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The High Earners Dilemma: Diversifying Stock Concentration into Real Estate · The Capital Shift

• speaker-1 (00:11) So hi. Hi. Have we ever done an interview together? only other time I can remember us doing something like this is when we did the Google cast about Real Men Wear Pink. But nobody was in the room or I there was some people in the room, but not that many. And we couldn't see anybody who was out there. So Melisa Burnett, you had the opportunity to hear me ramble on about this podcast series. What would if someone asked you, hey, so your husband's got this podcast, what would you tell him it was about? ⁓ speaker-0 (00:21) Okay. how to better leverage your money for investing. that correct? I don't know. speaker-1 (00:44) Are you familiar with the backdrop behind me? Yes. In your words, what have you heard me say about what's going on behind me? speaker-0 (00:54) that each panel represents a journey in your finance journey. I said journey twice in the same sentence. But you have to pass through doors and you're learning, growing and changing as you migrate through the doors. speaker-1 (01:08) Knowing that, welcome to the Capital Shift program, Melisa Burnett Happy to have you. You are to be here. ⁓ How does it feel to be a big part of the narrative behind everything that we've written about the people that we like to try to serve? speaker-0 (01:13) Let's see how this goes. Well, I think it's awesome, actually. ⁓ You we've been on this financial journey ourselves and we've evolved, we've changed, we've, you know, moved our own path and journey. And I think always a big part of what we've tried to do is provide value and insight to other people so they can benefit from our insights. And this is no different than that, right? ⁓ So I obviously have a Google family that I work very closely with and we do really hard things together. And, you know, I'll call them my work family, right. And I want them to be successful too. So our wins at work, I'd like to help parlay that into wins at home as well that we can leverage, you know, that hard work and, you know, in the opportunity that we have to invest because of the success we've had at work. So it's an exciting opportunity. speaker-1 (02:16) sure. All right, so knowing all that, let's rewind the tape. It's 2020. You get this new job and then the pandemic hits and my god like you just gotten that job and no more than two months later we got a worldwide pandemic on our hands right? speaker-0 (02:33) Yeah, it was an interesting situation in that I was coming to do business development work for Google. If you think about where Google Cloud was at that time, I mean, we were third cloud in. Certainly we had a good story to talk to around data and analytics and everything that we were doing there. But the company Google Cloud is today versus where it was back then are wholly different companies. And it was a really tough time back then. You know, we were just getting started as an enterprise grade cloud. Our solution portfolio was small. frankly, I didn't have a pool of existing customers that we were doing business with. So think about this. I'm trying to cold call during the pandemic and try to build relationships with people over the phone who don't know you. And you can imagine how that went. Right. I mean, because companies at that time, I mean, they were all scrambling to figure out how do I get my remote workforce functional to keep my business going? And of course, I'm going to lean into the companies that I have relationships with and the technology that I'm confident in. Unless I have a serious gap in, you know, my technology suite, I'm not going out and building new relationships and finding new technology. that part was really tough. speaker-1 (03:48) Not to mention, I'll remember this forever. You'd worked in the tech space before. We don't need to necessarily get into who it was. But in those instances, most of the compensation that was tied to company performance was options based. And here we were coming to Google and no, no, no, this is not options. This is real stock. So think like talk about that mindset. speaker-0 (04:16) There's kind of two journeys when it comes to your company stock equity ownership, whatever you want to talk about it. So your point options, right? That was early day. But then when I was at VMware, which we can talk about that a little bit before I came, there was not really equity grant that was part of your compensation. It was you have the opportunity to buy discounted stock so much quarter, which of course we leverage that to the most that we could. And as a matter of fact, our exit out of that strategy actually was one of the first investments we made in real estate, which I'm sure we'll get to that. But coming to Google, it was a completely different deal. mean, you tell the story often to people and say, ⁓ now Melisa's playing for the Yankees. And I didn't even really think of it that way because I was making, I was very nervous and making that jump primarily because Google was third, right? It wasn't that I was afraid of. selling cloud services or any of that. I was like, this is not going to be easy. It's not that it was going to AWS or Microsoft who are well entrenched in the marketplace because that's a lot more similar to what my role was at VMware. Most of the customers I was dealing with had been using VMware for many years. Right. And so those, that's a much different sales strategy and sales environment. Right. So when I interviewed for Google, I was excited about the opportunity. mean, who doesn't want to work for Google? But then when they start going over everything with you from a compensation package is completely different because they look at it from three aspects and that's ⁓ a signing bonus of course what your base salary is going to be which Google is a lot different to than other technology companies and that our sales organization is structured at 40 base six bonus most other technology companies are 50 50 so your base is higher and then there's a step stock grant that goes along with that. ⁓ The nice thing about Google, it vests every one, one 48th every month. Right. So that was good. So I didn't even know, you know, when I finally got the offer and then I'm looking at everything that they put on the table, ⁓ you're kind of like, wow, this is pretty amazing and awesome. But my base salary actually went down again. And that has to do with that 40 % versus 50%. Certainly when you're more leveraged like that, your upside is better. But again, I'm like, Google's third in the cloud. Am I going to be able to sell anything? This could go horribly wrong, right? So, I mean, that was my mindset, but certainly, you know, the equity piece was amazing. ⁓ And it's turned out significantly more amazing than even at the time I thought. And that has a lot to do with the growth of Google Cloud and AI and all the other things in the value of our stock six years later versus where it was and what my grant was. It's substantially more than what I was expecting. And of course the biggest challenge to that now is my cost basis is a little beauty. And so now how do you, how do you get value out of that equity when to sell it is a sizable tax event. And do I want to sell it? You know, how can I leverage it? I mean, these are all the things that we're now trying to explore, but the opportunity has opened many doors and really. Obviously, we think a lot differently about money than we did back then, and the opportunity this role at Google has afforded our family. speaker-1 (07:39) Okay, exactly right. So let's stay there for a moment. So here you are in this new environment of you have this actual stock count that you can log into and you can, I got my grant and I've just do compared to, you know, when I got it and the tides of the performance of the stock and the market and things that are completely out of your control, but you could, they're tangible. You could see it like it's, it's there. So talk about what your thought process was around, okay, so now I'm starting to see these 148th vesting deposits start to get made. And how was your strategy and what you chose compare and contrast with what you knew some of your peers were doing that maybe wasn't the same thing? speaker-0 (08:25) Yeah, OK. So a couple of things about that. I had an amazing boss that I came to work for. Shout out to Jesse Klem, who is no longer at Google. But I will finally think of him forever and always, because one of the first things that he did when was there is, OK, here's this deck that a group of Googlers have built called How to Hack Your 401k or Hack Your Programs at Google or whatever, right? literally shows you all of the things that you can leverage and take advantage of at Google. And so anytime there have been somebody new on our team, I always say, hey, look at us and do all these things, right? But that's kind of old school in a lot of ways. know, max out your 401k, of course, Google matches up to a certain percent, you know, a certain point. And they have something that's really great too, your after tax investment strategy, they have this backdoor strategy where I'm going to get the terminology wrong a little bit here, but the gist of it is I can invest post tax dollar, which typically would be taxable, right? The growth would be taxable. They have this backdoor conversion thing that when you do it immediately upon investing those dollars, you can convert it into a program where your, your gains are not taxable. So we've done a good job of leveraging that from the beginning as well. ⁓ Probably, you now that we're working with financial architects and their strategy is different and they're like only get to the max and don't put anything more. Don't care what federal regulations are that allow you to invest more in that, but you should stop doing that. That was really hard for me to do and don't tell them, but I haven't turned it off yet, but I'm going to this year. I might have fived once and said I did. just because you know, that's, that's the strategy. dad always told me, right. max out every single thing that you can from moment one, which I've done and it's put us in a good situation because you know, if your company offers you free education for your postgraduate degree, do it. So I got my MBA and those are all lessons that my dad instilled in me from from moment one. ⁓ But I will say the thing that was a little interesting about the RSU, so you get a grant, it tells you how many units you're going to get every month. You don't get all those units. And at first I was like, Hey, what the heck? is bull crap. I was supposed to get whatever. I got not that, you know, and what I realized is actually Google was doing it right because they pay the taxes for you with the portion of that grant that you're getting each month. So then you don't have this disgusting tax at the end of the year because you've gotten all this stock and now you need to pay taxes on all that. So they, they figured out how to do that. So you're not in you're not upside down at tax time. So, you know, that was ⁓ an interesting thing. ⁓ Just understanding that and what that meant. But I know that there was a lot of other Google people that actually sold their stock as soon as they got it, because they were counting on that as part of their take home pay every month and they were using it, which I always thought was such a. heartbreaking situation that you needed to do that. Because for me, I wanted just to grow that nest egg as big as possible and I was not ever going to touch it. And I had no intentions of ever selling any of my Google stock, to be honest. That was my strategy. And I did like looking at my align item on my spreadsheet and totaling up all my accounts and is it tangible assets? No, but I could look at that total and see it growing every month and it's exciting stuff. So speaker-1 (11:58) I know generally how it's done based on your demeanor coming out of that review. So when it's good, it's good. When it's bad, it's bad. And there's really no in between because that is, and listen, shout out to Mike Jones and everyone from Mike Jones' generation who taught their children that stuff because at that stage of the game for guys working on the assembly line with a wife as a teacher and three kids, that was the message that you absolutely should have passed along to your children. And those of us who didn't have a father or a mother passing along that wish that they did. So no shame in that game by any stretch of the imagination. so we, we, you employed that strategy and we put it on the back burner and we let it start to do its thing. And we woke up one day and looked at it and went, Oh, Oh, Oh, wow. Like my goodness, this is not at all what we thought. Right. So there, there was like this, um, Okay, so now what? And to me, it's like, we reached that moment where we realized like, okay, that's nice on paper. What does it really mean? Right? Like, so what was that like for you? What do you have from memories of those that milestone? speaker-0 (13:12) Well, and I honestly, I feel like this is something that we're still trying to figure out what our strategy is specific stocks primarily because of a couple of factors. One, and I did not realize that until just now, literally like a month ago. You know, I've heard of this borrow, buy, die. Everyone Google it now. ⁓ Right. And it's pretty much how can you leverage security portfolios that you have for a backed loan? You're not selling the security. You're just getting a loan against them and you're paying yourself interest and they're secured with those assets, which duh, that sounds like a great, amazing thing. So I look at this big pot of Google stock and go, great, I'm going to do that. So I ring, ring, ring, call it Charles swab and say, Hey, I want to, cause I looked on your website and you can borrow 70 % of your Google portfolio. I want to do that. And they're like, ⁓ you're still employed with Google. You can't do that. And I'm like, why can't I do that? which it does make sense when you understand the rationale behind it. If every single Google person who had portfolios of Google stock leveraged it for what I was trying to do. And then the market started to shift and there was a margin call and you had to sell your stock to pay back the debt. And the whole entire company started selling hundreds of thousands of shares of Google stock. could take the whole company. So, I mean, I get it. I do. But it's a little bit of a bummer that I can't borrow against it. I would, oh Charles Schwab now. I haven't exhausted my investigation of are there other organizations that can use it as collateral, but it doesn't have to be in that with Charles Schwab. don't know. There may be an option there to explore. I also wonder if I should have from minute one, as soon as I got the stock, grants sold them and then re-bought them outside of the program. I haven't checked though, cause I wonder if that would be against Google policies on that. Cause you're only allowed to own so much stock outside of the program. I don't know. I figured this, I've not figured this riddle out yet. So that's something to figure out. However, for all of you that are investing in Vanguard in your 401k, if you are, thank you. be 59 or 60 and older, you can still be a Google employee and move your 401k outside of Vanguard to a self-directed IRA, which then you can use to buy real estate or anything else that you would like to do. The limitation on that, as I have found out, is you can't use it for a down payment on a much larger property. have to buy the whole property with what you have. If you're looking to buy a $2 million property and you only have $500,000 in your ⁓ 401k, you cannot do that. Unless, there are ways around this, but unless your joint venture partner is the primary and ⁓ you are a minor shareholder and you're investing in that property. There's a way around it that way, but it's a little bit more complicated. speaker-1 (16:08) Sounds like a deal lab that we can come up with and walk folks who would be interested in the way to do that. But, what I love about what you just talked about was your graduation. You've matured in your ability to identify the instruments that are available to someone who's sitting on the kind of allocation that you particularly own. But was there a moment where you literally went from, had no idea, to, oh my god, what? look at all of these additional things, like do you have a memory of that? Here's what I remember. And maybe this is the way that I can spur your memory. The way that we've had to pay our taxes, our income taxes, have really changed over the years. And there's been some real ah-has and gotchas around our approach historically as opposed to what we've come to realize is really necessary. at least through the vein of that, like. Yeah. speaker-0 (17:05) When our CPA said, you need to write a check for $50,000. And I'm like, what? speaker-1 (17:11) We don't just have $50,000 lying about. speaker-0 (17:14) Like, no, that's surprise, right? You know, because in the past, we're like, we have, you know, write offs, this, that, and the other thing. And all of a sudden, like, okay, we have to get serious about our tax strategy and how we're looking at real estate and how we're investing. And obviously, the new legislation change for bonus depreciation has changed that whole dynamic. And it'll be interesting to see what happens with that because I have this vision of a gluttony ⁓ or a glutton of new Airbnb's that have been bought by high W-2 income earners that now are trying to get their 100 hours to be able to qualify for bonus depreciation. have no idea what they're doing and they're going to be very poorly run and not very successful. And from a user experience of staying at those Airbnb's, it makes me a little worried for Airbnb guests going forward. setting that aside, ⁓ you know, I will say a couple of things. We do not do a good job as a country, as an educational system of preparing people to be adults in a financial world and understanding the levers that you have at your disposal and really how you should be thinking about money, how you should be organizing your life financially. And I think ⁓ I have to hand it to you for, buying that book forever ago, Rich Dad Poor Dad. And a lot of people that invest in real estate talk about Rich Dad Poor Dad, Robert Kiyosaki, but I mean, for me, that was the very beginning of our journey is really understanding how do you get out of the rat race, right? And it's leveraging your W-2 income to get passive opportunities, right? know, the four magic quadrants. And, you know, from a very early age with our children, I highly recommend this game, by the way, forget Monopoly, get your kids cash flow for kids. my favorite part of that game is the fact that a teacher can get out of the rat race just as quickly as a brain surgeon. And it's really just fundamentally living with a very structured world where you're only spending a certain percentage of your take-home pay, right, for living expenses and the rest is being invested. So that book as well as Set For Life are my two top books. Set For Life is like anyone graduating from high school, you're getting a check from me and instructions on how to invest it. a book for Set For Life, because I think it's really important, like buying cars and purses and boats and jet skis, those are liabilities, those are not assets. And our society is very consumer based and says to everyone, you should buy stuff, you should have credit cards, and you should not be worried about racking up credit card debt because you got it on sale. And you need to buy it now to save the money. And besides the fact that you're paying 25 % interest on it, just think that we set a lot of our children and young adults up for failure. ⁓ It's not just them. There's a lot of adults I know that don't have any, hardly any savings. have credit card debt up, you know what, they're both, people are driving amazing, beautiful new cars and you know, and they're belong to a bunch of clubs and they have a big huge house and they have nothing other than what they project out to society. And that's scary. It's really scary. Cause everyone's going to get to a point where you're like, okay, I either have to work. forever and I may not have the lifestyle, the ability to live the lifestyle I want to live in my later life with my children, et cetera. So I'm going on and on about this, but I'm a big believer in educate and managing your money properly. And frankly, even our financial institutions that are managing money on our behalf choose the right one because a lot of them just care about getting their 1 % and putting you all in their mutual funds where they're getting more fees on top of that. yeah, your money will grow, but not. to the degree it could if you use some other strategies. And if you don't know what compound interest is, you should look that up too, because that will change your life. Anyway, I'm getting down a rabbit hole. I don't know if that was a one. speaker-1 (21:13) thought is, and especially if we consider Stuart and you know, the Google community, most of you all are beyond the basic fundamentals of successful saving. you've come to this program, there's a good chance that you've you're beyond that. So what we'd like you to believe is, even for those of us who have crossed that basic threshold, the truth remains the same in many ways, but the stakes for us or significantly higher actually than for those people who maybe are just earning what people would consider the median income. For those folks, the traditional measures of saving for retirement in the long term really in many ways are still some of the better ways for them to be able to accomplish that. But for people who have done better for themselves, who are still applying the same principles, you're missing out on the ability to put this wealth that you've created to work for yourself. in a way that can create cashflow that's even greater than anything your retirement assets, ultimately be able to throw off for you. And that's the important distinction here. It's you've done well. You've gotten yourself to a place where you have the ability to deploy, deploy your assets now, as opposed to just accumulating them. And it's a massive chain in process and thought process around, no, no, no, I have enough to be able to go out and allow it to go do more. And I think that's where a lot of the other Googlers who would probably be finding themselves in this moment, Melisa, are like, I know that that's possible for me, but I don't really know what I should do from this point forward. like we've gone through this process to a certain extent. So from your perspective, how's that journey been for us? And what would be some of the things that you would want to pass on to someone from an advice perspective if that's whom they identify as being in this moment? speaker-0 (23:06) Yeah, well, you know, I think you would admit that, you know, this journey is not a straight line, right? And it's, you can do all the calculations on spreadsheets you want and project what you think things are going to happen. But it doesn't always go that way, right? And you know, we've started our journey with long term rentals have built, you know, a decent sized portfolio in Michigan. And then we were doing some short-term rental stuff like price from the beginning of Airbnb. I think we're really like listing 101 or something. I don't know from very, very early on. And that was more, I would say the old Airbnb model, right? And when we had a ⁓ cottage that was attached to our main residence, we weren't really using it. Let's leverage that. It's on a lake. It'll be fine. You know, and we hosted, I don't know, hundreds of families. come and spend Michigan summers and boat and swim. And some of my funnest memories looking out the window and seeing people, know, splashing and enjoying the lake and the water. And that's kind of the start of Airbnb, right? I have a couch that I can let people sleep on. I have an extra bedroom, et cetera. It's not that game anymore. I mean, certainly there's some of that, but it's evolved to now where people are really trying to create experiences beyond that and think of a luxury property that maybe has nicer stuff than you have at home. Right. And the whole idea is I, that's what I want to go on vacation. And I want to go to a place that has an ingrown pool and a sauna and a hot tub and a cold plunge and a workout facility and a theater and amazing vacation location. Right. And so, and I want to bring my brother and his family and my sister and her family and maybe my mom too. And so This is kind of in my mind, how the Airbnb environment has evolved and the focus is changed on how you can be successful and where the real opportunity is. And we've made that pivot, right? To luxury short-term rentals and are investing in that heavily. But the thing of it is, I mean, the stakes are much higher now, right? I'm not just buying ⁓ a $60,000 duplex, ⁓ which gosh, we should have bought a hundred more of those at the time. But anyway, we didn't. But ⁓ the stakes are higher. so when I talk to fellow Googlers that are interested in investing in short-term rentals or friends, anybody, it's like, we have worked really hard to understand this market and to build a team of experts that have done this many, many times. And certainly, this is not without risk. But how do you de-risk it as much as possible so that you can be successful? And frankly, how can you learn without financial risk? Right. And I think that's, you know, what we're trying to offer, right? This idea of we were where you are now. We can offer you advice, help and bring you along for the journey. Right. And then that's part of what we want to do, too, is that give back component of we had people along the way that helped us. Right. And, you know, we're in a position to help other people. So, you know, that's what's fun and exciting for me is to start now. I said at the beginning about this idea of I'm successful with my work family. at work and now how can we outside of work be successful and to grow our generational wealth and have a lot of success outside of that. So that's what I'm excited about as we started thinking about what's the next property and what's the next property and who wants to come along for the ride in a joint venture position with us. So yeah, if you're interested, you want to hear more about it, let's have some conversations, right? It's exciting. speaker-1 (26:43) Well, and what we don't want is to sound like we have it all figured out. There's not high anxiety moments for us that we talk about maybe how our, what we have anxiety about has changed as things have changed. Like what are our concerns these days about the projects that we're working on at this moment versus when we were maybe looking at purchasing in the next long-term run. speaker-0 (27:13) I mean, we're trying to stand apart from our competition, right? mean, some of the markets that we're looking at, they're highly competitive markets, right? So I think really understanding your avatar, the person who's going to stay at your property and why would they choose yours over a different property, right? And really making sure that your property tells that story and offers that experience for customers. So I think it's being a lot more thoughtful. a duplex rental, it's like anyone that's looking for a two bedroom place that can afford this. Okay, great. Yes. You know, that's about the only thing we have to think about, right? Is it is the rent we think we're going to get being able to cover all the expenses when you when you're doing something at this caliber. It's a lot. It's not just the property, right? It's the furnishings and the decorations and what other experiences are you offering and who's property managing it? Are you doing it? Are you hiring a company and are they doing a good job using the algorithms to make sure you're the highest dollar per day that you can. And what other experiences do you want to offer? you offering private chef or yoga instructor or a sound therapist or you name it. There's just a lot more things to think about. Who's making sure that everything works when your guests get there? Who's mowing the lawn and who's Watering the plant, are the chemicals correct in the pool? And did somebody damage something? And now you have somebody coming in four hours and you have to figure out how to fix it. It's just, there's a lot more that goes into it you have to build a professional team that's going to be able to respond appropriately to all of those things. Because frankly, you get a three-star, two-star review on Airbnb on your five-star property. You can take a business, one guest overnight. I mean, that's really what you're trying to. mitigate now when you're playing ⁓ at this level. speaker-1 (29:09) And clearly we will have created some anxiety amongst some percentage of the people who are watching this who are like, I already work a full-time plus job at Google. I'm not entirely sure that I would be capable of taking on any of the additional things that Melisa just talked about. as we started building RealWise Collective, you Talk about the idea of passive income real estate investing versus what we're talking about, which is more specific to short-term rentals. Like what are some of the other things that we've learned about along the way that maybe if what we just talked about was too overwhelming, what else might somebody find their way to? speaker-0 (29:48) Well, I mean, I think the idea here, right, is we we built the team to worry about a lot of that on investors behalf. So I think that's the value of learning as you come along, right? You don't have to figure all that stuff out. I have it all figured out, right? We just need to make sure that you're getting your hours so that you can get your bonus depreciation, your tax break, right? So it's just really a matter of making sure that you can get your hundred hours and then we help you track and do that. Right. And as long as that happens, honestly, Unless the house burnt down, you're not worrying about anything. You're just waiting for a check once a month, right? And that's the goal here is to make it stress free and as pain free as possible, while allowing you to have a lot of benefits financially for making this choice, investing in real estate. For sure. I'm like, who can we partner with to do that? And we don't have to worry about it just so can... Maybe we should be doing more of that. I don't know. ⁓ speaker-1 (30:47) The news is because of mastermind membership that we have, we're exposed to operators in other real estate classes that are not the ones that we're actively participating in. So for those instances where we have capital that maybe we want to make an investment that doesn't require us necessarily to have to be the direct steward of that venture, we have all of these other amazing operators that we can slide from. We're really intending on introducing the RealWise Collective to a lot of the other operators in those classes as well. So depending on what your level of interest is in, triple net leases or, you know, private equity, even, we really want to give people the opportunity to have a cross section of ⁓ people that they can learn from that aren't necessarily just you and I as the short-term rental operators in Burnett Property Group. just members. at the end of the day. here's the question ultimately that I think the entire thing boils down to. So a peer of yours at Google happens to stumble into this and is right on the verge of executing a very sizable stock liquidation. They're going to be sitting on a sizable amount of money. What would you want them thinking about first and foremost, regardless of what they were going to do with that money? speaker-0 (32:02) goodness sake, I hope you're working on the CPA and have a plan for the tax consequences of that sale, right? And not something last minute, right? Get's give yourself some runway to make sure that you have either real estate investment or what other strategy you may have for for tax mitigation of those of those ⁓ assets, for sure. And yeah, I think that's the most the primary one, right? Our stock has had some pretty significant volatility over the last couple of months. And it's in a spot that causes me a lot of anxiety over the last two weeks. ⁓ You know, it's great when everything's up and to the right, but when all of sudden things start getting a little choppy, then you're kind of like, hmm, maybe, maybe this isn't my best. And then all of a sudden I'm like, goodness gracious. Maybe I should have sold everything when it was at a high. ⁓ And then maybe bought it all back when it's been lower. So I have those thoughts a lot and I'm sure there are other people that ⁓ Google employees that are out there that have managed a little better than I am. I'm just like ride or die kind of person to this point. But anyway, an interesting times with all this AI stuff and it makes you start double clicking on what your strategy is and what you're thinking about for your long-term growth as well as your tech strategies.