Michael Eakman, President and Founder of Adaptive Wealth Partners, talks to us about various investment incomes, and specifically about buying, selling, and renting out real estate.

welcome to the frugal preneur podcast.

I'm your host, Sarah St.

John and my guest today works with investors under 40, who are considering

investment returns as their primary source of income within the next five years.

He is the founder of adaptive wealth partners.

Welcome to the show, Michael Ekman.

Hi Sarah.

Thanks for having me on the show today.

Can you give us a little bit of your background and

history and how you got into this area?

Yeah, it was definitely not my original vision

for what I wanted to do in life.

I'd originally been in coaching at the high school level was looking to coach.

Professionally ended up transitioning to athletic training and sports medicine.

Got a couple job offers to, coach or to, to train on the professional side and

realized very quickly that Traveling six months out of the year, probably wasn't

conducive to family life and having kids and raising them at that point.

And I didn't really have anyone showing me the way on that side.

So I had a client that was a recruiter at one of the banks and

she kept telling me, yeah, you'd be great in banking and finance.

And I kind of blew it off at first.

Cause I was early twenties making really good money.

He was wearing shorts and a t-shirt to work every day and just couldn't envision

having to wear a suit or a tie to work.

But then no, in 2007, 2008 hit, I thought about what I wanted to do in the future.

And I had heard from athletes that I had worked with and business owners that

they were getting either no financial advice or very poor financial advice.

And so I set out to make a difference and I went and got my investment

licensing done and worked with a couple of large firms here in the UK.

And late last year decided that it was time to start my own firms

so I can continue customizing the solutions for our clients.

cool.

I worked in, I guess you could consider it the banking industry

for, I think it was like, Nine months or something back in oh five.

I was just a teller at a Washington mutual back when those existed.

So I guess you can consider that the financial industry,

I mean, you're the front line of it.

That's for sure.

Yeah.

People definitely get moody when it comes to their money.

I have a bunch of stories, but anyway so can you tell us a little bit about

adaptive wealth partners and how you help people with wealth building and

one thing I was seeing on your website is trading versus investing, which

I'm curious to hear more about that.

I have this belief that we owe it to our clients to

give them empirical evidence of the advice that we're giving I've heard

and been coached in the financial industry that, oh, you should just

call and check in on your clients.

Well, I think you need to take it a step further than that.

It's always nice to be able to check in on someone to make

sure that they're doing okay.

But at the same time, if I'm just giving clients advice

based on feelings that I have.

There's a good proprietary need for that to be accurate.

And we don't always see that in the financial industry.

You know, when the market's down, I get a lot of clients that'll come to us and

have multiple accounts at different firms and they say, you know, it's nice that

you tell us what we need to be doing.

Each time we have a conversation and you keep it simple.

Instead of giving them a three or 400 page plan, like that's my plan.

That's the way I'm going to get them from where they are today,

to where they want to be in the future and achieve their goals.

But I have to break it down into something that's simple enough that

they can go out and complete the tasks.

I mean, some clients, it's hard enough to get them to pay off a credit card or to

put extra money in savings and to build that wealth mentality or to look for a

deal when they're buying a house or a car.

But at the same time, that's what my job is.

And that's why we founded adept wealth partners was really to just be able to

not only give sound financial advice on the investment side, but sound

financial planning on the planning side, because I believe that everyone.

Need some type of a financial plan.

And a lot of people have one, they just don't call it a financial plan.

It's just spend what they have in their bank account.

That's their plan.

And once we start bringing our client's planning mindset into place,

and we start dealing with the way people approach investing in savings.

I mean, if you think about it, none of us were really taught that.

I mean, I go back to when I was younger and I would be interested in how

bills are paid and how money is made.

What do we save?

And my parents would really just tell me, you know, Hey, don't worry about it.

We have the money to do what we need to do, or we don't have the money to do this,

but it's really none of your business.

And for me, it was, I'm an experienced learner where I want to see what's going

on and understand the why behind things.

And I think if we can bring money skills to people that are in their twenties and

thirties, They're going to have a much more successful life than if I try to

change someone that's doing the same thing that they've been doing for the last 60

years when they're at that older age.

So we want to lay the foundation for building.

I mean wealth is achievable, but it's also not just the dollar

amount that's in your bank account.

A lot of times it's just being able to buy the things that you want to buy when you

want to buy them, or being able to take the time off from, your activities at work

and the grind, and being able to go out and do the things that you want to do.

So, part of that, like you mentioned, was that trading versus investing and.

When you look at it, we always want to invest for the long-term at this firm.

But I do have some clients that have accounts that they

manage, that we sub advise on.

And we, work through some different scenarios, but if you're day trading,

that's really not what we do.

We want to work with the long-term investor and we want to make sure

that the they're not taking too much.

In order to get to their goal because the downside is always there.

When we look back and there's been trade wars here in the U S I mean,

if you go back to the founding of our country, the first trade war that we

really had as a country was about tea.

Most people think of it as the Boston tea party.

Now we had a trade war about the taxes that were going to be paid on that.

And we, have had trade wars on things like chickens, bananas, cars, steal.

All those types of things over the, last, you know, two, 300 years.

And we want to make sure that when you pick a side as a trader,

one side is always going to get.

And depending on when you're buying and when you're selling,

both sides could get hurt.

So we want to make sure that, that we differentiate ourselves between traders

and being worried about the little micro movements of the investments.

I've clients across the board.

I think my oldest client is 91.

Youngest client is two or three.

For us it was the idea and doing the research that if I had known what I

knew now, When I was in my twenties and I was able to work 20 hour days

and put in all this effort and energy and all this kind of things that I

could put together to make life better.

If I knew what I knew, then what I knew now I'd be in a much

better financial place myself.

I mean, I've got my own financial plan and building on that and,

Finances, aren't something that's comfortable to talk about.

And I feel like, especially at an earlier age, you're just out there looking for how

to make a dollar as quickly as possible.

And if we could slow down and start looking at the big picture that you

probably don't even know exists at that moment in time, you're like, well, do

I go and put $500 out of the yearly income into a retirement account?

Or do I spend $500 on going to the beach for the week?

it's kinda that toss up and being able to have that conversation with younger

individuals, the research shows that they're going to be in a much better

financial position going forward.

And a lot of our clients are transitioning the ones that are older

from passing money onto their kids.

Their kids are in their fifties and sixties and their kids are doing.

when I was growing up, I always felt like I had a good handle

and understanding of money because my parents were, and still are very frugal.

That's not why I named the podcast, what it is, but anyway so I, I

grew up around that, but then as I was an adult and on my own.

I wasn't paying attention.

Like I was spending more than what was coming in and I didn't even

notice until I took that financial piece class by Dave Ramsey.

I think, People in their twenties, thirties, maybe even into forties, they

don't like you said, they don't really teach this kind of stuff in school.

I know when I was in school, they did teach you like how to write from a

checkbook, which, who knows if they do that anymore, but that was about it.

There's not much education.

About money, about finances things like, how do you apply for student loans or

how do you apply for financial aid?

How do you buy a car?

I mean, my wife came to me.

We got married six years ago and she asked me a question of, well,

why do you always rent houses?

Well, my parents did That's what we did growing up and I don't know

any better and no one ever sat down and had that conversation with me.

And so we've transitioned, you know, and now we own three houses.

I think we bought six houses in the last six years.

We own two before, but bought four more houses in the last six years.

So we're, we're in a position to where.

You can do really good things, no matter what life stage you're at.

I mean, it's never, the good thing about finances is it's never too

late to start learning and laws and rules, change and investments change,

and the world is changing around us.

And you've gotta be up on the quality of the advice that you're

giving and receiving from people.

I mean, there's all kinds of YouTube videos about how to invest and, you can

live stream investment and Tik TOK advice.

Some of it's good.

And some of it's not so good.

So you really want to be cognizant and aware of what's going on out

there and what you're listening to so that you do get the good advice.

I mean, I wish they had taught all this stuff, I call it common sense, financial

advising, because a lot of it is, you know, when we start talking to people,

they're like, yeah, that makes sense.

It's not even a question.

Yeah.

I want to pay off some of my bills.

Yes.

Having a more.

Is.

Okay.

Do you want to pay off debt?

Do you want to use debt?

You know, really trying to find that customized solution for each

client is really important to us

are they like investment properties or like, do

you own them and rent them out?

Maybe that's too personal of a question, but I'm just curious.

I'm pretty much an open book.

I mean, you could ask me anything out there, all I'll tell you the good,

bad and the ugly of what I've done and the mistakes that I've made.

And we have two rental properties.

We always laugh.

Me and my wife, when we talked to our real estate agent and she goes,

is this going to be the final house?

And we always laugh and look at each other and say, yes, and then a year or

two down the road, we ended up selling that house and buying a new house.

We recently about a year and a half ago moved into a giant of a house.

Just because we have four children and they're getting older and

everyone needs their own space.

So.

even in the last month or two, we've had conversations going back and forth

on, Hey, what do we do now that one of ours is going to be a senior next year.

What are we looking at in terms of, do we downsize the house?

Do we just hold onto the house?

And you keep it until.

We'll ready to move.

So my wife being in the military has definitely done

a lot of moving in her life.

so that's kind of caused us to not have the mindset that we have to stay

in a forever home, but the intention is always that we're going to be in

that home for the rest of our lives.

But then another opportunity comes up

I don't know if this is.

Specialize in or have an opinion on, but maybe so, because since it seems like

maybe this is kind of what you've done.

So like we bought a house in oh seven, It was really affordable.

And McKinney, Texas.

it's in the DFW area.

And back then McKinney wasn't It was the boondocks.

That's what people would say So we bought it low because prices were low back then,

and then it really went up in value.

So then we sold it in 2014, got a pretty nice profit on it.

And then we lived in a couple of apartments until we found another house.

And now we live in a town called Forney, Texas, which at the time we

moved here in 20 17, 4 years ago.

People considered it, the boondocks, but now it's booming and I feel like we're

always picking the right places, the up and coming cities and not necessarily

intentionally, I don't think, but that, it's just kind of how it happens.

And now we're kind of in a situate, we just refinanced because the mortgage

rates were so low, but now we're kind of like thinking we could sell this and

make a lot of profit so I'm just kinda curious if, that's an a good investment

strategy to like buy a house in up and coming, town or suburb, sit on it

for five or 10 years and then sell it and then rinse, wash, and repeater,

. Michael Eakman: Yeah.

I mean, it's kind of like that idea that you don't buy the

biggest house in the subdivision.

You buy the smallest house in the subdivision because you're going to have

the most appreciation in your value.

So it's not a bad idea.

As long as you're living where you want to live.

I have this conversation with a lot of younger clients and we're like,

well, if I stopped drinking Starbucks every day, I'll save $5 a day.

And that's how I'm going to make all my money.

And I'm like, if you don't drink Starbucks every day, are you

going to have a good day at work?

Are you going to put in good work?

Are you going to hate your job?

Because you didn't have coffee in the morning?

Is it like thing that centers you and makes you peaceful?

And they're like, yeah.

I was like, okay, well maybe we don't want to get rid of that.

Right.

So I think part of what you've done, right.

Probably it's where you guys want to live and you just happen to be

in a situation where prices went up considerably in that time.

And you're in a market that's seriously growing.

I mean, if we look at the Dallas market, it's grown exponentially over

the last few years and even, I mean the last 10, 15 years, we've seen that.

I mean, I have a lot of friends that are advisors and work in Dallas

and there's tons of growth there.

so that's something to consider and a lot of it's going to be, what

do you guys want to do with it?

I mean, it's different if you take the money and you invest it in the next

thing, I mean, if you keep rolling over this house price, eventually you'll

have your house paid for, because you've done all this savings and kept the money

invested or, or saved up at some point.

I mean, I know putting money in the bank right now is kind of like having

your money in the unemployment line.

It's really not working for you at all.

So a lot of it's that, financial plan that we put together for

you is what does it look like?

If we put X amount of dollars down on this house, what does it look like?

If we just buy it with a loan, with a minimum amount

down, what does it look like?

If we maximize that, can our money do better for us somewhere else?

When we've sold the house and we go to buy a new house.

And part of that is what we do in our financial planning system

is be able to model out all these scenarios for a client.

So instead of me telling a.

Hey, I think that this is what it's gonna do for you.

And this is, you know, I've done it enough that I probably

know what the best scenario is.

We just had a client three or four months ago.

That's a teacher that said I wanted to buy a house outside Boston,

because I have my kids there.

I want to be able to go visit in the summer when it's 116 degrees

here in Vegas, I want to get out of the heat it's still hot there and

humid, but she wants to go back and visit and we had the conversation.

Well, as long as you're working, here's what the numbers are.

As soon as you retire, you need to sell the house here or the house there.

Cause you can't afford both of them right now.

You could afford both of them.

But we actually modeled that out and we said, here's what it would do.

Refinanced your current house took the money from that paid

cash for the other house.

Here's what it would look like if we paid off your current home and just bought the

house, using some investments and some cash from the, and a mortgage on the other

side, but we're able to model that out.

And I think that's, what's missing is the factual piece of, okay.

If I do this activity over here, What's it going to do to the rest of my life.

Instead of selling the house, maybe renting it out.

I don't know if that's something you want to get into, but I

am kind of curious about that.

I'll give you my experience.

And some of my clients experience the decision on whether you rent a

property out to me has a lot to do with the location and the quality

of the tenants that are available.

So we've had properties that maybe weren't in the greatest neighborhood.

For renting out and we look at it and we put the finances on the

paper and we say, look, this is how much we're going to get at rent.

This is how much expenses are going to be for this property.

Does it make sense?

Do you want to do it?

And then there's other questions that you have to ask yourself.

Do you want to do it yourself and find a renter and put together the lease?

I mean, that piece isn't hard.

You can find them online all over the place.

Or do you want to have a property manager?

I mean, our properties in North Carolina, up until a few years ago,

didn't have a property manager.

My wife kind of managed it from here, but she had the same renters for years.

I mean, it's the same two renters in two different properties

and they never moved out.

So it was great.

And it wasn't until we started seeing they were moving out and we just decided

that at that point, we didn't have any friends there to check on the properties.

So we wanted to make sure that, that it was taken care of.

So we got a property man.

Take some of the headaches off, but it's additional expense

that you have to account for.

So when we look at the opportunity to rent property and real estate, every

one of my clients has built significant wealth owns real estate, whether it's

their own property or other properties that they've built, it's a piece to

the puzzle that we've put together for their, assets and their wealth.

And you just have to understand What it's going to take to rent that property out.

So it's not necessarily a bad thing, especially as the market continues

to move upwards in real estate, you can always look back and you can

say, well, like if I'd held onto it, I've got an extra 10, 15% out of it.

Yeah.

But it just as easily could have gone the other way too.

So you do what you do with the financial plan based on the facts that you have.

And we take.

Recommendation that we have for our clients and we'll sit down and we'll

have that conversation and be more than happy to run your scenario through

our system and, get you an answer on, Hey, this is what it would look like.

Actually, when you factor in, cleaning the house out at the end of the rental

period and, paint and new floors, things like that, that come up when you're

renting a house out and you have to have that expense in there to be built out.

But I also know that it's an easy way to generate additional income, especially

if you've refinanced the house and you're at a low mortgage payment.

It's really enticing.

And that's a scenario that we're in with those two properties that we have that

we're renting out is that the payment on them is ridiculously low for what.

Getting out of them.

So we bought them at the right time.

Sounds like you've done the same thing.

So it's probably more than likely this is where accelerate from fact

versus feeling probably an okay.

Situation for you to go through.

But I would assume that you would enjoy knowing what the facts are.

Again.

if we keep it, this is how much we can expect to make.

versus the headache that you're going to bring on, if there is a

headache and versus, Hey, if we cash it out, this is what we could do

with it towards our new house or.

Towards an investment portfolio and diversify what you have going on.

So there's, I mean, the problem with financial advice is that if there's a

thousand different directions, you can go.

So as a financial advisor, my job is to do more listening and observing than it is.

Of course we have a big financial plan for our clients and we, we worked

through all these different scenarios that they have going on in life.

And as soon as something changes or they look at adding something

financially or they pay something off the financial plan changes, but

the overall plan for our clients is really just three simple things.

The first one is that they've got to keep the appropriate amount of emergency cash.

We always recommend having six to nine months worth of expenses

and not just your bills, right.

Expenses like going out to eat or spending time with the family on vacation or paying

your taxes or your insurance on your home, things like that, that you don't

pay very often, but when they, you want to do them, they come up and for the.

Eight years clients have been arguing with me about keeping emergency cash,

because it's not working for you.

It's airing 0.01% in the bank right now.

No, one's excited about interest rates right now, even though

it looks like interest rates are going to start kicking up.

I mean, they can't go down much lower, but we want to make sure that that appropriate

amount of emergency cash is there.

The second thing that we do, that's different from other advisors out

there is we put every investor.

Before we offer it to a client or we put it in a client's account.

We put it through what we call our 2000 asset test.

And if you think of an acid test, like a stress test, when you're on

the treadmill with the EKG on testing, the strength and quality of your

heart muscle, that's the same thing we're doing with the investments.

We're testing the strength and quality of the investments.

And the reason that we pick the year 2000.

Is because since then, we've seen a number of situations that have

really challenged the market.

I mean, you had nine 11, you had the tech bubble burst, you had

the real estate bubble burst.

I mean, you've had a pandemic since then.

We want to make sure that the investments are designed to do what they need.

Brings us to the third step of the plan.

The third step is really where we set clients apart.

We prepare them mentally and financially to take advantage

of downturns in the market.

We call it our extra spare tire fund and that's a dollar amount that's equal to

their emergency cash, but it's simply.

To buy in to the markets when we have a pullback and we do that through what

we call our 10% down, 10% in strategy.

So when the market has a 10% pullback, we're putting 10% of that extra spare

tire fund into the investment portfolio.

And we can actually do that all the way down to a 40% down 40% in strategy

before that fund is fully been used.

And the thing to remember is that 40% down seems like a lot.

And we seem to think that it happens a lot more often than it actually does.

And in the last 70 years, that's only happened three times, right?

We just happened to have two of them in the last 21 years where we had

2000, 2001, 2007, 2008, we had a 40% downturn, but you're much more likely

to see a 10% downturn, which has happened 38 times in the last 70 years.

So.

When we have the money as a client in your set aside, and you know what

the plan is to invest that money.

When the market has a pullback, it does something for you psychologically,

where you can't be afraid of investing at the same time as

you're buying into the investments.

It's just psychologically impossible to be happy and sad, truly in the same moment.

It just doesn't happen.

there's proof that, that you can't be in those same emotions

at the same exact time.

You can be so happy that you cry, but you're not really so happy.

You're sad.

So those types of things we.

Bring to our client's situation and we prepare them to take advantage

of downturns when they happen,

Look at their individual income investments,

maybe debt assets, all that kind of stuff, and create a plan, I guess.

And, and then.

Is that how that works?

yeah, we take a look at all the accounts that they have, but

then we also analyze their cash flow money coming in versus money going out.

And just like when I was a personal trainer and I tell a client, Hey, I need

you to write down what you ate the last week, because, or the next week, because.

The scale is not changing.

Like scientifically the scale should be lower.

If you're eating what you say you're eating.

If you're not, we need to adjust that.

Well, people always say that they're eating less.

And just like, people always say that they're spending

less having that conversation.

And we give all of our clients access to a financial website where they

can link all of their bank accounts to, and it draws a budget from what

they've actually been spending on.

So that'll give you an, us as the financial advisor, the

opportunity to really look at what you're spending each month.

Sometimes we notice things that clients are spending extra money on

and I'm like, well, why do you have two or three streaming services?

Do you know that you have them?

Oh yeah, I know.

I just, was there any that you don't use?

sometimes it's a yes.

Sometimes I know sometimes it's something that we're not going to change that.

The client's now aware of it.

And it also lets us go in as the financial planners and advisors

and go back and say, look, this is how much money you have coming in.

Let's account for the money going out.

Let's not overspend that money going out and let's, develop a strategy

for your finances so that they work for you and not against you.

And then we take those two things, their accounts and their.

Basically cashflow and we analyze it together towards where they want

to be in life and what they want their financial future to look like.

And sometimes it's on point.

Sometimes there's not much we need to do in terms of changing that other

times, there's a lot of work that needs to be done in strategizing with, Hey,

if you position things in a specific way, you'll avoid paying extra taxes.

I don't think I've ever had a client come on board with us.

Wanting to pay more in taxes unless they were paying more in

taxes at a lower percentage rate.

So if I'm paying a hundred thousand dollars a year in taxes, but I'm

paying 50% of my income is taxes.

You're probably not going to be happy as a, client or as an investor.

If you're paying a hundred thousand dollars in taxes

and it's at 10% or 12 or 13%.

You're probably okay with that.

Cause that means you net it out on over a million dollars.

So understanding the whole picture behind where a client's at and where they want

to go in the future and really helping them develop and bring to life those goals

Well, I really appreciate your time today and all the information

you provided and again people can find out more@adaptivewealthpartners.com

and that other link.