However, I was surrounded by a lot of wealth while in school with a lot of my peers. You know, some of the folks that I went to school with would have a concept of money of, “Hey, my father makes a lot of money. And so when my bank account runs low, my father’s secretary will fill it back up again. And that’s my relationship with money.” And I was like, “Oh, my gosh! This is ridiculous.”

After college, I went to Europe for a couple of weeks with a couple of buddies and spent the last few thousand dollars that I’d saved up working summer jobs and all that kind of stuff. At my first job, I was making about $48,000 per year. And within three months, I was very ambitious, I wanted to kind of make an impact at the company, leave a mark, and make a difference. And so, I would use my path as a financial analyst to think like, “How can I save the company a lot of money? How could I make a lot of money?”

And it really felt to me, very quickly, that there were a few opportunities to have an impact, and to be able to kind of drive my career forward in any meaningful sense, beyond the established linear progression that you might have at any traditional corporation, where you go from a financial analyst I, financial analyst II, to senior financial analyst, finance manager. And then over the course of 20 years, maybe work your way up to a senior management in the hunt to be a better financial analyst, and learn, “Oh, wow! There’s this thing called investing and building wealth through, you know, passive income.”

You know, there’s a variety of influences in that process. But the two websites, businesses, brands, wherever you want to call them, that had the biggest impact on me were biggerpockets.com, where I currently work, and Mr. Money Mustache, if you’re familiar with him. Mr. Money Mustache had this theory, you know, he’s got a very solid and robust philosophy around building wealth.

I mean, I began cutting back almost all of my expenses. So I have never been a big spender. But I started really kind of expanding on that, I brought lunch every day, I cut back everything that wasn’t an expense. I invested in our employee stock purchase plan. I got my expenses as low as I possibly could. And then I also applied that knowledge to the concept of real estate investing, which I love from biggerpockets.com.

So I really kind of absorbed this approach of, “Hey, if I am very frugal, and I invest in real estate, I can build wealth very aggressively over the next couple of years.” So that was the start of the career, I think, in my journey toward financial independence.

Within the first year, I was able to save up about $20,000, between my wage income, savings, transitions. One was joining BiggerPockets as a third employee. And the second was buying a house hack, a duplex here in Denver, Colorado. That kind of got me started on the path toward financial independence.

Robert Leonard 4:26
Now, before we dive into your book a little bit more and more personal finance and some real estate stuff, I want to talk about your career path, because it’s really interesting. And you had a few years of experience of just you know, maybe one as a financial analyst, and then you became a VP at BiggerPockets. How did you progress your career so rapidly? And what could a millennial who might feel trapped in a regular corporate ladder do?

Scott Trench 4:51
So, I was looking for opportunities to leave that job in the summer of 2014, which was about nine to ten months after I’d started. And I was actually deciding between a job as a real estate agent at a small brokerage, and this small startup company that I was a fan of, as I previously mentioned, called biggerpockets.com.

I remember meeting the founder of biggerpockets.com and I was knocking on his door and saying, “Hey! Oh, my gosh! You’re Josh. I am a huge fan, you know, I’d love to come work for you or help out.” And he told me, “Go away, kid!” a couple times. So I followed up six more times, to kind of get connected with him and learn from BiggerPockets. And eventually, that led to the position of Director of Operations.

So it was my title when I first started. So I was doing customer support. I was keeping the books, I was selling ads, you know, it was just like a whole hodgepodge of various different things to learn and do and figure out, you know, to help, whatever it is that Josh needed help with. For those first couple of years, as the years went on, that grew into more formal responsibilities, like running teams and driving revenue streams. In 2017, Josh began taking a less active role in the business, and I became the president of the company in 2018.

Robert Leonard 6:00
You know, you’re not going to be able to do what you did at a Fortune 500 company. You had to take on a little bit more risk by going to a smaller company with only, you know, three employees. I think that’s a really important thing for millennials to realize is that sometimes you have to take a little bit more risk and put yourself out there, if you really want to take that big step in your career.

Along those same lines of taking a risk, can you talk to us about the idea of someone staying in a corporate job with a stable income, but not really being scale-able? And then on the other side of it, where you could leave a stable job and go into a riskier job where you have a much more opportunity to scale, whether it be through a side hustle, or going to work in the startup, or something along those lines? Talk to us about the ability to scale income versus just being stagnant?

Scott Trench 6:46
Yeah, sure. So I think you have to kind of just take a realistic assessment of the situation. So if you’re at, you know, in my case, there was no realistic path forward to a dramatic change in income at my job at Dish Network. It just was not possible. I was making $48,000 a year, and there’s no route to earning over $100,000 a year within the next three years, right? Maybe probably within the next five years. So I think that self-assessment needs to be undertaken at the first point. The second thing is okay, so how do I earn more money in a rapid fashion? Changes in your dollar per hour output? I think that’s where you have to go in and take this concept of risk, right?

And risk, I think, is very interesting. Because when I was at my job, you know, I was earning $48,000 a year, but I was only spending 20 or 25,000, right? So was it risky to take a job that paid less, but had higher upside for me? I don’t think so. I think that was an opportunity. And that was a high probability bet. I had much higher odds of having less wealth, five years further out, by not taking some other opportunity with scale-able income potential than if I stayed at that job. So my risk was actually higher, in my opinion, with that job.

Now, most people do everything in their power to get the highest possible base salary. And then they spend basically all of that and have just less than one, two, or three months liquidity in their bank account, right? So when you do that, and you take a job that pays less, but has higher upside, that is risky, because you’re at a very serious risk of running out of cash.

So I think, what my advice is, spend way less than you earn. Stockpile a lot of cash. You have a long, what I call financial runway, which allows you to survive without the need for wage income. These things that you were talking about as risks, and the income front, actually are more opportunities. If the odds of success are far greater than the risk of failure, or you cannot tolerate even a little bit of risk of failure, you’re going to miss out on millions of opportunities.

Robert Leonard 8:48
Yeah, I think that’s so good. And I think what you said there really flips a lot of normal thinking on its head, where a lot of people think that taking a lower base salary with more upside is more risky. But like you just said, it’s actually not and the first point of that is you need to be able to get your spending under control so that you’re able to take advantage of those opportunities. And you need to think about it from a risk perspective, like you said, “Is it really more risky to lower your potential income where you could earn much more?” So you really need to be able to define risk and see what it means to you.

So now, I want to go into your book, “Set for Life,” a little bit here. In the very beginning of the book, you talk about three rules. And the first rule you say is that people must accumulate real assets that produce income and increase in value, and probably the first step that people must get right. What kind of advice would you give to a millennial who doesn’t want to live, you know, that practical life and would rather splurge or live in the moment?

Scott Trench 9:45
You got to spend less, earn more, invest efficiently, and then I would actually add a fourth, which is you can create assets as well. But think this is also another powerful lever. First step is spending less, right? Because the lower your lifestyle expenditures are the faster, the easier it is to accumulate capital with which to invest.

What advice would I give to somebody who doesn’t want to spend less? Well, I’d say, you can’t have it all. The average American spends half of their household expenditures in housing and transportation alone. The 13% is in food spending, right? So if you’re following along, at 63%, or almost two thirds of your spending, is just in three spending categories. Those are not the areas where you’re living in the moment, right?

If you optimize on those three areas, you live in a cheap apartment with a roommate, or better yet house hack, which is I’m sure we can cover at some point in this where you, you know, buy a place and rent it out for a fee, and you buy a cheap car for cash or pay it off quickly. And, you know, use that, or bike or walk.

If you travel hack, you can really save a tremendous amount, likely 50% or more of your income, if you’re just optimizing those three categories aggressively. And then you can actually spend some of these other categories and have a good time and enjoy and live in the moment, while still making rapid progress toward financial independence. The sacrifice, or the big challenge is in making the decision to in what you drive, where you sleep, and then what you eat. And if you make those three choices appropriately, you can have the other things, I believe, as well.

Robert Leonard 11:16
And that reminds me, I just read Ramit Sethi’s new book, “I Will Teach You to Be Rich,” and that kind of sounds like what he was talking about there, where you need to have a conscious spending plan, where if you don’t spend on the things that don’t bring you a ton of happiness, like your house or your food, that’s probably not going to be a huge source of happiness for you. You can splurge and spend as much money as you want on the things you love. And I think that’s absolutely a great point. And you’ve mentioned house hack, can you go a little deeper on that, for us? What is house hacking for someone who might not know?

Scott Trench 11:45
House hacking is one of the most powerful tools, in my opinion, that can get you there. I buy a house or a duplex or triplex, or something like that, with extra units or bedrooms, and I move in and rent out the other units. And if I do it correctly, the rent from the other units cover my mortgage. So, for my specific example, in 2014, I purchased a duplex in downtown Denver, and I fixed it up, moved in, rented out the place, rented out the other unit, and then rented out a bedroom in my unit. So all told, the rental income was $1700. I think it’s 550 plus 1150. My mortgage was 1550.

So if you’re following along, that’s $150 or $1700 in rent, 1550 in mortgage, and I’m clearing about 150 a month, but I’m also operating the property. So I’m probably breaking about eve. On the structure, I put down $12,000. And I put in probably about let’s call it $8,000 to get it ready. You know, if I go from paying $550 or $600 a month in rent, to paying nothing in rent, that’s an annual savings of $6000 to $7200 a year. That’s an immense amount of cash flow to save in a year relative to my prior situation, rIght? Also benefiting from appreciation, I’m also paying down the mortgage.

The tenants that live in Denver are at much higher risk than I am. Because over the long-term, I think we all agree that rents are likely to continue rising, not fall off a cliff. Many people are doing that same type of purchasing. But buying a home outright and not having other people rent it, they’re just paying the mortgage, is by definition, a far more risky financial position to be in the position that I was in.

And then third, even if rents fall, I’m going to be having much more help paying down my mortgage. In the vast spectrum of possible scenarios, going into that purchase, I had very high probability of increasing my cash flow, building wealth long-term. That’s why I’m a big fan of this house hacking concept. And I guess that’s a basic introduction to that concept.

Robert Leonard 13:44
I agree that it’s a very powerful strategy. Actually, I house hacked my first property as well. Why do you think they come out of college and don’t consider this idea, in maybe either go rent, or maybe buy a house or something like that?

Scott Trench 13:57
I spend my time trying to convince this as many people as possible to do this, because I just think it has so many advantages and so few disadvantages. I don’t know. I’ve kind of learned to accept that a lot of people are just not going to do it, and are going to miss out on what I think is literally a multimillion dollar difference maker over a 30 year, relative to the other ways you can live your life.

Just as one decision, even if you live there for just one or two years, could make potentially over a million dollars over a 30 year period. I don’t know why more people don’t do it. If you’re listening to this show, hopefully you’re one of the people who is considering doing it, and will rationally assess it now.

I think that some of the things are, you know, my deal was particularly effective in building wealth, and maybe yours was as well. But perhaps some of the characteristics that made our deals particularly attractive, would make house hacking unattractive to other people. For example, the neighborhood that I bought my deal in, but there’s a whole spectrum here.

So I could have done the exact same investment at you know, a much higher price point and a more luxury area. I just would have not covered my mortgage completely and then why I would have been better off than renting. It would have been a less dramatic wealth-building difference, but still very powerful.

So I think that maybe that spectrum is not in place. And you know, people are like, “Hey, I’m reluctant to buy a house hack, if it’s not a great investment,” even if it’s way better than the alternative of renting out a luxury apartment downtown. So I think there’s a number of reasons there.

Robert Leonard 15:18
A lack of education too potentially, you know. I mean, they don’t teach us in college. I certainly didn’t learn about it in college. And I definitely didn’t learn about in high school or anything like that. And what’s awesome about the strategy too is you can do it more than once. We talked about doing it for your first house. But I mean, if you’re coming out of college, you’re 22 or 23 years old, you can live there until maybe you’re 24.

Do it again until you’re 25, maybe do it again when you’re 26 or 27. And now you’ve done it three times. You own three rental properties that could be generating a ton of cash flow for you, creating a mass amount of wealth, and you’re not even 30 yet, and you still have the rest of your life to live.

Now, let’s shift gears from real estate and talk about the stock market a bit. I know you have an interesting opinion on picking individual stocks in the market. Talk to us about that.

Scott Trench 16:00
When you look at the compound annual growth rate of the S&P 500, beginning of 1928 or October 1928, up until about 2016 or 2017, talking about a high before the market. And then 2016, which is also moderate peak, we can argue about the long term, the *inaudible log, pick your own number. But let’s say it’s 10%, right? If I’m going to be picking stocks, which involves work and research, diligence, and timing, and all these other types of things, I need to earn better than 10% compound annual growth rate for that to be worthwhile. And doing that is a very difficult endeavor.

Most people are not very good at that. And if you are good at that, you’re likely going to be managing a large pile of other people’s money. That alpha, that excess return of the S&P 500 return by 2% or 3%. So that’s what you’re talking about, operating a big fund and producing that kind of alpha. And people will pay you very well to do that.

Robert Leonard 16:59
Intuitively, that makes a lot of sense. And I hadn’t necessarily thought of it that way myself until I read your book. Because I’ve always been an individual stock picker since I started investing in the markets. We talked about picking individual stocks a lot here on the show. And of course, I think it’s a great way to do it, if you enjoy it. But I always enjoy hearing and learning the other side of the argument. Just because I like picking individual stocks, that doesn’t mean it’s the best solution for everyone listening.

Some listeners may be better off or enjoy taking your strategy, Scott. I recommend people to think about it objectively and decide what is really best for them. Maybe someone listening to the show today doesn’t want to invest their money in the market at all, whether it be with your strategy or mine. It’s certainly possible for someone to take that money that they were going to invest in the market and invest in creating a passive income-producing asset that they can own, or benefit from for years and years to come. Talk to us about the idea of creating a passive income-producing asset.

Scott Trench 16:59
I believe that there’s two reasons why this is not a good tactic for an investor with less than 100,000 in liquidity that’s invested in the market, really less than a million. The alpha is very difficult to produce. It’s very difficult to actually outperform the index, and it’s not guaranteed. Even if you do produce that alpha, even if you are able to get a 12% return on 100,000 instead of a 10% return, the amount of time you’re putting into it, 2% is going to be 2,000 that might equate to $10 or $12 an hour. And you can probably generate wealth far more efficiently by doing something else.

Sure. So this is very difficult, right? So we’ve got three other approaches that we discussed in building wealth. We’ve talked about how we can earn more income by spending less money, and then investing according to an approach that you think will generate long-term equity value at a great rate, right? If you’re doing all of those three things, and there’s still plenty of time left over?

Now, the creation of an asset is very hard. How do I make one very quality attempt to generate a passive income generator. I tried driving Uber. I used that as an experiment to make extra money, right? It didn’t work. I tutored for a couple of months. That ended up being a very low income activity. I tried to house hack. And that worked. But you can see this trend here over the last couple of years. I’ve tried multiple different things, some of which have worked, and some of which haven’t.

Robert Leonard 19:12
Yeah, I think one of the big key takeaways there is that you just keep going and you keep going and you keep going. You said multiple times that you failed, or it didn’t work, or cost you a little bit of money, and you never saw the return. But you never got discouraged and you kept going. And by the law of numbers, 9 out of 10 are going to fail.

But like you said, over a period of time, you will have successful ones that will generate cash for you. And you just have to keep with it and not give up. And I think another point that maybe gets millennials is they think they need to generate or create the next Apple. I think you need to keep that in mind: a side hustle doesn’t have to be a billion dollar company to help you generate wealth or generate cash.

Scott Trench 19:54
My real estate portfolio is boring, right? I don’t see them. You know, I get a text every once in a while from my tenants saying the sink is leaking. And I go and call the plumber and tell him to go over that, right? Like this is this is not an exciting business. But the properties are slowly appreciating. I’m slowly paying down the debt. My cash flow increases, right? And so that’s the machine here.

Robert Leonard 20:14
I want to talk about this concept you have in the book between the difference of fake net worth and real net worth. I think it’s a very important thing for people to learn, just people in general. But if a millennial can learn this early on in life, I think it could completely change your life over the next 20 to 30 years. Can you talk to us about the idea and your concept of the difference between the two net worths?

Scott Trench 20:40
Yeah, sure. I mean, you know, from a very basic and an obvious discussion of it, if you buy a car, you buy a new Mercedes, right? That Mercedes is going to depreciate in value over the years. You have to fill it up with gas, all that kind of stuff. So a car is an easy one. A piece of clothing would be another example of this. Real net worth is something that is generate cash flows.

So retirement accounts for me, I wouldn’t consider them a real asset, in the same sense that I consider my rental properties because I do not intend to access my retirement accounts early to fund financial freedom within the next few years. If I’m looking to retire early in my 30s, 20s, 40s, retirement accounts and home equity are probably not going to be contributors to that

Robert Leonard 21:22
When I read your book, that really lit a light bulb in my head. And it really made me think about my own balance sheet and what my real net worth was in comparison to my fake net worth. And I think if millennials can learn this now and start working on this over the next 20 years, and really focus on their real net worth, and not what society thinks, they’re going to be much, much better off.

So guys, if you have to go back and listen to this part again. It’s very important. And really focus on building your real net worth and not so much your fake net worth.

Scott Trench 21:51
If you’re looking to achieve financial freedom, or build a real net worth portfolio, with a variety of assets that you can tap into, then you better be accumulating significant after-tax liquidity that is not trapped in *inaudible, in addition to whatever you contribute to the 401k.

Robert Leonard 22:09
If you’re going to get a match, you definitely have to take advantage of that. But outside of that, it’s not going to be useful for your life now. And it’s going to help you a lot in 40 or 50 years when you retire. But for now, it’s not going to help your financial freedom.

So if you had a close friend of yours, who’s probably also a millennial, or a millennial family member that had a couple thousand dollars, and they want to start investing, and they know you do so they come to you for advice, whether it be investing in themselves through self-improvement, or courses or learning a new skill, or maybe starting a side hustle or investing in stock market or real estate, what would you recommend that they do with their couple thousand dollars and why?

Scott Trench 22:45
So let’s say of 2500 bucks, and you’re like, what, how do I get started on this? Sure, you can dump it in the stock market. That’s $250 next year. You’ll probably earn 50,000, if you’re a median income earner in this country. That’s not even 1% of your annual earning. I don’t think a few thousand bucks is going to make a difference on your journey to financial freedom. I think you need to sit down and focus on how do I accumulate at least five figures in after-tax liquidity over the next 12 months through discipline, grit, hard work, sweat and hustle.

And then how do I make a real meaningful investment like a house hack with that. I’m going to try to push you towards moving rapidly towards financial freedom. And I think that’s what you need to do to get there, there is no great use of that money. You know, you can get books from the library that are going to be everything you ever going to need to know and you can listen to these podcasts like this one for free, I would say put it in the bank account, put an index fund or whatever. And then forget about it and keep focusing on building the next five figure after-tax liquidity chunk, so you can make a real bet that will actually drive you towards financial freedom.

Robert Leonard 23:44
Yeah, that is great, great, great advice. I think people look too short-term and want to do something with their money too early. Whereas they need to wait until it’s a material and can actually do something for their long term future. I think that’s absolutely great advice, Scott.

Scott Trench 23:58
But that 2500 bucks in that example, right? So if you have that in your emergency account, that’s a really good start for a lot of people because now, brakes go out whatever, you’re not going into debt or accumulating a bad debt if you have that amount of liquidity. But that’s just a starting point. And if you want to move toward investing, accumulating the larger amounts of liquidity comes into play.

Robert Leonard 24:17
Yeah, it will put you into a safe spot that you can take on a little more risk and not going to put yourself in a bad position. Before we wrap up the show today, for those who are interested in learning more about you and all the things that you have going on, please share where people can go to connect with you, Scott.

Scott Trench 24:32
Sure, you can check out biggerpockets.com and type my name in the search bar. I have a profile there and you can reach out. You can email me at scott@biggerpockets.com. You could listen to the BiggerPockets Money Podcast.

Robert Leonard 24:45
I’ll be sure to put links to all of these in the show notes so you can get in touch with Scott. I would highly recommend looking into everything, everything he puts out on the internet. Look into BiggerPockets. It changed my life. It changed Scott’s life. And definitely go pick up his book. I really love it. I have it here sitting next to me with probably 100 or maybe more different sticky notes and highlights through it. Thank you so much for your time today, Scott. I really appreciate it and you added a ton of value for the audience. I look forward to talking with you again soon.

Scott Trench 25:12
Thank you, Robert. This is great.

Robert Leonard 25:14
Alright, guys. That’s all I have for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro 25:20
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