Ep 32: Microflipping Part 3: A Firefighter's Strategy to Living In a Million Dollar House

This will be part three of our micro flipping series, and after this episode, you might think, 'oh, man, this is so simple.'

And that's the point. Some of the best decisions you can make as an investor are so simple, that people forget about them. Or people don't execute them because they feel like it's too easy.

And so what is that simple strategy?

Well, Bob and I are gonna talk about the 10-year strategy that avoids taxes and compounds your equity.

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Full Transcript

0:01

Welcome back to the value driven investor podcast where we forge value driven investors on a mission to live life on their terms. No matter where you have come from, or where you are going, becoming a value driven investor is in all our best interests. Because becoming financially free allows us to focus on what matters most fulfilling our purpose, our community of value driven investors is committed to showing you the way with the support of this community, you are sure to reach your goals for all of us in the value of an investor community, there is no greater gift than the gift of giving because together, anything is possible.

0:50

Today, we are going to finalize the micro flipping episode, this will be part three of the micro flipping episode. After this episode is over, you might think, oh, man, this is so simple. And that's the point. Some of the best decisions you can make as an investor are so simple, that people forget about them. Or people don't execute them because they feel like it's too easy. And so what is that simple strategy? Well, Bob and I are gonna talk about the 10 year strategy that avoids taxes and compounds your equity. Now Grando, what do you call this strategy over at the fire department,

1:28

I call it the firefighter strategy to living in a million dollar home, it's taught from day one, get your home first, get it do some sweat equity to live in two years, keep rolling your money down and grown in your houses down the road every single time. They all all the firefighters want to live in a nice, bigger and newer house. And so that's the number one strategy because their wage grows over time. And so they can buy a bigger house as they take enroll their equity down the road. It is the number one cog in the fire service probably across the United States. I guarantee it.

1:57

That's awesome. Well, I mean, it's smart. And it's it's simple. And that's the thing is you can't really screw it up as long as you're willing to do it and execute it. Right. And that's where the micro flipping comes in is that, you know, Roberts told several firefighters that he's worked with because he sold houses to many of them, that, hey, you don't need to necessarily buy a perfect turnkey house, that's probably actually not the best decision. You want to buy something where you can put a little sweat equity, and nine out of 10 of these firefighters are they're willing to work hard. I mean, that's why they're firefighters. So they're saying okay, so I buy something I can put a little sweat equity in, which is the micro flip concept. And then I can sell the house. Well, Bob, when do I sell the house? And so Robert, go into that strategy and the tax benefits of this? Yeah,

2:44

yeah. So I mean, so it's a tax strategy that's been around forever. It's the biggest wealth builder for the middle class, American. And a lot of people don't really recognize that, that their own house is actually their biggest wealth builder if they just play the strategy, right. So you know, if you live in your home to add a five year period, so you can live out of it for two years within that five year timeframe. And then you get to use the tax exemption, that tax exemption for a single person is you can exempt up to $250,000 a profit. And for a married couple, it's 500 to 50 times two equals 500. Pretty simple math. But what's cool about it is it's not always it's not people, people think, well, if I buy a house for 250,000, I sell for 350,000, I only get to exempt 250,000 of that. It's off the off the net profit, it's not off of the sales price of the home, that's a big thing that people kind of equity quite understand. It's all the equity, right? So it takes a while to build up 250 or 500k and equity. But I'm telling you, I've seen it, I've done it myself. I've recently just did it with one of my other homes. I move every two years. I know a lot of people are like oh my God move every two years. I'm doing that strategy, that fire department strategy. So that way I know, you know, if everything goes bad, I can at least have my really beautiful home, you know, that I'm sitting in, and it's paid for, you know, and so it's one of the coolest things and you know, I think, you know, talking about it, I can just talk back when I was starting in the fire service way back in 2002. I'm sitting at a table with a bunch of guys. And, you know, my mom was a real estate agent. So I knew a little bit about real estate. I knew I wanted to do something in real estate, you know, you always have that fire what's next to do? And that's an it was interesting to me that she didn't even tell me about this. You know, she

4:28

was gonna ask you Did your mom give, you

4:31

know, it killed me like when I learned this, you know, and like, I don't even remember it was I think I was sitting there on probation. And my first captain, you know, I'm sitting there is a brand new guy at the table and he's just talking about this awesome home that he's he's built that he's having built and I'm like looking at it. It's blowing my mind and back in 2002 this was like a $500,000 house. So that's a million dollar home today, you know, so looking at it, I was just like, wow, I'm like, How did you do that? He's like, Well, here's what I did. He goes and he was you know, probably it 20 years in his career, and he's a brand new captain, he goes, I started out, I got a crappy house, I fixed it up, I sold it, I moved to my next house, you know, with every two years, I moved to move to move, and I kept rolling every cent of that money into the next home until I could build a big, beautiful custom home. And he lived in that house. You know, he kept that one a little bit longer, because he really loved it. He lived there for like four to five years. And then after that, you know what he did, he went and did it again and built another amazing house. And then re when he retired, he sold that and he walked away, like, because you can keep rolling your you know, it's off your profit, you got to remember that because so what he paid doesn't matter. It's what he profited on top of that. He ended up walking away with like $600,000 at retirement when he sold that bought a place over in Central Oregon, and bought a place in Arizona. Now that was his strategy. I was like, and so you imagine splitting your money into two places, he's putting down payments, and he's got two beautiful homes in each location. I was just like sitting there, you know, thinking at that time, when he was in his first home and building this big custom home, I was like, I want to be able to build a big custom home.

6:05

He's the one that influenced you then to do it back in 2002. What's that? Is he the one that influenced you to do this back in? 2000? Yeah, cuz

6:13

like, my mom didn't even tell me about this. You know, she always lived in her house. And then she was a selling houses, you know, and she didn't really look into the, she probably knew about it, you know, and everybody else. Yeah, she knew not willing to do it. And the fire service was the first place where I started recognizing he did it. And then I saw somebody else he's doing it, this other guy's doing it. And then when I'm sitting at the table, they're like the second year off probation, and you know that you have a permanent job here. So when you have a permanent job, you can, you know, you can get a home loan, because you got to buy a house, you got to buy a house, and it's got to be one that you can fix up and make this money over time. And I was like, Okay, I'm like, that's what I'm gonna do, I'm gonna buy this house, I'm gonna find a house and, and I rapidly went down that path. So my path went, I went bought my first house for like, 155,000, which is crazy to think now, you know, like, that was, I wish I would have kept it. But you know, I plan to roll it down the road. But uh, so I got that I sold it for like 225 or something like that only put about $15,000 Maybe, maybe I use like Home Depot cards and all that type of stuff. And it wasn't a lot of money put into this just cleaned it up this whole, you know, old 70 style rancher that was just what we talked about in a micro flipping, took that money, it was tax exempt, roll it to the next project, took that money after that it was tax exempt, rolled it to the next one, just kept rolling, it went and bought my chunk of land, I did this like, by 2002, I was hired by 2007, I was building a 4000 foot custom home. And I put down you know, 250 300,000 on that home. So it was crazy. And I was you know, like that home, you know, today would be a million dollar home like looking at today's market back then it was a $500,000 home. But it was so affordable. And that's what I loved about it. I had this big, beautiful house, and it was just so affordable for me to be able to have at that time.

7:59

Just work like it was so affordable, because you had all this equity that you kept rolling. So your payment really didn't get much more, because you were able to roll that equity in and keep your payments low based on the value of the property. Right.

8:13

Yeah, exactly. Yeah. And it was like, I think at that time, like it was at 500 I think like my total all in cost was 500. And then the paid appraisal was like 750. And I'm just like, This is amazing, you know, and I was just like such a simple strategy that people can utilize year after year, as long as you want to do it, you know, and I'm getting to the point now, you know, in my own personal life, where I've got a lot of good things going and I'm still working that strategy, but I have a cut off point, you know, so looking at where I'm at now, you know, I'm looking, you know, with Shelly and I we sold our really nice, big beautiful home. Yeah, it was an $800,000 home, we walked away with over $300,000 By just fixing it up all tax free. We spread that money out to multiple other projects, we bought some other land, we bought enough land to get us to more two out of five year tax exemptions. And we're going to do that for the next you know, few years. But now we're on to building again, big beautiful custom homes, our custom home that we're building is going to be a 3500 square foot kind of cool modern design, that's gonna you know, be worth probably close to a million dollars, you know, when when it gets sold, it'll be a million dollar home. And we'll never go back the other way because we can keep rolling our money down the road and keep building bigger, beautiful homes. So the one after that we're going to use dang near the same floorplan because we'll build it once we'll build it again. And in our next move is we're going to start buying land and doing that exact strategy.

9:35

Yep. And it's funny you bring that up because the builder Chris that I work with, he just got done building his next house. And he's been doing that same strategy as a builder, which, if you're a builder, and you are using this tax exemption, it's even better because when you're a builder, you save obviously huge on the building cost and then when you get the tax exemption, so I mean it's almost I don't want to say you're doubling your equity roll over. But you're you can get pretty darn close, because he just built a house. So he sold another house that he just built, had good equity in that. And then he just built another place on a bigger plot of land 2.5 acres with a big pole shed, and it's a big Rambler. And you know, he was able to build it at cost. And then it appraised. I think he was somewhere like, I don't know, it was like, maybe he's 800 into this build, and it appraised out for 1.3 million. Yeah, like, yeah, so for real. And this is a very effective strategy. I don't care how advanced you are, this is the simplest, one of the most effective strategies, and especially if you're a rehabber, and you can save on the construction side, and flip into and get the tax deduction on this. It's, it's absolutely stupid, why you wouldn't do it. So that's why I talk to my wife about this all the time. Because I say, why aren't we doing this. And the thing is, is that the reason why we're not doing it is because of children, right. And that's the kicker for me is that I live in a city, I have a beautiful house that I actually stole from countrywide bank back in the day, and it appraised for a lot more than what I bought it for. And I could never replace this house. And the other thing is, is that I live in this city in Minneapolis, where if I wanted to go and build the house that I really want to live in, which would probably be at least a million dollar house, the problem would be is that I don't have a lot of great neighborhoods that I really want to live in, that I feel confident building that size of a homerun in the city. Now I say, okay, honey, let's go and live in Edina in these markets that I work in, because I could build whatever the hell I want there. And she's just not interested. And she's like, we don't want to move the kids. So you know what, it's, it's difficult because I know I should be executing the strategy. And I can tell you this, I will be executing the strategy as my kids get older. But it can be difficult. But if you can afford to do it, it's definitely worth it. Now, I will throw a caveat out there because I know a family that took this to an extreme. There, I met this guy, and he was from Wisconsin, and he he has done this, his entire life, every two to three and the longest he's ever lived in a house was four years. He's flipped it and flipped it and flipped it. But this is all the way through the raising of his kids. Yeah. And I was able to talk to his kids. And I said, What are your thoughts on that, and he goes, they go, it sucked. It absolutely sucked. Because I didn't want to move all the time. My name, my kid, my friends never knew where I lived by we would, even at times, we'd be moving from different school systems to other school systems, because we were taking advantage of different markets. And they're like, these are grown kids, these kids were in college, and one of them was out of college that went through this whole process. And they said, it sucked. I get why my parents did it. And they have the wealth that they have, because they did it. So it wasn't stupid. But for me, as a kid, it's suck. And so you got to think through all these different things, because there's always pros and cons with with everything. Grando fortunately, in his position, right now, he doesn't have to worry about children. And so he's able to execute on this too. I mean, don't you agree? Like, there can be pros and cons around this?

13:21

Oh, Aemilius that's, that's exactly right. There was a time frame 2020 1120 1220 12 through 2011, through 2015, that I was stable on my house, you know, for my kids, you know, and so that's why I say it's, it's two years, you can do it as quick as two years. But you don't got to you just got to pick your plan. If it's too much for your family to move, you know, every two years because they're they're rooted in their community, this and that, or maybe they're just rooted in their neighborhood, maybe you give it you know, four years, but maybe give a five years. But the strategies there when you sell it, but you got to keep making those moves. Because here's the here's the problem. It's a renewable thing through Congress, they renewed it last time. And I don't know how long I was trying to look that up before we got on, but I didn't find it. But I remember they renewed it a few years ago. And the next time it comes up for expire. If they let it expire, it's gone. So which it kind of seems like right now, and the way anything's possible. We have we've swung the pendulum back the other way, just in a few years of tax tax tax. And so to me, it's like I was telling my wife, Shelly, I'm like, we've got to exercise this, like rapidly, you know, put it on a rapid program over the next few years, you know, and just just to kind of capitalize on it, but it's Yeah, everybody has to choose their own path with that, that's for sure. So that's a good good points, too.

14:43

Here's another thing to think about. Because my first house I have not sold, I actually rented it and I've owned that house for like almost 20 years, and I almost own that house free and clear. But I lived in there for two years or more. I've rented it and I've held on to it. If I ever at any point want to sell that house, I get to keep the 250,000 or $500,000 deduction because I lived in it for at least two years. So it's not like you have to live in it two years, and then sell it. You can live in it two years, and keep it and rent it and move. And then if one day comes that you want to sell it, you're still it's still tax exempt under the law? Well, like

15:23

we just just correct that it's to add on a five year period 10. So if you lapse that five year period, you have to go reset two years. Oh, really? Okay. Oh, well, there

15:32

you go. Two years.

15:34

But here's when you're saying that actually brought me to a great strategy that another person did. This is a cool concept. It's so using that same strategy, they went up and built a rental portfolio, right. So they built a rental portfolio had passive income, for a lot of years, got some really great buys. Then they went back after their kids were gone. You know, they live in their house. This is actually the strategy these people use. And I just randomly met them. And I can't even remember where but we were just talking and they were selling something and they're like, oh, yeah, this was our strategy. So they had their primary house because they didn't want to move their kids, they built up a rental portfolio. Once their kids were gone, they sold their primary house moved into rental number one lived there for two years on the phone, it moved to the next one. And they The guy told me it was like I was just on vacation, like bend. And that's where he told me the guy told me they sold 10 houses out all tax free, like all tax free, because they moved into each and every single one of them, like three out the strategy and just backing it back down. So it can go either way. That's what's so cool about utilizing that. And it's just where you call home for that two year period. Right. So a lot of people in their older they go travel right. And that's what he said he was like, you know, we're traveling all the time anyways, we just, you know, didn't renew the renter's or they moved out when they moved out, we'd move in, have our stuff there, but we're retired. So we're like just traveling everywhere and having fun. And doing that. So you can do kind of like a makeup. And that's what when you I'm glad you brought that up. Because that's actually a good strategy thinking like, if you didn't want to move your kids, like you could do this, you and your wife could go move back into that house, go move back into some of your other properties you had claim it for your home for two years out of that five year period, dude, and boom, you're tax exempt on that thing. Which I mean, I like to think they're gonna keep renewing that just because they know the middle class is getting left behind. And they

17:19

need you said it. Yeah, I mean, you can't eat. That's one of the biggest tax exemptions that the middle class has.

17:25

Yeah. And they're closing loopholes, you know, the backdoor loopholes on the IRAs. And you know, the IRA, being able to transfer mass quantities of money to the Roth for the people that are wealthier, there's a lot of talk right now that those are going away. So with all these, like tax things going away, like, that's my biggest fear, I'm like, please do not let this go away, because it'll crush the middle class. And I'm hoping that they recognize that, that will crush the middle class at sea. It's to me, like, if you're working class people, you know, the average earners, you know, each, you know, husband, wife, so working, just holding down a good life and doing a good job, like, your ability to use that to really, you know, build some cash into retirement and have some money. I mean, it's huge, you know, and that's, that's kind of the cool thing about it. But that that strategy number two just popped up, though, and when you said that, so,

18:12

yeah, so and again, I wanna I wanna, you know, reiterate that, this, we're not giving tax advice. We're not tax advisors, like, there's nothing here. We're telling stories, using our, you know, history and our experience to enlighten you guys, but by no means do you take what we're saying, as tax advice, you definitely need to go talk to your tax advisor. And like I said, I, you know, I thought, oh, my gosh, I can just flip it go back and be good to go. And Bob's like, no, no, it's, it's within five years. And so that's a big difference, and I screwed it up. And that's exactly why I'm not your tax advisor.

18:54

Once you realize, oh, I can do this, or how can I capitalize on this? That's when you would go start having those conversations, you know, just like if, you know, and I've had those conversations and and when that person told me that that's why when you said that, like it went right into my brain because I actually asked my tax person that and there's a little bit of like, when you've been using something as a rental property, you've got the depreciation, so there may be some like recapture and stuff, and they walk me through that process. I go, but I go, Hey, you know, even if I had to pay a little bit of recapture on some of that depreciation, like, it's really seems like tax free money, beats everything. And they were finally like, yeah, you're right, tax free money. That's

19:31

exactly. And that's why, you know, having a really smart real estate tax advisor needs to be someone on your team. I mean, you have to be finding someone like that on our team, because they will make you 1000s And hundreds of 1000s. And in some cases, millions of dollars. These people are super sharp if they know what they're talking about. Grando So, tell us that story about this firefighter though I want to because you told me that story. And now he's sitting in like this penthouse with a pool and you were just like blown away the other day going God, like, I can't believe he's in that house. That guy's a firefighter.

20:05

Yeah, yeah, it's a good, it's a really good story. So a buddy of mine at the fire department, you know, he's he owns, like, you know, multiple rental properties in town always just been super good with his money, you know, and just cascading it down the road, you know, in recently even just took one of his other rental properties, sold that and then paid the gains tax on it to pay some of his other properties down that were more profitable, and then did some equity stuff, it was really, he's just really smart on his strategies on everything that he does. But he was able to quickly and that's what's kind of cool. And then he also did a lot of sweat equity. So I'll walk you through this, but so he went through, you know, had multiple homes, rolled a couple of things over, and then eventually bought just this chunk of land that had, you know, like a kind of like a garage shop thing with the apartment area above it. And so he took that place lived in that, and then went and build this big beautiful home, but just rolled his money there, but also compounded it with just the sweat equity, sweat equity factor of him being his own general contractor of him, you know, having the skills to do some of the work and be able to do that. But I was at his house the other day, it's like on five acres, overlooking this valley. And I was just like sitting there going, This dude has been living here for like, you know, the last eight or nine years and has pretty much just like essentially made it only owes like 100,000 on this like, to me it's a million dollar home, you know, maybe maybe it's in the 850 range. Maybe it just kind of pending after really looking close in the area. But there's a million dollar home owes less than what most people buy their first home for. And, and that is the person that was hired right around the same time I was where we were ingrained in the fire service. If you're going to make it in a fire service, you have to start thinking, you know, okay, how can you get to retirement and have the smallest amount of mortgage possible, but live in the nicest house. That's why I call it the firefighter strategy to live in to living in a million dollar home, because multiple firefighters do it. And people are always like, like in awe. Why do these guys all have these nice homes, they think we make like two or $300,000 a year. That's not the case, the average firefighter makes like $100,000 a year, they do that by rolling their money down the road with that tax strategy, and then building a nice house. And it always shifts from living in a house where you do value add value add into building houses. And that's probably the probably the good key point. That's exactly what this guy did. That's exactly what I did. And I could I could name probably 20 firefighters that have done that, right. Another guy, he did the exact same thing lives. I just keep going these stories moved over like a five year period or six year period. Yeah, I did 1236 year period, then went and built this big beautiful house on on my 20 acres out in like Pleasant Hill, which is amazing community, I saw a picture of House didn't even really know him. He's actually from a different fire department. We merged together. And I was just sitting at the table. And he was like, you know, talking about what he did in his career, which is the exact same thing I was taught from a different city different time. That's why I know it's a national standard in the fire service. But he lives like he has probably like a 4500 square foot house with probably a 4000 to 5000 square foot shop with an adu built into that on this big, beautiful piece of property. And just like it's crazy, it's such a simple strategy, and especially for the working class person that's rolling through, you know, through their career, they just make those quick changes, you know, you can rapidly make it happen. And you can make it happen as fast as you want, you know, inside to for six years depending on your wins. Or you can take 10 to 15 years to get there. You know, it's kind of your own deal, what you want to do, but I know it works. And if you implement any one of our, you know, the micro flipping strategies, anything that you can do that we've talked about in these podcasts, all those can lead to you just doing this simple strategy.

23:55

Yeah. And that's the beauty is that like this strategy, any and I don't mean to like point out a certain class but millennials, right, everybody gives crap to these millennials that all they want to do is rent. All they want to do is rent. And I just hope that enough Millennials listen to this podcast and think about this one strategy. Like when you're sitting there going, oh, yeah, I should rent Oh, yeah, I should rent Oh, yeah, I should rent and you tell me all this flexibility and all these different reasons why you should rent. I then say hey, listen to micro flipping part three on my podcast, and tell me why you don't want to be like one of those firefighters sitting in a million dollar house and only owing a couple $100,000. No, you would rather be renting for your whole life. Like it just doesn't add up to me. You know, because real estate especially with this strategy in mind. It is 1000 times better than renting. Yeah, you get flexibility renting, but you know what, if you're smart enough, you can rent out your own assets. So I have I there's a big debate around this whole We're becoming a rental society. That's sad. That actually happens. It's sad. I don't think that is the best thing for the US citizens. I don't think it's the best thing for the young people owning assets, owning real estate executing on this firefighter strategy is a lot smarter than renting for the rest of your life. I'm sorry, I just had to say that, because I just really believe in that.

25:26

Yeah, I'm with you, man. Like I just anybody starting out, you know, and I was, what, 21 years old. By the age of 2008, I was living in a 4000 square foot house, a 4000 square foot house on a small little lake. Like, like it works, you know, it's like, pretty quick, you know, and you can, you can, again, you can do it as fast as you want or slow as you want. It just it to me, it seemed so simple. Like, if you just thought this way, like had that paradigm shift in your brain? Why wouldn't you do it right? The US government wants you to do that. They want you to gain that they want you to move up, they want you to pay those taxes, higher taxes and, and have higher earning income.

26:07

And at the end of the day, I feel like the big investors, the conglomerates, the guys like me, and you? Sure, we want you to be an renter your whole life, because I just get rich when you're a renter, and you're paying me more rent, and rent keeps going through the roof. But that's not why we're doing the value demand podcast, we're doing the value different podcast so you can live a life on your terms. And let me tell you, each one of these firefighter stories, they're sitting on their at their pool, they're sitting on their deck overlooking a Mountain View, they're sitting in their million dollar house that nobody thought they would ever have. And they're saying, This is life on my terms. And that's what it's all about. That's what it's all about. So I hope you guys get something out of this quick, but very powerful firefighter strategy, which is what we're going to call this episode, which is going to be a 10 year strategy that avoids taxes and compounds equity, so that you can be that person with amazing view, sitting by your pool in a million dollar house going, man. This is what life on my terms is all about. Thanks for listening to the value driven investor podcast where we lead by giving for more information about our community and what's new visit value driven investor.com

27:26

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