Today we continue the ESI Scale Interview series where people answer questions about their success at working the ESI Scale.
In short, the series focuses on what the interviewee is doing in the areas of earning, saving, and investing. They also get an opportunity to ask ESI Money readers for suggestions if they choose to do so.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
With that said, let’s get started.
Today’s interview is with the Guy on Fire.
My questions are in bold italics and his responses follow in black.
OVERVIEW
Please tell us a bit about yourself.
I’m 28 years old guy who resides in Washington, D.C.
Currently enjoying the SINK (Single Income, No Kids) life.
What is your current net worth?
With the recent volatility in the stock market, my net worth has been hovering just above $600k.
- Real estate makes up 65% of my wealth.
- Stocks and bonds (mostly stocks) make up 30% of my net worth
- Cash accounts for the remaining 5% of my assets.
- I also have some silver but it’s less than 1.0% of my total assets.
How did you accumulate your net worth?
I was fortunate enough to live at home for a few months after graduating college. While living in my parents’ basement I worked a 9-5 job. During this time I was hungry and had multiple side hustles.
I took advantage of this rent-free living situation and stocked away all of my W2 pay check. I lived on my side hustle income and even managed to save some of that as well.
After a few months of aggressive savings I had enough saved for a down payment on a house. I bought a 3 bedroom/2 bathroom home. I lived in one room and rented the other two to friends; this was my first shot at house hacking.
The rents covered most of my mortgage and I paid about $400/month to own a home. This beat paying $1,500/month on rent a one bedroom or studio apartment.
I enjoyed house hacking at my first property but wanted something better. More specifically, I sought a property that would provide me positive cash flow and a free place to live. So, I began hunting for my second property.
I found the worst house on a decent street in a gentrifying neighborhood. The place required a gut job – new plumbing, electric etc. I turned a 3 bedroom 1.5 bathroom house into a 5 bedroom 2.5 bathroom house. This place cash flowed like crazy and I got paid to live there – pretty sweet, right?
During this time, I also began a new side hustle as a property manager (more on this later). This was a great way to learn the ropes of being a landlord. We scaled the company from 25 properties under management to over 6o in about two and half years.
Eliminating housing from my budget increased my ability to save. I was saving well over 50% of my W2 income and owned two rental properties with positive cash flow.
I was also focused on increasing my income from my job. This was accomplished by working hard, fighting for raises, and changing jobs every few years.
The more I earned, the more I saved. The more I saved, the more I invested. The increased income and savings allowed me to buy more real estate. I went from a negative net worth to over $500k in 4 years. Today, I now have 4 total properties. I get paid to own each property and live for free.
EARN
Tell us a bit about your career.
I started my career in commercial real estate. My first job was an entry level analyst. My salary started at $65k. This may seem like a lot of money but it goes quickly in a high cost of living city like DC. In fact, it’s well below the median income.
Do you have a side hustle?
I’ve had tons of side hustles over the years:
- I’ve always had 2-3 jobs – even in high school and college.
- I delivered moon bounces for a family company in my early 20s. This paid $40-50 per delivery.
- I was a freelance photographer and enjoyed getting paid to take pictures of real estate. Compensation varied depending on scope of work and distance traveled. My fee was usually between $50-100 per house.
- I’ve also been a swim practice taxi which required me getting up at 3:40 a.m. five days a week; not fun but worth the extra dough. I received $200-250/week. Great side hustle income as a young 20 something.
- As a property manager, I usually made $2,000-2,500 a month. This was a great sum of money and a meaningful second income. At first, the time commitment was manageable. As we scaled the company my ‘side hustle’ morphed into a second full-time job. I exited this endeavor at the end of last summer.
- Occasionally I’ll consult for a few real estate clients. Funny – the less I need the work the more I’m able to charge. My original billing rate was $50/hour. Now I can easily charge $200-$300 an hour. I’m less inclined to take on work as I don’t need the money like I did 5 years ago.
If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?
9 – I feel confident that I crushed it, but there is always room for improvement.
What are your future plans regarding growing your income?
Job hopping over the past five years significantly increased my salary.
I’m less focused on increasing my income. I am content with my current income and plan to exit my day job in the next year or two.
Though, my rental properties will produce more income over time. Thanks inflation!
SAVE
What percent of your gross income do you save?
I save between 60% and 70% of my gross W2 income. I also save 100% of my rental property income.
How did you get to this level?
My high savings rate is attributed to three factors.
First, I owe most of my success to house hacking. I haven’t paid to live somewhere for nearly 5 years. Eliminating my housing expense has done wonders for my savings rate.
Second, I avoided lifestyle inflation and lived on less than $1,000/month for almost two years. I’ve since loosened the belt but live very modestly. My annual spending is between $25,000 and $30,000.
Third, while I no longer focus on earning more, it was a primary focus over the past five years. Switching jobs provided modest signing bonuses; I would not have received these funds if I stayed with the same employer. Each job switch was accompanied by a 20-45% increase in pay as well.
That’s the long winded way of saying I saved more because I made more. Since I avoided lifestyle inflation, any increase in income went to savings.
If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?
10 – I am very happy with my savings rate. Perhaps I could’ve saved more but I have no regrets.
Frugality is great but not at the cost of deprivation. Life is short and should also be enjoyed. I splurge occasionally when spending is accretive to my happiness.
What are your future plans regarding saving your money?
I’ve automated my savings and don’t spend much time thinking about it anymore. My paycheck is sent to a few accounts and everything is on autopilot.
INVEST
What are your main investments?
- Real estate – is my main investment vehicle and accounts for about 65% of my net worth. The properties provide predictable income. I own two single family homes, a duplex and a triplex.
- Index funds – I buy a low cost index fund every Monday. Why Monday? For those who still work, Mondays suck. Might as well numb the pain in a positive way. Regularly investing will eventually allow me to buy my freedom. Low cost index funds provide a simple way to invest and I recommend this approach if you want to start investing.
- Dividend stocks – I opportunistically buy high quality, dividend growth stocks. Every year these companies pay me more for owning their stock. This is a great form of passive income. Dividends also have great preferential tax treatment.
- Silver coins – this is more of a hobby but silver coins can go up in value over time.
- Bonds – My bond exposure is minimal. However, I have a few thousand in TIPS as a hedge for inflation.
If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?
8.5 – I am no Buffett. I also get knocked down for calling silver coins an investment.
What are your future plans regarding investing?
I’m putting as much money as possible into low cost index funds.
I would like to increase my liquidity and diversify away from real estate.
I have been and will continue to max out my 401k and Roth
WRAP-UP
What money mistakes have you made that others can learn from?
“If I could do it again, I would do it the same. Not one regret – I wouldn’t change a thing.” – Corey Smith.
I have not made any major mistakes. Sure I could have optimized life a bit but I have no regrets and am happy where I’ve landed.
Are there any questions you have for ESI Money readers regarding any parts of your finances?
Any awesome hacks to legally lower taxable income?
Self-employed/already retired health care tips?
Efficient ways to move funds out of traditional retirement accounts?
The Physician Philosopher says
Man, you are doing great! Keep up the solid work.
To answer your third question, a roth ladder conversion seems like the obvious answer to me in your situation. If you leave a traditional retirement account perform a rollover into an IRA. Then, you can convert that money into Roth IRA dollars. You cannot touch it for five years – and if its truly for retirement this likely won’t matter – but then it is money you can use during early retirement.
If your taxes are low during that time – as yours seem to be – then the roth ladder conversion can be a very convenient way to get to post-tax dollars that will continue to grow tax free and be taken out tax free and also access your retirement money early before age 59.5 if you ever needed to do so.
TPP
Guy on FIRE says
Thanks for reading and thank you for the advice. That is great information.
Johndogsan says
Your my hero! Good for you.
Guy on FIRE says
Thanks, Johndogsan.
Marty says
Nailed it. Proof hard work and a savings habit can deliver results at a early age.
Guy on FIRE says
Thank you for the kind words. Hard work is key here. This didn’t happen overnight or by sitting on the couch and binging Netflix.
Half Life Theory says
Wow! This guy is so impressive! absolutely killing it.. another great one for the books ESI!
Guy on FIRE says
Thank you for the kind words HLT. I hope some of the steps I took can service as actionable tips for others.
Cody @ Dollar Habits says
Very impressive, all around! You definitely crushed it and have set yourself up for an amazing future. Nicely done!
Guy on FIRE says
Thank you, Cody.
Arrgo says
I like your willingness to hustle early on. Its a good thing to do when you are young and have the energy to work long days. It can really help you get ahead. I did the same thing and still have that hustle mindset at 49. Once you build that ability, it usually stays with you. You can turn it on when you need it.
Guy on FIRE says
Hustle now. Play later. Working to get ahead so I have unlimited options later. Sounds like you took a similar path. Thanks for reading.
The Crusher says
An amazing job by an obviously mature, driven young man. Great job starting so young. I am not sure who inspired you but whomever that was, you should go give them a hug.
Regarding taxes since you are already maxing out your 401K or Roth all I can add is if you have access to an HSA you might want to consider packing away tax free money there.
Great work!!
Guy on FIRE says
Thanks Crusher! I just opened an HSA earlier this year. Looking forward to taking advantage of this vehicle.
L says
I want to go into property management- have the time and am in a hot real estate area.
I just don’t know how to break into it. I don’t own a property
Any recommendations would be appreciated
Guy on FIRE says
L – feel free to shoot me an email. Happy to chat.
Patsy says
Holy cow. Fantastic job! Love the story of how you hustled from your very early years- I assume your parents instilled in you the strong work ethic and discipline, and you took to heart their lessons and example! I agree with you that you absolutely killed it with your investments and timing. So jealous that you house-hacked when young– that does seem key to being able to reach a level of financial stability and security while still young that nothing else approaches. I so wish I had learned of house-hacking while I was in my 20s! That was the time when mortgages were given to anyone with a pulse, and I could have saved and accumulated quite a bit of money that way. Oh well- I can’t change what I didn’t know then.
“Frugality is great but not at the cost of deprivation.”
Agree 100%! I so often read of people pursuing FI (or others) who are depriving themselves at every turn in hopes of reaching FI and THEN they’ll get to enjoy all those things… The Dave Ramsey motto about living like no one will now so you can live no one can later. Makes me so sad. If you really enjoy a Starbucks latte, get it. If you like to eat out, do it. I am a believer that the journey matters as much as, if not more than, the destination. Most things, if practiced in moderation, won’t make or break the bank or one’s ability to reach FI or millionaire status or whatever it is you’re pursuing. But then I am also nowhere near FI! 🙂
Paul says
Excellent Job.Early Bird Catches the Worm. I always advise young people to do the same thing, what you are doing.Your parents will be very proud of you.
RocDoc says
Fabulous Job! With all your success in real estate, I wondered why you want to decrease your exposure? Is it that you’ve already made a great start on savings and would rather not have the time commitment to all those properties?
You have done so well!
Guy on FIRE says
Mostly diversification. While my properties provide great cash flow, I do not want to be too dependent on any one source of income. I would like to rebuild my liquidity; buying two properties in 6 months drained my cash. I also want to increase my non-retirement investment accounts (more liquidity).
RocDoc says
You have a good plan and I can understand wanting to recoup liquidity. You have already built enough savings at 28 that even with no further contributions you could comfortably retire early at 50. If you keep adding to the stash you could either enjoy FATFIRE at 50 or retire earlier. Great work!
Lily | The Frugal Gene says
Hi Guy! I know that Ms. Frugal Asian is pretty much in awe of your progress as a real estate developer! It must have taken a lot of work and in Washington DC no less! Kudos! Are you planning to expand and grow with a fifth property?
Guy on FIRE says
Thanks, Lily. No plans on a 5th property. I bought rental property #3 and rental property #4 less than 6 months apart. RP#4 will finally be stabilized next month. I need to digest the new properties and build up my reserves again. Maybe down the road? But right now, I need to recoup some cash and also enjoy life a bit. Gotta chill as hard as you hustle.
Guy on FIRE says
Thank you for the kind words, Patsy. I am fortunate that my parents encouraged (forced?) me to work at a young age. My work ethic is an important part of my success. I also would not be where I am today without house hacking.
I agree with you about frugality. The ‘latte’ effect can is real if you have 3 a day every day, but if that is what makes you happy – great. Instead, I tend to focus on the big three – house, transportation and food. Life is about the journey, not the destination.
Kathryn says
You’re definitely crushing it (and it was great to meet you briefly at FiNCon last year by the way!).
Having your own business through your real estate ventures provides a lot of great opportunities to lower your taxable income. The new business deduction eliminates tax on 20% of your profit, plus you can deduct lots of things that you couldn’t otherwise (a portion of your phone, internet, home office expenses, tax prep fees, etc). You also are more in control of shifting some of your expenses between tax years, which can make a big difference!
Good luck!!!
Mark says
Nice interview — you are a go-getter. Real Estate great investment. That’s the one thing I wish I had more of
Phillip says
“Job hopping over the past five years significantly increased my salary.” Early in my career, job hopping helped me increase my pay faster. In my experience, if you’re not on the “fast track” at your current employer, you can likely do better somewhere else after a couple of years experience. Also, I went back to school to get an advanced degree and job hopped afterwards (but do your research on what average graduates make to make sure these types of positions are what you want to do).
Nicole Dorsey says
Would you mind sharing more about how you are “buying a low cost index fund every Monday”? Is there a website you use to buy these? How do you know which index funds to buy?
Guy on FIRE says
Sure. The process is automated and takes no effort on my part.
One of my brokerage accounts is with Vanguard. The account and auto investment took maybe 15 minutes to set up. Every Monday, funds are pulled from my checking account and into my brokerage account. Vanguard then buys the fund automatically. Personally, I invest in VTSAX. However, any low-cost index fund that tracks the S&P 500 is a worthy option. All the major brokerages offer their own version of an S&P 500 index fund. Most will allow you to trade commission free as well.