Here鈥檚 our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
You’re going to love this one for several reasons, but mainly because 1) this interviewee has become wealthy on a low/average income and 2) he’s actually implemented the “buy one house a year for 20 years” investment idea.
My questions are in bold italics and his responses follow in black.
Let’s get started…
How old are you (and spouse if applicable, plus how long you’ve been married)?
I’m 52. Got divorced when I was 40. I can’t stress enough the importance of choosing the right spouse. It can make or break your net worth. Fortunately, I learned from my experience and my partner in crime of 11 years is amazing. She is smarter and more frugal than me.
We do not combine our finances or household. It works out great for us.
Do you have kids/family (if so, how old are they)?
2 amazing girls at 16 and 14. Crazy how fast they grow up. I’m hoping some of my lessons on money stick. So far, they like to spend my money but save like crazy with their money. I set up my oldest daughter with an online savings account and she saves 70% of her part time earnings.
What area of the country do you live in (and urban or rural)?
I’m in a small Midwestern college town with a population of 100,000 or so. I lived in expensive areas of the country when I was single and carefree and found this town to be the perfect fit for lifestyle and affordable real estate.
When I lived in the big city, all my money went to my nice car to impress clients, long commutes, crazy rents and exorbitant dining out expenses. It was a blast to live in the big city, but it was expensive. I had a negative $40,000 net worth at age 30 when I moved to my current town.
What is your current net worth?
$2,522,358
What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?
Assets
- Residential Income Properties: $7,370,000
- Business Value: $200,000
- Roth IRA: $12,700
- Other assets: $69,345
- Cash: $108,120
- Escrow for upcoming project: $38,606
- Total Assets: $7,798,771
Liabilities
- Credit cards/lines of credit: -$65,841
- Fixed mortgages: -$5,210,572
- Total debt: -$5,276,413
Net: $2,522,358
Notes:
The Roth account is low right now since I’ve used it to purchase 3 multi-family buildings-including my first junker back in 1998. I estimated what would have happened if I maxed out the contributions since 1994 and earned the same as the SP 500 index and the real estate won by a long shot.
The Roth used to be a traditional IRA and I converted it when the Roth first came out.
I just wish I could invest more into the Roth since I continue to max it out each year. If I were to set up a 401k, I’d have to increase my salary and pay more to the IRS.
What is your job (type of work and level)?
Currently, I’m an independent financial advisor. Contrary to popular belief, it is not a high earning job since I suck at marketing and it costs me $100,000 a year in overhead. I’m a huge fan of indexing after trying everything else. I like to joke I’m a recovering stockaholic.
My other job is investing in residential income properties. I started with a junker in 1998 for $5,000 down with owner financing and reinvested that stake into a portfolio of 116 units today.
Buildings range from 2 family units to 13 unit apartment buildings. It started as a side hustle and has morphed into a cash flow machine where I’ve created my own management company to handle the day to day tasks. This saves me about $100,000 a year versus hiring a property manager.
Surprisingly, it is fairly easy since I have one full time employee and lots of 1099 contractors. I also have a software program that is does all the heavy lifting for me and tracks all the numbers. My job is more like an asset manager who likes to get his hands dirty.
If I were to quit my day job, I could run it working 20 hours a week.
What is your annual income?
This is a tough one. I never earned a salary of over $50,000 a year and really don’t know or care.
To this day, I only take a salary of $36,000 a year from my financial advisory firm. This is tax free since my real estate spits out some sizable passive activity losses that allows me to offset active income like my salary. This is the other benefit of running my own property management company. The IRS considers me a real estate professional for tax purposes.
In a typical year, I can write off over $200,000 in deprecation from real estate plus the mortgage interest and repairs and other items. The depreciation is a phantom expense since the IRS allows you to write off the value of real estate over 27.5 even though property values tend to increase over time as long as you take care of em.
Last year my effective tax bracket was less than 2% on an income that would easily equate to $250,000 a year.
I’ve never had high wages. I took a different route and focused on assets over earnings. This is why I have so much money tied up in real estate which is definitely not a conventional path to most of your readers. It just seems safer to me since I got laid off from a job in college and decided working for someone else is too risky.
Plus, it’s insane how much the government taxes active income-salary, flipping homes, stock options and self-employment income. I decided passive income was the way to go since it is taxed at a lower rate. This is why billionaires like Warren Buffett can pay so little in taxes. Buffett’s salary is $100,000 or so. He lives on his capital gains, dividends and interest from his personal portfolio and perks from his company.
What is your main source of income (be as specific as possible — job, investments, inheritance, etc.)?
Clearly, it is my real estate. Just like Buffett, I draw a small salary from my company (the financial advisory practice) and take dividends from my real estate. Both companies pay life’s expenses. Things like car, taxes, life insurance, cell phones, computers, insurance, etc.
I’ve never received an inheritance, paid my own college through work and Army GI bill.
What is your annual spending and what are the main expenses you have?
$48,000 a year.
Here is how I keep my spending in check since some of your readers will think this is ridiculously low.
I live in a two family in a nice part of town that is similar to a town house. The rent from the other tenant covers my mortgage, taxes and insurance. Thus, 1/2 of the house is treated as a rental and the other 1/2 as my personal residence. This allows me to write off 1/2 of my housing expenses.
I drive old cars till they die and have never owned a new one. My fancy Suburban has 160,000 miles on it. The guy who sold it to me paid $85,000 for it brand new. I got it for $26,000 with a small loan and down payment. My rental business paid it off in 3 years.
My other car is a BMW that I bought used as well and paid if off in 3 years. On this one, my financial advisory business paid it off. Unfortunately, my advisory clients like to see their advisor drive a foreign car while my tenants like to see me drive a beat up truck.
Over the last 3 years, I’ve had no car payments.
I guess my main expense is children-groceries, clothes, gadgets, activities, travel.
For travel, I like to go somewhere exotic and warm each year with my girlfriend. We rent a house with a pool near the beach. These days, the dollar buys you a lot overseas.
For the kids, we like to go on one major trip a year as well as a bunch of micro trips throughout the year.
How did you accumulate your net worth? Also, please share any mistakes you’ve made along the way that others can learn from.
As I mentioned earlier, I’ve never been a high wage earner and had to get creative to grow my balance sheet since I had a negative net worth at age 30.
Once I bought my first property at age 34 with $5,000 down, I moved in and started working on it to increase the value. This is called forced appreciation.
The next property was purchased with a low down FHA loan. It was a duplex and I convinced my wife that we should continue to live in small multi’s to build our cash flow and balance sheet.
Eventually, she put a stop to this madness and I ended up buying into the “American Dream.” This was a big house with a fenced yard in a fancy part of town.
Big mistake.
2 years later, she got the house and I got the rentals.
At the time, it was the worst experience of my life. Later, I discovered it was the best thing that ever happened to me.
I must admit, it was a humbling experience to go from the white collar part of town to the blue collar part of town as I moved into one of my rentals and recovered from the financial hit of the divorce.
Worse, I had a new major expense-child support.
Thereafter, I continued to live in 2 family rentals as I built my portfolio one property at a time. My kids didn’t care and they grew up thinking it was perfectly normal to have a tenant next door.
In some years I was able to purchase 2 to 4 properties. Other years, there were no deals and I would simply wait for a better deal.
All my properties were purchased by stripping equity from prior properties or reinvesting all my cash flow into the next deal. On some deals, the seller offered owner financing and I was able to buy these with 5 to 10% down. I’ve never had partners and had to hustle to raise capital.
Looking back, it was definitely not easy. I worked my ass off with these two jobs. Many times, I was working 7 days a week for a month straight. After the divorce, I’d work hard on my off week and less on my kid week.
When the markets collapsed in 2008, I was able to weather the storm by battening down the hatches on expenses and making sure all my units remained full. In some cases, I had to lower rents to maintain cash flow to service mortgages.
Fortunately, I never got over-extended on real estate loans and never had to sell since the cash flow after all expenses covered my bills. This is the beauty of buy and hold real estate. As long as it cash flows, you can survive market cycles.
My financial advisory business got crushed from 2007 to 2009. Revenues dropped 50% and the real estate portfolio kept me alive. A lot of financial advisors went under back then due to their extravagant lifestyles. Thank God I had a second source of income and never suffered from lifestyle creep.
Today, I continue to live below my means while reinvesting into my real estate portfolio to increase the cash flow. I don’t have to work as hard and can sleep in or simply take a weekday off just for fun.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
There are no short cuts. I tried every get rich quick scheme out there and nothing worked out. As folksy as this sounds, you need to sacrifice a lot and focus on the end game. You need to work harder than most people. You must be willing to bet your entire net worth to get ahead if you take my route with real estate or being a business owner.
Look at Warren Buffet. He would put 50-80% of his net worth into a single stock to achieve outsized returns. If you look in the mirror and don’t see Warren, think twice about doing this.
Real estate is definitely not for the faint of heart. If you are risk averse and wish to take a simpler route, live on 50% of your income and invest all of your savings into a diversified portfolio of stock index funds. We are talking a portfolio of 100% stocks like Warren Buffett. All my clients with 1 million plus net worths tend to come from moderate incomes who live below their means and tilt their portfolios to 80-100% stocks.
If you earn 50k a year and can save 25k a year earning 8% annually tax deferred, you will hit 1 million in 19 years. Very few people will do this.
Just be sure you know what you are doing. If you do not have the temperament to see your 401k become a 201k, you need to save your way to wealth in CD’s and bonds. It will definitely take longer but is better than being in a 100% stock portfolio and selling out at the bottom of March 2009.
The average investor earns far less than a market return after you subtract management fees, advisory fees and behavioral mistakes. This is a fact. Every investor I meet thinks they are above average.
One more thing. If you are a late starter like me, you need to focus on something different. I was lucky in that I was wired for delayed gratification and consider myself unemployable. The key to my success was recycling my active income into passive income.
My first million took 9 years; longer if you factor in when I graduated from college. The second was faster. The third will be even faster due to my investment snowball. I never could have reached a 2.5 million net worth by investing in a 401k or IRA on a salary of 50k or less a year. I took the road less travelled.
What are you currently doing to maintain/grow your net worth?
When I first started in real estate, my goal was to purchase 1 property a year. It’s been almost 20 years and I have exceeded that goal. I’m still in growth mode, but have definitely slowed it down since I’m more selective now. I’m waiting for the proverbial fat pitch.
The second way is through principal pay down. Every time I purchase a property, the tenants pay down my mortgage balance. Right now, they are paying $160,000 toward my principal. This will continue to grow since the average duration of debt is 18 years.
The third way is the traditional path. Contribute to my retirement account, pay down debt and work on increasing my salary in my financial advisory business by taking on select clients.
Do you have a target net worth you are trying to attain?
In the beginning, it was 1 million by age 45. Hit that early. Next was 1 million in gross rents. Hit that last year. Today’s goal is growing the portfolio with the least amount of time commitment on my part. My philosophy is grow the assets and the rest will take care of itself.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
My current goal is to get my girls through college debt free via rental cash flow. No 529 plan or pulling equity from real estate via a refinance.
After that, I may slow down to working 3-4 days a week. I could easily retire today, but love what I’m doing and want to make sure kids are set. After working 60-70 hours or more a week during the growth phase of my businesses, a 40 hour work week seems like a part time job.
Is there any advice you have for ESI Money readers regarding wealth accumulation?
There are no secrets. Everything about building wealth has been published over the last 100 years; even longer if you throw in religious texts or the Roman Empire.
Today, there are so many free resources (blogs, podcasts) that I consider it easier to build wealth today than when I started.
ESI has it down to a very simple formula. Either you work on earnings, savings or investing.
For maximum speed of wealth, you increase all three. If you hit 2:3 like I did, you can still retire early or build a million dollar net worth.
1 million is not a big deal. (It is a huge deal when you are starting out). When I hit my first million, it was cool for a week or so. After that, it was get back to work.
For me, it has nothing to do with money. It is freedom to choose what I want in life. In my case, my job became my hobby and my hobby became my passion.
The Green Swan says
A very inspiring story, thanks for sharing! I love to hear all the different ways to make it to a million+. The common denominator in many is hard work. I’m sure it feels great and rewarding making it to this point where you can start to work “part-time” :).
My net worth is around $1.3 million and I’m looking forward to slowing down a bit from my current pace. I’m thinking another good 3-5 years to reach that point.
Millionaire 10 says
Nice job! If net worth was a grade, you would have a solid A. It pays to work a few more years if you like what you are doing.
Dave says
I truly enjoyed your interview. You have built some amazing wealth. What is truly inspirational is that you did so without earning a high salary. Also, you were able to build wealth in spite of getting divorced around middle age. Congrats on your success and thanks for sharing.
Millionaire 10 says
Thanks! She got the golden eggs and I kept the goose.
Erik @ The Mastermind Within says
Wow what an interview. My jaw dropped a little bit when I saw $7M in real estate and $5M in mortgages but it makes sense. 20 years of real estate investing can get you there!
Thanks for sharing ESI.
Millionaire 10 says
Ya, I never thought I’d hit hit over 7m in real estate either. I just focused on 1 property a year. It sure adds up!
Ryan Kirk says
This is a great story, thanks for sharing. Curious how you are financing most of your real estate debt? Obviously you exceed the threshold to do permanent mortgages via FHA loans, so are you mostly using commercial bank loans now? Thanks.
The Dude says
Aftet 10 conventional loans, I switched to commercial loans with friendly local banks. It is easier to qualify as well. Terms are normally 20 year amortization. Some have ballons and as long as you keep the loan to value below 75% the baloon is not an issue.
Millionaire 10 says
Aftet 10 conventional loans, I switched to commercial loans with friendly local banks. It is easier to qualify as well. Terms are normally 20 year amortization. Some have ballons and as long as you keep the loan to value below 75% the baloon is not an issue.
Katherine says
Let’s hope this millionaire doesn’t go belly up like Dave Ramsey did when he was doing the same thing and the bank called his notes. Very risky! That debt is HUGE! Why not use some of the 2 million to pay for kids college instead of a home equity loan?
Millionaire 10 says
Dave Ramsey did it all wrong. He was leveraged more than Lehman Brothers. All I can say is I’ve been doing this since 1998 and successfully navigated the worst housing crisis since the Great Depression. College will be paid via cash flow. Worse case, grab some equity.
Laurel says
This is awesome and something I’d like to explore but at my age (57, hubby is 53) I think it’s too late for us. We have a decent net worth but not enough to retire on. Is it too late for us? Thanks!
ESI says
Are you asking if it’s too late to invest in real estate or too late to retire early? Not that the answer will change my response.
It’s never too late to make improvements and get better.
So at your ages, it is too late to retire at 50. But it’s never to late to retire as fast as possible. You simply need to make the changes necessary to make it happen.
I get notes from people all the time who are in their 50’s and want to retire soon. But they haven’t done much to save for retirement and, even worse, they aren’t willing to make any changes to help themselves retire. They want a fairyland solution to a real-world problem. They will likely never retire.
But even if you haven’t been the best saver/investor up til now, you can make changes that will DRAMATICALLY improve your finances over the next five or ten years. If you do, you will be much closer to retirement at the end of that time and have a good shot of being where you want to be financially.
So it’s never too late to become better… 馃槈
Millionaire 10 says
Never to late. One rental at $300 per mo net cash flow is $3,600 per year. Thats the same as $108,000 n a taxable account where you withdraw 4% a year assuming a 20% tax bracket. The $300 per mo would be tax free due to real eatate tax benefits assuming depreciation and a mortgage.
Mike H says
I really appreciate the interview. Do you manage all the properties yourself or do you have help? I’d imagine you are pretty handy around the house.
I’ve taken the path of stock ownership with very little coming in from real estate, plus a few REIT’s.
Congratulations on your great success.
-Mike
Millionaire 10 says
I set up my own management company. I outsource all the maintenance and improvements. I’m basically the asset manager. I find real estate to be a nice complement to a stock portfolio like ESI.
Thanks!
Chadnudj says
Amazing work by the interviewee.
I will note, though — taking that $36k salary may not be ideal in terms of your Social Security benefit down the line. Now, obviously, you’re in a great position to not have to rely on that thanks to your hard work…but Social Security is a nice benefit to have in terms of longevity insurance for you and your spouse. It might be worthwhile (and even worth the tax hit) to increase your salary for Social Security benefits purposes, at least to make sure you get up to that second inflection point (a good Social Security calculator and review of your past SS wages on the Social Security site will help you see where you are/what you need to do to reach that point).
Millionaire 10 says
Good point. Everytime I run the numbers, it doesn’t make sense at 15.3% self-employment tax plus Fed and State. I can get the max social security benefit by simply owning 5 properties with mortages. Plus, I don’t have to wait till age 70 for maximum benefit.
Cynthia Espiritu says
Can you elaborate on your comment regarding getting the max social security benefit by simply owning 5 properties with mortgages?
Millionaire 10 says
The max benefit for 2017 at full retirement age is $2,687. I’ve been able to replicate this cash flow stream with only 5 rental properties. I don’t have to wait till age 66 to receive this.
Carlos says
Thank you for sharing. What a great interview, inspiring and encouraging for anyone who is trying to figure things out. I have interests in Real Estate and I agree with your views.
I too tried to find a short cut and spent thousands of dollars and time with only knowledge to vouch for.
I have a few questions for my education if you don’t mind answering them.
What tax structure(s) do you use to own your real estate?
How are your RE holdings mostly diversified? geographically, type of real estate, market segments
Thank you,
Millionaire 10 says
I prefer the LLC since it is the best option in my scenario. All properties are in a single market with high barriers to entry and diverse employment base coupled with high rental demand. My vacancy rate averages 3%.
Sam says
Great. I guess he’s correct about choosing spouse. I am 35 and in the process of separation. I am not sure how much hit it will be for me, but bracing for it. I have been in workforce for just 5 years as I was working on my PhD until then. Luckily no kids. I max out my 401k and HSA accounts every year. Invested 20k in vanguard through HSA. That’s as much of investing I did so far. I am looking for new jobs to grow my career while I part ways with my wife gracefully.
Millionaire 10 says
Sorry to hear about the divorce. Be glad it is happening when you are younger with no kids. Great learning experience as well.
Spen says
Great interview. Considering Property now but UK tax laws have gone against holding more than one property. Inspired me to take another look if only to get another source of income in.
Millionaire 10 says
Uk is tough. Here in the USA, we are blessed.
Paper Tiger says
Congrats, a lot of hard work and tenacity on your part. I’m going the more traditional route. I’ve been blessed with a good, hardworking wife and an ability for both of us to make good salaries, save a healthy % and invest nearly 100% in mostly passive index funds for the last 25 years while maintaining a buy and hold strategy through good times and bad. Results are a solid net worth and only our mortgage as long-term debt that we refinanced to 15 years about 8 years ago and make bi-weekly payments to reduce the principal a little faster. This is probably a bit easier path to FI but of course, we have had to weather layoffs and bad bosses and just keep plowing ahead with our objectives. Time can be on your side if you just stick with your plan and stay focused on your goals.
Millionaire 10 says
Completely agree. Your way is much easier!
Dennis says
You mentioned podcasts and blogs. Which ones are your favorites?
Millionaire 10 says
Here’s my favorites
1. Jake and Gino http://jakeandgino.com/
2. Lifestyles Unlimited Del Walmsley http://www.lifestylesunlimited.com
3. Bigger Pockets with Josh Dorkin and Brandon Turner https://www.biggerpockets.com/renewsblog/category/podcast/
4. Creating Wealth With Real Estate Investing Jason Hartman http://www.jasonhartman.com
5. Lifetime Cash Flow Through Real Estate Rod Khelief http://lifetimecashflowpodcast.com
6. Afford Anything Paula Pant http://affordanything.com
7. James Altucher Show http://www.jamesaltucher.com
8. Tim Ferris Show http://fourhourworkweek.com/blog/
9. Best Ever Show with Joe Fairless http://joefairless.com/show/
Dennis says
Great list. Thanks!
AZBruins says
Thanks for the list, I just brought some of their books off amazon, love reading and learning from other successful real estate gurus 馃檪 thanks again M-10 !
Glen Ridge says
Great post! Gave me a lot to think about for the future…I am 5-7 years out from a traditional retirement but will be young enough to continue to build net worth and your ideas intrigue me.
Millionaire 10 says
Better to retire towards something then away from something in my opinion. Renting to millennials keeps you young!
Joe says
Thanks so much for the interview! I learned from it. Sounds like a great strategy and quite safe (well, about as safe as anything can be these days) even with all the leverage.
Most of my assets are in the stock market although I hold 5 single family properties, all with no financing. I keep going back and forth on whether to add to the real estate portfolio. It’s very hard to find cash flowing properties in my area, so I’d have to go out of the area.
At what stage did you decide to hire someone full-time for the management company?
Millionaire 10 says
Congrats on 5 paid off properties!
Finding cash flowing deals can be tough right now. That’s why I have focused on off market deals that were never listed on the market. Other times, I had to simply wait for the perfect pitch.
Another approach is to go where most investors can’t obtain financing. The 5 unit plus space is the sweet spot since you need a commercial mortgage with 20% down and the big players avoid small multi’s.
In terms of hiring a full timer, I waited until the time commitment was too much before I hired this person. I guess it just depends on your schedule and how much you enjoy doing the work.
Tussy says
Thank you. Your interview gave me so much more confidence. I love to know more about your journey of accumulating real estate networth. I always believe and feel more secure with real estate cash flow. My aim is 1 property a year. I am at 4th and struggle to get my fifth as i am maximising my loan capacity. Do you have a blog I can follow? Also im getting married end of the year . My partner have 2 property and getting his 3rd. We are looking to do a annual budget meeting for our new household and wonder what your thoughts on having individual or combine finances and budget? We are in our 30s and looking to achieve FI:) thanks again.
Millionaire 10 says
The best resource is biggerpockets.com in terms of blogs and podcasts. I’m wrestling with a blog, but haven’t really pursued it due to the time commitment.
The ideal scenario to grow the portfolio is to have both partners work on this together. Like any partnership, you need to be clear on roles and responsibilities.
I could have grown faster if my wife was on board. Fortunately, my new partner “gets it” and it has made all the difference in the world.
AZBruins says
haha.. we are doing the exact same thing, I go out and get good deals on properties, she comes in, get rid of bad tenants, raise rent to force appreciation, then just manages it.. perfect match 馃檪 it usually takes about 6 month of hard work to “stabilize” the cash flow, but after that, it gets easier, then i get to go out and look for another property and do this all over again 馃檪
Millionaire 10 says
Awesome!
MI#2 says
Definitely one of my favorite interviews. Congratulations MI#10!
Millionaire 10 says
Thanks!
Matt Miller says
Great article and wow, the power of real estate! Congrats to you Millionaire 10! Shows that it’s not what you make that matters but what you save.
Millionaire 10 says
Too many people get caught up on the earnings treadmill. You can sure snowball the balance sheet by focusing on cash flowing assets.
MCP-LLC says
Great interview. Amazing progress considering your early setbacks (early debt & divorce), not to mention the less than $50k salary level. Congrats on a great accomplishment! I’ve followed a somewhat similar path, focusing early in life on career and 401k savings, and the normal American Dream (marriage, kids, house, etc.) It wasn’t until finding rental real estate in my early 40’s, that I truely began to understand the capability of cash flowing assets. So I decided to focus on both paths…index funds in my 401k, and rental real estate (figured I had to be successful at at least one…right?!) I currently have 54 rental units and a combination of very strong 401k’s, so I recently decided to not look for further corporate work after negotiating a final corporate severance at my last job. I am 51 yrs old and now FI, and enjoying life. Real estate was the greatest single catapult for us too, and we are now living on the cash flow and doing Roth conversions each year on our traditional 401k’s (at a lower tax bracket thanks to the RE depreciation), now that we are no longer employed. The Roth conversions will start to mature after five years, but we don’t expect to use the money as the real estate should continue to more than meet our life style. I now consider the 401k’s as a backup plan, so it can just continue to grow. So following both paths turned out to be a double hedge for reaching FI for us, but like you, real estate definitely got us there sooner. The plan is to have a large portion of our 401k’s converted to Roth’s prior to RMDs at 70yrs old, to further protect against huge tax bills down the road.
Anyway…Cheers! Great job for reaching FI! It’s a huge accomplishment, that few ever attain. Make sure you stop and smell the roses along the way! The freedom is incredible.
Millionaire 10 says
Great to see a fellow 50+ unit member here. The401k is a great tool as a back up plus as a way to qualify for more loans. Kudos on Roth conversions! I bought 3 multi deals by hitting up my Roth basis over the years for down payments.
Oliver says
This is one of the best in the millionaire interview series. Very inspirational. Completely feel the pain about government taxes on earned income. The amount taken from earned income vs capital gains from investments is huge. Hard work in earned income builds wealth a lot slower than capital gains from investments. The rich get richer. Recently hit 1.6M in net worth. Paid hefty taxes along the way.
I want to begin\building my real estate portfolio based on cash flow. Like you said, cash flow is more reliable and will be fine in market downturns. Appreciation is just icing on the cake. Purchased my first property in 2016 (in California) and looking to possibly invest out of state this year.
What do you think of turnkey investment properties? They make money on the front end and you get to buy and hold for cash flow on the back end.
Millionaire 10 says
I’ve never tried the turn key route since I like to keep my properties nearby. Being in CA poses a major challenge. I’d definitely consider it, but would want a large established turnkey provider who both renovates and manages them after the sale.
Like any investment, the key is the people and the process versus the potential returns.
Some parts of CA are more affordable like the Sacramento area or outside LA. If you could find a solid property manager, that would be another option. Still, Ca is not tax friendly or landlord friendly.
Another approach is being a passive in a small syndicate where the lead finds a deal and has a small number of accredited investors.
Just some thoughts.
Dividend Diplomats says
You weren’t kidding when you said I would really like this interview. Very nice interview and I left feeling inspired. What hit home was the statement about how hard wok pays off and there are no shortcuts that you can take. Focus on the end goal and building income producing assets. Also a great story and lesson about diversification in income. You were very fortunate that you were building a second source of income to offset the impact that your asset management business took during the financial crisis.
Thanks for the inspiration and the push here tonight. Much needed.
Bert
Millionaire 10 says
Glad I could inspire!
Donna says
I, too, am frugal. I tried real estate but the town I chose was losing people so I sold the property. I have no debt. I own my house and live comfortably on $30,000 or less per year. I retired at age 50. Am now 66 and using my hobbies to make a little extra. The interview was very good. Like Warren Buffet you are living a quality life without the bling. I am as well and feel happier because of it.
Millionaire 10 says
Your were smart to sell! Real eatate only works in a stable or growing market.
Donna says
Yes, a fact that too many forget.
Lance @ MyStrategicDollar says
Great post! I enjoyed reading your comments about accumulating wealth through slowly acquiring real estate. That’s my current path and I can only hope to be as successful as you!
Christine @ The One In Debt says
Great interview. Thank you for sharing. I like the 3 things you are doing to maintain/grow your networth section and your input about needing to focus on something different due to being a late starter. I am also starting late, but am not sure that I want to take the RE road. What are some other avenues you would consider focusing on?
Millionaire 10 says
That’s a tough one since I don’t know your situation and can’t offer financial advice over a forum. From a very general perspective, I would focus on what has worked for you in the past or hire a pro that offers value. There are only 3 ways to grow the net worth and the Esi formula covers it. You can invest in equities, in a business, or save like crazy. I view real estate as a business.
Matthew says
Hi –
I am pretty much exactly where you are when you first started in terms of net worth, so I found this interview to resonate with me. I am not sure if Millionaire 10 still checks this but I have a few questions…
1. How did you determine if something was a “good deal” or not as you have mentioned a few times?
2. How do you determine if a market that you’re looking at is stable or growing?
3. Did you do all your own repairs? I ask this because I don’t really have repair skills. If I wanted to build software to manage stuff, that I could do haha…
and lastly
4. How much do you set aside for each property in terms of maintenance?
Millionaire 10 says
1. How did you determine if something was a “good deal” or not as you have mentioned a few times?
I simply ran the numbers and made sure the property cash flowed after mortgage, taxes, insurance, utilities, grounds maintenance, repairs and vacancy. I use 3% of annual rents for vacancy since we have always had a tight rental market and 10% of rents for repairs. If I can net $200/mo per unit, it fits my goal.
2. How do you determine if a market that you’re looking at is stable or growing?
I follow population, employment, rent and price growth. I’m in a boring market. Population is stable and rent and property growth inches along at 3% or more per year.
No big swings in either direction. I also find that buying in the safer areas of town makes it easier to hit my numbers. Beware of cheap properties in the bad areas of town.
3. Did you do all your own repairs? I ask this because I don’t really have repair skills. If I wanted to build software to manage stuff, that I could do haha…
I’m terrible at repairs. I can do some things, but pretty much hire it all out. I’m always on the lookout for a solid and skilled handyman who works as a 1099 contractor. I also just hired a property management company to do repairs. I still handle all other items-leasing, tenant relations and financials.
and lastly
4. How much do you set aside for each property in terms of maintenance?
See answer to first Q.
Also, as your unit count grows, you find that you don’t need to set aside as much for repairs. The excess cash flow begins to snowball and creates a nice cushion for repairs. The trick is making sure you project your annual maintenance and repair budget correctly. This is where your software skills could come in handy as well as using data to find deals and market niches.
Matthew says
Thank you for your response!
Millionaire 10 says
Sure. Good resource for landlording is biggerpockets.com
AZBruins says
there’s a author by the name of brandon turner, he’s from biggerpockets, wrote a book on managing rental properties, i learned a lot from that book on how to deal with tenants and issues, highly recommended !
AZBruins says
Thanks for the great story and what an accomplishment! Congrats! I am kind of the same way, got FIRED from the 8 jobs I ever had, after that, I finally realized I am not “employable” just like you 馃槢 Started my medical business about 10 years ago, and use that income to start buying multi-family properties to use as passive income. I started rental biz about 4 years ago and now I am up to 3 apartment buildings, love it! You are right, choosing the right partner and start building passive income early is the key to success! Best of luck MI-10 !
Millionaire 10 says
Glad I could inspire! I’m a big fan of recyling active income (your medical biz) into passive income. You are definitely on the right path.
Lily | The Frugal Gene says
This is so different from the other interviews!!! I never seen anything quite like this – kudos to you and your unique story of success! This is quite inspiring as much as I sometimes resent the work behind real estate if I ever move away to some place where cash flow isn’t an unicorn, I would revisit this.
Millionaire 10 says
Thanks! Based upon your blog, you are crushing it in a unicorn real estate market. Nice job.
Richard says
The most useful interview and perspective yet, by far. Only read a baker’s dozen, but the redundancy has indeed become a problem. High income, Roth this and that, started early . . . those principles clearly work, yet I can’t learn more, and here we are, 2019. American youngsters, not sure they can afford to date, sky-high tuition rates, and . . . accelerated suicide rates, despite a seemingly great economy. Took a while to sink in, but many of these profiles seem anachronistic, a polite exploration of one’s vanity, especially now that they’ve made it, with some grittier details to flesh it out. I always go straight to the lifestyles, locations, the actual living. And even though it pays, I see long life hours lost slaving away; yes, to something like victory, except they still seem kind of nervous. Seems it’s never enough, and then new problems emerge. At this point I almost thoroughly lack envy and have begun to think, you know what, you’re better off being born rich after all, relatively isolated from society, divorced from the great struggle. Or never at all. And the tithing . . . yikes, always, a scratched record moment. I’ve heard the arguments, but simply do not believe.
Classic middleman situation . . . go straight to a worthy individual needing help, I say, if you have the stomach. Or just invest, be the rock, let your strength trickle down for real. That’s my take. This interview is killer, though, a truly alternative perspective, with danger and unique challenges along the way. Very thought-provoking. Two thumbs up!
Mr Ten says
Richard, thanks for the nice review!