve covered that one yet. And 10, five percent Nomads with no stocks or bonds. I think we covered that yesterday, right?

Jassen: I think. Yeah. We did.

James: Do you remember?

Jassen: Yeah.

James: Okay, I’ll add that one. This one I will add 10, five percent down Nomads with no stocks or bonds. I think we had that one. And renting with 60/40 stocks and bonds think we had that one.

Jassen: That was one of the first ones we did.

James: Five percent down owner occupant with stocks, think we did that one too. All right. So I think the only ones we haven’t done yet is renting with stocks, buy 20 rental Properties and then doing 10, five percent down Nomads with stocks.

Jassen: Right.

James: Those are the only two we have left off. Right?

Jassen: I think so.

James: That we have to do. I think so too. So if we go look at the months for this, the earliest retirement just kind of eyeballing these looks like 21 years one month that seem right to you?

Jassen: Yep.

Goal-Comparison-Chart

James: And that is buying 10, five percent down Nomads and ignoring stocks and bonds. Don’t do any stocks or bonds. So that is the best one. The one right after that though is five percent down Nomad Property stocks and then buying 10, 20 percent down rentals. So it’s the one we just did. That’s the next best one.

Jassen: Yup.

James: So you can kind of see that on this Chart here, it shows that there’s, there’s definitely a grouping of the ones where you’re acquiring more rental Properties that moves those lines up. This area right here is where you kind of see it, right? These are where they kind of all cross.

Goal-Comparison

James: So those are the ones who have got there. So why don’t we do this Jassen, let’s go ahead and add one more because I can explain to you what’s going on. And then if you want to drill down and look at some other stuff. Let’s do that. So which one do you want to do first? Do you want to do renting with stocks buy 20, 20 percent down payment Properties? Or do you want to do 10 Nomad Properties and then invest in stocks? What would you give for that?

Jassen: Let’s do Nomad with stocks.

James: Alright, let’s do that. So now I just added buying 10 Nomad Properties. So we’re going to have nine rentals and live in one and we’re going to invest in stocks with the rest. Okay? So it’s similar in some ways to the one where we bought 10, five percent down Nomads, but we didn’t have any stocks or bonds. The only difference between this one and the new one is that we’re investing in stocks. So how much difference did that make? Ten percent down Nomads stocks turns out that is the best case Scenario so far. You can retire in 20 years and one month doing that model. So if you’re willing

Jassen: Shaves off a year versus doing it with no stocks or bonds, which is really fascinating.

Goal-Comparison-Chart11

James: Yes, I agree. Yep. So, so here’s what it basically says. If you’re willing Jassen, to move 10 times in this model and the model we’re talking about right now, you need to literally move into a Property, live there for a year, then move into another Property, convert the previous one to a rental. And repeat that process until you have 10 Properties total, so you need to move 10 times. Now. How many people do you know of that are willing to move 10 times.

Jassen: It’s a small number.

James: Yeah, I agree. It’s a small percentage of the population. But if you are willing to do that, this allows you to accomplish your Goals the fastest. So basically it tells you 20 years and one month in order to do that. Now let’s say you don’t want to move in. Well it’s not that big of a difference to say I’m going to buy one, five percent down owner occupant Property, but I’m going to invest in stocks and I’m going to buy 10, 20 percent down rentals with the rest of my money. So that one, it takes 19 months more. So can you. Would you rather trade moving 10 times or 19 more months of working to get to the same spot?

Jassen: Well, me personally, I’d rather move.

James: Yeah and I think there are people that are willing to do that.

Jassen: The majority of the population though, it’s probably worth it to them to work two years longer and not put their family through the rigamarole of moving every 12 months.

James: I totally agree. You know what the biggest. So I do Nomad with clients all the time, right? Um, about, you know, what the biggest complaint I hear people is my spouse won’t go along with it. I’m totally fine moving 10 times, but it’s my spouse that won’t do it. So that’s like my biggest complaint and it’s not always the male or the female. It’s, you know, it’s mixed. Sometimes it’s the husband that’s like, I will do it but my wife won’t and sometimes it’s, the wife says I’ll do it, but my husband won’t. So depends on who it is, but at the same time, that’s the biggest complaint I get about doing the Nomad model. Everything else about it people love. They’re like, oh, I can invest with less down. I can acquire more Properties, I can acquire Properties quickly. Um, but uh, you know, oh, I have to move.

James: Is there a way we could do this where we don’t have to move? Yeah, you totally can. You put 20 percent or 15 percent down and pay PMI. That’s the other alternative.

Jassen: How, how, how, uh, do you know what the, or do you have an anecdotal ratio of people that are, that like it versus don’t like Nomad mad when there’s children in the home. Does that make a difference?

James: Yeah, it probably does make a difference. I don’t know what the actual number is, but you know, having kids not wanting to disrupt your kids, especially if there’s a uh, a school at issue in northern Colorado, we have school of choice so school districts are not as big of a deal. Um, they’re, they come into play a little bit but not as much as in some areas where, you know, there’s no way you could get into a school unless you happen to live in this school district or the houses in certain school districts sell for premiums and stuff.

James: So stuff like that. So we don’t see that here, but I think that could come into play too, unless you’re buying Properties in basically the school district over and over again.

Jassen: Okay.

James: Um, yeah, but it is disruptive for kids, right? Because your kids have certain friends and relationships and they want to maintain those and uh, you know, disrupting them is potentially problematic. So unless you’re able to do, you know, same school district, same friend group, um, it could potentially become a problem to do it. So, but you don’t have to, is what we’re showing here. You can choose, say, listen, it’s important for me or when my kids move out, then I’ll go ahead and finished my buying spree because if you start this when your kids are older, maybe you start this early and then only, do it three or four times and then you say, Hey, okay, now my kids are of age where they’ve got some friends and it’s in they’re in school, I can’t do this anymore.

James: So now I’m going to convert to the 20 percent down. Go ahead and model that. You know, go ahead and copy one of these to your Account and change it to see how it impacts things. But it’s not gonna be that big of a difference because if you don’t do Nomad at all, basically you only buy one five percent Property and you buy 10 Properties, it’s still only 19 months different.

Jassen: Right.

James: Yeah. So that’s kinda the big difference there. So if you don’t mind Jassen, let’s just go ahead and finish out the last one. And add the last kind of hurrah to this thing and that is renting with stocks but buying 20, 20 percent down Properties because you and your spouse can each get 10 loans in your name, uh, that are conventional fixed rate financing loans. And so 20 is sort of like a weird artificial cap. You could still go get portfolio loans and if you pay off Properties you can go refinance things. But this is 20, 20 percent down Properties being able to get conventional 30 year fixed rate loans, 10 in your spouse’s name 10 under your name, where you each buy independently. And then you kind of all have this as a group. That make sense?

Jassen: Yeah. And I think it’s important to point out that that the, the 10 loan limit applies to investor loans. Uh, there is no limit under Fannie, Freddie you know conventional financing guidelines for owner occupant loans.

James: Yeah, that’s a good point. So if you’re doing Nomad, you can do Nomad more than 10 or 20. Um, you can continue doing those and continue to buy five percent down Properties.

Jassen: Right.

James: As of right now. And you know, Rules change. I mean loan Rules change, you know, that used to be a different number than it is today. And I’m sure in the future, at some point this number will change as well. Could get higher, could get lower. And of course if it changes you can come in here and remodel your Scenario to do it. Uh, but you know, lot in my opinion, lock them in while you can.

Jassen: Yup.

James: Alright so let’s take a look. Let’s add this to the Scenario and take a look at the Goal, see where this ends up.

Jassen: Drum roll please.

James: Drum roll please. So buying 20, 20 percent down Properties turns out to be the exact same number of months as doing 10, five percent down Nomad Properties with stocks.

Jassen: Whaaat?

James: Yep surprise, surprise. So whether you decide to do Nomad 10 times and invest stocks with the rest or you decide to rent, invest in stocks and buy 20, 20 percent down Properties, it’s still 241 months, 20 years, one month to retire.

Goal-Comparison-Chart-All12

Jassen: What’s the net worth difference? Go back out the Chart.

James: Yeah, let’s go to the net worth and we’ll look at that because that net worth number is going to be pretty deep, pretty significantly different. So if you look at these, the net worth difference, maybe I’m wrong, let’s go take a look. The two top ones, the two top net worth ones are, oh this inflation adjusted. Let’s do raw. Let’s do 720 and see what they are. All right. So, um, the difference between the top two is about a million dollars. Eighty-two, million versus 83. And it looks like renting with stocks and buying 20, 20 percent down payment Properties is that $82 million. And then doing 10, five percent down payment, Nomads with stocks is 83 million.

Net-Worth-720

Jassen: Wow.

James: So doing Nomad gives you 10 million. Sorry, 1 million more dollars. However, doing owner occupant with stocks and buying 10, 20 percent down rentals is $10 million worse than doing Nomad with stocks.

Jassen: Wow.

James: So the, the net worth one is pretty significant. The other one that I think is going to be really interesting is your total true cash flow because your total true cash flow at the very end of it is it’s pretty, it’s pretty disparate like they’re spread out. So the one that has the by far best cash flow is going to be buying the 20 rental Properties. You’re going to have $94,000 a month in cash flow doing that model. If you adjust for inflation, it is a $16,000 a month in today’s dollars by buying 20, 20 percent down payment and Properties if you do the, um,

Jassen: Wow.

James: Yeah. If you do the Nomad one where you do 10, five percent down Nomads, you do stocks, it’s about $7,000 a month in inflated dollars.

Cash-Flow-720

James: If you do the 10, 20 percent down rentals, you have about eight grand a month.

Jassen: Wow. That is a significant difference.

James: Yup. The cash flow for the 20 rentals is huge. It’s a much bigger difference.

Jassen: Yeah.

James: And if we look at like number of Properties owned, let me do this get it switched out here. It shows you how many Properties you acquire and when you acquire them, the ones where they’re tend to be pushed to the left are the ones that are Nomad because you can buy them faster. You can buy Properties when you have, when you come up with a five percent down payment. So it tends to push the Charts to the left as to when you acquire sooner. Uh, the ones where you’re putting 20 percent down tend to be the ones that are further to the right. Like it looks like this orange one is probably one where you’re buying 20 percent down ones. And the blue line is that renting with stocks, buying 20, 20 percent down Properties. And you can see you buy twice as many of these rental Properties with this blue line. You peak out at 20 compare to either 10 or 11 with the next two highest.

Number-Properties-Owned-All

Jassen: Right. Wow.

James: It’s interesting?

Jassen: That’s fascinating.

James: Yeah. The other one we’ll look at is, um, mortgage balances. If we can do that. Let’s see total, do I have mortgage balance? Can’t even find my own stuff.

James: No, I guess we only have equity so we can look at equity.

Jassen: You have mortgage balances under. I think it’s the real estate property Charts.

James: Yeah. So the owned Property Charts are only going to show you a single Scenario. I was going to try to compare the amount of your mortgage balances for all the Scenarios, but it’s, it’s okay. Well I can add that as a Chart later. Uh, this one though does show your total equity and so you could see your amount of equity you have when you buy 20, 20 percent down rental Properties is significant. Um, you know, when you have these other Properties, we talked about the two here in the middle. Those are the ones where you buy either 10 or 11 Properties, which we compared all the other ones. You’re not buying nearly the number of rentals you have, and so they were much lower.

Jassen: Got It.

James: Yep.

Jassen: No, that’s a significant difference.

James: Yeah. So is there anything in particular you wanted to see? I, we basically started with all the same assumptions. You know, everybody started with $5,500 per month. Everyone started with $30,000 saved up. Everyone’s getting the same amount in the stock market. Everyone’s getting the same amount in bonds. Um, everyone has buying the same types of Properties. It’s either a to live in or to rent because some of them we’re living in and then converting them to rentals. All of the Properties are going up at the same rate. All of the rents are going up at the same rate. Um, all of the taxes and insurance with your Properties are all exactly the same. So we tried to do as close to an apples to apples comparison as possible, but changed the strategy that people were using to see how quickly people could achieve retirement.

James: And we define retirement as $4,400 per month in inflated dollars. So basically it could be a lot higher 10 years from now, but it’s the equivalent of $4,400 a month in today’s dollars. We just backed for inflation and we’re saying you’re able to withdraw 3.25 percent of your assets like stocks and bonds per year to hit that $4,400 a month model. Um, and any cash flow you have from rental Properties, positive cash flow after all the expenses, taxes, insurance, maintenance, Property management, cap ex, all of those vacancy, all of those are included. And then anything left over is considered positive cash flow. And that contributes toward your ability to retire as well.

Jassen: Yeah.

James: So that was sort of are like boundary conditions for these 12 Scenarios. And I think we, I think we did a pretty decent job of explaining why we’re able to retire earlier with some models versus others. And you know, there are definitely, there are definitely different risks involved in each one. Each of these Scenarios, right? When you’re invested 60 percent stocks and 40 percent bonds your risk portfolio, you’re, you’re kind of like, risk exposure is different than someone who is all in stocks or someone who has bought real estate and, and whether it’s higher or less is, you know, it’s arguable. I think that some people would argue that stocks are more risky than bonds. There are some people that argue real estate’s more risky than stocks or some people that argue real estate is less risky than stocks. Um, but if I had to like order them, I would probably say, you know, real estate or stocks is probably the most risky depending on how you’re doing it. And then I would say bonds is probably the safer of the three. Um, but you know, people would probably argue the stocks and the real estate one all day long as to which one is more risky or less risky.

Jassen: Right. And, and, and on the popular investing forum that I, that I hang out on a little bit every day, uh, they, it is a very, very frequent topic of conversation, um, uh, stocks versus real estate. Um, and it’s a forum where the stock people out outnumber the real estate people ten to one, but, um, it, it, it’s a frequent point of conversation. And, and the other thing that, that, you know, I, I, I could, you know, if there’s a CFP, CFA, CPA, PFS type person listening to this, um, one of the things that they, they might throw out there as maybe a criticism for the approach that we’ve taken here is that we’re not talking about a risk adjusted returns. We’re talking about a raw returns. So what, you know, just just for the sake of conversation, what would you say to a financial planner that, that, um, uh, that, that did make that argument about risk adjusted returns and the fact that we’re not taking into Account that particular factor, which can be pretty, be pretty huge.

James: Yeah. I would tell them I agree and I would just stop talking because honestly, I do agree. I actually think that that is true. We are not taking into Account risk adjusted returns. However, I will tell you one of the nice things about The Real Estate Financial Planner™ software and what you and I plan on doing with additional webinars and stuff is adding in these additional risks and then modeling those and showing, Hey, what if, what if we have market corrections with stocks? What if we have market corrections with bonds? What if we have market correction with real estate and actually doing Monte Carlo simulations or even single run simulations where we say, what if we have a 10 or 15 or 20 or 50 percent drop in value of whatever the asset class we’re discussing is, and let’s say that drop is in month one or month 10 or month 50 or 100 or month 360 or 700.

James: How does that impact our ability to retire when we kind of rerun a lot of these Scenarios and what if it’s random or if we have multiple market corrections or what if we have a another market correction and then a market boom and it kind of recovers? What are the. All these things kind of look at, and I think the only answer, well, the only true answer is just time will tell, right? I mean no one really knows even any analysis of stuff that happened in the past. Future performance is not guaranteed by past performance and so even if the stock market did historically eight percent a year, whatever the number of people are claiming, depending on how they measure it and what they’re measuring, even if they say it’s eight percent, that doesn’t mean we’re going to see eight percent in the future. We could see negative 15 percent for the next 20 years.

James: No one knows. You know, I don’t think it’s likely we could see positive 25 percent for the next 20 years. No one knows. I don’t think that’s likely, but you’re not going to automatically get eight percent either. Just like real estate, going up three percent a year, you’re not going to automatically get that. You’re not going to automatically get rents. Keeping pace with inflation, not going to automatically get appreciation. The house values are keeping pace with inflation, so no one really knows. I think the best thing we can do is input what are our best assumptions and they are only assumptions about what the risk characteristics of these investments are kind of ranges of what values might be and run it 100, 1000 times, see what the likelihood, the probability of us achieving our Goals are and kind of measuring those. And so I, I totally agree with that assessment that a certified financial planner or advisor would you know any type of advisor, you know accountant, lawyer, whatever they’re doing. I totally agree. And I can’t guarantee that these are going to be your results. There’s no one that can.

Jassen: Right. Well, and you know, and I think that that is part of the power of the, of, of the software as a, uh, as a planning tool for clients.

James: Yes.

Jassen: Because, you know, part of, part of know part of what, you know, a financial planner or an accountant, etc. Does when they’re, when they’re meeting with a client is, you know, they, they usually have some sort of a, of a, of a quiz or something like that that they give the person to, to assess their risk tolerance. And you know, they have a conversation to assess their beliefs that are usually influenced by, you know, their exposure to the media, their, their, uh, their beliefs about what’s going on in the world and politics and all that stuff. And that kind of all coalesces into somebody’s mind about the future of certain asset classes and things like that.

Jassen: So an advisor can take all that into consideration when they’re modeling a client’s Scenario. You know, yesterday when I was playing with the system on Sunday for several hours to just, just to give you an idea of what kind of party animal I am on the weekend, you know, I went in based on my assumptions about the future of the market, which is very, very different than yours. You and I’ve had this conversation. And so, you know, I went in, you know, modeling my portfolio, doing four percent per year, not a, the eight percent that you’re modeling here because that’s, that reflects my belief about, you know, the next decade of, of the market. Um, because I’m a Boglehead and that’s what Jack Bogle says we’re probably going to look at. So I used Jack Bogle’s numbers because that’s like the guru or whatever that I’ve chosen to follow out of all the talking heads in the investing world.

James: Now, is he, is he, is the four percent after inflation number or is it a before inflation number?

Jassen: Uh, that is a, um, Jack Bogle recently said in an interview that he thinks we’ll hit four to four and a half percent nominal rate of return in the stock market for the foreseeable future.

James: What does nominal means that like after inflation?

Jassen: Before inflation. So after inflation, that’s like one, one and a half percent after inflation. Um, but, but there are plenty of other experts and, and hedge fund managers and in investment banking people that are saying that the, the, the bull market that we’ve been experiencing is we’re, we’re at a little, like right now, the past like three weeks, we’ve had this little bit of a hiccup, but there’s plenty of talking heads that are saying we’ve got another decade of a bull market ahead. So it’s, it’s who you listen to, what you think, etcetera. Here’s my question for you. After looking at these specific Scenarios that we’ve looked at, um, another criticism that I could imagine a financial planner or an accountant, a, even a real estate agent, a throwing out at us, is that obviously the, the, the ones that result in financial independence the fastest all are heavy on rental Properties, whether you acquired the rental Properties via Nomad or buy 20 percent down.

Jassen: I’m investor loans. This whole thing is skewed towards the real estate side. And you and I are real estate people. The software is written from a real estate perspective.

James: That’s the word real estate in the name of the website.

Jassen: Yeah. So I mean, there a very obvious potential criticism there. Um, uh, about a bias. What, what would you say to somebody that would bring that up?

James: I actually, again, I would agree with them and I would tell them that, you know, all this stuff depends on the assumptions you’re making when you do your modeling. And so if you make assumptions and you make real estate seem really, really bad, the real estate’s going to look really, really bad. If you make assumptions, and you make the stock market or the bond market look really, really bad, that’s going to look really bad. Like when you put in four percent for stocks, the stock part of it doesn’t look good. I mean, you’re, you’re going to get bias toward the real estate. If you say, hey, real estate’s not going to appreciate at all, it’s going to be zero and that rent’s not going. Appreciate it all. It’s going to be zero. You know, even that is going to be, it’s going to be okay, but it’s not gonna look as good as what we’re showing here. And so you need to go run your numbers with what you believe reality to be in your market, in your world, in the future, and your guess

James: might be as good as mine. I, I’d like to think my guess is better than yours, but who knows? I really don’t know what’s going to happen. Um, you know, I do look at the market all the time and I have clients in the market, but I mean, I could be wrong. I mean, it’s likely I’m going to be wrong. Honestly, because the chance of me getting it right, it’s really low. Um, but you know, setting myself up, running Scenarios where I do test this, I stress test it to see what happens if we see big declines, what happens if real estate gets ugly? What happens if stocks get ugly, what happens if bonds get ugly, and what happens if all of them happen at the same time or where they happen staggered. This is what gives us the ability to test these things and say, I feel comfortable with this risk and I can adjust later.

James: I don’t, I don’t have to be fixed. It’s not like I make a decision today and I have to be in the same thing. Sixty years from now, I could make adjustments if I wanted to later. Now I’m a more of the mind of a Warren Buffet where you have a punch card and you could only make 20 investments decisions. And so make sure you make good decisions. If you think them out, you don’t want to get in and out of things really quickly. So I’m more of that mindset, but at the same time if something really is not going well and I have good reason to justify switching my plan, then I’m okay with that. But run your Scenarios. Know what the possibilities are. And before this software it was really hard to model some of these things. I mean, you’d have to get like really crazy with excel and even then it was hard. Um, so yeah, I would much rather be able to run these Scenarios and test things and I don’t know, I don’t, I don’t know if I have all the answers. I don’t think I have all the answers. I will tell you that. And I’ve definitely made mistakes. I mean the huge mistakes in the past with my own personal investing. So, um, you know, if you’re looking for someone who is perfect and never missed, um, good luck because I’m not that person. So I, I don’t have the ability to.

Jassen: Same here, same here. You know, the, you know, I, I will point out that the, the, at least to my knowledge, based on my research, the only, um the only bear market we’ve ever had in the history of the United States where real estate values crashed at the exact same time that the stock market crashed was in the most recent one back in 2008 and nine, uh, that, that you and I lived through. Um, and, and, uh, based on my research, that’s the only one where were both real estate and stocks nosedived at the same time.

James: Yeah.

Jassen: Which makes sense because it was promulgated by the sub prime market subprime mortgage meltdown, but the, um, because of the fact that typically real estate and stock, their, their valuation cycles don’t run parallel to each other. Um, uh, I would argue historically that real estate has been a good a hedge against stock market crashes except that one time

James: That one time where it was really, really, really bad.

Jassen: Really, really bad. Yeah. Um, and, and so that would be part of, part of my answer, but, but at the same time, um, uh, the old joke is well, I’m sorry, but my crystal ball is broken today, so,

James: So I’ll point out one other thing about this. So, so every assumption we made in these Scenarios, for example, even the most simplest assumption like a, your income is $5,500 a month, that assumption by itself, there is risk in that. There’s nothing to say that you are going to have a job that makes $5,500 a month, 10 years from now.

Jassen: Right.

James: There’s, there’s no, there’s nothing that says you’re not going to get disabled and not be able to work. You know, there’s nothing to say that you’re not going to die and your spouse is going to need to support you and your income’s going to be cut in half. I mean, there’s all sorts of risk in even the most simplest like, uh, like assumption, like inflation rate. Who knows what inflation’s going to be. We’re saying it’s three percent, but it could be six, it could be 25, it could be over 100. I mean, we don’t know. We could have run away, we could have negative inflation, we could, we could see negative inflation happened or you know, that the number for how much we need in retirement, you know, it could turn out that our costs for healthcare becomes 10 x and we’re not able to even live off of $4,400 in retirement. So there’s this, there’s crazy risks to all these assumptions, not just our stock market ones, not just our appreciation rates, one or rent appreciation or all of those. I mean there’s risk in everything.

Jassen: Right. Right. And, and we should probably leave that there because that, that can very quickly tail off into a political conversation.

James: Yeah. And it wasn’t intended to be, it was intended to be just assessing risk in the future is that no one knows what the future holds, right? Whether no matter what your political beliefs are, 20 years from now, we don’t know what’s going to happen politically. We don’t know what’s going to happen in just cost of living or anything like that. No one knows.

Jassen: Well, you know, even something as simple as a, not to constantly toot the tax horn, but things changed drastically with taxes. You know, we just had this tax reform package that drastically changed, a lot of it was, it was the biggest overhaul of the tax code since 1986. And so, uh, but the changes that affect the individual a tax provisions, those are all going to expire under current law. They are not permanent. Right? And so once those expire and we go back to the old individual tax rates, the Scenarios all change.

James: Yeah.

Jassen: But what if congress makes them per permanent? What if they don’t? What if, what if, what if, what if? Right?

James: Yeah, we, we can’t predict the future, but we’re trying to put some numbers on this and see what it looks like just because, I mean, it’s better than not planning at all. And I think that’s the key is that let’s do what we can, but there’s nothing that’s without risk. I mean, me going to Qdoba next, there is risk of me driving down there. There’s risks to get poisoned and there’s risks that’s, you know, I’m going to get involved in some type of you know fatal, um, hostility in the restaurant or on the street. I mean, there’s all sorts of risks out there and I, and I, I can’t control that. Um, you know, I do the best I can. I’m nice to people. I don’t want cause to people to poison me at the restaurant. I don’t do that. I don’t think they’re going to do that. I don’t think there’s going to be a shoot. I don’t think there’s gonna be car accident, but you know, I buy insurance.

Jassen: Exactly, exactly. Some of those different things you can model in this Scenario here. So for example, let’s say that you’re, let’s say that you’re sold on doing Nomad, and you’re looking at that 20 years in one month and going, oh, that sounds good, but if you don’t, um, if you want to model three different versions of this, the 10, five percent down payment, Nomads with stocks and you want to go, okay, I want to run a historical stock, average at eight percent. I want to model a continued a bull market at like 12 or 15 percent per year.

James: Don’t do it.

Jassen: Or I want to model. Well, it’s, we’ve had the past like 15, 16, 17, and,

James: Yeah but there’s no reason to be that much. But all of this is to get you excited.

Jassen: Or if you want to model that a third time with stocks doing zero.

James: Yeah,

Jassen: You can model all three of those. You can see the range of potential outputs. I, I just to bring it all back around to the software. I think that you can model those different Scenarios based on different pundits that you might be listening to this afternoon.

James: Sure.

Jassen: And go, okay, well what happens at eight percent? What happens at 15 percent? What happens at, at four percent in the stock market based on what this guy said that guy said, and that guy said.

James: Yep.

Jassen: And you can model that.

James: Yes.

James: Yeah, I totally agree. And that’s what’s great about software and allows you to do all these modeling, allows us to do the modeling because we plan on doing a bunch more of these, uh, you know, kind of webinar calls where we go and analyze, you know, let’s run back and change some of our assumptions and see how that impacts things. So that’s what I’d like to do.

Jassen: Well, James, I know you’ve got to run to a meeting. Uh, I really appreciate you spending time with me over the past five days to do these, these particular 12 Scenarios and I really look forward to, um, uh, to working with you on the book. Um, and you know, so for everybody watching or listening, uh, what’s, uh, what’s next steps for our audience?

James: Yeah. They can go onto the website, The Real Estate Financial Planner™.com. They can watch these videos or kind of read through some of the content we’ve got on there and they can copy any of the Scenarios we just discussed to their own Accounts. They can make a change the assumptions, rerun them and see how their assumptions changed the results so that they can model their own stuff. Um, and I think that’s probably the best thing to do. It’s free to make an Account and test it out on your own.

Jassen: Love it. Well, thanks so much, James. I really appreciate your time and, uh, look forward to chatting with you again soon.

James: That sounds perfect. I appreciate having me on. Thank you.

Jassen: Bye bye.

James: Bye bye. For now.

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